Daiichi Sankyo turned over Ranbaxy's problems to Sun, now cashing in its stake

Sun Pharmaceutical Managing Director Dilip Shanghvi

Last year, Japan's Daiichi Sankyo gave up on trying to extract itself alone from the regulatory quagmire it has been mired in since buying Ranbaxy Laboratories in 2008. It agreed to a $3.2 billion all-stock deal with Sun Pharmaceutical in which it got a 9% stake in Sun and Sun got the responsibility for straightening out Ranbaxy's deep issues. But no sooner had the deal closed than Daiichi began running for the door, selling off the shares and perhaps picking up a bit of profit on the deal.

In a release Tuesday, Daiichi Sankyo said it had sold all of the shares it held in Sun. Reuters reports the stake was worth about $3.6 billion but Daiichi said it would report the financial impact later. No reason was given for selling off the shares, but its experience with Ranbaxy has been nonstop issues. Shortly after buying controlling interest in Ranbaxy in 2008 for $4.6 billion as a generics play, a whistleblower alerted the FDA to the fact that the drugmaker had been faking data. The regulator issued warning letters and a consent decree for two plants, banning them from selling products in the U.S. Ranbaxy paid $500 million in 2013 to settle litigation with the Justice Department.

Ranbaxy had a good run with getting first-to-file applications approved for some of the world's best-selling blockbusters when they went off patent, like Pfizer's ($PFE) Lipitor, Novartis' ($NVS) heart drug Diovan and AstraZeneca's ($AZN) heartburn blockbuster Nexium. But then its regulatory problems got worse, complicating the launch of each of those drugs. It had to recall some of its generic Lipitor and delay by nearly two years the launch of Diovan, and the FDA finally canceled its application to sell generic Nexium because of the issues. It also left Ranbaxy with just one facility in the U.S. still able to sell drugs into the U.S., its largest market.

Last year, it agreed to the deal with Sun, selling Ranbaxy at a loss and becoming Sun's largest shareholder, turning over Ranbaxy's deep problems to Sun. Sun's founder and managing director, Dilip Shanghvi, has pledged that his first priority is to get Ranbaxy's regulatory issues resolved. When the deal closed, he said: "As a company our most important focus will be to win the confidence of regulators. We will do whatever it takes to win back the confidence of the regulators, so they trust what we do and they trust what we say."

- here's the release
- read the Reuters story

Special Report: Pharma's top 10 M&A deals of 2014 - Sun Pharmaceutical/Ranbaxy Laboratories