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Corporate May 23, 2013

Ranbaxy: Daiichi may sue Singh brothers for concealing key info

By Uttara Choudhury

New York- Daiichi-Sankyo, Japan's No. 3 drug maker, which owns Ranbaxy Laboratories that was slapped a $500 million penalty by the US FDA, has said in a statement that "certain former shareholders concealed and misrepresented critical information" and that "legal remedies" are being pursued.

Daiichi had $4.2 billion in 2008 to acquire63.9 percent stake in Ranbaxy from the controlling shareholder group, led by brothers Malvinder Singh and Shivinder Singh. Ranbaxy's troubles with the US FDA were revealed to the public only after the deal.

Following the reports of Daiichi exploring legal options to sue the Singh brothers, the stock was hammered in morning trade. At 9:43 am, Ranbaxy was down 4.88 percent at Rs 405.45

Ranbaxy's $500 million fraud settlement is the largest in history involving a generic manufacturer and drug safety.

The company acknowledged that it failed to conduct proper safety and quality tests of several drugs manufactured at the Indian plants, including generic versions of common medicines, like gabapentin, which treats epilepsy and nerve pain, and the antibiotic ciprofloxacin.

But the FDA said it did not receive any reports of patients being harmed by the drugs made at the plants in question.

Despite all the noise, the overwhelming majority of generic drugs are as safe and effective as their brand-name counterparts. Brand-name companies have also had their share of quality problems: Johnson & Johnson famously had major problems with its production of Tylenol. It is operating under a consent decree because of problems at manufacturing plants.

In 2010, British drugmaker GlaxoSmithKline paid $750 million in criminal and civil fines to resolve a federal whistle-blower suit that highlighted problems at a factory in Puerto Rico.

Meanwhile, after Ranabxy's $500 million fraud settlement in the US, India's Ministry of Health & Family Welfare is also planning to ask India's drug regulator, the Drugs Controller General of India (DCGI), to examine court documents filed in the US lawsuit in which the company admitted to selling subpar medicines and concocting data.

India's drug regulator will pore over drug applications on the basis of which Ranbaxy received approvals.

"We have to look at the whole thing very comprehensively. DCGI has been asked to go through the US order in detail and then examine the documents, dossiers and approvals to Ranbaxy in India. The regulator will evaluate all documents to see whether there has been any compromise in safety, quality, efficacy, or even in submitting data for seeking approvals," a source in the health ministry, told Business Standard.

An official in DCGI also told the financial paper that India's drug regulator would study the report on Ranbaxy by the US Food and Drug Administration (FDA) and scrutinize the drug-maker's approval records starting from 2005 to the present.

"We will certainly look at approvals in the recent years to ascertain that the drugs currently available in the market are safe and efficacious," a senior DCGI official told Business Standard.

However, Bloomberg reported that India wasn't starting a probe on Ranbaxy but simply asking the DGCI to review US court ruling papers on the company. It quoted unnamed officials saying the drug regulator would not investigate previous drug approvals given to Ranbaxy in India.

Ranbaxy's damage control

One week after Ranbaxy pleaded guilty to US federal drug safety violations and agreed to pay $500 million in fines to resolve claims it sold sub-par meds and made false statements to the FDA about its manufacturing practices at two factories in India, Ranbaxy has embarked on concerted damage control.

Ranbaxy CEO Arun Sawhney said on Wednesday that compliance procedures have been enhanced and $300 million has been invested to improve manufacturing.

"In recent years, we have made significant improvements in the way we conduct our business to ensure greater quality control and have made investments of over US$ 300 million in our manufacturing facilities...We have also instituted a rigorous new code of conduct for all Ranbaxy employees, with clear accountability for compliance," Sawhney said in a statement released in the US.

Despite the reputational damage and financial hit Ranbaxy has taken, resolving the US lawsuit puts the company on firmer ground to start reviving sales to its biggest market, say analysts.

Malvinder Singh, chief executive of Ranbaxy. Reuters

Malvinder Singh, chief executive of Ranbaxy. Reuters

Ranbaxy had already set aside $500 million in anticipation of the penalties so the settlement actually gave shares of the company a pop last week before declining on Wednesday. Ranbaxy may not have expected the Indian health ministry to poke around the US court ruling.

Due to the US federal investigation, Ranbaxy has not exported drugs from the two tainted Indian factories, in Paonta Sahib in Himachal Pradesh and Dewas in Madhya Pradesh, to the US since 2008.

Now that the US case has been settled, Ranbaxy was hoping to start the onerous process of winning new FDA approvals for its facilities in Paonta Sahib and Dewas.

According to industry experts, Ranbaxy will do everything to press for big cost savings by moving drug production from its US subsidiary Ohm Laboratories Inc back to India. Ranbaxy still needs inspections from the FDA before resuming exports from the Indian factories.

by Uttara Choudhury

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