Editorial: Lesson for Ranbaxy

The beating that the Ranbaxy stock took earlier in the week now seems to have subsided and it has regained much of the lost value, at one stage around a quarter. What has added volatility is the fact that the stock will soon be subject to an open offer by the Japanese drug major Daiichi Sankyo, which made a successful takeover bid for Ranbaxy last month. The open offer price of Rs 737 is attractive, and became more so when the stock tumbled to nearly Rs 400. Anyone who could acquire the stock at anything near that price would be able to make a killing. This has provoked the company's chief executive to raise the question of whether the recent turmoil was the result of market manipulation. On the other hand, it also needs to be asked whether Ranbaxy made all the disclosures as promptly as it ought to have done. The US investigation is not new and no charges have been filed, only documents sought. No one can predict the final outcome. After all, a UK court has just cleared Ranbaxy UK (and five others) on a six-year-old case in which the serious fraud squad of the country had alleged price fixing to defraud the UK health service.

 

The best of firms occasionally slip up on manufacturing practices and have to recall products, rectifying errors as soon as they are discovered. What is important is that any such firm should never seek to hide from investigators any shortcoming that exists. The FDA submission was made on July 3, and the Indian media picked up the story from the US media on July 12, the matter being made more serious by research comments from two brokerages thereafter. On the other hand, Ranbaxy did not inform the stock exchanges of the submission right after July 3, and issued strong clarifications only when the Indian media became aware of the matter. Its case is that the matter is nothing new and has been referred to in the company's 2007 annual report, but the latest strongly worded US submission is in fact a new development. It is unlikely that Ranbaxy will consciously or calculatedly harm its own record and standing. It has too much to lose. The takeaway for the company, particularly when it is dealing with an organisation like the FDA, is to admit an error when it is detected, rectify it and keep shareholders informed all along.