The US Department of Justice said on Wednesday it had dropped its legal action against Ranbaxy [Get Quote] after the the Indian generic drugs maker stepped up co-operation over regulators' concerns about its manufacturing.

Ranbaxy's shares jumped almost 10 per cent, having long been depressed by escalating investigations from the US Food and Drug Administration, triggering a ban, which is still in place, that stops the US importing or purchasing the company's drugs.

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In a statement, the justice department said Ranbaxy and Parexel, a consultancy firm it used, had provided comprehensive documents, requested as part of a continuing inquiry into alleged adulteration of Ranbaxy medicines. The company has denied the allegations.

The original legal action was compounded by a ban issued by the FDA last month, sparked by what it judged to be insufficient responses from Ranbaxy to new inspections at two of its Indian plants at the start of this year.

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That triggered interest from several other national medicines regulators, which have launched their own inspections at Ranbaxy, and a ruling from Pepfar, the US programme to tackle Aids abroad, to stop buying the company's antiretroviral drugs. Ranbaxy has since hired the former New York district attorney and former mayor Rudolph Giuliani to help negotiate with regulators in the US.

Daiichi Sankyo, the Japanese drugmaker, reiterated on Wednesday that it would stick to its June offer to buy Ranbaxy in spite of the recent troubles, with a $ 4.6 billion purchase of a controlling stake and an offer to buy another 20 per cent. The deal is the largest foreign takeover of an Indian company.

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Although Ranbaxy's share price enjoyed a boost, should it fall again the Japanese company could be forced to make valuation losses.

Daiichi Sankyo said it would follow the appropriate accounting rules in that event.

"The declines in Ranbaxy's share price are because of the problems (in the US) and market conditions," Takashi Shoda, Daiichi Sankyo's chief executive, said. "There is a gap between the value we foresee for the company and the share price."

Daiichi Sankyo said it had been aware of a potential problem with the US authorities when it carried out its due diligence on the group.