Divi’s Labs: regulatory woes

The stock of Divi's Laboratories fell about 20 per cent last Tuesday after the company informed exchanges that its Unit II facility at Vishakhapatnam, Andhra Pradesh, had received an import alert from the US regulator Food and Drug Administration (USFDA). The facility accounts for about 70 per cent of the US product revenue. The US business accounts for about 32 per cent of the company’s overall revenue.

This development is subsequent to the form 483 issued by the US FDA to the facility in late 2016. This form had five observations for deviation from compliance requirements. The import alert now is a major setback for the company with existing capacity constraints and the delay in acquisition of land in Kakinada for greenfield expansion. A silver lining is that 10 active pharmaceutical ingredients (APIs) are exempted from the import alert.

Given the significant revenue contribution from the facility, an early resolution of the issues is imperative for the company.

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