Mexico ban lift may not benefit Reddy’s soon

Drug major Dr Reddy’s Laboratories is unlikely to gain all of its lost ground following lifting of import alert on its manufacturing facility in Mexico by the US Food and Drug Administration.

The lifting of import alert on Quimicas Falcon de Mexico SA de CV, a wholly owned subsidiary of Dr Reddy’s Laboratories, paves the way for the company to export products from the facility to the US market.

While exports from the affected unit are expected to take at least a quarter or two to gain momentum, the loss is expected to come in the form of some of its clients moving to other competitors for material sourcing.

The alert, imposed in 2011, was lifted last week. The unit manufactures intermediates and active pharmaceutical ingredients.

The Cuernavaca, Mexico, unit was contributing about $60 million to the revenues at the time of the US FDA move and exports said about $30 million was affected by the import alert by the US
FDA.

“The Mexico facility generates sales of $60 million (3% of Dr Reddy’s total sales); of this, $30 million was impacted by the import alert. Management believes all of the lost sales will not be recoverable, as some customers will have moved to competitors for material sourcing over the last year. We forecast a 50% recovery in fiscal 2014 ($15 million),” Alok Dalal, an analyst with BNP Paribas, said in his report.

The Hyderabad-based firm’s Mexico facility was inspected by US FDA in November 2010. Based on observations, a warning letter was issued to the company on June 14, 2011, Dr Reddy’s said, adding it worked with the US health regulator to resolve the observations in the warning letter.

“A report after the last inspection from March 26-30, 2012 indicated that they are satisfied with all the outstanding action points that Dr Reddy’s has submitted,” the company said.