Dr Reddy's slumps 7% on US FDA's 'severe' observations for Telangana unit

Out of the 10 observations issued by the US FDA, some of the observations are severe in nature and can lead to the site receiving a warning letter.

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Shares of Dr Reddy's Laboratories plunged nearly 7 percent in the early trade on December 11 as the US Food and Drug Administration's some of the observations about the company's unit in Telangana have been seen found to be “severe”.

Brokerage firm Antique Broking said some of the observations were severe in nature and could lead to the unit receiving a warning letter from the US drug regulatory body.

The unit is vital for the company’s exports to the US and the shipments to that country are a major part of the company’s revenue.

Observations highlighting issues of microbial contamination and the state of the manufacturing unit along with problems with data integrity and market complaints were serious, the brokerage said.

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The Bachupally unit is a critical site for Dr Reddy's as it manufactures more than 100 products for the Hyderabad-based drugmaker including four of its top 10 products the generics of Ciprodex, Nexium, Valcyte and Toprol.

Antique Broking also estimated a near 30 percent contribution from the unit to the company's US revenue, including some partnered products as well.

In such a scenario, the possibility of the unit receiving a warning letter did not sit well with investors as it poses a clear threat to Dr Reddy's revenue from the US market, which makes a major chunk of its consolidated sales.

At 10.52 am, shares of Dr Reddy's Laboratories were trading 5.3 percent lower at Rs 5,459.25 on the National Stock Exchange.

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