From 18th century English poetry to events and episodes dating back perhaps to 40 or 50 years ago, this column has drawn inspiration from the author’s myriad personal experiences to buttress a point of view. But, in this obsession with events of great antiquity, there is a danger of putting off young readers, whose number, one hopes, is legion.

They might well say that while a discussion on esoteric aspects of public policy or a comment on some arcane issue of corporate strategy is not unwelcome, it would sound a lot better if a reference to Priyanka Chopra could somehow be woven into it. Therein lay the rub.

While it is entirely possible that the lady is utterly fascinated by such things as Unilever’s share buyback programme in its Indian subsidiary or Bernanke’s plans for winding down the bond buying programme of the US Federal Reserve, it is rather difficult to allude to her views on the subject unless one has had the advantage of at least an passing acquaintance with her.

In the event, this column must necessarily suffer from that handicap. However, the present piece would redress it somewhat by drawing upon something that happened, while not quite as current as yesterday, but, nevertheless, not so dated as to deal with things from a dinosaurian time.

Back in 1992, this writer was a dinner guest at the home of a district manager of Pfizer, in charge of the company’s marketing operations in South and Central Rajasthan. The talk inevitably turned to the market conditions for the company’s products.

Hitting the market

He ruefully admitted that it was quite challenging as he had to contend with stiff competition from domestic pharma companies that had the copy-cat versions of the company’s own branded medicines. It must be remembered that this was after all the era of a patent regime in India where one could only patent the process of manufacture of a drug and not the molecule itself.

He went on to make the point that such was the scientific talent available with domestic pharma companies that they could reverse engineer a molecule using an alternative process and hit the market even as the multinational was registering its patent in the run-up to launching the same in its home market. He made a particular mention of Torrent Pharmaceuticals which would launch into the market one formulation after another in sync with global launches by multinationals. So much so, as he jocularly remarked, the company’s name, ‘Torrent’ was actually a misnomer. Instead, it should be Turant (fast, in Hindi) to better denote its ability to hit the market without any delay.

Complaints against Ranbaxy

Looked at from another perspective, even the word ‘Torrent’ is not quite inappropriate as it signalled its ability to unleash in the market a torrent of new formulations every other day. It had certainly not done a bad job of it, copy-cat medicines or not, considering it is a Rs 3,500-crore turnover company (2012-13). It is not alone.

There a few others who have done exceptionally well as to put India firmly in the global pharmaceutical industry map. Which is why all this talk about the Indian pharma industry not being up to scratch in the wake of problems that Ranbaxy has had with the US Food and Drug Administration, is unfortunate. Certainly, there is nothing in the indictment which the Maryland District Attorney had filed in the local court and which led to an eventual compromise settlement, to warrant such a conclusion. Indeed, it doesn’t quite amount to that even for the operations of Ranbaxy itself.

The crux of the complaints of the US Attorney for the District of Maryland against Ranbaxy could be summed up like this:

The company did not maintain records of testing done on drugs produced by it at its two manufacturing facilities in India and, where it did, the results were merely cooked up. Hence, they were technically deemed as adulterated.

In cases where it tested the drugs and found some quality issues (shelf-life), it did not notify the authorities.

Where it did notify the authorities, it did not do so within the stipulated three days.

It made false statements as to the dates when the stability tests (measuring the quality of shelf-life) were carried out. A single set of results was used to claim the performance of tests at various points of time (three, six, 12 months, and so on).

Declarations made by the company in its annual report (a mandatory written document in respect of each and every licensed drug) on the results of quality (shelf-life) testing were false.

The last charge has actually been repeated for three specific formulations, making it an indictment on seven counts. Certainly, the company has been guilty of some haphazard record-keeping and less than perfect quality control and regulatory compliance routines in its operations. Making up some documentation to keep up with the pace of production on a post facto basis was only compounding the initial offence. Does that make it a company packaging worthless pieces of chemical mud and passing them off as drugs? Hardly.

Power of Mind

There is nothing in business history to suggest that you can build a company from practically scratch to one generating an annual turnover of Rs 10,000 crore in a short span of 25 years without generating, along the way, some value proposition to consumers of its goods/services. There have been instances of patients participating in clinical trials achieving superior results with a placebo than the actual innovation drug that was being evaluated. Such is the power of the mind that can will the body to cure itself of whatever ailments it happens to be suffering from.

This was pointed out quite eloquently by the author, Adam Smith (pseudonym) in his book, Power of Mind (1975). To assume, therefore, that Ranbaxy was involved in an elaborate charade producing placebos and palming them off as medicines to a gullible US drug enforcement authority is to strain one’s credulity.

Pharma is different

That brings me to a larger point. Should the pharmaceutical industry be structured as a globalised industry in the way textiles or cars or Apple iPhones are?

Globalisation has worked where there are labour arbitrage opportunities to be exploited, such as in textiles. It has worked in the case of an industry where there are manufacturing complexities such as in automobiles, where engines can be made in one country, the drive assembly in another and then these parts can be shipped to assembly plants located in different parts of the world.

But the pharma industry possesses none of these characteristics. Its production labour cost is next to nothing. There is no great manufacturing complexity. You could make the stuff in your backyard. Even clinical trials can’t be globalised in India or China because the two countries have huge populations. It really makes sense to manufacture medicines closer to the market.

Ranbaxy’s troubles with regulators might just signal the start of an industry going back to its roots. Indeed, that might well have begun already.

If Daiichi Sankyo has picked up a stake in Ranbaxy or if Abbot has bought out the pharma business of Piramal Healthcare, it is not for making them into a global manufacturing hub. It is about grabbing a chunk of the local Indian market for drugs.

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