Fall from grace

The Ranbaxy scandal is more damaging to Indian pharma’s image than its business prospects

Written by Gauri Kamath | Published:May 28, 2013 1:01 am

The Ranbaxy scandal is more damaging to Indian pharma’s image than its business prospects

On May 13,Indian off-patent drugs producer Ranbaxy Laboratories agreed to pay $500 million to settle US government charges of fraud at its Indian factories.


As scrutiny is upped,it is not unexpected that more violations will be detected.


Investigators found,thanks to a former Ranbaxy employee who blew the whistle,that in the mid-to-late 2000s,company executives had extensively fabricated test data on generics destined for the US and suppressed unfavourable results.

Ranbaxy,like other Indian companies,manufactures cheaper,off-patent versions of innovator drugs,or generics,that help individuals and governments cut healthcare costs. At one level,Ranbaxy’s deceit is only the latest in a long string of scandals that’s dogged the global pharmaceutical and medical devices industry. For the last decade or so,Western companies have been in the dock in Europe and the US for illegally marketing drugs for unapproved uses,unauthorised trials,colluding with doctors to defraud government health programmes,suppressing information on side effects,and selectively releasing favourable trial data. But in these markets,the Ranbaxy fraud is doubtless also seen as the fallout of buying generics from factories located halfway across the world that regulators can’t inspect too often or reach in a hurry. That too in a country with weak regulatory oversight of its own.

This paper reported earlier that India aimed to export pharmaceuticals worth $15.5 billion in 2012-13,up 17 per cent from the previous year. European and American markets accounted for 55 per cent of exports. So it is fair to ask: To what extent will this scandal impact the Indian generics industry’s prospects? The short answer is,very little.

One,the Ranbaxy case is not new. The investigation began nearly nine years ago. What brought it back into the limelight was a resolution that cost $500 million. In the interim,the US drugs regulator,the Food and Drug Administration (FDA),has continued to approve generics from India,including Ranbaxy’s. So have others. A look at the number of US FDA import alerts — which indicate that products of a company may be unsafe — shows India having received 46. In comparison,Mexico and Canada were at 63 each,and China at 75. India also has the most FDA-approved factories outside the US.

Two,generics have brought tremendous costs savings to developed economies. According to the Generic Pharmaceutical Association,generics saved the US $193 billion in 2011 alone. Generics often debut at deep discounts of over 90 per cent to the innovator price. This means that quality being equal,companies compete on price and money is made on volumes. Hence,it makes commercial sense to locate production in low-cost economies such as India or source from here. Even US generics companies such as Mylan and Actavis have veered around to this view and own significant manufacturing assets here. The Ranbaxy scandal does not change that.

It is equally true,however,that the FDA has begun to step up its scrutiny of overseas factories for some years now. About four years ago,it set up offices in India and China. Last year,it upped generics application fees to enhance the resources at its disposal to regulate effectively. These changes would have occurred irrespective of Ranbaxy’s wrongdoing. More than 80 per cent of active pharmaceutical ingredients for all US drugs,and 40 per cent of finished pills and capsules,are imported. But the moves were probably lent urgency by it and other scandals,such as deaths from allegedly contaminated Chinese imports of ingredients used in the clot-buster heparin in 2008.

As scrutiny is upped,and as India’s exports to the West scale further,it is not unexpected that more violations will be detected. For instance,shortly after Ranbaxy’s settlement came news that Mumbai-based Wockhardt’s factory had been issued an import alert. Most violations are unlikely to be pernicious and so,rectified without a significant hit to profit or reputation. But as long as there is greed and excessive ambition,a Ranbaxy-scale disaster cannot be entirely ruled out,in India or elsewhere.

Either way,companies will be under considerable pressure to keep up. Those that do will be fittingly rewarded as higher standards weed out the undeserving,thus improving the market for the rest. Meanwhile,the damage to Indian pharma’s image in popular perception has been substantial. Ranbaxy is not just any company. It is a leading Indian generic drugs producer and has a history of attracting top-flight talent. It has been lauded for putting India on the global generics map. Just as its success rubbed off on the image of Indian pharma,so will its disgrace.

The writer is a Mumbai-based independent pharmaceuticals and healthcare expert

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