After receiving US FDA warning letter to Dr Reddy’s Laboratories Ltd (DRL) regarding inadequate quality control procedures at three manufacturing plants in India in the first week of November 2015, DRL scrip declined sharply every day and the scrip opened today below Rs.3,000 at Rs.2978 on BSE as against its yearly highest level of Rs.4382.95 on October 20, 2015. The company has submitted response letter to US FDA on December 7, 2015.
The US FDA warning letter pointed out that it identified significant deviations from current good manufacturing practice (cGMP) for the manufacture of active pharmaceutical ingredients (APIs). Further, US FDA found significant violation of cGMP regulations for finished pharmaceuticals at Unit-VII facility. The letter stated that the methods used in, or the facilities or controls used for their manufacture, processing, packing, or holding do not conform to, or are not operated or administered in conformity with, cGMP.
DRL issued a statement acknowledging that it has received a warning letter issued by the US FDA dated November 5, 2015 relating to its API manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh. This action follows the earlier inspections of these sites by the agency in November 2014, January 2015 and February 2015 respectively.
For the first half ended September 2015, DRL’s consolidated net sales increased by 9 per cent to Rs.7,747 crore from Rs.7,105 crore in the similar period of last year and its net profit went up 19.9 per cent to Rs.1,348 crore from Rs.1,124 crore. The sales of global generics increased by 11.1 per cent to Rs.6,373 crore from Rs.5,735 crore and that of pharmaceutical services and active ingredients declined by 9.1 per cent to Rs.1,423 crore from Rs.1,565 crore. EBIDTA reached at Rs.2,130 crore and worked out to 27.5 per cent of revenues. EPS improved to Rs.79.04 as against Rs.66.05 in the last period. R&D expenditure increased by 10.9 per cent to Rs.886 crore from Rs.799 crore.
It filed two new products with US FDA during the second quarter ended September 2015 and its cumulative total pending approvals reached at 76 ANDAs. It also filed 10 DMFs globally and 3 in the US. The cumulative number of DMF filings reached at 755.
Though the company’s financial performance for the first half ended September 2015 is satisfactory, the US FDA warning letter will impact its revenue stream in the US during the current half and its sales as well profit growth will be at stake.