Lupin fell over 5 percent in early morning trade after the drug regulator US Food and Drug Administration (US FDA) cautioned the company with possible withholding of approvals of pending applications for the Somerset facility (New Jersey).

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At 09:55 am, the stock was trading at Rs 753 per share, down 4 percent on BSE. In comparison, the S&P BSE Sensex was up 0.8 percent (311 points) at 38,335.

The company's subsidiary Novel Laboratories Inc has received a letter from the US FDA classifying the inspection conducted at its Somerset (New Jersey) facility in December 2018, as Official Action Indicated (OAI), Lupin said in a regulatory filing.

'Official Action Indicated', means approvals of pending applications or supplements from this site may be withheld.

Most brokerages remained negative on Lupin. Macquarie, Credit Suisse, and Jefferies initiated 'underperform' call on the stock while CLSA gave out 'sell' rating with a target cut to Rs 730 per share from Rs 760.

According to CLSA, Somerset Plant OAI letter follows similar regulatory action as Mandideep plant and all future approvals will be kept on hold until the issues have been resolved. According to the brokerage, this development has increased the probability of a warning letter for the company.

"In a severe case of potential import alert post the OAI letter to New Jersey plant, the impact could be 20 percent of earnings. We expect a re-inspection at the Indore facility. We have an underperform rating with a target at Rs 800 per share," said Credit Suisse in a report.

The USFDA has stated that this facility may be subject to regulatory or administrative action and that it may withhold approval of any pending applications or supplements in which this facility is listed, the company added.

This is the second OAI letter in a week. The company also received an OAI letter for its Mandideep facility in Madhya Pradesh on March 13, 2019. In December last year, the USFDA had issued a total of 22 observations after inspecting the Mandideep facility.

The stock has fallen 7.4 percent since March 13, 2019.