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The Can of Worms at Ranbaxy

Fortune magazine has a long and detailed story about Ranbaxy and the reason for its $500 million settlement with the FDA.

But in Gurgaon, as Thakur’s project managers gathered data and interviewed company scientists and executives, he says, they stumbled onto Ranbaxy’s open secret: The company manipulated almost every aspect of its manufacturing process to quickly produce impressive-looking data that would bolster its bottom line. "This was not something that was concealed," Thakur says. It was "common knowledge among senior managers of the company, heads of research and development, people responsible for formulation to the clinical people."

Lying to regulators and backdating and forgery were commonplace, he says. The company even forged its own standard operating procedures, which FDA inspectors rely on to assess whether a company is following its own policies. Thakur’s team was told of one instance in which company officials forged and backdated a standard operating procedure related to how patient data are stored, then aged the document in a "steam room" overnight to fool regulators.

The whole thing is damning and it’s surprising (if true) that Ranbaxy top honchos were not investigated for fraud. In fact, given the huge clout that large pharma has in the US (and the fact that they hate generics for taking their revenue away) it is almost certain that there is no complicity of top Ranbaxy management in the case. If there was, there would be a criminal suit by now, guaranteed. So you should consider much of the claims as over the top.

However, regulatory arbitrage is commonplace and nowhere more than in India. We have Flipkart’s trying to build business models by taking foreign funding in a sector where foreign investment is specifically not permitted. We have stringent rules on who can take “deposits” or invest other people’s money, yet there are chit funds and Saharas and all sorts of complicated arrangements. We have insurance companies who willingly obfuscate products to look like safe investments when they are infact stealing money through commissions. Banks that raise interest rates when they want, but will create ludicrous benchmarks like “new PLR” to avoid having to cut rates for existing suckers, while they offer better rates for new customers.

This is not a defense of Ranbaxy. It’s the sorry state of affairs where large entities break rules routinely and do not get caught or indicted or even slapped on the wrist because they are, well, too big.

We’ve seen too-big-to-fail in the US. Perhaps Ranbaxy is, in a way, too big to fail, given the number of jobs it has created, and given the impact to Indian pharma. Yet, it’s our kids that deserve unadulterated drugs, and we can’t put them below some silly notion that jobs should be preserved at any cost. Justice involves punishment; and $500 million may just be the beginning.

Going back to the market: The Ranbaxy stock is now down to 404, 6% down today and 15% off the 471 price it was last Friday.

Ranbaxy Share

(Click for larger image)

The stock has seen worse, but even that worse is just another 10% away.

  • Kaushik says:

    Coalscam, Telecom scam, Arms scam, Helicopter scam, Chitfund scam, Cricket scam, Murthy scam…and now Pharma scam..seems its the new normal way of living….You continue a certain speed skiing over mud/shit and you will be treated like a HERO !!

  • Srikanth says:

    You’re assuming top leaders are innocent until proven guilty. I can’t imagine such a pervasively corrupt culture (as described in the Fortune story) without active support from a company’s top leadership. To me the rot started with the owners – mercenaries who played for big stakes and found the greater fools in Daiichi.
    I’m stunned by the silence in the Indian media. Not a whimper about drug safety and how brazenly a company can get away with attempted murder.
    I’ve cleared my medical closet of all things Ranbaxy

  • PrAvEen says:

    As they say there won’t be only single skeleton in the cupboard, may be it’s same with other (or some of) Indian pharma biggies., but just they are not caught

  • Manish says:

    The claims are over the top? If anything is over the top, it’s the attitude of the Singh’s when they were moved down 10 notches in the Forbes list – “…Singh seemed to blame the decline on a lack of employee loyalty, a former employee recalls…”
    Dinesh cleared $50 million for his whistle blowing efforts, I’m pretty sure the US government made sure his claims were legitimate before handing over $50 million.
    Sadly, Ranbaxy really took the phrase “fake it, till you make it” to heart so they could sell the company.

  • Deepak,
    Thanks for writing and offering another perspective to the story. I read the Fortune article a few days back through a link on Facebook but surprisingly there was no uproar over it by anyone. Either it was too heavy reading (it was a really long article) or people thought it was a case not related to them (the action happened in the US). Overall, a scary situation made even worse by the overwhelming silence by everyone. Reflecting on the situation, I realized that clearing one’s medicine cabinet of Ranbaxy drugs may not help. What will you replace them with?
    I noticed a mention of the story in two mainstream newspapers where they mentioned the whistle blower making $50 million. The focus on both articles was on the employee “striking it rich”!! So in a way, the media did cover the event but the point was totally lost.
    Maybe there’s more to this than we know so far. Daiichi seems to have woken up, however, and are going after the Singh brothers (http://articles.economictimes.indiatimes.com/2013-05-23/news/39475737_1_daiichi-sankyo-ranbaxy-laboratories-drug-maker).

  • Bhaskar says:

    (1) Why did the Singh brothers sell their stake if they did not know something was fishy in the company?
    (2) What due diligence did Daichi did ? Who were the IBs to the deal. did they know about all these problems.
    (3) What was the Indian drug regulators doing all this time? If they were supplying such kind of medicines in US, imagine the kind of medicines they sell in India.
    (4) If their own employees did not trust their own medicines and this was widespread, then surely the directors, CEO, promoters should have known and aided this fraud. All of them should be punished and jailed. Just saying that they were promoters and not involved in the active running of the company is not an excuse.

    • Perhaps they knew, and perhaps that is why they sold. I believe your questions deserve answers, and there must be further investigation. However I believe the FDA won’t let an Indian company get away just like that – they would have gone after the promoters if there was enough evidence?

  • financeMind says:

    Indian drug regulator must be strict

  • feltra says:

    Apropos your reply to another mail :
    Perhaps they knew, and perhaps that is why they sold. I believe your questions deserve answers, and there must be further investigation. However I believe the FDA won’t let an Indian company get away just like that – they would have gone after the promoters if there was enough evidence?
    The same CNN article (Dirty Medicine) had also talked about the congressional hearing of FDA – ie. why no action was taken by FDA etc – and that they themselves were vexed. Forget everything else Deepak ji, if FDA was hell bent (thanks to US cos) on witch-hunting Indian co’s, why did they NOT take away the existing license when all these malpractices were found? Ranbaxy was still able to continue selling…. To my layman mind, it appears to me that the rot had got into FDA as well (read: money)… IF that is the case, we need not even talk about other co’s in India – and other 3rd world cos in general. People may think I am singing the white man’s tune – but tell me – after this – which co’s drugs will you consider safe? Those made in India or any other 3rd world country OR those made within the borders of some western country? The trust has been damaged IMHO…
    And of course its not just Ranbaxy. When the corporate idiots at Ranbaxy tried to put the blame on Vimta, they seem to have responded with a “we did as asked” – which I do not doubt – because who is Vimta to go against the dictats of Ranbaxy?
    Import alert on Wockhardt may have been a “speedier” action on the part of FDA. Going forward we can only expect more such happenings – but crying wolf every time (the US cos are out to get us etc) is stupid – outright, knowing fraud should NOT be tolerated… but of course, it will continue to be so in India – the holy (shit) land…
    I can’t remember another article which I read glued to the screen and with anger in my heart as this one (though it was from an India-put-downer channel – CNN)…
    Sorry for the strong feelings… but can’t help it…
    -feltra