U.S. Drug Regulator Clears Dr. Reddy’s Bachupally Plant

Dr. Reddy’s Laboratories Ltd. said it received the U.S. drug regulator’s report that paves the way for fresh approvals for its products and exports to its largest market.

India’s fourth-largest drugmaker by market value received an establishment inspection report from the U.S. Food and Drug Administration for its formulations manufacturing plant at Bachupally, Hyderabad, according to its exchange filing. The U.S. FDA, according to the Hyderabad-based company, categorised the inspection as voluntary action initiated—a status given to facilities that are considered compliant with current good manufacturing practices.

The regulator in February this year had made 11 observations on issues ranging from manufacturing practices to quality control after its inspection of the key formulation facility between Jan. 30 and Feb. 8, according to a Form 483 uploaded on the U.S. FDA’s website. Of these, one was a repeat of 2015 inspection and four were a repeat of 2017. Shares of Dr. Reddy’s had tumbled as much as 30 percent, the most in more than 17 years, after the U.S. regulator reiterated issues regarding manufacturing practices at the Bachupally facility.

The establishment inspection report is a positive development and removes major overhang, according to Param Desai, pharma analyst at Elara Capital. It will also expedite approvals from the facility, he said, adding the move will have no impact on the company’s financials.

The Bachupally plant accounts for 40-45 percent of the total U.S. sales, according to Morgan Stanley and HSBC. Dr. Reddy’s, however, doesn’t provide any breakup of sales from its plants.

Sameer Baisiwala of Morgan Stanley said 10 percent of the pending approvals for the company are from this plant.

The move comes as a surprise as the ‘sell-side’ analysts had said the remediation and clearance of the plant would take time. After the regulator issued the Form 483 in February, Macquarie had said the remediation for the Bachupally facility could take three to six months. Jefferies agreed. The plant may likely require a re-inspection, it had said in a note in February.