Repeated regulatory reprimands will erode investor confidence in DRL: Analysts

Repeated regulatory reprimands will erode investor confidence in DRL: Analysts - BPD

The German regulator’s refusal to renew the good manufacturing practice (GMP) compliance certificate of Dr Reddy’s Laboratories’ (DRL) formulations facility 2 in Bachupally in Hyderabad will not have much financial impact on the company but will erode investor confidence in DRL.

Commenting on the GMP violations mentioned by the German regulator, Amey Chalke & Siddhant Mansukhani, analysts with HDFC Securities mention that the observations include data integrity issues such as systematic invalidation of OOS results, and also highlight that the review and reporting systems are designed to systematically not to document and report discrepancies.

According to the analysts, DRL will be unable to supply to the EU from this plant until the next inspection, but as the EU business contributes only five to six per cent of the total top-line and only 25 per cent is manufactured by DRL in their own plants, the financial impact of this action is not significant. However, they caution that these repeated regulatory reprimands are of great concern, and will erode investor confidence in the company.

In a filing to BSE last week, DRL informed that Betapharm Arzneimittel, Germany, the company’s wholly-owned arm received a communication "from the regulatory authority of Germany (Regierung von Oberbayern) … that the GMP compliance certificate in respect of company’s formulations manufacturing Unit 2 plant in Bachupally, Hyderabad, is not renewed consequent to the recent inspection of the plant", it added. Pending revocation of the non-compliance notification, the plant will not be able to make any further exports to the European Union until the next inspection, which is to be initiated by an invitation from Betapharm, according to DRL.