Shares in Dr Reddy’s Lab, India’s second biggest drugmaker, crashed 10 per cent on Thursday after the US drug regulator warned the company about a possible import ban from three of its units under scanner for inadequate quality control. Shares in Dr Reddy’s have fallen over 25 per cent in the last one month as compared to a 5 per cent decline in the broader Nifty.
Here are 10 things to know about the selloff in Dr Reddy’s shares:
1) The US Food and Drug Administration on Wednesday issued a “strongly” worded letter, warning Dr Reddy’s of import ban from three of its manufacturing plants if no corrective action is taken.
2) Two active pharmaceutical ingredient (API) manufacturing units in Srikakulam (Andhra Pradesh) and Miryalaguda (Telengana) and one formulation manufacturing unit in Duvvada (Andhra Pradesh) are under the US regulator’s scanner.
3) The FDA said it had found several violations with regard to current good manufacturing practices (CGMP) at these three plants.
4) The regulator also raised concerns about Dr Reddy’s data management practices. The FDA has charged the company with poor documentation control, inadequate lab control practices and inadequate control to prevent alteration or deletion of data.
5) The FDA wants comprehensive response to the deviations. Solution must include a third-party assessment, it said.
6) The warning of import ban from these three units comes days after the US regulator issued a letter to Dr Reddy’s Lab detailing inadequate quality control at these plants following an inspection earlier this year.
7) Dr Reddy’s will not receive FDA’s approvals to sell drugs manufactured at the plants for now, analysts say. This is likely to be a blow for Dr Reddy’s business.
8) Dr Reddy’s relies on the US for a majority of its sales. The plants make a significant contribution to company sales, with one alone accounting for 10-12 per cent, traders say.
9) “We will respond with a comprehensive plan to address these observations,” GV Prasad, CEO of Dr Reddy’s had said on November 6 when the company received its first warning letter from FDA.
10) Bank of America Merrill Lynch says a complete resolution of the entire controversy will take 12-18 months. Credit Suisse says Abbreviated New Drug Application (ANDA) approvals may take time to resume. Credit Suisse cut its target price on Dr Reddy’s Lab by 10 per cent.
Dr Reddy’s Lab shares closed 8.47 per cent lower at Rs.3,100.75, recovering from the earlier low of Rs. 3,050. The broader markets closed 0.67 per cent higher.
November 26, 2015