Dr Reddy’s Lab shares hit 31-month low on USFDA observations

Dr. Reddy’s Lab shares tanked after the firm’s oncology formulation plant in Visakhapatnam received 13 observations from the USFDA for violation of norms


Dr. Reddy’s Laboratories Ltd shares closed down 5.1% at Rs2,708.60 while the benchmark index, Sensex, closed up 0.09%. Photo: Mint
Dr. Reddy’s Laboratories Ltd shares closed down 5.1% at Rs2,708.60 while the benchmark index, Sensex, closed up 0.09%. Photo: Mint

Mumbai: Shares of Dr. Reddy’s Laboratories Ltd on Thursday fell 4.8% to hit a 31-month low after the company’s oncology formulation plant at Duvvada in Visakhapatnam received 13 observations relating to violation of norms from the US Food and Drug Administration (FDA).

In intraday, the stock fell as much as 5.24% and hit a low of Rs2,702.05 —a level last seen on 25 July 2014. Since 1 January, shares are down 11.44%. It ended at Rs2,708 on the BSE -- a level last seen on 21 July 2014, down 5% from its Wednesday’s close— while India’s benchmark Sensex Index rose 0.09% to close at 28,929.13 points.

“The audit of our formulation manufacturing plant at Duvvada, Visakhapatnam, by the USFDA, has been completed today (8 March, 2017). We have been issued a Form-483 with 13 observations, which we are addressing,” the company said in a stock exchange filing on Wednesday.

Dr. Reddy’s did not give details on nature of the observations. The FDA issues a Form-483 if its investigators spot any conditions that in their judgment may constitute violations of the US Food Drug and Cosmetic (FD&C) Act and related laws.

The oncology formulation facility manufactures cytotoxic and harmonal injectables.

In November 2015, the company got warning letter from the US drug regulator for two active pharmaceutical ingredients (API) facilities at Srikakulam, Andhra Pradesh, and Miryalaguda, Telangana, and for the Duvvada plant. All the three plants contribute 10-12% to the company’s total sales.

“We await the contents of the 483 before taking a final call on the severity of the strictures, but we do see delays to a few important products to FY2018,” brokerage firm Kotak Institutional Equities said in a note to its investors.

The firm expects that the probability of getting FDA clearance for this facility may slip to financial year 2019.

The brokerage has given “Sell” rating to the stock with a target price of Rs2,500.

“Our checks do indicate the possibility of multiple observations around glove integrity SOPs (standard operating procedures), visual inspections, media fills and incubations among others. It is to be noted that the two inspectors conducting the operation have historically had a tough track record, with 11 of the 19 issued 483s resulting in import alerts/warning letters, though admittedly, this is only a statistic, and the contents of the 483 will eventually drive our judgment,” the Kotak report added.

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