Divi's Laboratories Slumps Over 30% In Just Two Days Over FDA Concerns

Shares of Divi's Laboratories fell as much as 14 per cent today on concerns over US regulatory issues.  Divi's Laboratories shares had suffered a slump of nearly 22 per cent on Friday, taking its two-day losses to nearly 33 per cent or over Rs 9,000 crore in market value. 

The trigger for the sharp fall in the stock has been reports which stated that the US Food and Drug Administration (FDA) has made strong observations about the pharmaceuticals company's Vishakhapatnam facility, including "documentation and records not maintained or inaccurate falsified".

The stock exchanges later sought clarification from the Hyderabad-based pharma company.

Divi's Laboratories on Friday after the market hours clarified that the US FDA's earlier observations have not impacted its operations and "due process of reply to these observations requires Divi's Laboratories to respond in detail and this is being done in time".

Divi's Laboratories also said that it is not aware of any information that has not been announced to the bourses which could explain the movement in stock price.

Divis Laboratories had on December 7 disclosed to the stock exchanges that the "company's Unit-II at Visakhapatnam, Andhra Pradesh has had an inspection by the US-FDA from November 29, 2016 to December 06, 2016". And "the company have been issued a form 483 with 5 observations and these shall be responded within the time permitted".

The US drug regulator issues Form 483 to the firm's management at the conclusion of an inspection when investigators observe any conditions that in their judgement may constitute violations of the Food Drug and Cosmetic (FD&C) Act and related Acts.

The Vizag plant is one of the biggest plants for Divi's, which manufactures active pharmaceutical ingredients (APIs) and intermediates for generics among others at the Vizag manufacturing plant.

Despite the company's clarification and sharp correction in the stock, analysts say that the stock is likely to remain under pressure. TS Harihar, chief executive and founder of HRBV Client Solutions Private, said that the stock could be "in for more trouble after the violent correction on Friday. The US (FDA) is flexing its muscles and it may go acute over the period".

Ruchit Jain, technical analyst at Angel Broking, says Divis Laboratories shares have broken important support levels and the stock could be under pressure. 

Global brokerage HSBC sees a potential risk of escalation of FDA issues.

Divi's Lab shares closed 11.51 per cent lower at Rs 762.30 compared to 0.9 per cent fall in the broader Sensex.