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FDA Issues Warning Letter to Novartis

Zacks Equity Research

Novartis (NVS) recently announced that the US Food and Drug Administration (:FDA) issued a warning letter to the company’s generic arm, Sandoz, regarding its Austrian manufacturing site, Unterach.

Novartis acquired the Unterach site in 2009 through the acquisition of EBEWE Pharma. The warning letter was issued by the FDA following an inspection of the site in Oct 2012.

We note that Novartis has faced manufacturing issues in many of its other facilities in the past, resulting in the loss of sales and market share.

In 2011, the FDA had issued a warning letter to three of Sandoz’s facilities located in Colorado, North Carolina and Canada, raising concerns about these facilities' compliance with the FDA’s regulations on current Good Manufacturing Practices (cGMP).

We remind investors that one of the key objectives for Novartis’ management in 2012 was to strengthen quality control.

Novartis was required to expend considerable resources on the remediation of these sites.

Although the Colorado facility achieved compliance in the fourth quarter of 2012 following a satisfactory re-inspection by the FDA, the other two sites continue to await compliance status.

In addition, Novartis’ ophthalmology division, Alcon, received a warning letter from the FDA in Dec 2012 following an inspection of the company’s laser manufacturing site in California.

The issue has yet to be resolved. We expect the company to work on the timely resolution of the manufacturing issues with the FDA as failure to do so will result in further disruption in the supply of products thereby impacting sales and market share.

Novartis currently carries a Zacks Rank #3 (Hold). Right now, Salix Pharmaceuticals (SLXP), Santarus, Inc. (SNTS), and Anika Therapeutics, Inc. (ANIK) look attractive with a Zacks Rank #1 (Strong Buy).

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