The Japanese pharmaceutical company Daiichi Sankyo’s pending move to buy a controlling stake in the Indian pharmaceutical company Ranbaxy Laboratories for up to $4.6 billion took a rocky turn this week. The US Department of Justice (DOJ) filed a motion in federal district court to seek documents for an investigation that alleges the company submitted false and fraudulent information on its quality practices for active ingredients used in its drugs.

Ranbaxy says the allegations are baseless. In a July 14 statement, the company says, “Ranbaxy strongly denies the allegations contained in the motion that has been filed (not granted) by the US Department of Justice (DOJ), seeking certain documents. No legal proceedings in the sense of a prosecution have been initiated. The Company continues to cooperate with the DOJ in regards to the investigation and has agreed to produce the specific documents sought by the motion.”

Ranbaxy added that an investigation has been underway for approximately three years, and no charges have been filed against the company. “The FDA has also gathered over 200 random samples of various products marketed by the company in the US. These products have been independently tested by the US FDA and were found to be complying with all the specifications,” said the company in a prepared statement.

The DOJ probe has stirred speculation that Daiichi would seek to pull out of its deal, announced last month, which would have given Daiichi a controlling stake in Ranbaxy, one of India’s largest pharmaceutical companies and leading generic players. For now, however, both companies have affirmed that the deal is still in place.

“Following intense speculation in sections of the media and the stock market, Daiichi Sankyo Company Limited (Daiichi Sankyo) and Ranbaxy Laboratories Limited (Ranbaxy) reiterate that the agreement between Daiichi Sankyo, Ranbaxy, and the Singh family, the largest controlling shareholders of Ranbaxy, is binding and final, subject to regulatory approvals,” said Ranbaxy and Daiichi in a July 17 press release.

No matter how the DOJ investigation and subsequent legal matters transpire, one has to question the due-diligence process for Daiichi’s acquisition. Although Ranbaxy may indeed prevail in any legal battle with DOJ, Ranbaxy and its suitor Daiichi are already losing the battle of public perception.

With ongoing political, industry, and public debate centered on the quality of imported ingredients from offshore manufacturers, the timing of the DOJ probe could not have come at a worse time for Daiichi Sanyko and Ranbaxy. For the pharmaceutical industry as a whole, it will be interesting to see whether the troubled times for such a high-profile deal may have a chilling effect on drug companies’ positioning in emerging markets.