When Cadbury was rapped by the Maharashtra Food and Drug Administration allegedly for worms in its chocolates, it roped in film icon Amitabh Bachchan as part of damage control, to endorse the product and vouch for its quality. 

But Ranbaxy is no Cadbury, it sells medicines, not chocolates.  It will have a longer and more painful walk back from the dock, after its recent decision to pay $500 million (over Rs 2,500 crore) to settle criminal and fraud charges against it in the US market.  

Ranbaxy’s fault: it falsified data and short-cut processes involving its medicines made at two manufacturing facilities in India. And worse, it made false statements to the regulatory US Food and Drug Administration.

For someone having a Ranbaxy tablet in her medicine-box, this development is bound to trigger concerns on the quality of medicines we consume. And to keep the faith, not just in the medicine, but the regulator as well, the system is only going to get more vigilant.

Ranbaxy’s bitter pill holds out several lessons for local drug-makers. Indian drug-makers shoulder the responsibility of being pharmacy to the world. They are expected to have systems that are above board on quality.

But error is part of any human enterprise. The important part is to take the punch, mend your ways and move on.

Cost of settlements

Ranbaxy is the largest drug-safety settlement by a generic drug-maker in the US. But settlements are not unique to the company. In fact, it is a road oft taken by global drug-majors to tide over contentious, litigation-filled situations.   

In the last decade, settlements have involved the biggest boys in the drug circles — Pfizer, GlaxoSmithKline, Merck, Eli Lilly, Johnson and Johnson, Abbott, etc. And the reasons have been varied — promotion of medicines for unapproved usage, improper marketing of products, non-disclosure of health-risks. (see table)

Like in the Ranbaxy case, whistle-blowers have played a role in several of these cases too. Drug companies say in their defence that a settlement helps end uncertainty and may not necessarily be an admission of wrong-doing. But depending on how grievous the crime is — did it involve deaths, the motive, etc., — settlements too come in different shades. In fact, there is a view gaining ground, questioning settlements as a method to punish errant companies.

Japanese-company, Daiichi Sankyo-owned Ranbaxy projects revenues of over Rs 12,000 crore in 2013. It has been preparing for the $500 million penalty since the consent agreement with the US FDA in December 2011 — where it committed to strengthen procedures to ensure data integrity and comply with Current Good Manufacturing Practices (CGMP). The learning for local generic companies is that, they can ill-afford to pay their way out of mistakes. For multinational big daddies, settlements are just a fraction of their revenue. But a similar payment can drive a smaller generic company into bankruptcy.

Generic backdrop  

The shrill debate around Ranbaxy’s settlement also plays out against the backdrop of fierce turf wars between innovators and generic drug makers.

Ranbaxy’s erstwhile promoters, the Singh brothers, sold their entire stake to Daiichi Sankyo in 2008, for over $4 billion. But as the two promoters lock horns on Ranbaxy’s FDA woes, the India-based company faces the risk of being used as the stick to beat all generic drug-makers.

And here’s the rub for India, home to several generic drug-makers. The US is the largest generics market and at last count, there are over 300 manufacturing sites in India, approved by the US FDA.

Generic drugs are chemically-similar versions of innovative medicines that have outlived their patent-protected exclusivity period. Innovators often derisively describe generics as copy-cats or me-too drugs, as the latter do not involve expensive research. And generic-players don’t entirely buy the innovators’ reasoning that their medicines are high-priced because it includes the steep cost of research.

In fact, they challenge attempts to sometimes dress up existing medicine in the garb of a new one and get a fresh bout of patent protection and exclusivity. 

In an economic downturn, health administrators tend to lean on generic drugs to keep the spiralling cost of healthcare in check. And this is where every negative development for a company gets magnified by the lobby-infested pharmaceutical industry.

Grievous mistake?

What really happened at Ranbaxy is privileged information between the two promoters, say several ex-Ranbaxians. But the gravity of its mistake can be evaluated against similar examples in the global pharmaceutical market, they add.

Ranbaxy is in the dock for selling adulterated medicine. The Department of Justice explains how the US regulator defines an “adulterated” drug — when the methods used in the manufacture, processing, packing or storage do not conform to what they outline as Current Good Manufacturing Practices.  A recent World Health Organisation note builds some confidence as it says that Ranbaxy’s products on its present list of pre-qualified medicines are of acceptable quality.

The WHO also points out that “adulterated” has a specific legal meaning in the US — when medicines are not manufactured under CGMP. “It does not mean that the medicine is necessarily substandard,” it notes.

Industry watchers also point out that the data falsification issue has been on the boil for about eight years. But there are no class-action suits by patients, nor are regulators across the world scrambling to advise patients to stop using Ranbaxy’s medicines.

Contrast this with Merck’s payment of $4.85 billion to settle patient litigation after its painkiller Vioxx was taken off the market, following it being linked to heart risks. 

Changed environment  

But the nagging thought remains. If the erstwhile home-spun major Ranbaxy is caught admitting fraud, what does it say of mid-sized drug makers dreaming big?  

Drug companies are now more nimble in working with regulators, informing them of a fishy smell or glass pieces in products, as the case may be, and undertaking voluntarily drug recall to build trust with patients and regulators, says industry representatives.  

But what about wilful fraud, possibly spurred by someone in authority?  That is suicidal, says an industry veteran, as it will wreck your reputation and sales.

There is a jackpot to be got at the end of the rainbow, as drugs go off-patent in the years ahead. Why would a company shoot itself in the foot and throw away that opportunity?

Ranbaxy’s story is a layered one. Questions are even being asked of the regulator and why it took an insider to catch the fraud. More questions will be asked by regulators across the world, and to drug companies of all hues.

After all, making medicines is like no other business in the world. It is a difficult cross to bear.

And to operate in this complex and competitive global arena, Indian drug-makers will have to benchmark themselves against global best practices and not be found wanting when put under the scanner.