Hyderabad: A host of law firms in the United States are vying to woo investors of Dr Reddy’s Laboratories to launch a class action suit against the Hyderabad-based generic drug maker. They have already announced investigations to find out whether the company and its officers have violated securities laws by issuing misleading information to investors.
Nine American law firms from different states claim that investors, who have invested in Dr Reddy’s, suffered losses after the US Food and Drug Administration (FDA) issued a warning letter to the firm over “inadequate quality controls at three manufacturing plants producing drugs for cancer and other diseases.”
A statement issued by New York-based law firm Rosen Law Firm said, “shares of Dr Reddy’s fell $11.75 per share or over 18 per cent to close at $53.5 per share on November 6, 2015 (after FDA warning), damaging investors.” On November 9, the law firm also said that it was “preparing a class action lawsuit to recover losses suffered by Dr Reddy’s investors.”
A San Diego-based law firm Johnson & Weaver, LLP, which announced its investigation on November 6, cited Dr Reddy’s statement that the FDA warning meant it would not receive US approvals for drugs made at the plants until it fixed the problems.
The manufacturing plants account for more than 10 per cent to 12 per cent of Dr Reddy’s sales. In FY2015, Dr Reddy’s registered an annual sales of Rs 10,010.94 crore. Apart from these two law firms, Dr Reddy’s is facing scrutiny from seven such firms. But none of them have yet started the class action suit against Dr Reddy’s Laboratories.
In a potentially damaging statement, Lundin Law Pc — the only one among all eight law firms — on Wednesday announced that it was investigating certain of Dr Reddy’s statements, which were “misleading concerning the company’s financial performance.”
After television reports on Lundin Law’s probe on Thursday, Indian capital markets regulator Sebi sought a clarification from the company.
The news plunged the stock by seven per cent in the morning trade on BSE, but it recovered later in the day by ending the session with a little over 2.5 per cent loss.
In a swift response, Dr Reddy’s issued a statement denying all allegations levelled by the law firms.
“Dr Reddy’s has always adhered to all disclosure requirements both of the Securities and Exchange Commission (SEC) 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 allegations,” DRL spokesman said.
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