(RDY) Dr. Reddy’s Laboratories Announces FDA Warning Letter

Dr. Reddy’s Laboratories (RDY) recently announced that the US Food and Drug Administration (FDA) issued a four item warning letter regarding the company’s chemical manufacturing facility at Cuernavaca, Mexico, which produces Intermediates and Active Pharmaceutical Ingredients.

In the four-item warning letter, the FDA has asked for additional data and corrective actions for certain listed items. In order to respond to the warning letter within the stipulated timeframe, Dr. Reddy’s plans to work closely with the regulatory body and resolve the matters contained in the letter.

Earlier, in November last year, after inspecting Dr. Reddy’s Mexico facility, the FDA had issued Form FDA 483, with observations. The company responded to the observations by implementing a number of corrective actions.

Earlier this week, Dr. Reddy’s announced the launch of three generic products in the US. The company launched its generic versions of Pfizer Inc.’s (PFE) anti-depressant, Effexor XR, Eisai Co. Ltd.’s Alzheimer’s treatment, Aricept, and Novartis AG’s (NVS) breast cancer treatment, Femara.

We believe that the launches of these generic drugs will bring in additional revenues for Dr. Reddy’s Global Generics segment, which recorded sales of $1.2 billion in fiscal 2011, reflecting a year-over-year increase of 10%.

During fiscal 2011, Dr. Reddy’s launched 135 new generic products, filed 107 new product registrations, and 56 drug master files (DMF) globally. At the end of fiscal 2011, total ANDAs awaiting FDA approval were 75, of which 37 were paragraph IV filings and 10 were first-to-file.

Our Take

We currently have a Zacks #2 Rank (short-term Buy rating) on Dr. Reddy’s. We believe the company is in a strong position and will tackle the manufacturing facility issue prudently.

Longer term, we have a Neutral recommendation on Dr. Reddy’s.

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