Re-audit of Duvvada unit: Why an all clear holds importance for Dr Reddy’s

Outcome of the crucial US Food & Drug Administration re-inspection of Dr Reddy's Laboratories injectable plant in Duvvada, Visakhapatnam, is keenly awaited by analysts as the unit is crucial to its future growth prospects in the US.

The company's Duvvada unit, known as FTO-VII, manufactures cytotoxic and hormonal injectables is under warning since November 2015, blocking any new approvals. Such a letter is issued when USFDA finds serious deviations from good manufacturing practices at a plant.

The inspection which has begun on October 22 may take at least a week if not more. The drug regulator is generally more stringent while dealing with injectable plants, given the risks of contamination.

DRL declined to comment on the ongoing inspection. A company spokesperson told Moneycontrol that as a policy the management doesn't comment on regulatory inspections.

An analyst covering the sector said the facility, as such, will not have much bearing on the company's revenue, but failure to resolve this issue will  complicate things at a time when it is faced with pricing pressure and competition.

A portion of complex abbreviated new drug applications (ANDAs) is filed from this facility. Complex injectable drugs have limited competition and better margin compared to oral solids like tablets.

"Duvvada injectable unit is an important facility for DRL. Any positive outcome from this inspection will lead to more approvals for oncology products that have better margins," Amey Chalke, pharma analyst at HDFC Securities.

Warning letter In 2015, the regulator had issued a warning letter to the company, citing serious deficiencies in the current good manufacturing practices followed at the plant. The company from then onwards hired external consultants and is working towards resolving the issues raised by USFDA.

But the resolution seemed elusive as in a follow-up inspection in February-March 2017 the USFDA issued 13 observations for the Duvvada unit, many of which were repeat violations from its 2015 inspection.

The company, which is confident about a resolution, once again invited USFDA for re-audit early this year.