Is Daiichi Sankyo Gearing Up For Arbitration Against Former Ranbaxy Owners?
This article was originally published in PharmAsia News
Executive Summary
Daiichi Sankyo continues to believe previous Ranbaxy shareholders concealed information related to U.S. FDA negotiations. Sources say arbitration in Singapore could be taking shape.
MUMBAI – Daiichi Sankyo Co. Ltd., which holds 63% stake in Indian drug firm Ranbaxy Laboratories Ltd., continues to pursue available legal remedies against former shareholders of Ranbaxy on the belief they concealed and misrepresented critical information concerning U.S. Department of Justice and U.S. FDA investigations.
The troubled Indian drug manufacturer was acquired in 2008 by Daiichi Sankyo in a landmark, all-cash deal valued at $4.6 billion. At that time, Ranbaxy was run by Malvinder Singh and Shivinder Singh, the grandsons of late founder Bhai Mohan Singh. The deal provided for sale of the 34.8% held by the Ranbaxy promoters, while the rest was to be moved through public offerings (Also see "Japan’s Daiichi Sankyo In “Transformational” Deal to Buy Majority Stake In India’s Ranbaxy Labs" - Scrip, 11 Jun, 2008.).
Ranbaxy soon found itself mired in intensive regulatory scrutiny at two of its Indian sites – Paonta Sahib and Dewas – where significant manufacturing deviations were identified by the FDA.
Pointing Blame
After a prolonged investigation, the case was settled in May but not before Ranbaxy pleaded to felony charges on seven counts, including making fraudulent statements. It signed a comprehensive consent decree with the FDA to set its processes right and pay a hefty penalty of $500 million in addition to losing exclusivities on a few drugs in the U.S. market.
Following the conclusion of the settlement, Daiichi Sankyo said it would look at legal remedies, directly indicating its blame against the former Ranbaxy owners (Also see "Final Assault: Daiichi Sankyo Threatens Legal Action Against Former Ranbaxy Shareholders For Concealing Information" - Scrip, 22 May, 2013.).
The Singh brothers steadfastly refuted charges that they concealed information related to the FDA investigations, terming Daiichi Sankyo’s claims as ridiculous, false and baseless. Malvinder Singh told PharmAsia News that Daiichi Sankyo had no case to prove its charges (Also see "Let The Blame Game Begin: Former Ranbaxy Promoter Spars With Daiichi Sankyo" - Scrip, 24 May, 2013.).
He based that view on the claim that the Japanese company was made aware of the FDA investigations and were also apprised about every step in the negotiation process before the deal was signed.
What now comes as a bigger problem for Daiichi Sankyo is the Import Alert imposed on Ranbaxy’s newly commissioned site at Mohali in September. FDA officials identified several deviations and halted exports of products from the site (Also see "EXCLUSIVE: U.S. FDA Posts Import Alert For Ranbaxy’s Mohali Site; Adds Mohali To Consent Decree" - Scrip, 15 Sep, 2013.).
Observers say while the past faults can be blamed to the old Ranbaxy management, the issues at the Mohali site cropped up under the Daiichi Sankyo regime.
Action At Singapore
Daiichi Sankyo recently told PharmAsia News it is still pursuing legal remedies and “cannot comment further on the subject at this moment.” It said the status of the legal action has not changed yet
However, two highly placed industry sources said the Japanese company initiated arbitration at a Singapore legal venue a few weeks ago. Details could not be obtained, but the source said Daiichi Sankyo has pressed for a claim of millions of dollars that it ended up paying to the U.S. regulators.
Media officials at Fortis Hospitals, the hospital chain presently run by former Ranbaxy owners Malvinder Singh and Shivinder Singh, did not answer requests for comment on the issue.
The source noted that as per the terms of the agreement reached for the Ranbaxy acquisition, the two sides had agreed to settle future disputes in Singapore, which is seen as an ideal location for timely arbitration and dispute settlement. In all likelihood, the source said, given the contrasting claims from the two sides, the case may not end with an arbitration-led settlement and may blow up into a full-fledged corporate fight.