A subsidiary of Japan-based pharmaceutical company Daiichi Sankyo pleaded guilty earlier this month to violations of U.S. drug safety laws and will pay $500 million to resolve criminal and civil claims that it manufactured and sold “adulterated” drugs and made false statements to federal authorities. The $500 million payment is the largest drug safety settlement involving a generic pharmaceutical company in U.S. history.

According to a U.S. Department of Justice (“DOJ”) press release, the subsidiary, Ranbaxy USA Inc., admitted to introducing, or delivering for introduction, into the stream of commerce, “adulterated” drugs – i.e., drugs that were not properly manufactured, stored, or tested. The company also admitted to knowingly making false statements to the U.S. Food and Drug Administration (“FDA”) about how it tested drugs at two factories, and acknowledged that it failed, for several months, to alert the FDA or announce a recall of one drug after discovering impurities in the drug. Ranbaxy also settled civil claims by the federal government and all 50 states that it caused false claims to be submitted to government health care programs between 2003- 2010.

The settlement comes nearly five years after the FDA first issued warning letters to Ranbaxy and “import alerts” for 30 generic drugs produced by Ranbaxy in India. In 2011, the company signed a consent decree with the FDA requiring Ranbaxy to improve its manufacturing compliance by, among other things, hiring a third-party expert to conduct reviews; implementing procedures and controls to ensure data integrity; and withdrawing any applications found to contain untrue statements. The decree also prevents Ranbaxy from manufacturing drugs in certain foreign factories for introduction into the U.S. market until the drugs are manufactured in compliance with U.S. quality standards.

The Ranbaxy settlement is noteworthy not only because of the record financial penalty, but also because it suggests that the DOJ is increasing its focus on drug manufacturing issues. The settlement is the second in history to stem from a company’s failure to comply with manufacturing rules and reflects the DOJ’s view that improprieties related to manufacturing and safety, in addition to labeling and reporting, are criminally actionable.

The criminal case is U.S. v. Ranbaxy USA, Inc., JFM-13-CR-0238 (D. Md.). The civil case is U.S. ex rel. Thakur v. Ranbaxy Laboratories Limited, Case No. JFM-07-962 (D. Md.).