Answer to mystery of Ranbaxy 'settlement discussions' may be found in Texas

Beleaguered Indian drugmaker Ranbaxy Laboratories set aside about $40 million in its last quarter but gave no more explanation than saying it was for "ongoing settlement discussions." The set-aside was enough to push the drugmaker into the red for the quarter, reporting a loss of nearly $31 million. Now sources are suggesting the drugmaker's need for the funds: a settlement with the state of Texas.

Sources tell the Economic Times that the drugmaker has been in talks with Texas for some time and that the problems it faces are two-fold. Part of it has to do with claims the drugmaker overcharged the state Medicaid program, a common allegation in drug marketing settlements. The other is tied to its manufacturing problems for which Ranbaxy last year agreed to pay $500 million to settle federal litigation claiming the drugmaker had sold subpar drugs in the U.S.

Neither the company nor the state had anything to say about the reports, which were very specific, saying that about 38% of the penalty would be tied to manufacturing lapses and about 61% to Medicaid overcharges.

Japan's Daiichi Sankyo, which owns controlling interest in India's largest generic drugmaker, agreed in April to sell the company to Indian compatriot Sun Pharmaceutical. The all-stock deal for nearly $4 billion is expected to close by the end of the year, and Ranbaxy may be trying to clear its legal overhang before that happens.

But the drugmaker's problems keep piling up. Since its settlement with federal authorities in May of last year, the FDA has banned two more Ranbaxy facilities from exporting to the U.S. and added them to a consent decree that prescribes strict manufacturing oversight. That means four of the company's 5 FDA-approved plants are now out of the picture. That has left Ranbaxy scrambling to get several first-to-file generics of blockbusters launched.

Since it is in the best interest of the government, as a payer, to see those drugs launch, it has worked with Ranbaxy on a solution. In June the FDA approved Ranbaxy's Ohm Laboratories facility in New Jersey to manufacture a generic of Diovan, the Novartis ($NVS) heart drug that went off patent in September 2012. Because the Ranbaxy plant where it was to be made was in the midst of FDA problems that eventually led to the ban, the drugmaker was unable to get a copy to market.

- read the Economic Times story

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Daiichi Sankyo sells off Ranbaxy's problems to Sun Pharma
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