Dr Reddy’s Q1: warning letter ‘significantly impacted our earnings’

27-Jul-2016 - Last updated on 28-Jul-2016 at 12:16 GMT

Image: iStock/sgame

US FDA warnings and Venezuela's economic crisis have contributed to “a challenging quarter” for Dr Reddy’s, with its API business being particularly affected.

The Indian drug and API maker announced its first quarter FY2017 results this week, reporting both top and bottom lines blighted by a decline in volume growth and the loss of business in Venezuela, currently in the midst of its worst ever economic crisis.

Revenues from Dr Reddy’s generics segment were $395m, down 14% year-on-year, while the firm’s Pharmaceuticals Services and Active Ingredients (PSAI) business dropped 16% to $70m for the quarter.

“Overall, the performance of the quarter has been quite muted,” COO Abhijit Mukherjee said while discussing results. “Overall, this has been a challenging quarter and every step has been taken to get back to growth momentum.”

He added that while the figures reflect the lack of contribution from Venezuela – a country which clocked in revenues of $136m in FY 2015 – and the adverse impact of competitive dynamics on the US business, the API business was also impacted by ongoing remediation activities.

In November last year, the firm was hit with a warning letter from the US Food and Drug Administration (FDA) citing significant deviations from cGMP at two Indian API production plants in Srikakulam and Nalgonda, while violations were also found at a finished formulation plant in Visakhapatnam.

But according to management, things may be looking up with remediation close to completion after investing around $36m - $16m contributed this quarter - to fulfil the FDA’s demands.

While a “couple of million more” would be spent in Q2, Mukherjee said “we have completed most of the commitments,” and added that the firm is “about to send out the letter with the request for re-inspection very soon.”