Ranitidine recall causes Rs 40-crore dent in Dr Reddy's provisioning

An amount of Rs 17 crore is recognised as a possible refund liability (as a reduction from revenue) arising out of the company's decision to recall the said product

Dr Reddy's Laboratories, which initiated a voluntary recall of its Ranitidine from the US market following the ongoing investigation by the FDA into the reported carcinogenic impurity in the drug at low levels, has said it made Rs 40 crore towards provisioning, anticipating market impact.

The city-based drug maker in a filing with bourses had said the recall which began on October 1, is at the retail level for over-the-counter (OTC) products and at the consumer level for prescription products of all of its Ranitidine medications sold in the US due to confirmed contamination with N-Nitrosodimethylamine (NDMA) above levels established by FDA.

"Following the company's decision to voluntarily recall all of its ranitidine medications sold in the United States due to confirmed contamination with N-Nitrosodimethylamine (NDMA) above levels established by the US FDA, the company recognised Rs 231 million as inventory write downs towards semi-finished and finished inventory of ranitidine during the three months ended September 30, 2019.

Further, an amount of Rs 170 million is recognised as a possible refund liability (as a reduction from revenue) arising out of the company's decision to recall the said product," Dr Reddy's said in a regulatory filing.

Dr Reddy's CEO Erez Israeli in a recent investor call said the company's North America generics recorded sales of $202 million for the quarter and declined by 1 per cent year-over-year and 14 per cent on a sequential quarter basis.

The sequential decline was primarily driven by certain issues impacting the quarter such as provisions related to nationwide recall of Ranitidine product due to NDMA impurities limits following FDA's caution note regarding the same, he said.

"We now have completely suspended the sales of Ranitidine OTC and Rx product (prescription). And, logistics-related challenges leading to temporary disruption in supply, which has been addressed since. We expect the sales run rate to normalise from Q3 onwards," the official said.

NDMA is classified as a probable human carcinogen (a substance that could cause cancer) based on results from laboratory tests.

NDMA is a known environmental contaminant and found in water and foods, including meats, dairy products and vegetables.