DSNKY Daiichi Sankyo Company Ltd (PK)

BANGALORE (Dow Jones)-Ranbaxy Laboratories Ltd. (500359.BY) Wednesday said it has settled all manufacturing practise issues with the U.S. health regulator, an agreement which could pave the way for parent Daiichi Sankyo Co. (4568.TO) to finally benefit from its pricey Indian acquisition.

Daiichi Sankyo bought a little more than 60% of Ranbaxy for $4.6 billion in 2008, a deal which was seen as expensive but a key step for the Japanese company's global expansion plans.

However, just three months after the acquisition, the Food and Drug Administration banned Ranbaxy from exporting more than 30 generic drugs into the U.S. because of alleged manufacturing violations at its plants at Dewas and Paonta Sahib in north India.

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

Ever since then, the unit has been a drag on Daiichi Sankyo's profits, with several issues with the FDA and the U.S. Justice Department queering the pitch and leaving investors unsure about exactly how things would pan out.

Even Wednesday, Japan's third-biggest pharmaceuticals company by market capitalization had to nearly halve its group profit forecast for the fiscal year through March to Y26 billion from the previous projection of Y50 billion, and cut pay for its senior executives by 5% to 30%.

This is because of $500 million (Y38 billion) that Ranbaxy said it will make a provision for to settle any liabilities resulting from a separate probe by the U.S. Justice Department into whether the Indian company manufactured substandard generic drugs.

On the bright side, the resolution of the two issues "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.

It wasn't immediately clear by when Ranbaxy will be allowed to restart selling drugs manufactured at the two plants, but the FDA settlement and the $500 million provision "bring greater predictability to Ranbaxy's U.S. operations," said Arun Sawhney, Ranbaxy chief executive and managing director.

In a step supporting this view, the Indian generic drug maker said soon after the settlement announcement that it will start marketing some of the products originally discovered by Daiichi in Malaysia.

Ranbaxy said it will start marketing Cravit--a drug used for treating bacterial infections--in Malaysia from Jan. 1. The product is currently marketed by First Pharmaceutical Sdn Bhd in the country.

In November, Ranbaxy launched the generic version of Lipitor, the cholesterol-lowering drug from Pfizer Inc. Ranbaxy was awarded sales exclusivity under U.S. federal law as it was the first successful generic challenger to Lipitor.

Also Wednesday, a local media report said that Ranbaxy has received approval from the FDA for one of its facilities in northern India's Mohali area, from where the company will start supplying drugs to the U.S. next year.

Sounding a word of caution, 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] 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, 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.

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.

 
  --By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464; dhanya.thoppil@dowjones.com 
 

Daiichi Sankyo (PK) (USOTC:DSNKY)
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