As Ranbaxy’s World Turns, So Does Generics Model

Aug. 18, 2008

Never a dull moment these days at Ranbaxy Laboratories, India’s largest drug manufacturer. In the course of the summer, it has resolved its longstanding, much-publicized patent dispute with Pfizer over its generic version of Lipitor, agreed to an imminent buyout by Japanese drugmaker Daiichi Sankyo, and been sued by the U.S. government for alleged data fraud.

One could chalk up the dramatic series of events to coincidence, but one could also say that the chaos enveloping Ranbaxy has much to do with a shift in the industry, and the end of what might be called the Ranbaxy model—success and expansion through cheap generics and tenacious defense of legal challenges from patent originators among Big Pharma companies.

An Eventful Summer

The summer seemed to get off on the right foot for Ranbaxy with the news in June that Daiichi Sankyo wished to purchase a majority stake, and that Ranbaxy had settled with Pfizer, Inc. over Lipitor (avortastatin) patent infringement. In early July, the U.S. government filed suit in the District Court of Maryland against Ranbaxy and its U.S.-based consultant Parexel Consulting, alleging that the two systematically hid and falsified data related to an investigation of what the government had deemed “substandard” drugs sold in the US.

The investigation stems from a 2006 FDA probe, which held that Ranbaxy had failed to maintain adequate quality control systems and records in its Paonta Sahib plant in the Indian state of Himachal Pradesh. The suit follows government requests for the company to provide full data related to its recordkeeping practices at the plant, and a Valentine’s Day 2007 raid of Ranbaxy’s Plainsboro, New Jersey headquarters and New Brunswick, New Jersey manufacturing facility by US officials. The US Department of Justice is investigating whether Ranbaxy committed “contract fraud and submitted false claims to Federal health benefit programmes, fabricated bio-equivalence and stability data (necessary to prove efficacy of a drug) to support marketing applications filed with the US drug regulator for selling generic drugs in the US.”

Ranbaxy has denied wrongdoing, but Congress wants to know more about the case. Michigan democrats John Dingell and Bart Stupak are investigating whether FDA may have turned a blind eye and let the suspect Ranbaxy products into the U.S. Meanwhile, Daiichi Sankyo has said publicly that the suit will not impact its expressed desire to acquire a majority stake in Ranbaxy.

The End of An Era?

Generics companies can no longer afford such tumult and uncertainty, said Davinder Singh Brar, former head of Ranbaxy in a recent interview with India’s Business Standard. Instead, they have come to see the virtue of stability to appease anxious shareholders. The Lipitor settlement was a product of this thinking, Brar believes. In addition, as the pipeline for blockbuster drugs dries up, the opportunities for major generics victories dwindle. The chances of building a successful generics company today are small, Brar says. “Why would you want to be the 500th company to start a generic business when the generic model needs fine-tuning?” The Ranbaxy-Daiichi model may be the wave of the future. “It combines the best of generics with a very successful innovative pharmaceutical firm,” Brar says. “Daiichi can see a huge expansion of business through acquisition of Ranbaxy, which is present in 60 countries where Daiichi did not have a presence. So I see this trend emerging.”

The partnership may be reminiscent of the relationship that Novartis has with Sandoz, or one that GlaxoSmithKline hopes to achieve with South African generics maker Aspen, which it joined forces with in July. Rumors are swirling as to which big pharma companies (J&J? Pfizer?) and which generics firms (Watson? Dr Reddys? Cipla?) may follow the trend. All of this is a great source of amusement for those who know Ranbaxy and the generics industry well.

“I’m fascinated by what all is happening,” says Girish Malhotra, president of Epcot International (Pepper Pike, Ohio). Regarding Ranbaxy and Daiichi, “Not only are these two different companies originating from two different cultures, but also two different work methodologies.” Malhotra figures the marriage will take time to mature and flourish, as will other cross-cultural pharma partnerships. “Time will tell,” he says.

About the Author

Paul Thomas | Senior Editor