Daiichi Sankyo accuses Singh brothers of concealing facts during Ranbaxy acquisition

Japanese pharmaceutical company Daiichi Sankyo has accused Malvinder Mohan Singh and Shivinder Mohan Singh of concealing and misrepresenting facts when it acquired a controlling stake for $2.4-billion in Ranbaxy Laboratories in 2008, from the brothers.

The accusation comes in an arbitration case filed in Singapore, The Economic Times reported citing three people familiar with the development.

The Japanese company has sought compensation for losses stemming from the $500-million settlement that Ranbaxy was forced to reach with the US Department of Justice in May over accusations that the company faked test results for obtaining approvals from the Food and Drug Administration for its medicines.

The US subsidiary of Ranbaxy pleaded guilty to seven felonies relating to the manufacture and distribution of certain adulterated drugs made at units in India and agreed to make payments to settle criminal and legal suits.

The company had said on 22 May that it might initiate legal steps against the Singhs, who had focused on finance, healthcare and other areas post their Ranbaxy exit.

However, the report, cited a person aware of the purchase terms as saying Daiichi's case might face challenges because the terms did not necessarily indemnify the new owners.

Also the text of the share purchase agreement (SPA) as reported seemed to be one-sided and favoured the Singh brothers.

The text as directly quoted from the news report reads: ''To the knowledge of the company, there is no event or situation that has not been disclosed to the buyer (Daiichi) and its representative since the accounts date and which could have a material adverse effect. For the purpose of this, the 'knowledge of the company' shall mean the knowledge of founder 1 (Malvinder Mohan Singh) without any obligation of founder 1 to make any due enquiry.''

According to commentators, what was clear was that the Japanese company either did not understand the language or they did not have a strong team representing them.

However, according to commentators, more than the money it was the reputation of the company that had taken a beating.

On at least 15 of the company's new drug applications, the USFDA uncovered over 1,600 data errors, which were bioequivalence figures needed to prove a generic was at least an 80 per cent chemical match of the branded drug. These either did not exist or were fabricated.

Meanwhile, Ranbaxy now finds itself in a spot.

Ex-employees in the US had been quoted in the US media (Dr Kathy Spreen who had been hired by Ranbaxy in 2004 to help Ranbaxy comply with FDA regulation was interviewed by CBS) that data fabrication had been found as far back as 2004 and even when it was brought to the notice of Malvinder Singh, nothing was done about it.