Granules India Shares Drop 8% After US FDA Issues Warning Letter for Gagillapur Facility

Regulatory Concerns Weigh on Stock Price as FDA Flags Compliance Issues

Shares of Granules India tumbled over 8% on February 28 following the company’s disclosure of a warning letter from the US Food and Drug Administration (FDA) for its Gagillapur facility in Hyderabad. The letter follows an inspection conducted in August 2024, raising concerns about regulatory compliance at the plant.

Despite the setback, Granules India has assured investors that manufacturing and distribution of its existing products will continue without disruption. However, the FDA warning letter is likely to delay approvals for pending product submissions from the site, which could impact the company’s growth strategy in the near term.

Key Developments from the FDA Warning Letter

• The US FDA issued the warning letter on February 27, highlighting four critical compliance issues from an initial set of six observations recorded in the Form 483 report during its August 2024 inspection.
• The facility remains classified as “Official Action Indicated” (OAI), but the FDA has not signaled further regulatory escalation at this stage.
• Granules India has stated that it has already implemented corrective measures, with most issues resolved or on track for completion. The company has also been submitting monthly updates to the FDA.
• In response to the FDA’s findings, the company voluntarily halted production and dispatches in September 2024 to conduct an in-depth risk assessment.
• A comprehensive remediation plan was implemented, including Corrective and Preventive Actions (CAPAs), oversight from three independent consulting firms, continuous product testing, and compliance reporting.

Company’s Response and Next Steps

Granules India has assured stakeholders that it is actively working toward regulatory compliance.

• Official Statement:
  “We will respond within the stipulated timeframe and seek a meeting with the FDA to demonstrate ongoing progress towards compliance. We remain confident that this matter will be resolved satisfactorily within a reasonable timeframe.”

• The company emphasized that its long-term growth strategy is diversified and not solely dependent on product approvals from the Gagillapur site.

Market Reaction and Stock Performance

Following the announcement, Granules India shares plummeted over 8% on February 28, reaching ₹465 apiece as of 2:46 PM. The decline comes amid broader market weakness, amplifying investor concerns over the regulatory impact on business operations and future approvals.

Additional Regulatory Updates: GST Investigation Closure

In a separate filing, Granules India disclosed that it has settled a dispute with the GST authorities, paying ₹3.27 crore to resolve an issue related to the erroneous availment of refund for accumulated Input Tax Credit (ITC). The company confirmed that investigation proceedings have now been closed.

Leadership Change: Senior VP of API Manufacturing Resigns

Alongside regulatory updates, Granules India also announced the resignation of Sethu Madhavan Sankaran, who served as Senior Vice President and Head of API Manufacturing and Operations. The reason for his departure has not been disclosed.

Analyst Insights: What This Means for Granules India

Market analysts believe that while regulatory scrutiny from the US FDA is a near-term challenge, Granules India’s ability to execute a strong remediation plan and secure future approvals will be critical for investor confidence.

Key Takeaways for Investors:

• Existing product manufacturing remains unaffected, but new drug approvals from the Gagillapur facility may face delays.
• The company’s corrective actions and regulatory engagement will determine the timeline for full compliance.
• Granules India has proactively paused production and adopted external oversight, signaling a commitment to addressing compliance issues.
• The broader pharma sector remains under regulatory scrutiny, making compliance and transparency critical for long-term growth.

Conclusion: What Lies Ahead for Granules India?

While the FDA warning letter has triggered a sharp correction in stock price, Granules India’s proactive measures to resolve compliance issues and its diversified business model could help it navigate this regulatory challenge. Investors will closely monitor the company’s upcoming regulatory interactions, the effectiveness of its remediation efforts, and its ability to maintain business momentum amid the ongoing market downturn.