Dec 26, 2016 07:48 AM IST | Source:

Divis tanks 25% on fears of potential escalation of USFDA action

Shares of Divis Laboratories, on Friday, fell as much as 25 percent following reports of adverse observations from the USFDA made on its Vizag facility.

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Moneycontrol Bureau

Divis Laboratories on Friday said it is in the process of replying to the observations raised by USFDA, after the company lost a quarter of its market value at one point in the day, following reports of adverse observations from the USFDA made on its Vizag facility.

"Due process of reply to these observations requires Divi’s Laboratories to respond in detail and this is being done in time," the company said in a response to the clarification sought by the stock exchanges on the steep fall.

"These observations have not impacted our operations," the company added.

USFDA inspected the Unit-2 plant from November 29 to December 6 and issued a Form 483 with five observations pertaining to breaches in data integrity, improper controls and violations of current good manufacturing practices (cGMP).

Moneycontrol verified a copy of the USFDA’s Form 483 issued to Divi’s. The USFDA observations included - 1. proper controls not exercised over computerized systems used for analytical testing to ensure drug products meet their specified quality attributes; 2. facilities and equipment are not maintained to ensure the purity, quality, strength and identity of the active pharmaceutical ingredient (API); 3. the R&D division guides quality and production to commence activities inconsistent with CGMPs; 4. Failure to conduct thorough investigation with respect to complaints received deviations in product batches; and 5. documentation and records are either not maintained or inaccurate/falsified.

Divi’s Unit-II plant in Visakhapatnam is located at Chippada village, about 35 km north of the port city Unit-II plant accounts for 70 percent  of the company’s overall business and more than 75% of its overall capacity. United States accounts for 32% of overall sales and most of these came from Unit-II.

Analysts who tracked the company – say that the nature of observations are negative and may have the potential to escalate into further regulatory action if not resolved one time.

"Divi’s is a relatively stable company with reasonably good track record of regulatory compliance," said Satish Kantheti, joint managing director at Hyderabad-based brokerage house Zen Securities.

"Markets these days are punishing stocks that have issues with regulatory compliance," Kantheti said.

Kantheti said he doesn’t see the ongoing business getting impacted, but said the future of the company looks uncertain if issues remain unresolved for longer period.

Divi’s is engaged in the manufacturing of generic active pharmaceutical ingredients or the key raw materials that go into the manufacture of formulation drugs, custom synthesis of active ingredients for innovator companies, other speciality chemicals and nutraceuticals.

The US drug regulator conveys its concerns on manufacturing practices through Form 483.

Companies that receive its observations must respond in writing with a corrective action plan and implement it quickly. If the company fails to meet the regulator’s expectations, a warning letter may be issued.

Shares of Divis dropped 21.87 percent to close at Rs. 866.10 on BSE, while the benchmark Sensex rose 0.24 percent to end 26,040.70 points.

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