Indian drug giant Sun Pharmaceutical said it had agreed to buy its troubled rival Ranbaxy for $4bn in stock, ending its six-year control by Japan's Daiichi Sankyo.

The deal, which was announced on Monday, will create India's biggest drugs manufacturer by far and leave Daiichi Sankyo with a significant stake in the combined entity, according to the Reuters news agency.

It is the biggest pharmaceutical sector deal in the Asia-Pacific region this year, and will create the world's fifth-largest maker of generic drugs.

For Daiichi Sankyo, Japan's fourth-biggest drugmaker by revenue, the deal marks a significant retreat and highlights the lingering quality problems facing India's drug industry.

The value of the Japanese firm's investments in the country has been halved since it bought control of Ranbaxy in 2008.

The United States, one of Ranbaxy Laboratories' biggest markets, has slapped import bans on its manufacturing plants for failing to meet "good manufacturing practices".

US regulators also banned some products by Sun Pharmaceuticals last month as the US Food and Drug Administration (FDA) scaled up scrutiny of India's $14-bn-a-year pharmaceutical sector amid worries about safety.

Pharmacy to the world

Sun Pharmaceuticals said they intended to work hard to get the banned facilities re-certified.

"First focus will be on compliance," managing director Dilip Shanghvi said in a conference call, referring to demands from the FDA.

"Because only when the facilities are okayed by the FDA can new product applications be thought about," he said.

Live Box 2013927135832671882

"The deal will give Sun Pharmaceuticals access to Ranbaxy's distribution network and hence a better chance to penetrate India's huge rural markets," Shanghvi added.

Competition laws, both in the US and India, are unlikely to pose serious challenges for the deal, management said in the conference call with analysts and media.

India, known as "pharmacy to the world" due to its vast generics market, supplies medicines to more than 200 countries - many in the emerging world - and is the second largest supplier of drugs to the US after Canada.

Ranbaxy reported a consolidated net loss of $25.6m (1.59bn rupees) for the quarter ended December last year, compared with a 4.92bn rupees loss a year earlier, thanks to rising sales in key markets and currency gains.

Source: Agencies