The stock of Divi's Laboratories fell sharply by about 20 per cent in early trade today after the company informed the exchanges that its Unit II facility at Vishakhapatnam, Andhra Pradesh has received an import alert from the US regulator Food and Drug Administration (USFDA).

This development is subsequent to the form 483 issued to the facility in late 2016. The Unit II facility at Vishakhapatnam had an inspection by the USFDA from 29th November 2016 to 6th December 2016 and received a form 483 with 5 observations for deviation from compliance requirements.

The Unit II facility accounts for about 70 per cent of the US product revenue. The US business accounts for about 32 per cent of overall revenues.

This development is a major setback for the company with existing capacity constraints and the delay in acquisition of land in Kakinada for greenfield expansion. A silver lining is the exemption from the import alert of 10 active pharmaceutical ingredients (APIs) - Levetiracetam, Gabapentin, Lamotrigine , Capecitabine, Naproxen Sodium, Raltegravir potassium, Atovaquone, Chloropurine, BOC core succinate and 2,4-wing active ester.

The company says that it, along with third party consultants, is working to address the concerns of the US-FDA and is making all efforts to meet compliance requirements.

Given the significant revenue contribution from the facility, an early resolution of the issues is imperative for the company.

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