Divi's scrip falls 21% on FDA remarks

USFDA observed that its Vizag facility was not maintained to ensure the quality of the APIs

The share price of Hyderabad-based Divi's Laboratories Limited tumbled as much as 24% intra-day, the biggest single-day fall in its history, on Friday after a brokerage report cited 'manipulated data records' as one of the observations made by the US Food and Drug Administration (USFDA) against its Vizag facility.

The company did not deny or acknowledge the authenticity of the said remarks, which appeared in the Form 483 observations of the US drug regulator, as disclosed in its report by stock broking firm Emkay Global.

"We have been issued a Form 483 with five observations and these shall be responded within the time permitted," the company reiterated in response to a clarification sought by the stock exchanges.

Divi's scrip closed at Rs 866.10, down by Rs 242.50 or 21.87% by the end of the trading session on Bombay Stock Exchange.

The USFDA team inspected the company's Unit-II at Visakhapatnam from November 29 to December 6.

On December 12, the company had informed the BSE about the inspection as well as the receipt of Form 483 observations without elaborating on what those observations were. The actual observations came to light only on Friday.

According to Emkay's report, the USFDA has also observed that the facility was not maintained to ensure the purity, quality, strength, and identity of the active pharmaceutical ingredients (APIs). It also referred to an unexplained coloured residue in the product. Proper controls are not exercised over computerised systems used and analytical testing to ensure drug products meet their specified quality, it said.

Markets reacted wildly to US inspection team's observation that the lab was not complying with the current good manufacturing practices (cGMP) and records are not matching with original files, the latter being the most serious among all the remarks.

Explaining the seriousness of these observations, the brokerage report said the probability of escalation was high and may lead to an import alert against Unit-II.

Divi's has two manufacturing units -- one each in Hyderabad and Visakhapatnam. It manufactures APIs and intermediates for generics among others at the plant in Visakhapatnam. The 314-acre facility was initially started with four production blocks in 2003 and currently has 14 multi-purpose production blocks. This is a critical facility and more than 50% of the sales come from here.

Form 483 is an observation letter issued to a pharma company at the end of an inspection about any violations of the Food Drug and Cosmetic Act and other related acts. The company should respond to Form 483 in writing with its corrective action plan and then implement that expeditiously.

Divi's predominantly makes active pharmaceutical ingredients (APIs) and drug intermediates and supply to major global pharmaceutical companies. It has been reporting Rs 1,000 crore-plus revenues in each of the last three quarters.