How Ranbaxy lost sight of a vision in pursuit of short-term profit

There was a time in the 1990s when Ranbaxy Laboratories Ltd was talked off as one of the handful of Indian companies that had the potential and the business vision to be a future multinational coming out of emerging markets such as India and China. Today that promise lies wasted, destroyed by a culture of systematic and sustained falsification of records, so crucial in the pharma business.

Ranbir Singh and Gurbax Singh, the men who started the company in 1951 (and lent their names to it) could scarce have thought it would soon be among India’s leading pharma companies. That success began under Bhai Mohan Singh who acquired the company in 1952 and laid the seeds for its rapid rise.

His son, the late Parvinder Singh, recognized the opportunity to reverse-engineer and produce off-patent drugs and sell them cheap in markets like the US and Europe where the high prices of the original drugs had rendered them out of the reach of the poor. The strategy paid rich dividends and by 2005, the company was posting over a billion dollars in global sales. Under the influence of management guru C.K. Prahalad, Parvinder believed that to succeed globally you had to play by the rules of the global markets. His untimely death in July 1999 may well have loosened all controls at the company and in the quest for growth, which was scorching through the decade and the early 2000s, the men who ran the company after him, including his sons and D.S. Brar who headed the company then, clearly sacrificed quality.

The first warning signals came in September 2008 when the Food and Drug Administration (FDA) issued two warning letters to Ranbaxy and an import alert for generic drugs produced by two manufacturing plants in India. The FDA release cited serious manufacturing deficiencies affecting over 30 different generic drugs. Within six months, the FDA halted reviews of all drug applications including data developed at Ranbaxy’s Paonta Sahib plant in India because of a practice of “falsified data and test results in approved and pending drug applications”.

But with Japanese pharma major Daiichi Sankyo Co. Ltd buying a controlling stake in Ranbaxy for up to $4.6 billion that year, the warnings were swept under the carpet as personal fortunes swelled. Clearly, while operational abilities of the Singh brothers, Malvinder and Shivinder, might have left something to be desired, their timing was impeccable as they made nearly $2 billion from the deal with Daiichi Sankyo. The same cannot be said about the due-diligence process followed by the Japanese company before acquiring the tainted Indian company.

Riding a scorpion though is hazardous and, at some point, the unraveling had to start, which it did once ex-employee Dinesh Thakur blew the whistle, leading to the FDA ruling last year that imposed the first set of bans on its plants. The latest ruling banning products from its Toansa facility is the final act in long-running tragedy with greed and ambition playing their role in tarnishing a rich legacy. What it proves is that Ranbaxy’s hamartia isn’t just related to compliance issues. The problem may well be one of a culture so steeped in lying that it may well need a systematic cleansing.