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Investors file class action suit against Dr. Reddy’s in US court

LiveMint logoLiveMint 28-08-2017 Isha Trivedi

Mumbai: Dr. Reddy’s Laboratories Ltd said on Monday that some investors had filed a class action lawsuit against the drug maker in the US District Court of New Jersey, alleging violation of US federal securities laws.

Shares of the Hyderabad-based drug maker fell 2.8% on the announcement in intraday trading but recouped some of the loss later. At 1:10pm, the stock was trading down 1.74% at Rs2,051.65 on the BSE, while the benchmark Sensex index was up 0.53% at 31,763.95 points.

The lawsuit alleged that Dr. Reddy’s made materially false statements and/or misleading statements or omissions related to its corporate quality system, specifically in connection with a warning letter issued by the US Food and Drug Administration (FDA) in November 2015 and a letter from German drug regulator dated 10 August 2017.

The lawsuit represents a class of investors who purchased or otherwise acquired the company’s publicly traded shares on the New York Stock Exchange between 15 June 2015 and 10 August 2017, Dr. Reddy’s said in a stock exchange filing.

The lawsuit seeks damages to compensate the class of investors for a purported decline in the Dr. Reddy’s share price caused by the alleged misstatements or omissions.

The company said it has not yet been served with the lawsuit.

“The company cannot comment on specific allegations in the pending litigation other than to state that the company believes the asserted claims to be without merit. The company will respond to the allegations after it has been served with the lawsuit and as and when it may be required to do so by the court,” Dr. Reddy’s said in the filing.

In November 2015, the company received a warning letter from the US Food and Drug Administration (FDA) for violation of good manufacturing practices at its formulation plant in Duvvada (Andhra Pradesh), and active pharmaceutical ingredients (API) facilities in Miryalaguda (Telangana) and Srikakulam (Andhra Pradesh).

The Miryalaguda plant was cleared by the USFDA earlier this year but the other two units continue to be under the regulatory lens.

“My sense is that the lawsuit is opportunistic in nature. Whether the company has made sufficient disclosures is something we will have to watch as the case progresses. But such lawsuits generally take several years before they reach an outcome. No financial implications in the near term,” Vishal Manchanda, analyst at Nirmal Bang Securities, said.

Such lawsuits are a common practice in the US. It is unlikely to have any major impact on Dr. Reddy’s stock, unless the verdict of the case, whenever it comes, is against the company, another analyst, who did not wish to be named, said.

Many large generic pharmaceutical companies such as Teva Pharmaceuticals, Perrigo Co., Impax Laboratories and Taro Pharmaceutical Industries Ltd, a subsidiary of India’s largest drug maker Sun Pharmaceutical Industries Ltd, are facing class action suits in the US, but the outcomes on these litigations are pending, Manchanda said.

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