If beaten down pharmaceutical shares are tempting you to invest, think again. Dr Reddy’s Laboratories Ltd’s share fell by 5.1% on Thursday after one of its units got 13 observations post-inspection by the US Food and Drug Administration (FDA).
How serious these observations are is not known just yet but the number is quite high. The decline in its share reflects disappointment that these observations come on reinspection, meaning its remediation efforts have not been adequate and can cause further delay in the company’s ability to launch products filed from affected sites.
The current inspection was of an oncology formulations unit in Duvvuda, Andhra Pradesh, and earlier an API unit in Miryalaguda, Telangana, had got three observations. Both these units were part of three units that were issued a warning letter in November 2015. The third unit is also an API unit in Srikakulam, Andhra Pradesh, and its inspection report should also become available shortly. APIs are active pharmaceutical ingredients or the main inputs used to make formulations.
Recently, firms such as Lupin Ltd and Cadila Healthcare Ltd cleared reinspections of plants with compliance issues. One would have thought Dr Reddy’s would have joined this list. In an earlier conference call, the management had said that it has taken preventive actions across locations and has conducted third-party reviews and assessment to be prepared. Still, its efforts appear to have fallen short.
Since these two units had already been issued a warning letter, the current observations mean status quo will continue. The delay in getting them compliant will affect Dr Reddy’s plans and it may have to continue making arrangements for site transfers of key products. The outcome of these inspections may not affect its fiscal year 2018 launches but it may have to make fresh plans for FY19. If the company clears the remaining inspections, that may bring some comfort. The overhang on its US business may continue for longer than expected. Dr Reddy’s share is down by 16% from a year ago and by 26% from its high point reached on 20 July.