Dr Reddy’s share price gains 2.96% as concerns raised around its FTO-3 facility ease

Dr Reddy’s Laboratories share price rebounded well and gained up to 2.96% in the morning trades on  Tuesday after having corrected more than 5% on Monday. The nervousness around the inspection conducted by the US drug regulator at some of its facilities and observations received by the company, had led to corrections in the stock prices.

The concerns had remained heightened around Dr Reddy’s formulations manufacturing facility (FTO-3) in Bachupally, Hyderabad. The United States Food & Drug Administration (USFDA) had conducted inspections in the facility from October 19, 2023 to October 27, 2023. Dr Reddy’s had been issued a Form 483 with ten observations, which Dr Reddy’s said that will address within the stipulated timeline.

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Antique Stock broking however had highlighted that they analyzed the unit's Form 483 and believe some of the observations are severe and can lead to a Warning Letter. Their analysis indicated there are 7 observations which are serious in nature, are pertaining to quality control, faulty equipment, and data integrity. Given the severity of some of these observations, the brokerage believed there is a high likelihood of the site getting a Warning Letter.

The facility remains important for Dr Reddy’s as manufacturing of four out of its top 10 products as generics of Ciprodex, Nexium, Valcyte, and Toprol takes place at the plant. Besides these, 70 products manufactured are commodities and analysts at Antique stock Broking believe that the facility contributes around 30% to the company's US revenue (including partnered products).

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Another analyst at a Institutional brokerage on condition of anonymity said that though overhang of regulatory concerns may remain over Dr Reddy’s share prices till complete clearance is received by Dr Reddy's Laboratories, however still the developments do not indicate that exports from these facilities will stop. Hence reaction seen in stock price yesterday seemed overdone.

Meanwhile the company also had informed the exchanges that United States Food & Drug Administration (USFDA) has completed a GMP (good manufacturing practices) and Pre-Approval Inspection (PAI) at their R&D centre (Integrated Product Development Organization or IPDO) in Bachupally, Hyderabad. The inspection was conducted from December 4, 2023, to December 8, 2023. Dr Reddy’s have been issued a Form 483 with three observations. The developments around the same will also remain watched though Dr Reddy’s will address concerns within the stipulated timeline.

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