Aware of probe, Daiichi added FDA clause

Written by Rishi Raj | Indu Bhan | Indu Bhan | New Delhi | Updated: Jun 11 2013, 02:18am hrs
Former Ranbaxy promoters Malvinder Singh and family may have to shell out at least $500 million to Japanese drug maker Daiichi Sankyo as compensation if one goes by the agreement between the two that led to the latter buying out the promoters stake in the company in June 2008.

Sources aware of the sale agreement signed between the two parties told FE that Daiichi Sankyo was aware of the US Food and Drug Administrations (FDA) investigations into the manufacturing practices of Ranbaxy at two of its units and had put in a clause in the agreement that any liability arising out of it would have to be borne by the promoters.

An email query sent to Malvinder Singh and Daiichi Sankyo more than a week back did not elicit any response. However, sources close to Malvinder Singh declined any such clause in the agreement.

The deal happened on an as is, where is basis preceded by a due diligence but it had a clause that if the investigations led to any damages, it would have to be borne by the promoters as it related to the period before the Daiichi management took over, a source aware of the agreement between the two sides told FE, confirmed by several others in the know.

However, the same sources said that brothers Malvinder and Shivinder Mohan Singh could contest Daiichis claims as per the contract since the latter signed a consent decree and decided to plead guilty to charges of felony and agreed to pay a fine of $500 million. They can always contest on the grounds that Daiichi should have contested the claims rather than pleading guilty, one of the persons said. Sources also said that the former promoters could raise the point that the Ranbaxy management should have told them of their plan before pleading guilty.

On May 22, in a strongly worded statement, Daiichi Sankyo which holds a 64% stake in Ranbaxy had said the former shareholders of the firm concealed and misrepresented critical information concerning the US department of justice and Food and Drug Administration investigations. Daiichi Sankyo is currently pursuing its available legal remedies and cannot comment further on the subject at this time, it had added.

The statement had come almost a week after Ranbaxy pleaded guilty before the US department of justice for supplying fraudulent data to the FDA and agreed to pay a fine of $500 million.

In September 2008, the FDA had banned 30 generic drugs produced by Ranbaxy at its Dewas (Madhya Pradesh) and Paonta Sahib and Bata Mandi units in Himachal Pradesh, citing gross violation of approved manufacturing norms. Later, the US department of justice had moved a motion against the company in a local court alleging forgery of documents and fraudulent practice.

After Daiichis allegations, Malvinder Singh had hit back at the Japanese firm, stating that it failed to manage the company properly and, therefore, was levelling baseless charges at him.

Nothing was kept away from them (Daiichi Sankyo). It was they who approached us to buy the company, there was a proper due diligence, long dialogue, all documents relating to US DoJ and FDA were shown to them. Now, after five years to hear from them that we concealed information from them is totally baseless, Malvinder Singh had told FE. He had said that issues such as the one with the US authorities are faced by several companies in the business and the right thing to do is to deal with them, not pass on the blame if you fail in handling them, he said.

To a specific question whether he would initiate legal action against Daiichi Sankyo for making frivolous charges, Malvinder Singh had said, At this stage, I am only responding to their press release issued on May 22 levelling charges against former promoters concealing information relating to US FDA and DoJ. Any further action would be based on what they choose to do.

(Jayati Ghose contributed to the story)