Novartis to close one Indian manufacturing plant as FDA warning bites

Novartis CEO Joe Jimenez

Swiss-based Novartis ($NVS) will close a manufacturing plant in India, CEO Joe Jimenez said on the Oct. 27 third quarter earnings call, noting that the company has moved on remediation plans following inspections, but still received a U.S. FDA warning letter.

"Now, if you remember, last year we told you that we had one bad exception, inspection at our Indian sites and we began remediating immediately," Jimenez said. "There were two sites. One of them, we've decided to close. We've remediated the other." He did not specify which plant will be closed, but noted that a warning letter will be posted.

"We did, however, receive a warning letter from the FDA yesterday (Oct. 26), so it will be posted," he said on the call. "But a lot of the remediation has already taken place because it was over a year ago. And there's no supply issues as we continue to ship out of that site. But overall, very strong quality performance progress this year, and it's something that we just continue to build."

The letter had not been posted by press time, but a Novartis spokesman responded to an email.

"The U.S. Food and Drug Administration (FDA) issued a Warning Letter concerning Sandoz' Kalwe and Turbhe sites in India, dated October 22, 2015," the spokesman said in the email. "The Warning Letter to Sandoz follows observations issued to the company after Agency inspections at the two sites in August 2014. The topics are largely related to good documentation practices at the Kalwe site and aseptic processes at the Turbhe site. We do not believe the warning letter will have a substantial impact on supply."

The spokesman also released a statement from Sandoz.

"Sandoz takes health authority inspection outcomes seriously. We have been working diligently on corrective actions at the Kalwe and Turbhe sites in India since the inspections last year, and continue to keep the US FDA updated on our actions. We will work closely with the Agency to ensure all issues outlined in the Warning Letter are resolved to the Agency's full satisfaction. We have not identified any concern with either the products on the market or the safety of our patients," said Richard Francis, division head, Sandoz.

In July, the company said it would close the Sandoz antibiotics and API unit in Turbhe, Maharashtra, by the end of next year. Sandoz said in an earlier statement that it was transferring the work to other sites in the country. It has manufacturing facilities in Kalwe and Mahad.

Alcon division head Jeff George

The focus on the call, however, was the continued troubles at the Alcon unit, with division head Jeff George taking a grilling from analysts--though Jimenez did offer some support for the overall business as a key part of Novartis.

"We're now in the process of doing a deep analysis of the Alcon business," Jimenez said. "We're going business by business, looking at the competitive situation, the regulatory, the innovation that's coming in each of those segments, and we're developing a growth acceleration plan that we'll be able to unveil at the January earnings forecast. And we'll show you how we're going to get this business back to a decent growth rate."

George was repeatedly asked by analysts where the root of the problems lay with Alcon, and noted emerging market slowdowns, stiff generic competition and related price erosion, which finally prompted the question as to whether the unit would be sold. Jimenez handled that one and made it fairly clear, at length, that a sale was not an immediate option.

"In terms of Alcon, you know, when you look at the company now, you look at the Novartis Group since the portfolio transformation, and I think we've got definitely a lower tolerance for underperforming businesses. But if you step back and look at Alcon, it is fundamentally a very good business," Jimenez said.

"You have an on-trend business with an aging population that's going to need additional eye care. You have Alcon with leading market share positions in three very important segments. And so I think we have to--our first step is to build this growth acceleration plan and get the business growing. And I think you could see elements of M&A in terms of peeling off underperforming parts of Alcon or adding to Alcon, if there were other bolt-on opportunities. And that's really where our focus is going to be. It's building that near-term growth acceleration plan, and if we don't--we do intend in January to lay out what the plan looks like and also talk about how we internally are going to look at milestones in terms of improvement on that business. And if it doesn't improve, then we got a different conversation. But the first step is to get it growing because it is fundamentally a really good business."

- here are the earnings release and presentation (PDF)

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