Ranbaxy fallout: Indian pharma under the microscope US FDA issues import alert on Wockhardt plant; drug makers fear being smeared by the transgressions of a few

Mumbai/New Delhi: Malvinder Singh put forth a robust defence of his record at Ranbaxy Laboratories Ltd, which has come under a cloud after revelations of dodgy practices that had to be settled with the US Food and Drug Administration (FDA) through a $500 million payment.
A file photo of the Ranbaxy headquarters in Gurgaon.
While the company’s former chief executive officer (CEO) could be at the receiving end of a suit filed by Japan’s Daiichi Sankyo Ltd, which took control of Ranbaxy from Singh’s family in a $4.6 billion deal in June 2008, the contagion could spread to other Indian generics manufacturers as they come under increased scrutiny as more skeletons come tumbling out of the closet.
Indian manufacturers are afraid they may all get smeared because of the transgressions of a few, handing ammunition to companies in developed markets that would like to see more stringent controls on cheaper generic imports.
“They cannot pass the blame on to previous shareholders and management,” Singh said in an interview on Thursday. “I don’t think they (Daiichi Sankyo) have a case. There was absolutely no concealment on our part… They should be held accountable for destroying an Indian brand.”
The stock market is palpably nervous—shares of some Indian generics companies have fallen in the past few days, most particularly after a 15 May Fortune story that detailed the extent of possible wrongdoing at Ranbaxy.
Wockhardt Ltd is the first Indian company that’s said it faces FDA strictures since Ranbaxy made details of its case public on 13 May, when it said it had agreed to pay $500 million to settle civil and criminal charges of making fraudulent statements to the FDA and selling adulterated drugs.
The Wockhardt stock plunged 20% on Thursday after the FDA issued an import alert banning the import of products made at one of its plants at Aurangabad in Maharashtra. Chairman Habil Khorakiwala confirmed the development and said, “The company expects a financial impact of $100 million in this financial year due to the import ban of products from this plant.”
The plant manufactures sterile injectables as well as solid oral drugs. Wockhardt called off a media conference on Monday (27 May) to announce its fourth-quarter results, citing no specific reasons.
Wockhardt shares have declined 24.83% since the 15 May Fortune story, while the Ranbaxy stock has declined 11.11% in the same period.
Malvinder Singh refuted all allegations against his family and said the current owners of the company were responsible for the troubles they were facing.
“They are the owners and they have to be accountable for what they do. They spent money and did their diligence. They were keen to buy and they ran it to the ground,” he said. “I am not here to discuss whether Ranbaxy is doing well or not. I am here because of the allegations against my family. For the last many years, after I moved out of that space, I have not spoken on anything related to Ranbaxy or the industry.”
India’s pharmaceutical industry regulator meanwhile elaborated on the action it is considering against Ranbaxy. Drug controller general of India G.N. Singh said in an interview that all drug applications and dossiers filed by Ranbaxy as well as court documents presented in the US will be scrutinized to see if there have been any breaches of the Drugs and Cosmetics (D&C) Act.
“No one and no company is above rules,” Singh said. “We want companies operating in India to follow established procedures and will initiate necessary steps to ensure that.”
He said the regulator’s duty wasn’t to companies but to patients and to ensuring that they have access to safe drugs. “I want to assure people that the drugs currently allowed in the domestic market are of good quality and as per the D&C Act,” he said. “We have no reason to believe that the company has violated Indian laws. The matter, however, is currently being looked at.”
The drug regulator pointed out that India’s rules vary from those in other countries.
However, he said, “We export drugs to 218 countries and we are conscious of our responsibility towards health of all those who use Indian drugs. From time to time, we have put companies on alert and taken appropriate action against then when violations have been established.”
India’s image as a low-cost generic drugs manufacturer of high quality could get a beating in the wake of recent developments, said Tapan Ray, director general of the Organisation of Pharmaceutical Producers of India, the industry lobby that largely represents foreign drug makers operating in India.
“In the backdrop of such high decibel quality concerns raised by USFDA, the level of apprehension regarding effectiveness of generic drugs made in India may increase, unless some tangible remedial measures are taken forthwith,” he said. “These issues are company specific; it will not be appropriate to comment even remotely that all generic drugs manufactured in India are of dubious quality.”
The Ranbaxy episode won’t taint all domestic manufacturers of generics as the development is specific to one company, said Dilip G. Shah, secretary general, Indian Pharmaceutical Alliance, which represents the top Indian companies.
“We should admit that it was crude if Ranbaxy hasn’t shown the documents regarding the non-compliance issues and the related investigation to Daiichi during the due diligence process,” he said. “If it is so, Daiichi has all the rights to raise legal remedies to recover the damage that it has caused the company post deal.”
Any impact on the overall industry will be short-lived, he said.
“I don’t think quality is a concern as far as Indian generics are concerned as the country has several manufacturing plants which have been approved by many regulatory agencies including USFDA, and those are products are there in the market for so long.”
Singh added that Ranbaxy was built on professional principles.
“This company was built over generations based on talent and capability. It was one of the few companies that ran professionally which went global because it was forward looking with an international perspective. These aspects speak about the management capability amply,” he said.
Cases such as the Ranbaxy one will persuade deal makers and potential buyers to dig deeper during the due diligence phase, said Avinash Gupta, head, financial advisory, at corporate consultancy and audit firm Deloitte Touche Tohmatsu India Pvt. Ltd.
“Many deals have gone wrong in the past not only in India but globally too, as exuberant buyers or deal makers tend to discount the impact of certain issues or factor them lightly,” he added.
India exports generic drugs worth about Rs.60,000 crore to least 200 key markets in the US, Europe, Africa and Asia. Of this, about 40% is to the US, the largest drugs pharmaceutical market in the world in terms of value.
India, the country which has the largest number of USFDA-approved manufacturing plants outside the US, has been the largest generic drug exporter to the US and Europe. Top Indian drug makers including Sun Pharmaceutiucal Industries Ltd, Dr Reddy’s Laboratories Ltd, Lupin Ltd and Cadila Healthcare Ltd, besides Wockhardt and Ranbaxy, also operate several manufacturing plants abroad, including the US, to cater to markets there.
The local industry has faced several US regulatory issues in the past. Besides the import ban imposed on Ranbaxy’s manufacturing plants in Himachal Pradesh and Madhya Pradesh, other key instances include a 2009 ban on one of the sterile plants of Hyderabad-based Aurobindo Pharma Ltd, an import ban on Claris Lifesciences Ltd’s plant in 2008 and a four-year ban on the manufacturing plant of Sun Pharma’s US subsidiary Caraco Pharma.
The local drug industry also faced intellectual property related issues while exporting drugs. In recent years, several export consignments from companies such as Cipla Ltd and Dr Reddy’s were seized at European ports on charges of patent infringements, though many of them were released later after they were proved to be legal consignments to either Europe or other markets.