Ranbaxy inks record-setting $500M manufacturing settlement with the feds

Ranbaxy Laboratories made history yesterday, but it would have preferred to arrive there by a different route. The India-based generics maker pleaded guilty to U.S. drug safety violations and agreed to pay $500 million in penalties, in the largest-ever federal settlement with a maker of copycat drugs.

Ranbaxy pleaded guilty to three felony counts of violating drug-safety laws and four felony counts of making false statements to the FDA, and it will pay $150 million in associated criminal penalties. The trouble arose in 2005 and 2006, as Ranbaxy ran into trouble at its two plants in India. The FDA found a host of violations at a plant in Paonta Sahib, including shoddy record-keeping and product testing. Agency inspections in 2006 and 2008 found similar problems at a plant in Dewas. In the fall of 2008, the FDA put an import alert on Ranbaxy products made at the two plants, barring the drugs from the U.S. until the problems were fixed.

As part of the plea agreement, Ranbaxy admitted to distributing drug batches it knew had tested out of range and were likely to be unstable, the Justice Department said in a statement. The company also admitted to misleading the FDA in annual reports about its stability testing on several drugs made at the Dewas plant. Ranbaxy knew about manufacturing violations at both plants, the prosecutors said, yet continued to sell products made there.

The FDA expects companies to comply with manufacturing rules "so that consumers can be assured that their medical products are safe and pure," John Roth, director of the FDA's Office of Criminal Investigations, said in a statement. The federal investigation uncovered evidence that certain lots of drugs made in Paonta Sahib were defective, Roth said, "in that their strength differed from, or their purity or quality fell below, that which they purported to possess."

And then there are the civil allegations: The Justice Department alleges that Ranbaxy knowingly sold subpar drugs made in Paonta Sahib and Dewas between April 2003 and September 2010, leading to false claims filed with federal healthcare programs, including Medicare and the U.S. Agency for International Development, which administers the President's Emergency Plan for AIDS Relief.The company agreed to pay $350 million in civil fines, $231.8 milion of that to the federal government and the remainder to states participating in the settlement.

The settlement finally wraps up years of wrangling with prosecutors and the FDA. Ranbaxy made a deal with the FDA last year that put the Paonta Sahib and Dewas plants under a consent decree, and it continues to bar drugs made there until the facilities are brought into compliance. The company also agreed to give up lucrative first-to-file exclusivity rights for several generic drugs. Though the brand names weren't specified, one of them may have been Novartis' ($NVS) blood pressure pill Diovan; Ranbaxy owned those 180-day exclusivity rights, but did not launch a copy of the blockbuster drug when it went off patent last year.

Ranbaxy executives said the settlement resolves a "past issue," noting that the allegations cited occurred years ago. But as the New York Times points out, the company's manufacturing problems have continued; in November, the company had to recall its copies of Pfizer's ($PFE) cholesterol drug Lipitor after glass fragments were found in the pills.

In announcing the deal, federal officials pledged to continue prosecuting drugmakers that sell drugs despite manufacturing practices that don't measure up. The Ranbaxy deal follows a much bigger settlement with GlaxoSmithKline ($GSK), which agreed to pay $750 million to settle allegations that it sold substandard drugs made at a problem plant in Puerto Rico even after a whistleblower raised red flags about the problems.

- read the Justice Department's statement
- get more from the New York Times

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