Ranbaxy Laboratories Ltd. (500359.BY) has resolved all quality issues with the U.S. health regulator, the Indian company confirmed Wednesday, adding however that it will set aside $500 million to settle any liabilities arising from a separate dispute with the U.S. Justice Department.

News of the provision hurt not just Ranbaxy, but parent Daiichi Sankyo Co. (4568.TO) as well, forcing Japan's third-biggest pharmaceuticals company by market capitalization to nearly halve its profit forecast for this fiscal year through March.

Daiichi Sankyo now expects a group net profit of Y26 billion, compared with a previously projected Y50 billion. The revised figure will be 63% lower than the Y70.12 billion profit Daiichi Sankyo notched up in the past fiscal year.

As part of efforts to offset the $500 million (Y38 billion) provision, Daiichi Sankyo announced pay cuts for executives for the next six months: Its president and chairman will receive a 30% pay reduction for six months while other board members' salaries will be cut by 5%-10%.

Ranbaxy said the $500 million provision is meant to cover all potential "civil and criminal liability" arising from a U.S. Justice Department probe into whether it manufactured substandard generic drugs.

Investors in Japan took the news in their stride--with Daiichi Sankyo's stock recently up 2.4% at Y1,509 in Tokyo--because a near-term U.S. settlement was anticipated.

But Ranbaxy's stock was punished in India because of what market participants saw as a higher-than-expected settlement provision for the Justice Department case.

At 0710 GMT, Ranbaxy shares were trading 1.3% lower at INR390.40 in a Bombay Stock Exchange market up 1.4%.

This despite the positives that follow Ranbaxy's settlement with the U.S. Food and Drug Administration, which the drugmaker said came after it committed to further strengthen procedures to ensure data integrity and to comply with good manufacturing practices at its plants.

It didn't say whether the FDA settlement included any financial payments.

The settlement with the FDA, which is subject to approval by the U.S. District Court in Maryland, comes after the regulator banned the company in 2008 from importing more than 30 of its generic drugs because of alleged violations of manufacturing practices at its plants at Dewas and Paonta Sahib in India.

The ban was imposed just months after Daiichi Sankyo acquired a stake of more than 50% in Ranbaxy for $4.6 billion.

The FDA also halted reviews of drug applications from Paonta Sahib in 2009, alleging that Ranbaxy falsified data.

The FDA ban had significantly impacted Ranbaxy's sales growth and profitability over the past two years.

The settlement, which came with a "consent decree," could lead to the FDA reopening reviews of applications for exports to the U.S. of drugs manufactured at Paonta Sahib.

It wasn't immediately clear by when Ranbaxy will be allowed to restart selling drugs manufactured at the two plants, but the settlement and the provision "bring greater predictability to Ranbaxy's U.S. operations," said Arun Sawhney, Ranbaxy chief executive and managing director.

A consent decree is a settlement of a lawsuit or criminal case in which a person or company agrees to take specific actions without admitting fault or guilt for the situation that led to the lawsuit.

Bino Pathiparampil, vice president at brokerage IIFL Capital, said that, although there is a consent decree now, "it is going to take at least more than a year [it takes time for the company to implement the corrective measures laid out in the consent decree] before we can see some product approvals."

The approvals may come only in small batches and may not be for the entire facility, he added.

The FDA settlement now leaves the legal dispute with the U.S. Justice Department as the last major impediment to Ranbaxy's efforts to boost sales growth in the largest drug market in the world.

The settlement comes close on the heels of Ranbaxy breaking new ground by launching the much-awaited copycat of the world's largest-selling drug--Pfizer Inc.'s Lipitor cholesterol-lowering drug. Ranbaxy was awarded sales exclusivity under U.S. federal law as it was the first successful generic challenger to Lipitor.

"...with this resolution in the United States, it will allow Daiichi Sankyo to expand worldwide sales of its new drugs using the Ranbaxy network," said Satoru Takaoki, a pharmaceutical analyst at Tokyo-based SMBC Friend Research Center.

 
  --By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464; dhanya.thoppil@dowjones.com
Daiichi Sankyo (PK) (USOTC:DSNKY)
Historical Stock Chart
From Dec 2024 to Jan 2025 Click Here for more Daiichi Sankyo (PK) Charts.
Daiichi Sankyo (PK) (USOTC:DSNKY)
Historical Stock Chart
From Jan 2024 to Jan 2025 Click Here for more Daiichi Sankyo (PK) Charts.