09/11/2015 5:03 PM IST | Updated 15/07/2016 8:25 AM IST

Shares Of Sun Pharma And Dr Reddy's Dip Over Compliance Issues

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OR AKIVA, ISRAEL - NOVEMBER 8: Antibiotics drop out of a pill-compressor at the Dexxon pharmacuticals plant on November 8, 2001 in the Israeli town of Or Akiva. Dexxon produces Doxylin, the trade name for Doxycycline Hydrochloride, one of the three antibiotics effective in combating anthrax infections. Israeli manufacturers have boosted production of their anthrax-effective medications following the bio warfare attacks in the United States. (Photo by David Silverman/Getty Images)

MUMBAI -- Shares in India's two largest drugmakers, Sun Pharmaceutical Industries Ltd (SUN.NS) and Dr Reddy's Laboratories Ltd (REDY.NS), slid on Monday after both reported compliance troubles that could dent profits this business year.

Dr Reddy's said on Friday that it had been issued a formal warning from the U.S. drug watchdog over three of its plants. A day later, Sun Pharma - which took over rival Ranbaxy and several troubled plants this year - told investors it was still working to fix problems at its Halol facility.

The moves prompted analysts to cut earnings estimates for the full year, sending Sun Pharma's shares tumbling 5.5 percent to their lowest point in more than a year, while Dr Reddy's lost 3.6 percent to hit its lowest since June.

The overall market was down 1.1 percent after the governing Bharatiya Janata Party's (BJP) lost a politically significant regional vote.

Credit Suisse analysts cut their rating on Sun Pharma stock to 'neutral' from 'outperform', saying they saw a 70 percent chance that the company could be issued a warning letter for issues at Halol.

Sun Pharma already has its hands full as it works on fixing issues at five of its other plants that are barred from exporting to the United States, the company's largest market. Four of these came with its acquisition of Ranbaxy last year.

"We see 2016 as a wash-out year for Sun Pharma as it grapples with issues around Halol, Ranbaxy integration as well as pricing pressure in the US," Kotak analysts wrote in a note.

The two drugmakers did not give any deadline for the issues to be resolved. Kotak analysts, however, estimate Sun Pharma's Halol site - a site it had owned before the Ranbaxy deal - could be cleared by the second half of 2016.

At Dr Reddy's, analysts at Jefferies called the U.S. Food and Drug Administration's warning letter a "major negative", forecasting disruption for up to nine months.

Dr Reddy's said it was hosting a conference call with analysts on Monday evening to clarify investor concerns about the warning letter. Sun Pharma did not immediately respond to a request for comment.

(Reporting by Zeba Siddiqui in Mumbai; Editing by Edwina Gibbs)

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