What Ranbaxy's Fraud Says About the State of Big Pharma Research

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A look at the awards and certifications page on Ranbaxy Laboratories Limited's (OTCMKTS:RBXLY) website reveals a decade of superlatives and top distinctions for the Indian multinational generic pharmaceutical giant: "[R]anked number one in the pharma sector in the Most Respected Companies Survey by Business World ." Business Today named Ranbaxy Most Innovative Company of the Year. New Jersey business journal NJBIZ recognized the company as one of the largest pharmaceutical employers in the state.

And that was just 2007.

At the same time, the Food and Drug Administration was already two years into an investigation of massive fraud committed by Ranbaxy that would lead to the company pleading guilty to seven felonies in May 2103. The $500 million settlement -- including $150 million in criminal fine and forfeiture payments and $350 million in civil claims -- was the largest ever with a generic drugmaker over drug safety .

Many Americans may not know the company by name, but we are certainly familiar with its products. Ranbaxy exports to the US, among 125 countries, generic versions of AstraZeneca's ( AZN ) Nexium, Eli Lilly & Company's ( LLY ) Prozac, Baxter Healthcare Corp's ( BAX ) Ativan, and GlaxoSmithKline's ( GSK ) Imitrex and Valtrex.

Ranbaxy's generic of Pfizer's ( PFE ) Lipitor was recalled in 2012 for containing glass particles in its raw ingredients.

But this safety breach merely scratches the surface of Ranbaxy's violations for selling adulterated drugs. On at least 15 of Ranbaxy's new drug applications, the FDA found over 1,600 data errors. The bioequivalence figures -- needed to prove a generic is at least an 80% chemical match of the branded drug -- either didn't exist or were cooked up by the company entirely.

Vince Fabiano, a former vice president of Ranbaxy, told CBS News, "In essence, they used the fraud as a competitive advantage to build and grow the business here in the US." He added, "Let's say you're treated with a generic cancer drug and -- and your cancer -- progresses. Is it because of the drug? Is it because of the disease process? No one would know. And it's harm that in many cases would not be detectable."

The FDA didn't discover Ranbaxy's wrongdoings on its own; it took an executive and chemical engineer within the company to expose the deception. In fact, when it comes to medical research, the government has very little to no involvement, leaving pharmaceutical companies to underwrite objective clinical trials of the very drugs they intend to sell.

For the past few years, Roche (OTCMKTS:RHHBY), the Swiss company that manufactures and markets Tamiflu, has been under fire for presenting misleading research to nations worldwide about the antiviral drug's ability to control the flu. Since 2005, the US government has spent billions stockpiling Tamiflu based on a paper that analyzed 10 studies, all of them funded by Roche.

According to sources who spoke to us on background, the FDA simply lacks the resources to independently test drug safety and efficacy. The research and development costs to bring a drug to market can run as much as a billion dollars. Once a drug has been approved, organizations like the National Institutes of Health sometimes fund further research in academic settings, and trials may also be initiated by investigators for publication in medical journals, but drug companies often pay for these studies as well.

Big Pharma's conflict of interest between research and profit hasn't always been the status quo. In his book, Overdosed America , John Abramson, M.D., explains, "As the function of medical research in our society has been transformed from a fundamentally academic and scientific activity to a fundamentally commercial activity, the context in which the research is done has similarly changed: First in universities funded primarily by public sources, then in universities funded primarily by commercial sources, then by independent for-profit research organizations contracting directly with drug companies."

Three of the four major global advertising holding companies -- Omnicom (OMC), Interpublic Group of Companies, Inc. (IPG), and WPP (WPPGY) have either bought or invested in the companies that perform clinical trials.

Though the prohibitive costs of conducting drug research is surely beyond the scope of the FDA, the government has other incentives to stay out of it -- namely, politicians' campaign coffers generously filled by a well-funded pharmaceutical lobby.

Ranbaxy alone has spent nearly $2.5 million on lobbying since 2010.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: AZN , BAX , GSK , LLY , PFE

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