Ranbaxy's stake sale to Daiichi may go awry

The allegations raised by the US government against India's largest drug maker Ranbaxy has the potential to derail plans of the company's promoters to sell their 34.8 per cent stake to Japanese drug maker Daiichi Sankyo, industry experts feel. "The nature of the allegation is so serious that if proven, Ranbaxy may end up paying billions of dollars as liability," a Mumbai-based industry analyst said. The US government has filed a motion, seeking certain documents from Ranbaxy over doubts of it indulging in alleged malpractices like concealing and forging crucial data to get marketing approval for its products in the US. Industry experts feel that though Ranbaxy must have informed Daiichi about the details of the ongoing investigations by the US government authorities, its magnitude must have come as a surprise to the Japanese company. "Daiichi is sure to go for stringent due diligence before it goes ahead with the transaction," the analyst said. In an email response, a Daiichi spokesperson informed Business Standard that the company was in the process of assessing the legal liabilities involved in the acquisition of Ranbaxy. On June 11, Daiichi had announced its plans to acquire a majority stake in Ranbaxy through an all-cash deal valued at $4.6 billion (Rs 19,780 crore). The company recently announced an open offer to acquire Ranbaxy shares. Ranbaxy has denied all allegations made against the company and will file its response in the court on July 14. The suit filed against Ranbaxy and its US-based consultant, Parexel Consulting, alleges that the company has concealed and forged crucial data to get a favourable judgement on an ongoing investigation by the United States Food and Drugs Administration (USFDA) into the sale of sub-standard drugs in that country. The suit, filed with the District Court of Maryland, has directed Ranbaxy and Parexel to submit all relevant documents for verification. If proved, the allegations could have a serious impact on Ranbaxy's US operations, which contributed 23 per cent to the company's total turnover of over Rs 6,000 crore in the financial year ended March 2008. Legal damages will also follow. The investigation stems from an FDA inspection of Ranbaxy's facilities at Panota Sahib in June 2006, where it found discrepancies in manufacturing processes and maintenance of data. In this connection, the federal agents had raided Ranbaxy's US office last year. The documents demanded by the agency include two specific draft standard operating procedures (SOPs), details on the Toansa plant and the API facilities of Panota Sahib, validation protocols and reports for two products and certain quality control procedures, detailed by the consultant. The suit counters Ranbaxy's argument that the documents sought are "privileged" and wants the company to part with the information. By Ms.Bobby Aanand, Metropolitan Jury.

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