New Delhi: Hyderabad-based drugmaker Dr Reddy’s Laboratories Ltd on Wednesday said it had been served a securities class action lawsuit in the US for alleged violations of federal securities laws.

The lawsuit, filed in the US district court of New Jersey, seeks damages to compensate investors for a purported decline in Dr Reddy’s share price caused by alleged misstatements or omissions by the company. The company is listed on the New York Stock Exchange (NYSE) besides Indian exchanges.

“Further to our intimation dated August 28, 2017 with regard to US securities class action lawsuit, we would like to inform you that the US securities class action lawsuit has been served on the company in the US by the lead plaintiff," Dr Reddy’s said a notice to BSE.

In the notice, the company said it believes the asserted claims “are without merit and (the company) intends to vigorously defend itself against the allegation".

In a class action lawsuit, one or several persons sue on behalf of a larger group, referred to as the class, if a dispute is common to all and the number of affected people is large.

Shares of Dr. Reddy’s declined 0.53% to Rs2,276.05 at the close on BSE on Wednesday, a day the benchmark Sensex edged down 0.05% to 33,602.76 points. Dr Reddy’s NYSE-listed shares had risen 0.45% to $35.69 as of 10.21am in New York.

The suit has been filed on behalf of investors who purchased or acquired Dr. Reddy’s shares on the NYSE between 17 June 2015 and 10 August 2017. In this period, shares of the company plunged 42.76% on the NYSE to $30.33 apiece.

A number of US law firms had in August called upon investors to move class action lawsuits on charges that the company had given misleading statements related to issues of manufacturing compliance at its Indian facilities.

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

According to Vijay Pal Dalmia, senior litigator and partner at law firm Vaish Associates, Dr Reddy’s could face “serious financial implications".

“In this particular case there will be a collective liability towards the group of people who purchased the shares between particular dates. This is going to have serious financial consequences on the firm," Dalmia said.

An analyst at securities house Prabhudas Lilladher Pvt. Ltd said on condition of anonymity that it would be too early to “guess" a financial loss to the company, while conceding that “it’s a negative development sentimentally".

The tight regulatory vigil by the US FDA has been a cause of concern for the pharmaceutical industry in India. There has been a spurt in negative observations by it recently. Dr Reddy’s has constantly been at the receiving end of US FDA interventions.

In November 2015, it received a warning letter against three of its facilities including two active pharmaceutical ingredient (API) plants in Srikakulam, Andhra Pradesh and Miryalaguda in Telangana, and an injectable plant in Duvvada, Andhra Pradesh for violations of good manufacturing practices. While the Miryalaguda plant was cleared by the US FDA earlier this year, the other two units are still under the scanner.

On 6 November, Lupin Ltd received certain observations on its facilities in Goa and Aurangabad from the US drug regulator.

The US FDA has also raised concerns about Glenmark Pharmaceuticals Ltd’s plant in Baddi, Himachal Pradesh, citing observations relating to violation of good manufacturing practices. The regulator had inspected the Baddi unit during 6-11 November.

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