Dr Reddy's slumps after USFDA warns of ban on certain facilities sighting violations of global practices

Dr Reddy's Laboratories dropped 6.2% to Rs 3,178.05 at 11:50 IST on BSE after the USFDA in its warning letter stated it may ban all products made at certain facilities of the company unless they conform to prescribed global manufacturing standards.

Meanwhile, the BSE Sensex was up 162.96 points, or 0.63%, to 25,938.70.

On BSE, so far 87,182 shares were traded in the counter, compared with an average volume of 48,948 shares in the past one quarter.

The stock hit high of Rs 3,200 and low of Rs 3,049.75 so far during the day. The stock hit a 52-week low of Rs 3,010 on 9 February 2015. The stock hit a record high of Rs 4,382.95 on 20 October 2015.

The stock had underperformed the market over the past one month till 24 November 2015, dropping 19.03% compared with Sensex's 6.17% fall. The scrip had also underperformed the market in past one quarter, declining 16.24% as against Sensex's 0.13% rise.

The large-cap company has an equity capital of Rs 85.29 crore. Face value per share is Rs 5.

US Food and Drug Administration (USFDA) in its warning letter issued on 5 November 2015, said it had inspected the three pharmaceutical manufacturing facilities of the company in India namely; Dr Reddy's Laboratories CTO Unit VI, located at APIIC Industrial Estate, Pydibhimavarma (Village), Ranasthalam Mandai, Srikakulam District, Andhra Pradesh; Dr Reddy's Laboratories CTO Unit V, located at Peddadevulapally Village, Tripuraram, Mandal, Miryalguda Taluk, Nalgonda District, Telangana; and Dr Reddy's Laboratories Unit-VII located at Plot No. P1 to P9, Phase III, Duvvada, VSEZ, Visakhapatnam, Andhra Pradesh.

At Dr Reddy's Laboratories CTO Units VI and V facilities, USFDA identified significant deviations from current good manufacturing practice (CGMP) for the manufacture of active pharmaceutical ingredients (APIs). At Dr. Reddy's Laboratories Unit-VII facility, USFDA found significant violations of CGMP regulations for finished pharmaceuticals, Title 21, Code of Federal Regulations, Parts 210 and 211.

These deviations and violations cause company's APIs and finished drug products to be adulterated within the meaning of Section 501(a)(2)(B) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act), 21 U.S.C. 351(a)(2)(B). 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. The USFDA reviewed firm's responses of 15 December 2014, 19 February 2015, and 27 March 2015. USFDA noted that they lack sufficient corrective actions. USFDA said it also received company's additional correspondence of 31 January, 9 April, 13 May, 21 May, 14 July, and 14 September 2015. USFDA also listed specific deviations and violations during the inspection of company's facilities as observed by its investigators.

USFDA said that until the company completes all corrections and FDA confirms compliance with CGMP, FDA may withhold approval of any new applications or supplements listing of the firm as a drug product or API manufacturer. If the company fails to correct these violations, under Section 801(a)(3) of the FD&C Act, 21 U.S.C. 381(a)(3), FDA may also refuse admission of articles into the United States manufactured at these facilities, USFDA added.

Dr Reddy's Laboratories' consolidated net profit rose 25.7% to Rs 721.89 crore on 11.2% growth in net sales to Rs 3988.96 crore in Q2 September 2015 over Q2 September 2014.

Dr Reddy's Laboratories is an integrated global pharmaceutical company. Through its three businesses - Pharmaceutical Services & Active Ingredients, Global Generics and Proprietary Products - Dr Reddy's offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars and differentiated formulations.

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