Eight years after selling its stake in Ranbaxy Laboratories, the family that controlled the generic drug maker has been ordered to pay approximately $400 million in damages to Daiichi Sankyo for concealing information about extensive quality control problems.
An arbitration panel on Thursday determined that Malvinder Mohan Singh and Shivinder Mohan Singh hid and concealed facts about operations at Ranbaxy when they sold their shares to Daiichi for $2.4 billion.
At the time, Ranbaxy was one of the largest providers of generic drugs to India and many other countries, including the United States. And Daiichi viewed the deal as an easy stepping stone to becoming an even bigger purveyor of pharmaceuticals on a worldwide basis.
But the strategy began unraveling just a few months later when a slew of manufacturing violations at different Ranbaxy plants prompted the US Food and Drug Administration to ban more than two dozen Ranbaxy drugs from entering the country.
The quality control problems, which were disclosed by a former Ranbaxy executive, involved filing false reports to the FDA and improperly testing medicines. After years of scrutiny and investigations, in 2013, Ranbaxy paid $500 million in fines and restitution to US authorities as part of a settlement that included pleading guilty to two charges of violating drug safety laws.
The FDA also banned Ranbaxy drugs from entering the US from still two more plants, following an ongoing series of inspections. These developments prompted Daiichi to seek damages, although the Singh brothers argued the lawsuit was “designed to divert attention away from Daiichi Sankyo’s own failures” during negotiations to purchase its majority stake in Ranbaxy.
The episode not only made Ranbaxy a poster child for manufacturing gaffes among generic drug makers, but raised widespread concerns about quality control issues at the many Indian drug makers that supply medicines to the US and elsewhere. Indian companies are among the biggest suppliers of generics.
Since then, in fact, the FDA has stepped up its scrutiny of drug makers based in India. Right now, the agency has three inspectors working in the country, but others regularly travel there as well, so the total number varies. India’s drug makers, however, are angry over the FDA scrutiny, which has led to a series of import alerts that ban products from being shipped to the US.
After the scandal, Daiichi overhauled Ranbaxy management, but later sold the company to Sun Pharma for $3.2 billion in stock, plus the assumption of $800 million in debt. As for the Singh brothers, they could not be reached for comment, but they are reportedly considering an appeal. Meanwhile, RHC Holdings, which is a holding company through which the Singh brothers sold their shares, issued a statement saying it is considering a legal challenge.