When Daiichi Sankyo acquired Ranbaxy Laboratories from the Singh brothers in June, 2008, the pharmaceuticals major would not have imagined it would be in for so much trouble. The Japanese firm bought a controlling interest in Ranbaxy at a market capitalisation of close to R21,000 crore; since then the stock has lost about a third of its value, with the market cap at around R14,000 crore. More than the loss in wealth, however, it’s the loss of reputation that must worry the promoters; the run-ins with the US drug regulator cannot but be an embarrassment. To be sure, Daiichi was aware that Ranbaxy had been pulled up by the US Food and Drug Administrator (USFDA) which had issued it a warning letter for the Paonta Sahib plant way back in June 2006 and must have hoped to sort out the issue. But in the five and a half years that it has been in the saddle, the problems have only worsened, spilling over to other plants; in September, 2008, import alerts were issued for both the Paonta Sahib and Dewas units and about a year later, in December, 2009, Ranbaxy’s US facility in New Jersey, Ohm Laboratories, was warned about it manufacturing practices. More recently, the Mohali plant was banned from exporting finished products. Daiichi has attempted to resolve the problems—in May last year, Ranbaxy entered into a consent decree with the US regulator for an amount of $500 million, pleading guilty of selling adulterated drugs in the US.
However, it doesn’t look like the worst is over;on Friday, Ranbaxy was dealt another blow by the USFDA with its Toansa unit prohibited from manufacturing and distributing Active Pharmaceutical Ingredients (API) for sales of finished drugs and formulations in the US. Given the Toansa facility makes 75% of Ranbaxy’s requirements of APIs, the US regulator’s action will hurt the firm’s sales of formulations and finished drugs to the US estimated at roughly $400 million per annum. While Ranbaxy should be able to source APIs to supply Ohm Laboratories—its US facility— that clearly cannot be a permanent solution and Daiichi will need to