BackWhy Ranbaxy chose not to fight US drug adulteration charges
With $1 billion turnover from US, it was important to settle the case, says CEO and MD Arun Sawhney
Premium(Arun Sawhney says he accepts that there were shortcomings in the past.)
Mumbai: Arun Sawhney, chief executive officer and managing director of India’s largest drug maker Ranbaxy Laboratories Ltd, is keen on putting the past behind him. His company faced its worst setback after the US Food and Drug Administration stopped exports to that country in September 2008, a few months after its promoters, the Delhi-based Singh family, exited the company by selling their entire stake to Japan’s Daiichi Sankyo Co. Ltd. In December 2011, the company signed a consent decree with the US drug regulator to rectify manufacturing compliance violations at its two Indian plants and arrived at a settlement with the US department of justice (DoJ) by paying $500 million in May for alleged drug adulteration and related charges. Ranbaxy now has a new management and has initiated a complete overhaul of its senior administration. In an interview last week, Sawhney explained why Ranbaxy chose to pay a penalty instead of fighting with the DoJ to win the case. Edited excerpts:
Ranbaxy signed a consent decree with the FDA assuring compliance with quality norms in two of its Indian facilities, and also paid a penalty to settle the case with the US DoJ. Now you say you had an option to fight the case, which you could have won.
We need to understand things in the right perspective. DoJ was the agency which alleged that Ranbaxy sold adulterated drugs in the US and that raised the question whether Ranbaxy also sold adulterated drugs in India. The meaning of the word adulterated was very different in the US compared to the dictionary meaning as understood by people or even as defined under the Indian Drugs and Cosmetics Act.
I am also often asked that if there was nothing wrong, why did you pay $500 million? We had two options, continue fighting with DoJ for years and years to come with the uncertainty about the outcome or consider, in the interest of all stakeholders including the shareholders, settling with the DoJ. We did not go through the process of complete adjudication, we settled with DoJ. With close to $1 billion turnover from the US, it was very important to settle with DoJ.
Are you saying that the word adulteration used by DoJ was in the wrong context?
WHO (World Health Organisation) clarified in May 2013 that the word adulterated has got a very different context when referred to in the US legal context. It does not mean that the drug is substandard. Testing at that time was not done in real time and even though there may not be an issue with the quality of the medicine, it was still a non-current good manufacturing practice (a good manufacturing practice, or GMP, is a production and testing practice that helps ensure a quality product) activity in the strictest terms. So any drug that is put on the market which is supported by non-GMP data is adulterated. That was the interpretation of DoJ.
But there were numerous media reports alleging malpractice in the manufacturing process.
I have accepted that there were shortcomings in the past and I am not defending any. We own the problem of the past and we will set things right. Ranbaxy today is a different company. The entire board of Ranbaxy is completely reconstituted and as far as the operation level is concerned, there is no one in my current management team that occupied a key position way back in that period.
I am also assuring that the same shortcomings won’t be troubling the company in the future. We have invested $300 million in upscaling our facilities, employing the best consultants to impart the correct skill sets. I cannot undo what was in the past but I can give the world an assurance of what Ranbaxy is doing today and will continue to do so in the future.
The US is the most important market for Ranbaxy as it is the case with almost all other top Indian drug makers. But, unless the import ban is completely lifted on the Dewas and Paonta Sahib factories in Madhya Pradesh and Himachal Pradesh, where you have most of the key US product registrations, the company’s revenue stream from the US will remain under stress.
No doubt the US is the most critical market for us. In 2012, Ranbaxy sold worldwide $2.3 billion of pharmaceuticals. Of this, a little short of $1 billion came from the US. Although we faced problems in Dewas and Paonta Sahib, we have moved ahead with our agenda in the US through alliances and manufacturing facilities that the company has in places other than these two Indian facilities. Also, in future when we go through the entire consent decree, and in time Dewas and Paonta Sahib come on stream, you should not see a huge shift as the increase in business from Dewas and Paonta Sahib will only be incremental.
The US business growth and development agenda has continued in the last five years. Our growth in US will continue from other facilities. We have manufacturing facilities in Ohm in the US and Mohali in India. So the growth agenda in US will not get retarded or slowed down.
Yet, most of the US registrations are with these facilities?
Historically, yes. But in the last three years we have made filings from Ohm and Mohali. The filings from Ohm and Mohali are totalling around $6 billion of brand value at present. Besides this, we are also looking at growing our business in the US on the branded side. Our focus will be on building branded business which is more sustainable. We have identified dermatology as an area of interest and our product Absorica (to treat acne), which was launched late last year, is doing very well and it is a differentiated product.
Will the new facilities be able to contribute more than 75% of the business even after Dewas and Paonta Sahib are free from issues over a period of time?
It will be more than 75%. Five years down the line, Dewas and Paonta will become only two additional facilities to file new products from and give us just an additional muscle to grow the business in future.
What is the compliance status at the troubled Indian facilities as per the consent decree?
The issues in Dewas and Paonta Sahib facilities are only with the US FDA since we continue exporting from these plants to rest of the markets across the world. We have signed a consent decree with the US, which is a public document and it is clearly laid out what are the obligations that Ranbaxy has to fulfil in order for the company to get back to the business in the US from these two facilities.
What’s the time frame?
It will be speculative if we make a guess. The decree as a document is giving Ranbaxy a time period of five years. But let us see if we can do it earlier than that.
Are all the 30 products still banned?
Yes, the 30 products remain under import ban. Many of them are antibiotics and require dedicated facilities. We have only one location—Dewas—and we cannot manufacture them anywhere else.
Daiichi Sankyo’s board had accused Ranbaxy promoters for the financial losses because of these shortcomings and had opted for legal action. What is the current status?
Matters relating to Daiichi Sankyo board and their statements are best addressed to them.
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