Dr Reddy's shares crack 8% as USFDA warns company of import ban

Shares of Dr Reddy's cracked 10 per cent in trade on Thursday after the US Food and Drug Administration (US FDA) said it might withhold approval of the company's fresh drugs and stop import if no corrective action is taken.  

The stock ended 8.21 per cent down after hitting an intraday low of Rs 3049.75, down 9.99 per cent on Bombay Stock Exchange.

Brokerage firm Motilal Oswal Securities believes the company is unlikely to resolve these issues with the FDA before fiscal year 2018, and has downgraded the stock to neutral with a target price of Rs 3,500.  

"Though long term fundamental remain intact, the stock will remain rangebound in the near term due to regulatory concerns," said the brokerage. We downgrade

The broking firm has also cut FY17/18E EPS by 11-14%. The cut in EPS is attributed to higher remediation cost and supply disruptions required to take corrective actions.

Meawhile, stock market regulator SEBI has sought clarification from the company with reference to US FDA warning.

The reply is awaited.

In October, US FDA had issued a warning letter to Dr Reddy's Laboratories over quality issues, saying it has found several violations with regard to current good manufacturing practices (CGMP) at three of its plants.

"At Dr Reddy's Laboratories' facilities, we identified significant deviations from CGMP for manufacturing of active pharmaceutical ingredients (APIs)... we found significant violations of CGMP regulations for finished pharmaceuticals," US FDA noted.

"FDA strongly recommends that you evaluate global manufacturing operations to ensure compliance with CGMP regulations and requirements, comprehensively and immediately," the regulator said in its letter on November 5 addressed to Satish Reddy, DRL Chairman.

In response to the letter, DRL CEO G V Prasad had said the company is in the process of shifting some of the products from these plants to other facilities and considering third party assessment for its plants.

However, FDA was "not satisfied" with the reply.

The US agency asked the drug maker to provide a comprehensive evaluation of the extent of inaccuracies in recorded and reported data and include a detailed action plan to fully investigate the scale and root causes of "deficient documentation and data management practices".

When contacted a DRL spokesperson said they are in the process of replying to USFDA's observations and will do so within the stipulated time.

The regulator has set a deadline for company to respond within 15 days from the date of receiving the letter.