Daiichi Sankyo pledges 'drastic measures' to get Ranbaxy in line

Japan's Daiichi Sankyo believed it was making a solid move when it bought controlling interest in Ranbaxy Laboratories for $4.6 billion in 2008. Instead it has seen its finances burdened by Ranbaxy's non-stop regulatory issues, leading some to wonder if Daiichi might get fed up and bail out. But executives today said they don't intend to do that, at least not for now. Instead Daiichi will take "drastic" steps to turn the operations around.

The observations came as the Japanese drugmaker discussed its 9-month earnings, acknowledging that problems at Ranbaxy would be a drag on finances for the year, The Wall Street Journal reports.

"Daiichi Sankyo has put considerable effort into supporting Ranbaxy, but those efforts have been insufficient," CFO Manabu Sakai said. "We hope to prepare drastic new measures."

The FDA this month banned a fourth Ranbaxy plant in India from exporting to the U.S., this one an active pharmaceutical ingredient (API) facility that produces the majority of the ingredients it uses for the drugs sold in the U.S. In September it banned a key manufacturing facility from exporting to the U.S. and for years two others have been excluded from Ranbaxy's largest market. Last May, Ranbaxy pled guilty to felony charges tied to its long-running problems and paid $500 million in penalties. According to Reuters, Daiichi Sankyo's share price is off about 10% since last week's news of the ban.

Sakai was not specific about the steps the drugmaker will take but said Daiichi was particularly troubled that the latest problems arose at an analytics facility. FDA inspectors said they found evidence that workers repeatedly tested APIs to get the results they needed and then overwrote failed tests in the company's database. "We need to grasp how something like this could occur, how extensive the transgressions were and whether they were the fault of a particular person," he said.

While Daiichi Sankyo has not given up on Ranbaxy, it is trying to recover some of its investment in the troubled company. It is reportedly in arbitration with Malvinder Mohan Singh and Shivinder Mohan Singh, from the founding family, who sold the Japanese company their $2.4 billion stake as part of the deal.

Executives did not say how much their efforts at Ranbaxy will cost Daiichi Sankyo this year but left its financial forecast at ¥65 billion ($634 million) in spite of the fact it has already netted more than that in the first three quarters, The Wall Street Journal said. Sakai also gave a hint that there might be a point at which the Japanese company begins divesting its 60% stake in Ranbaxy. "We aren't thinking of immediately lowering our stake," he said. "But there will be a negative impact on Ranbaxy's earnings so we need to consider comprehensively what we are going to do."

- here's the Wall Street Journal story (sub. req.)
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