US FDA warns Dr Reddy's of ban, Stock cracks more than 9 percent

The US Food and Drug Administration has warned to ban all products made at 3 facilities (Srikakulam ,Miryalaguda & Duvvada), of Dr Reddy's Laboratories, India's second largest drugmaker, unless they conform to prescribed global manufacturing standards. The US regulator may also withhold approval of new applications from Dr Reddy's if it fails to complete all corrections, it said in a letter addressed to Mr. Satish Reddy, Dr Reddy's Laboratories chairman, placing all its new formulations or supplements under dark clouds for the moment.

The US FDA in a strongly worded letter noted several violations that are recurrent or represent “long-standing failures to adequately resolve significant manufacturing quality problems from the company's facilities." The American regulator says it has identified significant deviations from CGMP (current good manufacturing practices) at all three plants. For the plant units in Srikakulam and Miryalaguda the deviations lay for manufacturing active pharma ingredients (API's), while for the Oncology Plant at Duvvada, the problem lay with finished pharmaceutical products.Deviations, violations caused APIs & finished drugs to be adulterated.

A warning letter is issued to a company when it fails to satisfy the FDA over the corrective actions it plans to take with regard to the manufacturing concerns raised in an inspection.

While making several critical observations pertaining to failures of Dr Reddy's to contain recurrent violations, the FDA made it clear that it was not satisfied with nine responses submitted by the Indian drugmaker between December 2014 and September 2015.

Citing details of the lapses observed at the respective units mentioned - Srikakulam Unit VI failed to maintain data derived from lab tests conducted to ensure compliance with established specifications and standards. In a more damaging discovery FDA found a presence of an uncontrolled ‘Custom QC Lab' which was discovered by the inspection team and existence of this lab was unknown previously to the regulators. Miryalguda Unit V failed to adequately investigate out-of-specification results implement appropriate corrective actions. Duvvada Unit VII failed to thoroughly investigate any unexplained discrepancy or failure of a batch or any of its components to meet any of its specifications, irrespective of the batch distribution.

The deficiencies found have led the US regulator to raise questions about the company's inability to implement robust quality control system at its sites. In the coming future, US FDA may also refuse admission of articles manufactured at these plants into the US, according to the letter posted on its portal. It said articles may be refused admission because manufacturing methods and controls do not appear to conform to CGMP within the meaning of sections of the FD&C Act.

The US FDA has asked the company to notify the specific steps that it needs to take in order to correct and prevent repeating of these deviations and violations. It also sought a third- party assessment, including a comprehensive evaluation of the extent of inaccuracies in recorded and reported data, as also “a detailed action plan to fully investigate the extent and root causes of your deficient documentation and data management practices.

A suggestive list of corrective actions included contacting customers, recalling product (s), conducting additional testing, adding lots to stability programs to assure stability, monitoring complaints, revising procedures, implementing new controls and training or re-training personnel.From the date of issue of the warning letter, the company has 15 days to revert to FDA with a comprehensive corrective action plan.

Following the news, the company's stock tanked as much as 10 percent to touch an intra day low of Rs 3049.75 in the first hour of trade reacting to the US FDA developments.

Since the news broke out in early November the stock has corrected about 30 percent from the highs of Rs 4380 to touch a low of Rs 3049 on the bourses. The recent news flow has been taken adversely by the markets and the investor community at large given the future outlook due to the problems raised by the regulators. Investors are of the view that the integrity observations is a big worry for the company.

In steps taken by the company to address the concerns of the investors and brokerage houses, the company has initiated the process of de-risking supplies by transferring select products to its alternate sites in order to maintain its sales to the US markets and not lose out on business and revenues.