 "Two US law firms threaten class action law suit against Dr Reddy's")
The company’s stock fell as much as 7.5 per cent in the morning trade, over concerns of a possible class action suit. The shares recovered from the day’s low of Rs 3,140 to Rs 3,286.80, down 2.6 per cent from their previous close by the end of the trading session. Cumulatively the stock was down 22.7 per cent from Rs 4,252 on November 5, after the company informed the stock exchanges it had received a warning letter from the US Food and Drug Administration (FDA).
The two relatively unknown law firms claimed they were investigating recent statements made by the company in the light of the warning letter, to prepare a possible class action suit against it.
In a class action lawsuit, one or several persons sue on behalf of a larger group of persons, referred to as the class, if a dispute is common to all and the number of affected persons is large.
Lundin Law, a Los Angeles law firm, on Wednesday said it was investigating claims against Dr Reddy’s concerning possible violations of federal securities laws in the US. According to available information, this firm was incorporated on July 23 this year in California.
“The investigation is related to allegations that certain statements issued by Dr Reddy’s were false and misleading concerning the company’s financial performance,” the law firm said.
Last week, Khang and Khang, another California-based law firm, issued a similar statement, saying it was investigating whether the company and its executives violated securities laws by issuing misleading information to investors. According to lawyers.com, the firm has two members, namely Joon Mo Khang and Judy L Khang.
Responding to the allegations, a company spokesperson said in a statement: “Dr Reddy’s has always adhered to all disclosure requirements, both of the Securities and Exchange Commission (SECs) and Indian stock exchanges; including accounting practices as per the International Financial Reporting Standards (IFRS) and the Indian Accounting Standards. The company has no further comment on what might be advertorial press releases by law firms, and refutes all these allegations.”
The company shares fell 15 per cent on November 6 following a warning letter issued by the FDA over quality issues involving three of its manufacturing plants in Andhra Pradesh and Telangana. The downslide continued for a couple of more sessions thereafter, with a fall of five-six per cent in each session.
The law firms, which said they were investigating possible violations, cited this warning letter as an immediate trigger for their action. They have asked investors to join the possible class action lawsuit against the company.
Angel Broking maintained a buy rating on Dr Reddy’s with a price target of Rs 3,933. “We do not think there are any major immediate financial implications,” Sarabjit Kour Nangra of Angel Broking said in a statement.
Following the FDA letter, some analysts pointed out they knew of 483 observations only regarding Dr Reddy's Srikakulam plant and not about the other two plants cited in the letter.