Japanese drugmaker Daiichi Sankyo Co. (4568.TO) on Wednesday nearly halved its profit forecast and announced executive pay cuts due to a $500 million provision to settle a legal dispute between its Indian unit and U.S. authorities.

Japan's third-biggest pharmaceutical company by market capitalization now expects a group net profit of Y26 billion for the current business year through March, compared with a previously projected profit of Y50 billion. The revised figure will be 63% lower than a year-earlier profit of Y70.12 billion.

The downward revision comes as its Indian generic drug-making unit Ranbaxy Laboratories Ltd. (500359.BY) said it reached a settlement with the U.S. Food and Drug Administration over a 2008 ban on imports of drugs made at two of its Indian plants for alleged violation of manufacturing quality rules.

The unit has also been accused of fabricating data and test results in drug applications submitted to the agency from one of these plants.

As part of the new consent decree with the FDA, which is subject to approval by the U.S. District Court in Maryland, Ranbaxy said it will work to strengthen data quality in compliance with the industry manufacturing practices.

The Indian unit also set aside $500 million in a provision to address civil and criminal liability for a separate U.S. Justice Department investigation. As a result, Daiichi Sankyo will book a one-off loss of Y37.5 billion.

"While we were disappointed by the conduct that led to the FDA's investigation, we are proud of the systematic corrective steps we have taken to upgrade and enhance the quality of our business and manufacturing processes," Ranbaxy Chief Executive Arun Sawhney said.

The Japanese firm, which acquired over a 50% stake in Ranbaxy for $4.6 billion just months before the 2008 ban, also said its president and chairman will receive a 30% pay reduction for six months while it will implement 5%-10% cuts in monthly pay for other board members.

As of Wednesday midmorning close, Daiichi Sankyo shares gained 1.0% to Y1,487 on the Tokyo Stock Exchange since a near-term U.S. settlement had been anticipated.

"This issue has taken much longer than expected," said Satoru Takaoki, a pharmaceutical analyst at SMBC Friend Research Center.

"But with this resolution in the United States, it will allow Daiichi Sankyo to expand worldwide sales of its new drugs using the Ranbaxy network," he added.

Ranbaxy recently launched the much-awaited copy of Pfizer Inc.'s (PFE) blood cholesterol-lowering Lipitor in the United States after clinching approval from the FDA.

-By Kana Inagaki and Drew FitzGerald, Dow Jones Newswires; 813-6269-2795; kana.inagaki@dowjones.com

--Hiroyuki Kachi contributed to this article.

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