U.S. FDA Flagged Quality Issues At Dr. Reddy’s Duvvada Site, Say Brokerages

The U.S. drug regulator has flagged procedure and quality control issues at Dr. Reddy's Laboratories Ltd.'s Visakhapatnam facility, according to Nomura and Edelweiss.

The Hyderabad-based company on Oct. 29 had informed the bourses that the U.S. Food and Drug Administration completed inspection at its Duvvada formulations manufacturing units. “We have been issued a Form 483 with eight observations, which we will address within the stipulated timeline,” Dr. Reddy's said in the filing, without disclosing the nature of observations.

According to Nomura, there are no repeat observations, no indications of any significant lack of control on current processes and no indications of integrity issues. The brokerage said the drugmaker is likely to address the observations to the satisfaction of the regulator and hence, it doesn't expect an escalation.

Duvvada is a sterile manufacturing site. While this unit is critical for the company's U.S. operations and future approvals, most companies have multiple sites and dependence on U.S. generics for growth is very low, Nomura said.

Dr. Reddy's, according to its second-quarter results filing, earns a third of its total sales from the U.S.

Edelweiss, however, classified observations related to deficient SOPs, potential microbial contamination and quality control, and equipment qualification process, controls for aseptic filling and inadequate investigation as "serious". That, it said, could potentially lead to official action indicated, resulting in a re-inspection and nine to 12 months of remediation timeline.

“Since this is a sterile injectable plant, microbial contamination is the single biggest risk,” Edelweiss said in its report.

A Dr. Reddy's spokesperson, in response to an emailed query by BloombergQuint, said the company remains committed to the highest standards of quality compliance and addressing the observations within stipulated timelines.

A summary of the eight observations based on the Nomura report:

Observation 1: The observation relates to the quality control unit. The change protocols (implemented when there is a change in process, procedure) are not adequately documented or implemented. The incidences arising out of the changes are not appropriately handled.

Observation 2: The observation is regarding the laboratory control. Changes in test specification and test methods are not adequately explained.

Observation 3: The sample collection area and procedure for monitoring of environmental conditions in aseptic manufacturing area does not ensure that greatest risk of microbial contamination is detected. It is not appropriate or adequate.

Observation 4: Inadequate validation of aseptic and sterilisation process. The observation highlights inadequacy in the equipment qualification process post-modifications.

Observation 5: The company relies on its vendor's or manufacturer's certificate of analysis and it is not validated by the company at regular intervals, in absence of in-house testing facility. Active pharmaceutical ingredients, excipients, solvents and packaging material that are used in the production of pharmaceutical products are required to be tested in-house.

Observation 6: The test methods for all drug products and drug substances (API) have not been appropriately established.

Observation 7: Atypical detection of certain microorganisms were not investigated. The root cause of such detections are not established. Some of the instances were on account of a lack of employee training.

Observation 8: Control systems necessary to prevent contamination and mix-ups are deficient.

Shares of Dr. Reddy's fell more than 1.21% in intraday trade on Monday to Rs 4,541 apiece.

Of the 43 analysts tracking the company, 37 have a ‘buy' rating, four suggest a ‘hold' and two recommend a ‘sell', according to Bloomberg data. The overall 12-month consensus price target implies an upside of 19.7%.