Daiichi Sankyo

2012 Generics Revenue: $2.26 billion

Japan's Daiichi Sankyo stepped into the generics arena in 2008 with a $4.6 billion deal to become the majority shareholder of India's largest generics maker, Ranbaxy Laboratories. And while the move stunned analysts, caught off-guard by such a dramatic play from a conservative industry player, it seemed to make sense. Daiichi's home market of Japan, with its aging population and new interest in broadening the use of generics. Ranbaxy's drug business, the largest in India, providing an emerging markets opportunity and low-cost manufacturing. A combined company worth about $30 million.

As it turned out, the real surprises were around the corner. Not long after the companies announced the merger deal, the U.S. government alleged Ranbaxy officials used ingredients from unapproved sources and fabricated in-house testing data to meet the agency's standards. The FDA banned 30 Ranbaxy products, and the company shut down two facilities to get its manufacturing under control; to that end, it finally signed a consent decree with the agency three years after running into those problems.

The snafu had very tangible effects for Daiichi Sankyo, whose execs took pay cuts to make up for Ranbaxy's losses. Civil and criminal penalties ultimately totaled $500 million, making Ranbaxy's the largest-ever federal settlement for a generics maker. And in addition to the money Ranbaxy had to fork over, it also gave up the money it never had a chance to make: As part of its punishment, Ranbaxy agreed to forfeit first-to-file exclusivity rights for three unnamed generic drugs.

The consent decree parted the clouds hanging over Ranbaxy, allowing it the chance to bring its problem plants up to FDA standards and get back in the game. But less than a year later, Ranbaxy--and Daiichi by extension--received another huge blow. Nine months after starting production of atorvastatin, the generic of the world's best-selling Lipitor, it recalled 41 lots of the drug due to glass particles found in an ingredient. Not only did the recall lead to a $90.95 million loss in last year's first quarter, but it also sabotaged Ranbaxy's market share for the drug. Where it once controlled 43% of generic Lipitor sales in the U.S., that number plummeted to 3%.

After Ranbaxy settled with the Department of Justice, it once again had the opportunity to set things on the right track. That didn't work out so well, either. Following up on a Form 483 for the company's Mohali plant that came to light over the summer, the U.S. issued an import ban for that facility last month.

With the Mohali plant now unable to make drugs for the U.S. and the two others still under import alert from the company's earlier problems, that leaves only one plant in New Jersey to supply drugs to the U.S., a market Reuters says makes up more than 40% of the company's sales.

To make matters worse, the Mohali plant--the site of the Lipitor disaster--was the plant slated to make generic Diovan, the hypertension drug from Novartis ($NVS) that generated $4.4 billion in global sales last year. Problems there could delay launches of other products as well, including copies of Roche's ($RHHBY) anti-viral Valcyte and AstraZeneca's ($AZN) blockbuster stomach drug Nexium. But Ranbaxy may have a couple of options with its New Jersey plant. A recent signoff from the FDA after an inspection of the plant may allow it to handle some of those first-to-file products.

Though problems with the U.S. have put a damper on a large share of sales, Daiichi Sankyo and Ranbaxy have not stopped trying to expand business elsewhere. Like other generics makers, Ranbaxy is considering adding some branded products to its lineup; luckily, those are drugs its parent Daiichi can provide. The company could add them to its portfolio mix in Russia, where its 51 registered generics have gathered a 15.4% share of the growing market over two decades.

For more:
FDA closes out inspection on Ranbaxy New Jersey plant
Ranbaxy looks to add Daiichi Sankyo drugs to its Russian portfolio
Reported Form 483 may explain Ranbaxy not getting Diovan to market
Daiichi accuses Ranbaxy shareholders of hiding info before buyout
Ranbaxy inks record-setting $500M manufacturing settlement with the feds
Daiichi Sankyo acquires Ranbaxy in $4.6B deal

Daiichi Sankyo

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