Dr. Reddy's plant remediation efforts still months away from completion

GV Prasad, CEO of India’s Dr. Reddy’s Laboratories, said the generic drugmaker’s top priority is to do what it needs to do to return its manufacturing to FDA expectations, but he acknowledges that effort is still months away from realization.

That declaration, which came during an earning call last week, has been a recurring theme of the CEO as India’s second-largest drugmaker has worked over the last couple of years to overcome the effects of an FDA warning letter for three of its manufacturing plants that has undermined its sales and profits.

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Dr. Reddy’s last week reported slightly higher sales for the quarter, but profits ravaged by remediation costs and other factors. The company had revenues of $513 million, up 2.4%, for the first quarter of 2018, which ended June 30. Profits, however, slid 53% to about $9.2 million from about $19.7 million in the same quarter a year ago.

“We will need to modernize some of our infrastructure, systematically implement our new quality management system and automate some of the critical manufacturing and quality related processes,” Prasad told investors, according to a transcript of the earnings call from Seeking Alpha. “To accomplish this, a number of initiatives have been taken up across all locations and this would take us a few more quarters to complete.”

Despite serious pressure on generic prices generally in the U.S., and significant pressures on the prices of some specific products, the generics drugmaker reported that it was able to grow sales there marginally to $230 million, quarter over quarter.

But the good news was dampened by the fact that drugmaker’s bottom line was again held in check by its efforts to meet FDA concerns. Those concerns were listed in a 2015 warning letter criticizing practices at two API plants in India and an oncology formulation facility in the country. The drugmaker has said an FDA reinspection this year cleared one of the API plants but found lingering issues at the other facilities.

RELATED: Dr. Reddy's blasted in warning letter for hiding existence of testing lab from FDA

The warning letter followed inspections at the three plants in 2014 and 2015. A series of intense negotiations with the FDA followed but after responding to the agency's concerns nine times, the FDA issued a scathing warning letter in late 2015. Particularly annoying to the FDA was the discovery of a secret testing lab that one plant used for years to test batches, which allowed it to hide failed test results.

The company's shortfalls have not ended there. In May, the drugmaker reported that an inspection of its formulation plant in Bachupally in Hyderabad resulted in a Form 483 with 11 observations.