The Delhi high court’s decision to allow Daiichi Sankyo to enforce the monetary award adjudicated by a Singaporean arbitral tribunal against the former promoters of Ranbaxy Laboratories last week marks a significant milestone in India’s corporate governance and functioning of its regulatory institutions.
Several facts admitted by both sides in their respective legal arguments advanced in the high court as documented in the judgment enable us to ask some pointed questions of those in the know about their role and accountability in preventing the fraud so thoroughly documented and creating an impression that what happened at this company was a one-off case.
It is instructive to look back at the comments made by the promoters when my case against Ranbaxy became public in May 2013.
Asserting that Ranbaxy wasn’t a “lemon”, defending the company’s culture all the way to “blaming” Daiichi Sankyo for the lack of its ability to manage the business it bought are all a matter of public record. The high court judgment documents the finding of the tribunal that the promoters of the company “acted fraudulently and dishonestly, misleading Daiichi about the genesis, nature and severity of the US regulatory investigations…”.
How ridiculous then was the argument advanced at the time by Ranbaxy’s former promoters that it was Daiichi’s fault that it did not conduct proper due diligence during the purchase process, that it ought to have known that the company and its culture were riddled with fraud. Buyer, beware! We certainly have come a long way from the righteous indignation that we saw in May 2013.
Is now the right time to ask what role the board of directors played in this sordid saga? Admittedly, a sub-section of the board (the scientific committee) was briefed by Dr Raj Kumar, the-then head of R&D, to the extent of fraud in the company’s portfolio in the fall of 2004. Recall that the board of directors of the company comprised illustrious captains of India Inc., led by the-then lt. governor of Delhi.
Are we to assume that those who pontificate about the dharma of business were equally dysfunctional in discharging their fiduciary duties to the shareholders of the company as the judgment says about the CEO and the management team? What about the speculation in the stock price of the company, which, according to a report in The Economic Times, ran up by about two-thirds between February and June of 2008 ahead of the purchase against the backdrop of the global financial crisis? What accountability to corporate governance do these titans of India Inc have to retail shareholders of the company?
And what of the well-meaning arm-chair public health experts who made absurd assertions vouching for the company’s products on various television debates and in newspaper reports? What basis did they have in providing cover to an outright fraud by India’s largest pharmaceutical company at the time? They said it was a “documentation problem” and nothing more. We were told that the standards we use in India are different than those that the US Food and Drug Administration (FDA) uses to assess the quality of medicine. They explained that the US FDA asked the company to pay a penalty of $500 million after it had pleaded guilty to seven counts of criminal felony because it had “forgotten” to fill out a few forms.
Well, one reading of the facts listed in the Delhi HC’s judgment should make them re-think their expert opinion. Should we expect these experts to retract their nonsense now? I wouldn’t hold my breath.
Lack of official will
Sadly, these actions pale in comparison to what the national regulator, the Central Drug Standard Control Organisation (CDSCO), has systematically done to not only provide a shield to the fraud at Ranbaxy but has also continued its opaque practices until today. This lack of will to enforce existing rules and hold those responsible for manufacturing substandard, poor quality medicine accountable has led to regulators in the US and Europe – whose job is to protect their citizens – stopping the import of medicines made in India.
The only health authority who has not taken any significant legal action against those responsible for the events that unfolded at Ranbaxy is the Indian regulator whic is responsible for ensuring that patients in India consume safe medicine.
Even after Ranbaxy’s guilty plea in 2013, when Indian doctors and pharmacy chains expressed concern about the quality of medicine manufactured by Ranbaxy, the Indian government moved swiftly to give the company a clean chit, dismissing the serious regulatory issues at the company as a “documentation issue”. However, when the issue was raised in parliament in 2013, the-then health minister Ghulam Nabi Azad announced that the Drug Controller General of India (DCGI) had been ordered to review Ranbaxy’s facilities.
In July 2015, we sought information from the DCGI on the status of that particular investigation which the health minister had promised parliament. We were refused the information under the Right to Information Act on the grounds that such a disclosure would impede an ongoing investigation and that such information would be considered secret/commercial. Mind you, this was two years after the initial promise made in the parliament.
Not just a procedural issue
More recently, we received a more detailed reply from the government explaining that the CDSCO, which is headed by the DCGI, along with the concerned state drug regulators did, in fact, conduct an inspection of six Ranbaxy manufacturing facilities in India.
According to the RTI reply, Ranbaxy informed the CDSCO in 2014 that “they had suspended manufacturing of a total of 51 products, reduced the shelf life of 24 products and recalled 1 product”. If it was merely a “documentation issue”, do you not wonder why the company took these market-restricting actions? A report containing the deficiencies observed at Ranbaxy’s facilities was reportedly “forwarded to the concerned state licensing authority” for “compliance verification and other appropriate action” and the state authorities were reportedly asked to submit “action taken reports” periodically. According to the CDSCO, “no reply has been received from the concerned State Drug Control Authorities” despite reminders being issued.
Stripped of the bureaucratic jargon, this response basically admits that something did go wrong at Ranbaxy’s manufacturing facilities when assessed against Indian standards of Good Manufacturing Practices in Schedule M, but that the government was still not going to take any substantial action against those responsible for this mess. Don’t you ever wonder who the regulator works for? The people of India or the pharmaceutical companies?
Meanwhile, the Europeans revoked marketing authorisation of as many as 700 drugs sold in the EU because they found that Indian clinical research organisations fabricated data submitted by the Indian pharmaceutical industry to gain these approvals. While the health authorities in these countries protect their patients from poor-quality medicines made in India, the Indian government prefers to turn a Nelson’s eye to this serious public health issue despite the fact that it is patients in India who suffer the most from this fraud.
If the very institutions whose mandate is to protect public health become negligent in the discharge of their duties, who else do we turn to? The courts? When I approached the Supreme Court of India with hard evidence of the shocking state of regulation of the Indian pharmaceutical industry, I was turned away on the grounds that it was supposedly an academic issue as opposed to the burning urgency demonstrated by the same judge when it came to reforming the BCCI. Such is the state of the justice system in our country.
Successive governments have preferred to maintain their silence on the issue of substandard drugs, afraid of disrupting their only successful manufacturing story. Think about it. Can you point to another industry that can compete with the pharma industry in terms of manufacturing for export?
The Indian government occasionally opens its mouth to accuse its critics of advancing foreign conspiracies against the Indian pharmaceutical industry. Public health activists in India are more focused on affordability and access than they are on the quality of medicine. Health journalists in India seldom report in-depth on regulatory issues and even when they do, are often misled by lobbyists of the industry. The Medical Council of India has hardly ever spoken about the quality of medicines despite its member doctors staunchly opposing the prime minister’s ‘only generic prescription’ plan last year on grounds that quality of drugs in India is not consistent. And just to put this in context, while we discuss the national health insurance programme, the largest expense in India when it comes to delivery of care is on drugs.
There is one consistency though in this entire story: Silence when it comes to speaking the truth. The silence of the employees who know better because they ride the gravy train. The silence of the industry lobby to protect its membership. The silence of the board of directors. The silence of the public health activists. The silence of the NGOs for the fear of loss of patronage. The silence of the regulator. The silence of the justice system. And the silence of the patients who are most ill-equipped to understand the devastating results from consuming substandard medicine.
Who then is going to speak for public health as far as quality of medicines we consume?
Dinesh S. Thakur is a public health activist and is the chairman of Medassure Global Compliance Corporation.