Daiichi Sankyo drawing policy to deal with problems at Ranbaxy

Daiichi Sankyo is planning a “comprehensive policy” to deal with the existing problems at Ranbaxy. The Japanese parent has also decided to intervene to address the latest issues raised by the US Food and Drug Administration (US FDA) at Ranbaxy’s Toansa factory, indicating that it has now picked up the baton to fix the mess in its Indian generic manufacturing arm.

IIn response to an e-mail query sent by Business Standard, Daiichi Sankyo said it is presently assisting Ranbaxy in responding to the Form 483 issued by the US FDA highlighting serious manufacturing violations at its Toansa (Punjab) factory which manufactures active pharmaceutical ingredient (API).

“We are supporting and focusing on this action as a matter of high priority,” Toshiya Kondo, Senior Director at Daiichi Sankyo said. He added, “For further approach to solve a series of problems, we think we need a comprehensive policy after this”.

The innovator company, which acquired Ranbaxy in 2008, came out with a strong statement last week following its earnings, which were impacted due to ongoing events at its Indian arm. “We want to go back and prepare a more aggressive, more drastic response.” Daiichi Sankyo Senior Executive Officer Manabu Sakai reportedly told an earnings briefing on Friday.

The Japanese company is also likely to bring in more of its people in the Indian factory to clean up the process and procedures on the ground. Many Japanese executives have already been inducted in Ranbaxy over the past one year. However, it appears Daiichi Sankyo now plans to induce more foreign faces not only in the top management of the Indian company but also in the middle and bottom level.

However, Daiichi declined to share specific measures that it would take as part of its future business plan. Industry experts and sources, tracking the company closely, suggest the recent measures are steps towards Daiichi Sankyo taking total control of Ranbaxy in near future.

“There is a serious problem with the culture of the company and this has been going on for a long time. Daiichi has so far trusted the Indian management but that does not seem to have worked,” said an industry official, privy to ongoing developments at Ranbaxy. Significant and sustainable changes in processes and practices are not possible without a change in culture, the executive added. “Daiichi, with its Japanese background, would certainly not like to tolerate this anymore.”

While sources say Ranbaxy has recently informed the Drugs Controller General of India (DCGI) that the recent violations at the company’s Toansa factory are suspected to be a sabotage by some of its disgruntled employees, experts suggest Daiichi Sankyo’s action plan may also include major changes in human resource at all levels.

However, there are management gurus who think Daiichi Sankyo can also possibly address the problems in a different way.

“Though introducing Japanese executives can be a good temporary measure to implement corrective measures, in the long term Daiichi Sankyo will have to face Indians. Therefore, the better option is to develop a cadre of Indian management and Indian teams whom they can trust with stringent controls,” says Raveendra Chittoor, Assistant Professor of Strategy at the Indian School of Business.

They have to be careful in their strategy as they must not create a mistrust by completely alienating Indian employees, instead they need to take employees in confidence and install best practices, according to Chittoor .

Ranbaxy has been in the spotlight for last one month after US FDA banned its API factory in Toansa, which was catering to the company’s 70% of the raw material requirement for medicines. The facility is currently also being inspected by Indian drug regulatory authorities.

The move is likely to be reflected in Ranbaxy’s financial results to be announced on February 5. Three other formulation manufacturing facilities of Ranbaxy – at Mohali, Poanta Sahib and Dewas are also barred from supplying to the US.