Ranbaxy-Daiichi affair: How & why the deal went south

As far back as 2004, Ranbaxy was well aware of the possible repercussions of its alleged improper regulatory filings

The Singapore International Arbitration Centre's (SIAC's) order in the Ranbaxy-Daiichi case has revealed in detail how the Indian pharmaceutical major withheld pertinent information from Japan’s Daiichi-Sankyo, reported The Indian Express on Thursday. 

The copy of the order, and the details contained in it, has been accessed by the newspaper barely months after the SIAC, in May, ordered Malvinder Singh and Shivinder Mohan Singh, former owners of Ranbaxy Laboratories, to pay damages worth Rs 3,500 crore to Daiichi.

How the deal went south

In 2008, the Japanese firm had made its foray into the growing Indian pharmaceutical market by buying a majority stake in Ranbaxy Laboratories for Rs 22,000 crore. 

 

However, in 2013, Daiichi filed an arbitration case against Ranbaxy in Singapore. The firm had accused the Singh brothers of concealment and misrepresentation of facts.

The case came after Ranbaxy, in May 2013, pleaded guilty to misrepresenting data and fraudulent activities in pursuit of fast drug approvals and paid $500-million to the US Department of Justice (US DoJ) as settlement.

However, as the Indian Express report reveals, the order clearly spells out how Ranbaxy was well aware of the possible repercussions of its alleged improper regulatory filings as far back as 2004. 

Citing the order, the report shows how a 2004 self assessment report, meant for the company's internal use, was presented during the company's science committee meeting. The internal report spoke of the company misrepresenting data. Malvinder Singh, who was present at the 2004 meeting, knew of it. 

It was the same internal report which led the US Food and Drug Administration (US FDA) and the US DoJ to look into the company.

Needless to say, Ranbaxy did not reveal the internal report, or its contents, to Daiichi at the time of the 2013 deal.   

According to the report, the order says: “But for the misrepresentations (by Malvinder Singh and others), the transaction would not have been entered into at all by Daiichi... Had Daiichi been aware of the SAR (Self assessment report) it would not have paid any price for (Ranbaxy) shares.”

The contents of the SAR were damning; the internal report listed over 200 drugs, including antiretroviral drugs for treating AIDS patients, for which Ranbaxy is alleged to have used fabricated data to bag approvals from regulators and authorities of more than 40 countries.

Troubles galore

According to the news report, the US FDA came into possession of the internal report in 2005 and, in 2006, it started an investigation, along with the US DoJ, into Ranbaxy. That same year, the US FDA issued a warning letter to Ranbaxy’s Paonta Sahib facility.

In February of 2007, US federal officials conducted a surprise search of Ranbaxy's US corporate offices in Princeton, New Jersey. At that time, the company had said that it did not know why the search was conducted and that it had come "as a surprise".

The year 2007 would prove to be calamitous for Ranbaxy, with former company executive Dinesh S Thakur filing a lawsuit against Ranbaxy in the US under the False Claims Act. Thakur had alleged that the company engaged in falsifying drug data and violating current good manufacturing practices (CGMP) and current good laboratory practices (CGLP). It was this lawsuit that would lead to the massive $500 million settlement made by the company in 2013.

In 2008, months after the Daiichi deal, the US FDA imposed an import alert on the Paonta Sahib and Dewas factories and banned 30 drugs.

Less than two months before Daiichi filed its case against the Singh brothers in 2013, the US banned imports from Ranbaxy’s new formulations factory in Mohali.

However, Ranbaxy’s troubles were far from over and, in early 2014, the US FDA banned imports from Ranbaxy’s main active pharmaceutical ingredients factory in Toansa, Punjab. In that particular case, the US FDA had identified significant CGMP violations at the facility.

Enter Sun Pharma

In 2014, Sun Pharmaceutical Industries Ltd agreed to buy Ranbaxy – which was then controlled by Daiichi – in a proposed $4-billion deal, including a debt of $800 million.

The transaction came as a significant relief for Daiichi-Sankyo, which had been struggling with Ranbaxy’s manufacturing and quality-related issues in the US, the largest pharmaceutical market.

The deal still represented a loss for Daiichi, which had originally acquired Ranbaxy for $4.6 billion.