Dr Reddy's Labs loses over Rs 10,000-cr mcap; stock tanks 15%

USFDA issued warning letter relating to its two API manufacturing facilities in Andhra Pradesh and Telangana.

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Dr Reddy’s Laboratories lost more than Rs 10,000 crore market capitalisation as stock recorded its biggest single day fall in past one decade, after the drug maker said that it has received a warning letter issued by the US drug regulator relating to its two active pharmaceutical ingredients (API) manufacturing facilities in Andhra Pradesh and Telangana.

The stock plunged 15%, its second biggest single-day fall, to settle at Rs 3,630, which wiped out Rs 10,628 crore in market capitalisation (mcap) on Friday. At close of trade, the company’s mcap stood at Rs 61,916 crore against Rs 72,544 crore on Thursday, BSE data show. In March 1, 2004, the stock had tumbled 18% in a single day.

Dr Reddy's Laboratories said that it has received a warning letter issued by the United States Food and Drug Administration (USFDA) dated 5 November 2015 relating to the company's API manufacturing facilities at Srikakulam in Andhra Pradesh and Miryalaguda in Telangana, as well as oncology formulation manufacturing facility at Duvvada in Visakhapatnam, Andhra Pradesh.

The management will continue to actively engage with the USFDA to resolve these issues and the management have also embarked on an initiative to revamp the company's quality systems and processes, as an organization-wide priority, Dr Reddy's CEO G V Prasad stated.

Sarabjit Kour Nangra, VP Research - Pharma, Angel Broking, in a client report said that the impact of the API facilities would be depend upon how quick the company fixes the USFDA issues plant transfers or does third party sources. Nonetheless, the near term performance of the company will be impacted and maintains a neutral rating on the stock.