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Dr. Reddy's faces fresh challenges in U.S. as FDA raises more concerns

MUMBAI (NewsRise) -- The U.S. drug regulator has raised more concerns about the manufacturing practices at India's Dr. Reddy's Laboratories, dealing a fresh blow to the country's second-largest drug maker struggling with regulatory challenges in the world's largest pharmaceutical market.

The Food and Drug Administration raised the concerns after auditing the company's formulation plant in Visakhapatnam in the southern Indian state of Andhra Pradesh. The facility is part of the three plants that had received a warning letter from the FDA in 2015, citing quality issues and violations of good manufacturing practices.

The regulatory challenges come at a time when the drug maker is already grappling with intense pricing pressure and cutthroat competition in the U.S. The company has already warned that its financial performance in the current quarter may be hit by the uncertainty lingering over several new drug launches planned in North America.

Last month, the regulator issued the so-called Form 483 with three observations after auditing one of the other plants that came under the regulatory lens. FDA issues the Form 483 to document and communicate concerns after auditing a plant.

The FDA has completed the audit of the formulation manufacturing facility in Duvvada, Visakhapatnam, and has issued a Form 483 with 13 observations, Dr. Reddy's said in a statement to stock exchanges on Wednesday. It didn't give any details of the observations.

Shares of Dr. Reddy's fell as much as 5.2% after the announcement, touching their lowest in 52 weeks, as investors feared more delays in product filings and approvals in the U.S.

In November 2015, the U.S. health regulator warned Dr. Reddy's, saying until the company fixes the problems, it won't receive approvals for medicines made at the three plants, which produced drugs for cancer and other diseases and accounted for 10%-12% of its sales.

Dr. Reddy's has been transferring the production of a number of critical products out of the impacted plants to overcome the challenge.

Analysts say the FDA's fresh concerns raise the possibility of clearance slipping to the fiscal year starting in April 2018.

The 2015 warning letter was a combined one for the three facilities.

"We believe that all the three facilities need to be cleared for the warning letter to be withdrawn," Kotak Institutional Equities said in a note on Thursday. In the near-term, some of the critical products that are likely to get held up due to potential delays at Visakhapatnam are cancer drugs Gleevec and Melphalan, the brokerage said.

Earlier this month, the company received a setback when smaller Indian rival Intas received approval for generic cancer drug Dacogen, for which Dr. Reddy's enjoyed more than 70% market share in the U.S. Dacogen is also the company's largest product in the U.S., accounting for up to $100 million in revenue.

Following the approval for Intas, analysts expect Dr. Reddy's revenue from Dacogen to decline up to $50 million in the next fiscal year that begins in April.

Meanwhile, the company has already warned of delays in launching several of its important drugs, including the generic version of Novartis's blockbuster Gleevec that was set to be introduced in the second half of this fiscal year. The delay in the launch of the generic Gleevec, which has annual sales of $2.5 billion in the U.S., is expected to significantly deteriorate the competitive dynamics of the drug.

Last month, a U.S. federal court found that Dr. Reddy's generic formulation of an anti-nausea injection drug infringes certain patents, blocking its launch in the U.S.

Local plants of many Indian drug makers including top drug maker Sun Pharmaceutical Industries have in the past come under regulatory scanner over lapses in quality control.

In December 2015, Sun received a warning letter from the FDA, indicating manufacturing issues at its plant in the western Indian state of Gujarat. Last December, the FDA identified nine violations at the plant following an inspection.

Shares of Dr. Reddy's lost 5.10%, while that of Sun gained 0.90% in Mumbai trading on Thursday. The benchmark S&P BSE Sensex rose 0.09%.

--Dhanya Ann Thoppil

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