Ranbaxy Challenged by U.S. Suit on Generic Drugs (Update1)

July 14 (Bloomberg) -- The U.S. is probing whether Ranbaxy Laboratories Ltd. destroyed reports it was required to keep, falsified data and failed to meet quality control specifications in manufacturing the generic drugs it sells.

The federal government is seeking a court order to force the Indian-based company to turn over an audit that it says will prove Ranbaxy distributed ``adulterated and misbranded products,'' according to papers filed in U.S. District Court in Maryland.

The company has refused to turn over Parexel Consulting's report, claiming the information is protected by attorney-client and work-product privileges, according to the motion to force the company and the consulting firm to comply with the U.S. subpoenas.

The U.S. alleged Ranbaxy used ingredients from unapproved sources and blended approved and unapproved substances, sometimes using less of the active drug than was mandated by the Food and Drug Administration, the court papers said.

``Any of these conditions would cause a drug to be subpotent, superpotent or adulterated,'' the government said in its July 3 filing to force the company and its consulting firm to comply with the subpoenas.

Since Ranbaxy already has released portions of the audit, the government said the document is no longer privileged, the court papers said. The audit followed the FDA's letter in 2006 that there were ``significant violations'' at the company's Paonta Sahib, India, plant.

The shares of Daiichi Sankyo Co., which agreed to buy a controlling stake in Ranbaxy last month, fell 3.2 percent to 3,060 yen as of 11 a.m. on the Tokyo Stock Exchange, the biggest one-day decline since May 13.

Hold on Applications

The FDA put a hold on Ranbaxy's applications for new drugs from the Paonta Sahib plant, the government said. As Ranbaxy attempted to get the hold lifted, it released parts of the audit, which, according to the court papers, caused the company to waive any privilege attached to Parexel's report.

``Still, the company continues to assert privilege as to some of the audit documents, and these baseless privilege assertions have significantly impeded the government's investigation,'' the court papers said.

Ranbaxy spokesman Krishnan Ramalingam in Gurgaon, India, didn't return calls and messages yesterday seeking comment on the court documents. Attorneys Christopher Mead, Kate Beardsley and Carmen Shepard, representing Ranbaxy, didn't return calls or answer e-mails. Mark Hopson, representing Parexel, didn't answer an e-mail.

To contact the reporter on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net.

To contact the editor responsible for this story: Sylvia Wier at swier@bloomberg.net.