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Daiichi halves profit forecast after $500m manufacturing settlement

Issues at company’s Ranbaxy generic unit lead to US charge

Daiichi-Sankyo has halved its net income forecast after agreeing a $500m legal settlement for manufacturing violations by its Ranbaxy Laboratories unit.

The Japanese company said it now expects profits to hit 26bn yen ($334m) for the fiscal year ending March 2012 rather than the previously projected 50bn yen ($641m).

This would mean a year-on-year fall in net income of over 60 per cent compared to the 70.1bn yen Daiichi made in 2011 and the size of the drop is such that the company's board of directors have agreed to cut their individual earnings over the next six months.

Representative directors will lose 30 per cent of their pay and directors, including the company's CEO Joji Nakayama, will lose 10 or 5 per cent.

The settlement charge, which is subject to approval by the US District Court for the District of Maryland, relates to a US Food and Drug Administration (FDA) investigation into two Ranbaxy plants in India.

Daiichi said the charge will be 'sufficient to resolve all potential civil and criminal liability' relating to issues specified by the agency, and will allow US exports to resume from the affected plants.

In its initial warning letter in September 2008, the FDA said there were 'serious manufacturing deficiencies' at Ranbaxy's Dewas and Paonta Sahib plants in India that affected over 30 different generic products.

Problems reported at the plants included an inadequate protection against cross-contamination of drugs and inadequate batch production and control records.

Inaccurate written records of the cleaning and use of major equipment were also cited by the US regulator.

Further regulatory action was taken in February 2009 when the FDA halted reviews of drug applications from the Paonta Sahib plant due to evidence of falsified data from Ranbaxy.

In a statement released at the time, the FDA said there was a 'pattern of questionable data raising significant questions regarding the reliability of certain applications'.

This incident occurred just three months after Daiichi acquired its majority stake in Ranbaxy.

Arun Sawhney, Ranbaxy CEO & MD, said: “While we were disappointed by the conduct that led to the FDA's investigation, we are proud of the systematic corrective steps we have taken to upgrade and enhance the quality of our business and manufacturing processes.”

The company said it has committed to address the issues raised by the FDA, including strengthening data-related procedures and policies, as well as complying with current good manufacturing practices.

22nd December 2011

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