Emkay: Dr. Reddy’s Chemical Manufacturing Facility at Cuernavaca, Mexico Receives Warning Letter from USFDA

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Event: Dr. Reddy’s Chemical Manufacturing Facility at Cuernavaca, Mexico Receives Warning Letter from USFDA

Dr. Reddy’s chemical manufacturing facility at Cuernavaca, Mexico, a wholly owned subsidiary, has received a four item Warning Letter from the USFDA. The Mexico facility produces Intermediates and Active Pharmaceutical Ingredients for the North American markets part of which is also consumed internally. This facility falls under the PSAI segment and caters to North American market, which contributes 4% to the overall sales. The production facility continues to remain operational for now and will not have any material impact on the formulations business.

The USFDA inspected Dr. Reddy’s Mexico facility in November 2010. That Inspection resulted in issuance of 12 483s observations. Dr. Reddy’s had responded to the 483 observations by implementing a number of corrective actions. Out of 12, Dr. Reddy has successfully addressed 8 observations. However, the USFDA has asked for additional data and corrective actions for rest of the 4 items. Dr. Reddy’s has to respond to the USFDA within the stipulated timeframe of 15 days. In the worst-case scenario, if the USFDA is not satisfied with corrective plan submitted by Dr. Reddy then it may lead to Import alert.

Our Take: However, we believe, there is very little probability of worst-case scenario to happen. We spoke to the company and the management is confident of resolving this issue with USFDA.