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Dr. Reddy's Lab
FDA Issues Warning Letter
for Mexico Site – Limited
Impact
Quick Comment. The FDA has put up Warning Letter
(dated June 3) for DRL’s Mexican facility on its website.
The Warning Letter follows FDA inspection in November
8-11, 2010, when it issued twelve 483s to the company.
DRL had resolved eight of these issues, but four have
culminated into Warning Letter.
GMP lapses: All four issues are related to lapses in
current Good Manufacturing Practices (GMP). These
are: non validation of analytical methods to test APIs,
incomplete cleaning validation for non dedicated
manufacturing equipment, non inclusion of analysis of
available data with respect to out-of-specification
investigations, and lack of responsibility of the quality
unit to ensure API manufactured were in compliance
with GMP. The company targets to address these issues
at the earliest to restore compliance.
Implications: DRL’s Mexican facility primarily
manufactures chemicals and active ingredients (such as
naproxen) for its custom pharmaceutical services
business. According to the company, this facility
generates $65 mn of revenue with less than 25% gross
margins. Unless DRL is unable to correct the
deficiencies, it is allowed to continue to sell the approved
products. The site has limited filings (for chemicals)
pending approval, which may get suspended until the
facility is back in compliance. In a worse-case scenario,
if FDA imposes ban on this facility, we estimate less than
4% earnings impact on our F12 EPSe.
Investment thesis: We reiterate our Overweight rating
and believe that current weakness in the stock price
represents a buying opportunity. Fonda approval (over
next 2-3 months), launch from Bristol facility (Sept’11)
and Zyprexa 80mg approval (4Q11) are the near-term
product catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's Lab
FDA Issues Warning Letter
for Mexico Site – Limited
Impact
Quick Comment. The FDA has put up Warning Letter
(dated June 3) for DRL’s Mexican facility on its website.
The Warning Letter follows FDA inspection in November
8-11, 2010, when it issued twelve 483s to the company.
DRL had resolved eight of these issues, but four have
culminated into Warning Letter.
GMP lapses: All four issues are related to lapses in
current Good Manufacturing Practices (GMP). These
are: non validation of analytical methods to test APIs,
incomplete cleaning validation for non dedicated
manufacturing equipment, non inclusion of analysis of
available data with respect to out-of-specification
investigations, and lack of responsibility of the quality
unit to ensure API manufactured were in compliance
with GMP. The company targets to address these issues
at the earliest to restore compliance.
Implications: DRL’s Mexican facility primarily
manufactures chemicals and active ingredients (such as
naproxen) for its custom pharmaceutical services
business. According to the company, this facility
generates $65 mn of revenue with less than 25% gross
margins. Unless DRL is unable to correct the
deficiencies, it is allowed to continue to sell the approved
products. The site has limited filings (for chemicals)
pending approval, which may get suspended until the
facility is back in compliance. In a worse-case scenario,
if FDA imposes ban on this facility, we estimate less than
4% earnings impact on our F12 EPSe.
Investment thesis: We reiterate our Overweight rating
and believe that current weakness in the stock price
represents a buying opportunity. Fonda approval (over
next 2-3 months), launch from Bristol facility (Sept’11)
and Zyprexa 80mg approval (4Q11) are the near-term
product catalysts.
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