FDA woes spoil Dr. Reddy’s 2015 party

The entire USFDA episode of Dr. Reddy’s Lab is expected to see foreign investors reducing their holding in December quarter and in 2016 as well. The FII holding shares of the company was 38.53% as on 31 December 2014, which has now reduced by 1.8 percentage points to 36.73% as on September 30, 2015.

The adverse impact of the FDA action saw the company’s stock tumbling by nearly 30% from November 5 to date. Prior to the FDA warning letter being issued to the company, shares of Dr. Reddy’s rose a whopping by 33% between December 31, 2014 to November 4, 2015. The stock pared all the gains till November 4 and tumbled into negative territory. Shares of Dr. Reddy’s plunged by 7.12% (YTD) in CY2015 at a time when the BSE Healthcare index soared by 12.25%. In CY2015, the company’s market capitalization on BSE eroded by Rs. 3,998.20 crore to Rs. 51,421.15 crore (as on December 22) from Rs. 55,282.86 crore as on December 31, 2014. During CY2014, the shares of Dr. Reddy’s hit a 52-week high of Rs. 4,382.95 on October 20, 2015. On December 11, Dr. Reddy’s touched a 52-week low of Rs. 2,950.50 on BSE.

In addition, the company’s American Depository Receipt (ADR) listed on the New York Stock Exchange (NYSE) tumbled by 9.97% (YTD) to US$ 45.42 from US$ 50.45 as on December 31, 2014.


USFDA warning and its aftermath

The USFDA warning followed the earlier inspections of the company’s sites by the agency in November 2014, January 2015 and February 2015 respectively. In a response, the company’s CEO G V Prasad had said, “We take quality and compliance matters seriously and stand by our commitment to fully comply with the cGMP quality standards across all of our facilities. We will embark on an initiative to revamp our quality systems and processes, as an organization-wide priority.” However, the company responded to the drug regulator on December 7 and since then, there has been no major positive impact on the company.

In wake of the warning letter, media report cited on November 26 that the USFDA will ban all drugs of the company made at certain units unless they conform to global standards. Also, the District Court of Delaware, US, passed an order on November 10, granting a Temporary Restraining Order (TRO) with immediate effect on sales, delivery, transfer or disposition of its generic Esomeprazole product in the US market after AstraZeneca objected the usage of the colour Purple if the said generic drug.

New drug launched in 2015

The company launched total 7 new products (drugs) in CY2015. However, all the launches took place before the FDA issued warning letter on November 5.

In May the company launched Somazina, the innovator brand of Citicoline, for the treatment of post-stroke patients in India and around the world. Also, Dr. Reddy’s launched HAiROOTZ in June, the first hair growth supplement to be marketed in India as over-the-counter (OTC) by the company. The company launched Memantine hydrochloride tablets USP, 5 mg and 10 mg, a therapeutic equivalent generic version of NAMENDA in June.

In August, the company launched PRAMIPEXOLE dihydrochloride extended-release tablets 0.375 mg, 0.75 mg, 1.5 mg, 3 mg and 4.5 mg, followed by the launch of MINTOP PRO - Procapil Hair Therapy in September. In the same month, Dr. Reddy’s launched Esomeprazole Magnesium Delayed-Release Capsules USP, 20 mg and 40 mg.

And lastly, before the company received the FDA warning letter, it launched a pain killing spray Nise D, an OTC product.

New collaborations

It was again before the FDA debacle that the company seemed well on its path of expanding collaboration on research and commercialization front. In January, the company announced Collaboration, License and Option Agreement to Discover, Develop and Commercialize Small Molecule Antagonists for Immuno-oncology and Precision Oncology Targets with Curis and Aurigene.

In order to tap the growing market for Hepatitis C drug in India, Dr. Reddy’s entered into a partnership with Hetero Drugs in March. The company inked a distribution pack with AstraZeneca India in May for saxagliptin and its fixed dose combination with metformin, in Type 2 Diabetes. In August, the company entered into a strategic collaboration with Amgen to market and distribute three Amgen medicines in India in the areas of oncology and cardiology. In September, the company joined hands with PanTheryx for a multi-country supply and licensing agreement to market and distribute PanTheryx’s DiaResQ®, for infectious diarrhea in India and Nepal under the Reliqua brand. The company also signed a commercialization deal with an Australian firm Hatchtech for Xeglyze Lotion, in the same month. Just a day before receiving the FDA warning letter, the company entered into a strategic alliance with Biocodex to market and distribute Biocodex products in the Romanian market on November 4.

The entire USFDA episode of Dr. Reddy’s Lab is expected to see foreign investors reducing their holding in December quarter and in 2016 as well. The FII holding shares of the company was 38.53% as on 31 December 2014, which has now reduced by 1.8 percentage points to 36.73% as on September 30, 2015.

The year that started on a positive and a progressive note for the company ended on a gloomy note. The positive trend seen in the company operations on business as well as in company books started evaporating since November 5. This is certainly not a desired year end for the company.