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Ranbaxy Laboratories to Pay $500 Million in Settlement with Food and Drug Administration

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Last week, India’s largest drug manufacturer, Ranbaxy Laboratories Ltd., announced that it had entered into a consent decree with the Food and Drug Administration (FDA) and had set aside a provision of $500 million to cover any liability arising out of a separate investigation by the Department of Justice (DOJ).

The consent decree comes after a 2008 decision by the FDA to ban dozens of Ranbaxy’s generic drugs from entering the US due to alleged violations of FDA manufacturing and quality standards at two of Ranbaxy’s plants in India. Additionally, the FDA alleged that Ranbaxy had falsified data about the shelf life, ingredients, and stability of certain medications including drugs that were to be distributed to foreign countries as part of the President’s Emergency Plan for AIDS Relief program (PEPFAR).

According to the consent decree, Ranbaxy has agreed to strengthen its compliance with industry standards. While the agreement is not an approval for Ranbaxy to resume manufacturing and importing drugs to the U.S., it will allow the company to seek FDA approval to resume importing pharmaceuticals produced at the two allegedly tainted factories. The consent decree is pending approval by the U.S. District Court for the District of Maryland. The $500 million reserve is intended to cover any of Ranbaxy’s potential civil and criminal liability.

Japan-based Daiichi Sankyo Co. acquired a majority stake in Ranbaxy in 2008 and has announced that it expects its net income to decline over 60% in the coming year due to Ranbaxy’s settlement with the DOJ. Some analysts have predicted that the settlement may wipe out Ranbaxy’s expected profits for the next two years. Because of the $500 million provision and the decreased profit forecasts, Daiichi Sankyo Co. has decided to cut executive pay for six months.

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