Home >Companies >News >How  Ranbaxy  hurtled towards a meltdown

The initial disclosure of fraud at Vimta Labs Ltd (in 2004), the company Ranbaxy Laboratories Ltd had hired to test its AIDS drugs, was like a teetering domino, threatening to topple interconnected drug applications approved by regulators around the world. As charitable organizations asked the company for underlying data to support its claims, the problem confronting Ranbaxy executives had become almost unsolvable. Drugs that had never been tested, or whose tests revealed a failing product, were now due to be re-registered in countries around the world. Much of the raw data didn’t match what the company had filed with regulators.

Either it didn’t exist, didn’t make sense, or had been fabricated at some point. A refusal to share the data would trigger further suspicion, leaving the company with two bad options: come clean—which would have disastrous business consequences—or lie more. The company needed to start testing drugs properly. But that not only risked exposing past fraud but often required a new set of lies. This catch-22 played out in a torrent of confidential emails in which Dr. Brian Tempest, then-chief executive officer (CEO), and future CEO Malvinder Singh were often cc’d and also weighed in.

In mid-July 2004, a Unicef official asked why Ranbaxy had submitted only limited stability data for several of its AIDS drugs. Companies must prove that their drugs will remain stable in a range of temperature conditions. The required tests, which help to establish the shelf life of a drug and measure impurities over time, are conducted in chambers that resemble oversized refrigerators, which can replicate extremes of heat and cold. Unicef’s question prompted a round of panicky internal emails. In one titled “Stability Studies—Urgent", an executive wrote: “According to Unicef, if we fail to furnish the data by Wednesday evening and do not provide the information requested in the mail below, then we can forget about this tender." He added, “this tender is worth $5 million and we cannot take any chances on it."

But the only data that Ranbaxy had internally to give Unicef was a nonsensical hodgepodge that would raise more questions. The limited testing that Ranbaxy had done on the HIV drugs showed some impurities remaining constant or even decreasing between nine and twelve months, which was technically impossible. As an executive pointed out, these problems “will certainly raise a doubt in the mind of the reviewer . . . we need to revise this number".

In its race for profit, Ranbaxy had lied to regulators, falsified data, and endangered patient safety in almost every country where it sold drugs. Ranbaxy had not properly tested the stability of almost any drugs on the US market. The most basic good manufacturing practices require continuous monitoring of drug quality. Drug stability must be tested at intervals called “stations": three months, six months, nine months, and so on. So long as a drug is on the market, that data has to be filed in an annual report with the Food and Drug Administration (FDA). One is never out of data, because obtaining it is simply part of the process.

But the company had hit an impasse, leaving its executives to confront the fact that they had virtually no thirty-six-month stability data to submit for any US commercial batches. This was more than an “oops". It was the equivalent of trying to read a road map upside down—after you’ve already crashed the car into a tree.

In frantic emails, executives grappled with this seemingly insurmountable problem. Abha Pant, the vice president of regulatory affairs, sent a terse email to her colleagues: “This is a very serious issue. I do not know how are we going to file the annual reports and what reasons are we going to give to the (US FDA) for not submitting the stability data. We need all this data and there is no way out."

Even as company executives resolved to start testing the drugs in “right earnest", as one of them put it, a similar crisis was playing out in dossiers around the world. By 2005, 22 high-priority products faced re-registration in at least one country. All had been made at Ranbaxy’s Dewas manufacturing plant in Madhya Pradesh, and none had been tested adequately.

Fraudulent schemes

If most executives were seeking guidance on how best to lie to regulators, others were concerned about the fraud they were expected to commit as part of their job. Some balked at filing false data. Others flat out refused to participate in illegal acts. However, sometimes even the most scrupulous employees ended up being drafted, unwittingly, into the company’s fraudulent schemes. Most Ranbaxy executives were expected to carry suitcases full of brand-name drugs when they travelled to India.

