Recovering a reputation

Ranbaxy needs to investigate internal wrongdoing

Ranbaxy Laboratories has pleaded guilty to charges of wrongdoing related to drug safety in the United States and has agreed to pay $500 million (approximately Rs 2,740 crore at the current exchange rate) in civil and criminal fines to the US Department of Justice. The matter dates back to 2008 when the US Food and Drug Administration (FDA) barred the company from selling 30 generic drugs made at the company's production units at Dewas (Madhya Pradesh) and Paonta Sahib (Himachal Pradesh) on grounds of manufacturing deficiencies. A year later, the FDA accused Ranbaxy of falsifying data and test results in drug applications. The row has been settled only now with the huge payout, though the company had made a provision for it way back in December 2011.

This is not the only cost to the company. According to investment analysts, Ranbaxy has lost business worth at least $200 million (Rs 1,097 crore) in the US thanks to this row with the regulator. Also, it forced Ranbaxy to take Teva of Israel on board as a partner when it launched the generic version of Pfizer's Lipitor, the world's most valuable drug, in the US with six-month exclusivity. According to analysts, Ranbaxy earned $900 million (Rs 4,938 crore) during the six-month period, out of which it shared $300 million (Rs 1,646 crore) with Teva. Even now, it's not certain when the company will be able to resume supplies to the US from India.

Nor does this look like a simple case of poor oversight. There is evidence to suggest that the company's top people were aware of what was going on but did little to clean up the mess. Dinesh Thakur, the former Ranbaxy employee who turned whistle-blower, has said in a recent statement that he had notified the company's management about the problems but it failed to take necessary corrective action. It was only after he was convinced that his superiors were not keen to set the situation right that he approached the FDA. In his earlier testimony to the District Court of Maryland in June 2012, Mr Thakur reportedly alleged that when his boss had complained about the wrongdoing to the company's management, he was told to destroy the evidence. This is ominous. It shows that not only were senior managers aware of the problem but they also failed to take any remedial action. A greater dereliction of duty will be hard to find.

Ranbaxy should now fix responsibility for this fiasco after a thorough inquiry and take action against those found guilty. The company was once the crown jewel of the Indian pharmaceutical industry. Its reputation now lies in tatters. It can salvage the situation by taking to task those responsible for the mess. The company, now the generics arm of Daiichi Sankyo of Japan, has to do business around the globe. It cannot afford to do that with a muddy reputation. Also, it is in an industry where attracting scientific talent is of utmost importance. Companies with a tarnished reputation cannot even dream of getting the right people. The Ranbaxy episode has also had an adverse impact on the Indian pharmaceutical industry's plans to expand its global presence. Indeed, India-based pharmaceutical companies have not exactly been founts of good news of late. Perhaps it is time for them to take a good, hard look at their cost-cutting business models.