Dr Reddy's gears up for key USFDA audits in next 2 months: Srcs

Drug maker Dr Reddy’s Laboratories will be put to a crucial test in the second week of April as the company gears up for major USFDA audits at its facilities in Srikakulam located some 70 kms away from port city of Visakhapatnam.Moneycontrol learned from its sources that the US drug regulator will be inspecting the API plant (also called CTO Unit-6) and special economic zone (SEZ) formulation plant located near Pydibhimavaram village in Srikakulam starting from April 10 to 14.Srikakulam API plant was issued a warning letter from USFDA in November 2015 and has undertaken remediation measures. USFDA in its warning letter reprimanded the plant for noncompliance of data standards in lab tests, unauthorized access, and poor record keeping practices.The plant supplies active ingredients for Dr Reddy’s captive consumption as well as meet its customer needs. The CTO-6 is the largest API manufacturing plant of the company contributing about 10 percent of sales when Dr Reddy’s received the warning letter.The formulation SEZ – a fully automated new generation plant -- manufactures tablets and capsules catering to the US market. This facility has not been issued a warning letter and is up for a routine USFDA audit. The facility is used for filing new products and is also earmarked for transferring manufacturing of certain existing products. CNBC-TV18 on Tuesday reported that USFDA is currently inspecting an oncology formulation facility called Unit-7, located in Visakhapatnam Special Economic Zone (VSEZ) at Duvvada. Unit-7 is also under a warning letter. The Duvvada site manufactures cytotoxic and hormonal injectables and is an important plant given Dr Reddy’s focus on complex generic filings.The Unit-7 was warned for batch failures, probable microbial contamination and certain lapses quality control procedures.“We do not comment on ongoing or planned regulatory processes as a principle,” spokesperson of Dr Reddy’s said in an email.“Our application of corrective and preventive actions or CAPAs were not just site specifics, but they were also network wide and incorporated a third-party review and assessments,” Dr Reddy’s management said in its recent call.“We believe we have prepared ourselves well for the audit. In the process of implementing the CAPAs, we have made significant progress in enhancing our quality systems and instilling the culture of quality and continuous improvement,” the company said.Moneycontrol learned from the sources that the workers on the shop floor of both the plants were put under extensive training on data reporting and standard operating procedures. There were constant third-party audits in addition to the gemba walks (observational walks by bosses) of the top executives. Dr Reddy’s Co-chairman and Managing Director GV Prasad has been spearheading the entire remediation exercise. Since the last two years Prasad spent a third of his leadership time on addressing quality and compliance issues, said a source.“The focus is on preventing things going wrong,” said Satish Reddy, Co-chairman and Managing Director of Dr Reddy’s in recent industry conference in Mumbai. Reddy said that his company has been nurturing a culture of courage to communicate quality events without fear of retribution. The quality review starts at the board level and extends up to the shop floor, Reddy said.In November 2015, the company received a warning letter from the USFDA for three of its manufacturing facilities. These include two API facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana and one oncology formulation facility at Duvvada, Vishakhapatnam. The three plants put together were contributing about 10-12 percent of total sales, in addition to several key generic and Drug Master Filings in US. Since receiving the warning letter, the company lost a third of its market value and never really recovered. The company has now completed remediation work at its plants and expects USFDA to complete reinspection by the end of March. The US contributes about half of the company's sales and has been under pressure owing to lack of new approvals and erosion of base business."The foremost catalyst (for Dr Reddy's valuations) being the resolution of the Srikakulam facility by H1FY18E," said KR Choksey in its recent research report. Shares of Dr Reddy's dropped 0.30 percent and were trading at Rs 2843.75 on BSE at 12.06 pm; the benchmark Sensex declined 0.53 percent to 28,847.01 points.