Dealing the reputation of Indian promoters a big blow, Japanese pharmaceuticals major Daiichi Sankyo on Wednesday indicated it may initiate legal steps against the former promoters of India?s biggest drug maker Ranbaxy Laboratories Limited ? Malvinder Singh and family ? saying the former shareholders of the company ?concealed and misrepresented critical information concerning the US department of justice and Food and Drug Administration investigations?.
Within three months of Daiichi buying out the promoters of Ranbaxy Laboratories Limited, the company?s problems with the US FDA began.
?Daiichi Sankyo is currently pursuing its available legal remedies and cannot comment further on the subject at this time,? the drug major said in a statement. Daiichi had bought out the promoters of Ranbaxy in a $4.6-billion all-cash deal for their 34.8% stake in June 2008, after which it made the mandatory open offer to minority shareholders, preferential allotments, warrants, in all acquiring 64% of the firm?s equity.
While the alleged misrepresentation of information by Ranbaxy Laboratories Limited promoters may be a less serious issue than the R6,000-crore fraud committed by Ramalinga Raju, promoter of the erstwhile Satyam Computer, the fact that Daiichi is taking legal recourse would nonetheless hurt India Inc?s reputation, making foreign acquirers more cautious than ever.
Indeed, Daiichi?s statement comes just a week after Ranbaxy Laboratories agreed to pay $500 million to resolve fraud allegations made in a whistle-blower?s lawsuit and federal criminal charges that the company sold adulterated drugs while lying about it to US regulators. The firm pleaded guilty to making fraudulent statements to the US FDA about how it tested drugs at two of its Indian plants. Moreover, on Tuesday, India?s Drug Controller General of India (DCGI) decided it would investigate all applications of Ranbaxy based on which it was granted to approval to make drugs prior to 2005.
Ranbaxy has been in trouble with the US FDA for several years now. Barely three months after Daiichi took control of Ranbaxy, in September, 2008, the US FDA banned 30 generic drugs manufactured from three of Ranbaxy?s units in India ? Dewas (Madhya Pradesh), Paonta Sahib and Batamandi unit in Himachal Pradesh ? citing gross violation of approved manufacturing norms. Later, the US department of justice moved a motion against the company in a local court alleging forgery of documents and fraudulent practice.
In August 2011, Ranbaxy also closed down a unit in the US ? Gloversville, NY ? which had been under scrutiny by US authorities for violation of regulatory norms. The company had said that the liquid-manufacturing plant had been shut as it was operating at ‘sub-optimal level’. This followed a December 2009 warning to the plant by the US FDA for violation of manufacturing norms.
Daiichi Sankyo said it would continue to support Ranbaxy in its efforts to address and correct the conduct of the past which led to the investigations by the US DoJ and FDA. ?These efforts include significant changes to Ranbaxy’s management, culture, operations and compliance,? the company said.
If indeed Daiichi sues the former promoters of Ranbaxy for concealing vital information, it would not be the first instance of a foreign promoter having sued an Indian promoter in a joint venture for misdemeanour. ?There have been several such instances but the legal system is slow so for any claims it takes several years,? said corporate lawyer Diljit Titus, senior partner, Titus & Co. Titus said that a Canada-based company Quebec Gearworks had sued its Indian partner for a malpractice and won claims though it had taken 11 years.
When Ranbaxy was acquired in June 2008 by Daiichi, Malvinder Singh continued to be the CEO and MD, a post from which he stepped down in May 2009. The US FDA first noted the wrong practices of Ranbaxy in 2006 , finally banning the drugs in September 2008. In December 2011, the company had agreed to sign a consent decree with the US authorities to resolve the criminal charges and provisioned $500 million for that.
The management of Ranbaxy issued a statement on Wednesday clearly attempting to distance the company’s present management from the past one. ?Ranbaxy is a different company today. The steps we have taken over the recent years reflect the wide-ranging efforts of the current board and management to address certain conduct of the past and ensure that Ranbaxy moves forward with integrity and professionalism in everything we do. We are fully committed to upholding the high standards that patients, prescribers and all other stakeholders expect,? CEO and managing director Arun Sawhney said. Malvinder Singh could not be contacted for his comments.
