Dr Reddy's to shift some bulk drugs from AP unit

Drug manufacturer Dr Reddy's Laboratories is looking at shifting some of its key active pharmaceutical ingredients (APIs) from its Srikakulam facility to an alternative facility to avoid any adverse impact in the future, analysts said.

The Hyderabad-based company has received a Form 483 from the US Food and Drug Administration (FDA) on its Srikakulam facility in November last year. One of the key APIs from that facility is for Nexium generic which the company has filed with the US FDA.

The company has reported a 7% year-on-year drop in its net profit at Rs 574.53 crore during the December quarter due to muted sales growth in the US market. Consolidated revenue grew 8.7% to Rs 3,843 crore during the period under review from Rs 3,533.8 crore in the year-ago period, driven by pharmaceutical services and active ingredients (PSAI) and global generics businesses (including operations of biologics business).

The company had received nine inspectional observations from the US FDA after their visit to API manufacturing facility in Srikakulam district. These observations largely relate to procedural and other compliances of the plant systems, the company said in November.

According to analysts, the company has comprehensively responded to the Form 483. "The API for Nexium was from that facility and Nexium is a very big opportunity for the company. However, an alternate plan is in progress so that the company may not have to lose out on this opportunity in case any unwanted development takes place," said a pharma analyst who did not want to be quoted.

Abhishek Sharma, pharma analyst, IIFL, said, "While the company has sent a comprehensive response, it is trying to shift the key active ingredients manufactured at the Srikakulam facility to another alternative site of its own within a certain point of time. But if Dr Reddy's receives a warning letter on the Srikakulam facility and also failed to transfer the key APIs to another plant within the timeframe, then it may lose the opportunity."

On the revenue front in Q3, PSAI business jumped 22% on yearly basis to Rs 799.46 crore and global generics business grew 7.8% to Rs 3,169.2 crore during the quarter.

Revenues from North America market grew 4% while growth in emerging markets was 16% and Indian business grew by 11% during the quarter under review. In emerging markets, revenues from Russia dropped 9% yoy due to rouble depreciation but in constant currency, the growth was nearly 27% on the back of healthy sales. Ex-Russia business recorded yoy growth of 51%, primarily driven by strong performance in Venezuela on the back of continued volume upsides.

Sharma of IIFL said in constant currency, Russia executed strong growth for the company.

"A fall in oil prices which impacted Russia's GDP has not dented the volume growth of the pharma portfolio. About half of Dr Reddy's medicines are under price control and those drugs which are outside price control, the company hopes to take a price increase," he said.

Recently Gurgaon-based Ranbaxy lost the marketing exclusivity of the generic version of AstraZeneca's hearburn drug Nexium after US FDA withdrew its tentative approval in November last year. On the other hand, Israel-based Teva Pharmaceutical Industries this week received approval of first generic equivalent to Nexium in the US market. The annual sales of the drug is approximately $6 billion in the US, according to IMS data as of November 2014. Dr Reddy's already made its filing with the US FDA which is in progress.

During the quarter, the company completed the acquisition of Habitrol franchise (an over-the-counter nicotine replacement therapy transdermal patch) from Novartis Consumer Health Inc and began marketing the product in the US. The total consideration paid was $ 80 million. Dr Reddy's also launched 13 new generic products, filed 18 new product registrations and 14 drug master files (DMFs) globally.