Mumbai / New Delhi: Two days after it became public that Ranbaxy Laboratories Ltd is the target of a US litigation that has federal investigators charging that the company did not follow standards in drugs manufacturing and fabricated data in filings with that country’s drugs regulator, it has emerged that the company might be at a much bigger risk: expensive class action suits in the world’s most litigious nation.
In a case filed with the US district court of Maryland on 3 July, as reported by The Star Ledger, a New Jersey daily, federal investigators have asked the court for records from Ranbaxy Inc., the Indian company’s main subsidiary in the US. In the motion, reviewed by Mint on Monday, the federal authorities charged the company with not meeting US quality standards on the generic, or off-patent medicines it sold in that country.
That charge, if proven, could prove debilitating for Ranbaxy, predicted a drug industry consultant in Mumbai, who has worked with US pharmaceutical multinationals in the past, pointing to the multi-billion dollar settlements after adverse reactions surfaced on use of Vioxx of Merck and Co. in September 2004 and Celebrex of Pfizer Inc. in April 2005. Merck settled a class action suit for $4.85 billion (Rs20,758 crore today) and Pfizer paid an average of $40,000-50,000 a plaintiff to resolve Celebrex suits, media reports had said then.
“A more serious impact of the US FDA litigation on non-compliance of Clause 21 of the Code of Federal Regulations (CFR) is consumer liability claims,” said the consultant, who advises Indian drug companies on compliance on US and European drug regulatory codes, on the strict condition of anonymity, since he risks future business with Ranbaxy.
Clause 21 is part of CFR that governs food and drugs in the US for the food and drug administration and the drug enforcement administration. It covers rules that mandate, among other measures, standards for testing, manufacturing and labelling of pharmaceuticals.
The liability claims of individual patients following the withdrawal of Merck’s Vioxx,, and Pfizer’s Celebrex, both prescribed for patients with arthritis, was also directly linked to violation of Clause 21 of CFR, wherein the findings in market surveillance were not updated with the drug regulators.
“If the charges are proven against Ranbaxy in the US court, it will trigger the consumer liability claims as these drugs were sold in the market for over a period of time,” the consultant added.
A lawyer in Chicago said that in such cases, as US federal authorities proceed or near completion of the lawsuit, lawyers of plaintiffs—patient groups or citizens at large—could file a class action suit. “They may not wait for the government to win; they may get on to it before,” Debra J. Tucker of The Tucker Firm Llc. said on phone. Her comments were not specific to the Ranbaxy case, she added, and were general in nature.
Earlier on Monday, the first day of trading after the news surfaced, shares of Ranbaxy plummeted 10.45% to Rs475.90 each, while the Bombay Stock Exchange’s health care index dipped by 1.21% in line with the bourse’s benchmark index, the Sensex, that ended the day at 13,330.51 points, weaker by 1.03%.
Ranbaxy and its new owner-to-be Daiichi Sankyo Co. Ltd independently denied that the buyout deal that will see the Gurgaon firm’s controlling shareholders, the Singh family selling to the Japanese firm, is in trouble on account of the US probe.
“We will not change our stance and valuation,” said Yasuki Minobe, spokesman for Tokyo-based Daiichi Sankyo in an email response to a Mint questionnaire when asked if the Japanese drug maker was thinking of revisiting its valuation for the Indian drug maker, or was rethinking its deal.
Asked whether Daiichi had discovered all these issues during its due diligence of Ranbaxy, Minobe said, “We knew the issue because it has been public available information”, but did not go into specifics of how much of the alleged violations was known to the buyer.
“Daiichi for sure would have known about the US FDA’s ongoing investigations of Ranbaxy plants. The issue is to what extent they expected it to blow up,” said a Mumbai-based sector analyst, adding that the Japanese company could get edgy only if the court filings said more than what they had discovered. The analyst did not want to identified because he had not studied the court filing against Ranbaxy.
A statement from Ranbaxy said its “deal with Daiichi Sankyo is binding and final and remains on track”.
According to the Maryland court filing, US federal prosecutors allege that the Indian drug maker and its adviser Parexel Consulting had indulged in “systemic fraudulent conduct”, “conspiracy”,“false statement” and “health care fraud”. The filing has asked the court to force Ranbaxy to produce audit documents related to its charges.
The court papers say that the US government is “investigating Ranbaxy and some of its employees considering possible violations of federal laws...including the Federal Food, Drugs and Cosmetics Act...” and believes that these “violations have resulted and continue to result in the introduction of adulterated and misbranded products...” as the company secures drug raw material from “unapproved sources to accommodate corporate convenience, resources and priorities”.
Ranbaxy, on its part, strongly denied the “allegations” and reiterated that more than 200 random samples collected by FDA in US had been independently tested and “were found...complying with all the specifications”.
The drug maker said earlier in the day it would be filing a response on Monday in the US court and “will strongly defend its position” to counter these “baseless” allegations. The company’s exact grounds for refuting the charges will be known after it files the response with the court. This was expected to be filed late Monday night or even early Tuesday morning India time.