At Ranbaxy’s New Jersey headquarters, suitcases purchased at the local Walmart were kept packed with drugs, waiting for the next traveller to India. The suitcase-toting seemed innocent enough. Most executives assumed that the drugs were needed for research and development. Generic drug companies often study small amounts of a brand-name product in order to reverse engineer it or to reference it as a point of comparison in applications. But proper channels for purchasing and transporting such drugs are well established and became ironclad with the 2001 passage of the Patriot Act.

Personal transport of drugs was technically illegal and a form of smuggling. To the dozens of employees pressed into ferrying the drugs, often on an emergency basis, it seemed like a minor shortcut, possibly to cut shipping costs, avoid quarantine, or speed up delivery. In one year alone, 17 executives took undeclared drugs from the New Jersey office through Indian customs, four of them doing so multiple times. The most frequent couriers included the company’s US president and even its US executive director of regulatory affairs, Abha Pant, who was responsible for ensuring that the company followed the rules.

At Ranbaxy, top executives skirted these regulations and sometimes oversaw the illegal ferrying of drugs at the very moment when the company faced deadlines to resubmit data to regulators. Some executives came to suspect that the company was using the brand-name samples as a substitute for its own, in order to generate data showing how closely Ranbaxy’s drug matched the brand it was seeking to replicate. This would explain the urgency surrounding the drug runs, especially when some Ranbaxy staffers strenuously resisted being used as drug mules.

In May 2004, a regulatory project manager refused to take French brand-name samples to India. He protested in an email, “I will NOT be bring any samples with me, not only I believe is this company policy but I personally do not feel comfortable bringing samples in this manner." An executive pushed back: “It is critical that the samples are carried by you. We cannot delay it." The employee flatly refused.

The lies and the efforts to conceal them absorbed the energies of the entire company. In August 2004, the company’s top executives, including Tempest and Malvinder Singh, held a meeting in the executive conference room. On the agenda, according to emails, was the “strategy for filling the gap between requirement & availability". In other words, how were they going to submit data they didn’t have?

The fallout

On 7 November 2008, Daiichi Sankyo Co. Ltd and Ranbaxy closed their (merger) transaction. A month later, the Japanese took majority control of Ranbaxy’s board. In the blink of an eye, Malvinder and his brother had added over $2 billion to their own bottom lines, and Malvinder went on to become an employee of the Japanese. It was an odd arrangement fraught with risk. But Ranbaxy’s intellectual property attorney, Jay Deshmukh, had new hope.

Now that Ranbaxy had agreed to cooperate with the US justice department and turn over audits, perhaps the company could swiftly reach a deal with prosecutors that would make concealment of the self-assessment report (SAR: a damning internal document which detailed multiple instances of fraud and malpractice) irrelevant. His guilt over lying to Tsutomu Une (a Daiichi board member) prior to the merger might lift. It would all be behind them.

Despite Ranbaxy’s lurching difficulties (due to investigations which had been set in motion by US prosecutors and the FDA), Une was pleased enough. It was his deal, and he documented it closely. “Mr. Singh fits in well," he noted in his journal. But he also noted, as he delved into the work for his monthly Ranbaxy meetings, that the discussions on how to resolve the company’s FDA issues were “all just the beginning of the beginning".

On 19 February 2009, Une travelled to New Delhi and met with Malvinder. He was back in Tokyo on 25 February when he got news that came as a body blow. The FDA announced that it would level the harshest punishment available on Ranbaxy—an Application Integrity Policy (AIP). An AIP was the drug regulator’s version of a scarlet “A". The agency imposed it only when it deemed a company’s (drug approval) applications to be largely fraudulent or unreliable. Now the company would have to prove its products weren’t fraudulent in order to get them approved. The action left no doubt as to the depth and extent of the problem. The stock market responded accordingly. Ranbaxy shares fell 18% and took Daiichi Sankyo’s down 9% with them. “Crisis!" Une noted in his journal.

