Dr Reddy’s Miryalaguda Plant Gets Three Observations From US Regulator

Hyderabad : Dr Reddy’s Laboratories Ltd. has received three observations from the U.S. Food and Drug Administration (FDA) after the regulator completed the audit of its plant at Miryalaguda near Hyderabad.

The company is addressing the observations received via Form 483 of the U.S. FDA, Dr Reddy’s said in a filing to the stock exchanges.

The U.S. FDA issues a Form 483 if its investigators spot any conditions that in their judgement may constitute violation of the U.S. Food Drug and Cosmetic (FD&C) Act and related Acts, according to information on the regulator’s website.

A Dr Reddy’s spokesperson told BloombergQuint there was no further information to share at this point.

The company will have to take measures to address the observations raised by the regulator, said Ranjit Kapadia, an analyst at brokerage firm Centrum Broking. The need for another round of inspection would depend on the nature of the observations, he said. If these are procedural in nature, the FDA can give its clearance without another round of inspection if it is satisfied with the corrective measures undertaken, according to Kapadia.

Ranjit Kapadia, Analyst, Centrum Broking The observations could delay the resolution process for this plant; had factored in the resolution of the three plants in first half of FY18. Need to see the outcome in the other two plants before taking a further call.

The U.S. FDA was scheduled to re-inspect Dr Reddy’s three manufacturing facilities Duvvada and Srikakulam in Andhra Pradesh, and Miryalaguda in Telangana in February and March 2017. The company had received warning letters from the U.S. drug regulator regarding violation of good manufacturing practices at these facilities in November 2015.

Investment banking firm Jefferies, in its post-earnings note to clients, had said it was factoring in closure of warning letters by the second quarter of financial year 2017-18.

A U.S. FDA clearance for the three facilities would lead to fresh approvals and an upside from higher sales in the U.S.

In another disappointing development earlier this month, the company had received an unfavourable ruling from a U.S. court in a patent infringement case relating to anti-nausea drug, Aloxi. Analysts had estimated an impact of 5 percent on FY18 earnings.

Dr Reddy's earnings had beaten analyst estimates in the October-December quarter, despite a 15.9 percent drop in its net profit to Rs 492.3 crore from Rs 585.7 crore over a year ago.