Daiichi Sankyo Vows Drastic Steps to Improve Ranbaxy Quality
Japanese Drug Maker Responds to U.S. Ban
By Kana Inagaki
Jan. 31, 2014 3:11 a.m. ET
TOKYO—Japanese pharmaceutical maker Daiichi Sankyo Co. 4568.TO +2.74% insisted it is not considering lowering its stake in Ranbaxy Laboratories Ltd. 500359.BY +0.81% for now, promising instead to take significant new measures to revamp quality control at its problematic Indian drug unit.
The comments from a senior Daiichi Sankyo executive come after the Food and Drug Administration earlier in January banned U.S. market use of drug ingredients produced at Ranbaxy's Toansa factory in the northwestern Indian state of Punjab, citing quality issues.
The latest ban, following similar restrictions on other Ranbaxy facilities, is a serious blow for Daiichi Sankyo since Toansa supplies many of the critical ingredients used in the Ranbaxy's generic drugs. Until the problem is resolved, the Indian unit will need to obtain active pharmaceutical ingredients or finished products from third parties, Chief Finance Officer Manabu Sakai told reporters.
"Daiichi Sankyo has put considerable effort into supporting Ranbaxy, but those efforts have been insufficient," Mr. Sakai said. "We hope to prepare drastic new measures," he added.
But Japan's third-largest drug maker by revenue provided few details of what kind of measures it envisages. It has already hired consultants and sent over Daiichi Sankyo employees to help enhance quality control at Ranbaxy plants.
The FDA move follows a decision in September to block imports from Ranbaxy's Mohali plant in north India. Two other Ranbaxy facilities were similarly blocked in 2008, just a few months after Daiichi Sankyo acquired the Indian generic drugs maker for $4.6 billion.
Mr. Sakai conceded that the problems at Ranbaxy factories were deeper than the company had initially thought, saying it was particularly disturbing that the FDA found problems at Ranbaxy's quality-control labs instead of at the manufacturing sites as was the case in previous findings.
Daiichi Sankyo, which now holds more than a 60% stake in Ranbaxy, had sent its employees to train plant managers, but its training had not extended to labs, he said.
According to a report by FDA inspectors, workers at Ranbaxy's Toansa plant repeatedly fudged test results to make it appear that raw materials and active pharmaceutical ingredients met required standards when they didn't.
Ranbaxy, contacted in Gurgaon, India, declined to comment.
In a separate conference call on Friday, analysts grilled Mr. Sakai about how the company could possibly overlook alleged violations such as the deletion of evidence of failed tests cited in the FDA's report.
"We need to grasp how something like this could occur, how extensive the transgressions were and whether they were the fault of a particular person," Mr. Sakai told them.
"What we need to do seems to be growing and growing," Mr. Sakai said, adding that the company is also receiving inquiries about Ranbaxy plants from authorities outside the U.S.
On Friday, Daiichi Sankyo kept its full-year net profit forecast at ¥65 billion ($634 million) despite already topping that figure in the first nine months through December. While the company is still gauging the impact of the FDA ban on Ranbaxy earnings, Mr. Sakai said concern about Ranbaxy was one factor for not changing its outlook. For the nine-month period, Ranbaxy sales accounted for about 20% of Daiichi Sankyo's overall revenue.
"We aren't thinking of immediately lowering our stake," he said. "But there will be a negative impact on Ranbaxy's earnings so we need to consider comprehensively what we are going to do," he added without elaborating.
