Dr Reddy's, Divi's Labs hit over two-year lows

Thus far in 2017, Divi's Lab and Dr Reddy's underperformed the market by falling more than 15% each.

Shares of two pharmaceutical companies Dr Reddy's Laboratories and Divi's Laboratories continued to trade under pressure, hitting an over two-year lows on BSE amid US drug regulator concerns.

Divi's Labs slipped 3.5% to Rs 612, extending its Tuesday’s 20% decline after the US Food and Drug Administration (USFDA) issued an import alert on the company’s unit-II of Visakhapatnam plant in Andhra Pradesh, albeit with exemptions for 10 drugs. The stock is trading at its lowest level since May 2014.

“More than the immediate financial impact, we believe the import alert can damage customer confidence, drive up order cancellations and prompt a slew of rigorous inspections by other regulators, which could structurally affect the business. Further, in the absence of a warning letter, Divi's Labs may be unable to immediately undertake remediation actions,” said analyst at Religare Institutional Research. The brokerage firm downgrades the stock to ‘Hold’ with revised target of Rs 600.

Dr Reddy's Laboratories hit its lowest level since June 2014 of Rs 2,560, down 2.4% in intra-day trade, extending its previous day’s 4.4% decline on BSE.

Since March 9, the stock of drug maker declined 10% after the company said the USFDA issued a Form 483 with 13 observations for the company’s formulation manufacturing facility at Duwada, Visakhapatnam.

According to analysts at HDFC Securities, “Even though there is lack of clarity on the observations related to the Duwada plant, we believe it will delay the clearance of the facility due to remediation activities. Repeat observations could also lead to escalation to import alert. This overhang is likely to remain until Dr Reddy's provides clarity on the same.”

Meanwhile, thus far in the calendar year 2017, Divi's Laboratories (down 22%) and Dr Reddy's Laboratories (down 16%) have underperformed the market by falling more than 15% each as compared to 9.8% rise in the S&P BSE Sensex.