Daiichi Sankyo says it was burned in Ranbaxy buyout

The manufacturing problems Japan's Daiichi Sankyo acquired when it took control of generic drugmaker Ranbaxy Laboratories have been one booby trap after another: warning letters, import bans, a consent decree and a $500 million settlement with U.S. authorities. After the May settlement, the company said it had been misled by "certain former shareholders of Ranbaxy" before the deal about the troubles the company faced. It said it was taking legal action to wrest back some of the $4.6 billion its shelled out on the deal.

Those shareholders are Malvinder Mohan Singh and Shivinder Mohan Singh, brothers from the founding family, who sold their $2.4 billion stake as part of the deal, sources tell The Economic Times. The legal action is an arbitration filed in Singapore and overseen by the International Chamber of Commerce, 

There is no question that Ranbaxy was riddled with problems when Daiichi took over. The FDA, tipped off by a whistleblower, found that the company was making subpar products and faking data to conceal problems. The FDA slapped an import ban on Ranbaxy's plants in Paonta Sahib and Dewas, India, and withheld the company's first-to-file 6 months' exclusivity on three unnamed drugs. Then there was the agreement to plead guilty to 7 felonies and pay $500 million in penalties.

But it may be a case of buyer beware. The Economic Times, which has read the share purchase agreement, says it may not hold the shareholders responsible for all of those problems. One source with experience in these deals tells the newspaper it doesn't appear to indemnify Daiichi Sankyo for "such eventualities."

The Japanese drugmaker has found it daunting to turn problems around at its Indian subsidiary. The successful launch of generic Lipitor last year made it appear Ranbaxy had broken its bad habits. But within months, it recalled 41 lots of the drug because of possible glass particles from a broken reactor at its plant in Mohali. A series of FDA Form 483s led to an import alert in September for that facility, the only plant in India still approved to ship to the U.S. That left it with just its plant in New Jersey to serve the U.S. market.

The outcome of the arbitration may never be known. According to The Economic Times, the share agreement specifies unless both parties agree, the result and any award will remain confidential.

- here's the Economic Times story

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