Ranbaxy inks consent decree, sets aside $500M

At long last, Ranbaxy Laboratories has come to an agreement with U.S. regulators. Almost three years to the day after the FDA announced an import alert on 30 Ranbaxy products, the company signed a consent decree with the agency. The deal requires Ranbaxy to improve its manufacturing compliance, of course, and opens the door for new FDA approvals of meds made at the two problem plants.

That's the good news. The bad news is that Ranbaxy set aside $500 million to cover civil and criminal penalties stemming from a Justice Department investigation. That's on the high end of analysts' predictions. IIFL analyst Bino Pathiparampil told Bloomberg the $500 million reserve "could wipe out the company's profits for this year and the next."

Worse news for executives and directors at Daiichi Sankyo, which bought a majority stake in Ranbaxy a few months before the manufacturing snafus surfaced: They're taking a direct hit from the settlement. The Japanese drugmaker downgraded its earnings forecast because of the $500 million reserve, saying that net income will drop by 63% for the year ending in March, to about $334 million. CEO Joji Nakayama and board members will take pay cuts of 5% to 30% for 6 months. Justifiably so, the Financial Times says, pointing out the $4.6 billion Daiichi paid for its Ranbaxy stake seemed steep at the time--and looked positively "asinine" a year later.

But back to the good news. The consent decree and settlement will blow away the dark clouds that have hung over Ranbaxy for almost three years. As Ranbaxy CEO Arun Sawhney said, the outlook for its U.S. operations is clearer and more predictable. "While we were disappointed by the conduct that led to the FDA's investigation, we are proud of the systematic corrective steps we have taken to upgrade and enhance the quality of our business and manufacturing processes," Sawhney said.

- read the announcement from Ranbaxy
- check out The Economic Times story
- get more from Bloomberg
- see the FT's coverage