Will it be buyer beware in Daiichi Sankyo effort to recoup Ranbaxy losses?

Japan's Daiichi Sankyo has been explicit. It was misled about how ugly Ranbaxy Laboratories' regulatory problems were before it bought the Indian generics maker in 2008 for $4.6 billion. After agreeing to pay $500 million to U.S. authorities in May, the company let it be known it was taking "available legal remedies" against certain shareholders that it says misrepresented critical information.

Those shareholders are Malvinder Mohan Singh and Shivinder Mohan Singh, from the founding family, who sold their $2.4 billion stake as part of the deal, according to The Economic Times. The legal action turns out to be an arbitration filed in Singapore and overseen by the International Chamber of Commerce, sources tell the newspaper. The regulatory problems by now are legion: warning letters, import bans, a consent decree and a settlement in which it pleaded guilty to 7 felony charges. Oh, and there is also the revenues lost from agreeing to forfeit its first-to-file exclusivity on three unnamed drugs.

There is no question that Ranbaxy was riddled with problems when Daiichi took over. But The Economic Times, which has read the share purchase agreement between the two companies, says it may not hold the shareholders responsible for problems before the deal was signed. One source tells the newspaper it doesn't appear to indemnify Daiichi Sankyo for "such eventualities." In other words, the Japanese company may have to suck it up.

Daiichi Sankyo has itself found it daunting to get on top of problems at its Indian subsidiary, despite the stringent provisions of the 55-page consent decree. The successful launch of generic Lipitor last year made it appear that 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 Ranbaxy plant in India that was still approved to ship to the U.S. The disclosure resulted in a big hit to Daiichi Sankyo shares, not to mention Ranbaxy's. That left the Indian company with just its plant in New Jersey to serve the U.S. market.

The outcome of the arbitration may never be known, however. According to The Economic Times, the share agreement specifies that unless both parties agree, they are bound to keep the result of the action and any award a secret.

- here's the Economic Times story

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