Daiichi Sankyo brings the hammer down on Ranbaxy

Daiichi Sankyo sent some of its folks to India last fall to work with the Ranbaxy Laboratories formulation plants after the FDA banned a third facility there from shipping its products to the U.S. But the Japanese drugmaker, which owns controlling interest in the Indian generics company, is having to rethink its strategy now that Ranbaxy's key API plant has been banned from shipping to the U.S. and its analytics lab came in for harsh criticism from the FDA.

An executive with the company said last week it had already sent advisers to the formulations plants, but it was surprised to find an analytics lab stood accused of manipulating quality testing. "We need to grasp how something like this could occur, how extensive the transgressions were and whether they were the fault of a particular person," CFO Manabu Sakai said while discussing third-quarter earnings, The Wall Street Journal reported. He said Daiichi Sankyo clearly needs to get more heavy-handed on Ranbaxy management. "Daiichi Sankyo has put considerable effort into supporting Ranbaxy, but those efforts have been insufficient. We hope to prepare drastic new measures."

According to a Form 483 filed last week for the API plant in Toansa, the FDA made 8 observations during the Jan. 5 through Jan. 11 inspection. Particularly troubling, the FDA said, was that workers at the plant had been retesting products that failed analytics until they got the results that were needed, overwriting the old results in its database. Proper analysis procedures were not followed, and equipment was not properly calibrated. The FDA inspectors noted a dripping refrigerator where samples were stored and windows that could not be closed, letting in flies "Too Numerous To Count." The API plant in Toansa now joins Ranbaxy formulation plants in Mohali, Dewas and Paonta Sahib, India, that are banned from shipping products to the U.S.

Daiichi Sankyo believed it was making a solid move when it bought controlling interest in Ranbaxy Laboratories for $4.6 billion in 2008. Instead it has had to deal with escalating regulatory problems there. Last May, Ranbaxy pled guilty to felony charges tied to its long-running issues and paid $500 million in penalties. Daiichi Sankyo has sent in its own folks before and pledged improvements would come, but problems have just continued to mount. The two most recent bans come after it signed an extensive consent decree in 2011.

Executives did not say how much their efforts at Ranbaxy will cost Daiichi Sankyo this year but left its financial forecast at ¥65 billion ($634 million) in spite of the fact it has already netted more than that in the first three quarters, The Wall Street Journal said. Sakai also hinted that there might be a point at which the Japanese company begins divesting its 60% stake in Ranbaxy. "We aren't thinking of immediately lowering our stake," he said. "But there will be a negative impact on Ranbaxy's earnings so we need to consider comprehensively what we are going to do."

- here's The Wall Street Journal's take (sub. req.)
- here's the FDA Form 483 (PDF)

Special Report: Top 10 generics makers by 2012 revenue - Daiichi Sankyo