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MOSL: DR REDDY’S LABS (neutral)-Duvvada 483 observations out-data integrity issues persist

​Dr Reddy’s Labs: Duvvada 483 observations out; data integrity issues persist

(DRRD IN, Mkt Cap USD6.6b, INR2623, TP INR2875, 10% Downside, Neutral)

• ​Dr Reddy’s Labs (DDRD) has been issued 483 observations (4–5 are repeated) by the US FDA for its Duvvada plant. The FDA investigation has also revealed data integrity issues (e.g., Observation 3, 4). Given that the FDA has maintained a zero tolerance policy toward oncology injectable plants, we believe that the facility may remain under the warning letter status for at least 2-3 quarters.
  
• Key oncology facility; risk of delay in Gleevec launch: DRRD generates more than 15% of its US sales from the oncology segment, with the Duvvada facility contributing ~7-8%. This is because large part of the supply comes from third-party sources like Cipla and Gland Pharma. Currently, ~15-18 ANDAs (out of total of ~90) are pending from this facility, of which ~4-5 are expected to be approved in FY18-19. Gleevec is the key launch due from this facility. With the partner site (Hetero) also coming under the regulatory scanner, we believe the Gleevec approval may get pushed by at least 6-9 months if the Duvvada facility does not come back on track.