As Malvinder continued to play dumb, Une was left with a Delphic riddle of sorts. Why would the FDA deem the entire company dishonest if, as Malvinder claimed, Ranbaxy had done everything right? All Une could do was parse the clues in front of him. He was a careful observer and wrote in his journal about his meetings with Malvinder and his deputies: “What I found out is that they also do not understand the reason AIP was invoked. They are not aware that the entire system was deemed suspicious even though it was partially fixed. Malav-San joined (the meeting) at the end. Members’ tone changes. They are very much afraid of him."

Ethical dilemmas

Inside Ranbaxy, the AIP had caused tensions to boil over. Jay Deshmukh was at his wits’ end. He’d participated in a fraud, under direct orders from his boss. Now that Daiichi Sankyo needed to take charge of the FDA and justice department problems, it had every right to know the truth about their origins. The ongoing suppression of the SAR and the deceit perpetrated against Une seemed more indefensible with every passing day.

And though Deshmukh had been put nominally in charge of cleaning up the trail of fraudulent dossiers, Malvinder’s loyalists inside the company were blocking that effort at every turn. In meetings, Deshmukh openly began to voice his dismay, on occasion even threatening to personally disclose the SAR to Daiichi Sankyo, airing a view that others shared but refused to say aloud.

Finally, in early March 2009, the growing conflict between Deshmukh and Malvinder broke out into the open. “We don’t think you’re doing things the right way," Deshmukh told Malvinder at an operational meeting in India, with over a dozen people present.

“I’m going to stop you right there," Malvinder interrupted him. “Who’s we and who’s you?"

“We are the lawyers," Deshmukh said. “Jay, I am very upset with you," Malvinder responded. “You’re now looking at we and you, us and them? You’re not one of us?"

“Take it the way you want," Deshmukh retorted. “I want this thing cleaned up. And you’re not doing it. Your guys are refusing to do things that the compliance lawyers and I are insisting be done."

Not long after that clash, Malvinder called Deshmukh, who’d returned to the US, and told him, “I want you in India." He directed him to take the next flight over. Within 72 hours, Malvinder was glaring at Deshmukh across his desk and gave him three choices: he could leave voluntarily with a negotiated settlement; he could relocate to India and work on intellectual property but nothing else; or he could be fired and leave on bad terms. Deshmukh asked for a day to think it over.

That night Deshmukh went out for a drink with trusted colleagues and blew off steam. He complained that the company’s fall was all due to Malvinder, and that he was screwing over Ranbaxy’s 12,000 employees and all their dependents. “There’s not too many people who are the worst people on the face of the earth, but this guy is one," he said. In bitterness, he had said way too much. The next day Malvinder hauled Deshmukh back into his office. The head of human resources was seated beside him. The meeting got instantly ugly. “I heard what you said," Malvinder said, meaning that the lawyer’s remarks over drinks the night before had been relayed to him. Malvinder then directed the human resources director to leave. He told Deshmukh that if he chose to release the SAR to Daiichi Sankyo, Malvinder could take matters into his own hands. “I know where you live," Malvinder said.

Deshmukh refused to cower: “Of course you know where I live, you idiot. You’ve come to my house." He added, “Why don’t you get your HR person back in here, so he can hear your threats?" He then pointed out that if Malvinder tried to harm him while he was in the US, “it’s going to come back and bite you very hard."

“You’re a womanizer," Malvinder shot back. “I have all the records on you." The men continued to trade insults. “If your father was alive today, he’d be ashamed," said Deshmukh.

It was the lawyer’s last day at Ranbaxy. Malvinder forced him to resign. As he later reflected on Ranbaxy’s conduct, “Honestly, once you get to the point where you actually wholesale make up data points, hundreds and thousands... of data points, what’s to keep you from doing anything?"

Edited excerpts from Bottle Of Lies: The Inside Story Of The Generic Drug Boom by Katherine Eban, with permission from Juggernaut; Pages: 410; Hardback: 699.

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