Dr Reddy’s tanks 10% on news of US legal action

HYDERABAD/MUMBAI: The

Dr Reddy’s

Laboratories scrip tanked over 10% on Tuesday, which ended up pulling the BSE sensex down, after the company admitted that it could face civil or criminal enforcement actions in the US and other countries over a

whistleblower complaint

.

The stock crashed after the company informed the bourses that it has been subpoenaed by the US markets regulator

Securities and Exchange Commission

(

SEC

) on July 6 for documents pertaining to certain Commonwealth of Independent States (CIS) countries. Dr Reddy’s said, “The matter may result in government enforcement actions against the company in the US and/or foreign jurisdictions, which could lead to civil and criminal sanctions under relevant laws, the probability of such action and the outcome are not reasonably ascertainable at this time.”

An anonymous whistleblower complaint had alleged that healthcare professionals in Ukraine and other countries were provided with improper payments by or on behalf of the company in violation of US anti-corruption laws, specifically the US Foreign Corrupt Practices Act. The court order came after it had disclosed the matter to the US Department of Justice, SEC and

Securities Exchange Board of India

, the BSE filing said. The company is in the process of responding to the case. A US law firm is conducting the investigation at the instruction of a committee of the company’s board, it said.

The scrip of the Hyderabad-based pharma major opened at Rs 5,421 on the Bombay Stock Exchange (BSE) but plummeted to a low of Rs 4,781 before closing 10.4% down (a fall of Rs 565) at Rs 4,844 as compared to the previous close of Rs 5,409.

Though Dr Reddy’s had informed the bourses about the whistleblower complaint and the commencement of a detailed investigation in November 2020, the company’s admission on Tuesday of the possibility of legal troubles ahead — coupled with a 1.5% decline in consolidated net profit for the first quarter ended June 30, 2021 — proved too much for the markets to digest.

Dr Reddy’s Q1FY22’s consolidated net profit fell to Rs 571 crore from Rs 579 crore in Q1FY21, largely due to price erosion in the key North American market. The company’s profits fell despite an 11% rise in consolidated revenues at Rs 4,919 crore from Rs 4,418 crore in Q1FY21. As a result, the stock crashed by 10%, making Dr Reddy’s the biggest laggard among the 30 sensex constituents. Heavy selling in Dr Reddy’s also had its impact on several other pharma stocks. As a result, the BSE Healthcare index closed 2.9% lower with Alembic Pharma, Glenmark and Lupin all closing between 5% and 11.5% lower.

Of the total 274-point slide in the sensex, Dr Reddy’s accounted for 62 points, BSE data showed. Market players said the news about Dr Reddy’s receiving a subpoena from the US legal authorities/regulators had spooked investor sentiment.