Huons, which faced a crisis due to U.S. Food and Drug Administration (FDA) import restrictions and a voluntary recall, received a notice of recall termination from the FDA for the injectable products subject to recall. The previously blocked path for local supply is expected to reopen.
This clears up the uncertainty over U.S. exports that had been considered a negative for the company. The company had front-loaded the related loss expense in first-quarter results, resulting in an earnings shock, but some say it has also shed its financial risk.
According to reporting on the pharmaceutical and biotech industry on the 2nd, Huons recently confirmed it received a letter from the U.S. FDA that officially terminates the recall measures for at least two of the three North America-bound injectable products for which it had conducted a voluntary recall over a pointed-out "lack of assurance of sterility" (lidocaine hydrochloride injection, bupivacaine hydrochloride injection, 0.9% sodium chloride injection).
The remaining one product was not found to have any inherent defect or additional issue; rather, it is understood to be moving through sequential administrative steps and detailed document reviews by product. As a result, not only is the resumption of customs clearance for the held-up injectable products expected, but the normalization of local anesthetic supplies in North America is also likely to gain speed.
Earlier, in Apr., the FDA issued an import alert on certain sterile injectables produced at the Jecheon plant in North Chungcheong and restricted clearance in the United States. The company has since worked to improve its manufacturing and quality management systems.
◇ The cause of the recall was not product contamination but "data integrity"
The recall began after the FDA conducted an on-site inspection at the Jecheon plant last year and issued a Form 483 pointing out manufacturing and quality management issues.
At the time, the FDA pointed to a "lack of assurance of sterility" related to the sterile injectable manufacturing process. However, this does not mean that actual microbial contamination or defects were confirmed in products distributed on the market.
The FDA was said to have determined that the data management system—such as test results and manufacturing records proving that sterility was maintained during injectable production—did not meet the level required by current good manufacturing practice (cGMP). The industry classifies this as a data integrity issue.
Huons carried out a voluntary recall of all local inventory with remaining shelf life to protect trust in the North American market. It then implemented corrective and preventive actions (CAPA) in cooperation with a global GMP consulting firm and submitted an improvement report. The FDA's relatively swift move to begin recall termination procedures is seen as influenced by this rapid response.
◇ 5.3 billion won expense front-loaded, easing second-quarter earnings burden
The recall directly affected this year's first-quarter results. On a consolidation basis, Huons posted first-quarter revenue of 141.9 billion won and an operating loss of 600 million won. Compared with an operating profit of 12.8 billion won in the same period last year, it swung to a loss.
The deterioration in results this time was driven more by lump-sum recognition of recall-related expense than by weakness in the core business. First-quarter revenue fell only 2.7% from a year earlier, but selling and administrative expenses increased from 57.6 billion won to 65.0 billion won, up about 7.4 billion won, hurting profitability.
Reflecting U.S. local recall expense and disposal losses, Huons booked about 5.3 billion won in sales warranty provisions and GMP consulting expense in the first quarter on a one-off basis. That exceeds the actual recall size, reported to be about $3.5 million (about 5.1 billion won).
By proactively clearing expense that could arise going forward, the company has largely reduced financial uncertainty. In fact, profit before income taxes in the first quarter recorded a 600 million won surplus on financial revenue and other factors, and net income held near 200 million won.
The market expects that if the FDA recall termination and normalization of U.S. customs clearance take full effect, earnings improvement could appear from the second quarter.
A Huons official said, "We fully front-loaded the expense related to the U.S. export recall into first-quarter results," and added, "We expect the related uncertainty to be resolved soon."