Ranbaxy to Pay $500 Million to Settle Criminal, Civil CasesAndrew Zajac and Tom Schoenberg
Ranbaxy Laboratories Ltd. agreed to pay $500 million to resolve fraud allegations made in a whistle-blower’s lawsuit and federal criminal charges that the company sold adulterated drugs while lying about it to U.S. regulators.
Ranbaxy, in papers filed in federal court in Baltimore yesterday, admitted it sold batches of drugs that were improperly manufactured, stored and tested. The company, India’s biggest drugmaker, also pleaded guilty to making fraudulent statements to the Food and Drug Administration about how it tested drugs at two of its Indian plants.
“This is the largest false claims case ever prosecuted in the District of Maryland, and the nation’s largest financial penalty paid by a generic pharmaceutical company” for violation of the Food, Drug and Cosmetic Act, Maryland U.S. Attorney Rod Rosenstein said in a statement.
The resolution of the lawsuits and the criminal charges filed yesterday caps allegations about Ranbaxy’s practices dating to 2003 when the company distributed a batch of acne medication it knew had failed a quality test, according to the criminal charges.
FDA inspections of facilities in Paonta Sahib and Dewas in India, beginning in 2006, found incomplete record-keeping, testing failures and other quality-control issues. Earlier, lapses in manufacturing procedures made it impossible to ensure the drugs were of the required purity, according to the criminal information.
Ranbaxy rose 0.8 percent in Mumbai trading to 443.15 rupees as of 10:45 a.m. The stock has declined 12 percent this year, compared with the 1.7 percent gain in the S&P BSE India Sensex.
In January 2012, Ranbaxy settled an FDA lawsuit by agreeing to stop production of drugs for the U.S. market at the two plants until they met American standards. In 2007, the whistle-blower’s lawsuit, unsealed yesterday, alleged the company defrauded public health-care programs.
The felony criminal charges filed yesterday include a $130 million fine and forfeiture of $20 million.
The false claims portion of the settlement totals $350 million for the U.S. and states to settle allegations taxpayers paid for substandard drugs used in publicly-financed programs such as Medicare and Medicaid.
“While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all of Ranbaxy’s stakeholders,” Arun Sawhney, chief executive officer and managing director of Gurgaon, India-based Ranbaxy, said in a statement. “The conclusion of the DOJ investigation does not materially impact our current financial situation or performance.”
The company said in the settlement agreement to the lawsuit that it denies wrongdoing in the civil case.
Ranbaxy reported in December 2011 it set aside $500 million to resolve “all potential civil and criminal liability” related to the U.S. probes.
Daiichi Sankyo Co., Japan’s fourth-biggest drugmaker by market value and the controlling shareholder in Ranbaxy, said it would cut pay for executives after announcement of the provision in 2011.
Drugs cited in criminal charges as failing to meet FDA standards include the antibiotics ciprofloxacin, cefaclor and amoxicillin, the acne drug Sotret, and Gabapentin, a compound used to treat epilepsy and certain kinds of nerve pain.
The whistleblower in the civil case, Dinesh Thakur, of Belle Mead, New Jersey, a former Ranbaxy executive, will receive $48.6 million from the federal government’s share, which totals $231.8 million. An additional $118.2 million will go to states participating in the agreement, Rosenstein said.
Thakur learned of the production and testing issues and reported them to Ranbaxy management before he left the company in 2005, according to a statement released by his law firm, Stein Mitchell Muse & Cipollone LLP in Washington.
The case highlights the importance of regulatory oversight in a global supply chain for drugs, Thakur said in the statement.
“There are unique challenges in a global drug market, which is highly dependent on international manufacturing and distribution,” Thakur said. “In fact, approximately 78 percent of prescription drugs dispensed in the U.S. are generic, and a growing percentage of drugs -- both generic and name brand -- is manufactured overseas.”
The criminal case is U.S. v. Ranbaxy U.S.A., 13-cr-00238, U.S. District Court, Maryland (Baltimore). The civil case is Thakur v. Ranbaxy U.S.A. Inc., 07-cv-00962, U.S. District Court, Maryland (Baltimore).