Indian Instincts

Paonta Sahib facility. According to the FDA report, Ranbaxy’s quality control scientists took short-cuts on stability tests for at least two major drugs.²⁰ They found that Ranbaxy conducted these tests on the same day or within a few days of each other, not over nine months, as claimed by the company. The FDA also alleged that Ranbaxy had submitted manipulated data as part of its application to market new generic drugs in the US, as well as kept hundreds of improperly stored samples in its factories in Paonta Sahib and Dewas.²¹ At the time the deal between Ranbaxy and Daiichi was signed, the inquiry did not come as a surprise to either of the two companies, since the FDA had started it in 2006.

At this point, the question being asked by everyone, from trade analysts to the media and the general public, was ‘Did Daiichi Sankyo get sold a lemon?’ No such ruckus was made over the question: ‘How did Ranbaxy get away with selling allegedly inferior quality medicines in India?’

Why did we need the US FDA to reveal the possibility of errors made in our own backyard? I wonder how Indian regulators never got wind of these alleged malpractices.

Ranbaxy, founded by Ranbir Singh and Gurbax Singh in 1937, had grown rapidly amid a weak corporate and government regulatory environment in India. Three generations later, in January 2006, Delhi-based Malvinder Singh—whom I have known as a good friend for some years now—took over as Ranbaxy’s managing director and CEO. While his grandfather was a visionary and patient with employees, Malvinder had earned a reputation in the company for being different.

In 2013, Fortune magazine profiled Malvinder in this manner:

Singh was brash and competitive. The Indian business press dubbed him the Pharaoh of Pharma. Others viewed Singh as petulant and immature.²²

Malvinder’s profile in Fortune was part of the magazine’s nearly 10,000-word sensational investigative essay on Ranbaxy by Katherine Eban titled ‘Dirty Medicine’, which revealed the company’s failure to conduct safety and quality tests on several drugs.²³

Eban quoted whistle-blower and former Ranbaxy employee Dinesh Thakur in her essay, writing:

Thakur says that the company culture was for management to dictate the results it wanted and for those beneath to bend the process to achieve it. He described how Ranbaxy took its greatest liberties in markets where regulation was weakest and the risk of discovery was lowest. He acknowledged there was no data supporting some of Ranbaxy’s drug applications in those regions and that management knew that.

Malvinder is one of the warmest, most generous, ethical and perennially optimistic people I have known. Yet, he is an astute businessman at work. There is nothing that gladdens his heart more than being terribly busy with work. He discusses business with his closest ally, his younger brother Shivender, and trusts no one else more. In 2008, when the brothers sold their 34.82 per cent stake in the family company to Daiichi Sankyo, they together announced the sale even to their own family only a night before the actual transaction. They had kept the results of this crucial deal close to their chests until it was fully realized.

After the FDA accusations, Malvinder refuted any claims of fraud. ‘The kind of malignment, or whatever is the right word, the kind of perception getting created that the data was falsified, is not correct. Secondly, if Daiichi Sankyo is saying they were not aware of whatever was linked to the FDA, that is not correct,’ he said.²⁴

‘They (Daiichi Sankyo) have mismanaged it. They have not been able to deal with it. And now they are trying to put a blame for things of the past. For what? They did their due diligence. They bought a company but have not been able to run it,’²⁵ he added.

The ping-pong between Daiichi and Ranbaxy’s founding family continues even in 2017, with each party throwing the blame on the other. In the meantime, many legal battles have been fought. Media agencies have written sensational stories and made an extra buck but ultimately it is the consumers who have lost.

While American consumers are protected by strict and alert regulatory agencies, in India this is clearly not the case. I think the biggest lesson in the entire Ranbaxy saga is that Ranbaxy could easily clear Indian drug regulations, but not US FDA regulations. It could skip procedures and exercise allegedly poor quality control to manufacture drugs at a low cost and sell these drugs in India. Many factors made Ranbaxy successful in India. One of them was that the earnings of citizens were not high enough to buy costly patented drugs, and so competitively priced drugs, such as those from Ranbaxy, made up a majority of the drug market in India. If costs (and therefore prices) are controlled by increasing process efficiency, that should be lauded, but if costs are low because of a lack of rigour in the manufacturing process, it should be unacceptable. But the Indian market is lucrative perhaps precisely because corporate governance, integrity and government oversight are so weak.

Malvinder Singh resigned in 2009. Atul Sobti, Ranbaxy’s new CEO, was brought to the Daiichi-acquired company. At that time, Sobti told Forbes, ‘The Japanese are very process-oriented . . . On compliances and quality, there can be no compromises . . . Culturally, those are not our country’s biggest strengths.’²⁶ But he had no way of knowing then that the alleged slack in compliances at Ranbaxy would cost Daiichi much more than the Japanese company could ever have imagined.

In a catch-22 situation, many companies in India perhaps grew too fast too soon, despite and because of the fact that internal or external governance structures could not catch up and support that growth.

Here is another example of this. In July 1992, when India was in the early stages of privatizing its erstwhile closed economy, the coal ministry ordered the setting up of a screening committee to consider proposals from private power companies for captive mining on a first-come-first-serve basis. The committee guidelines gave preference to the large