The clock has been reset for Ranbaxy

Written by Soma Das | Updated: Jan 2 2013, 09:15am hrs
Arun Sawhney, the managing director of Ranbaxy Labs Ltd, doesnt live in denial, nor does he postpone the admission of lapses. This fundamental trait of his could prove to be an invaluable asset for a company, which still has a few miles to travel before it can be officially declared out of the woods in the largest regulated drug marketthe US. Sawhney, whom his Ranbaxy colleagues describe as a great listener and a peoples person, joined the firm in May 2008, days before its takeover by Japanese firm Daiichi Sankyo and ascended to the firms top post in August 2010following the abrupt departure of his predecessorinheriting a swamp of regulatory problems with the mighty US drug regulator. Since then, Sawhney has been loosening bit by bit the tricky regulatory knots that the company found itself entangled in 2008. But that doesnt prevent him from dreaming up a Ranbaxy, which would emerge as one of the worlds best generics innovator, five years hence. This he plans to achieve by harnessing creative energies within the company in his five-year tenure, which will run parallel to the consent decree that the company signed with the US government in December 2011. In an interaction with Soma Das and Rishi Raj, Sawhney said that the disruptive four-year period may have reset the clock for the company and delayed its dreams, but Ranbaxy would only emerge much stronger from this experience. Excerpts:

How would you compare life in Ranbaxy under consent decree to life before it

I think no company should land up in a situation where it has to sign a consent decree. That Ranbaxy did, is unfortunate. But rather than comparing life before and under consent decree, we should focus on life during the consent decree and after it. Getting stuck to what happened in the past would not pay us any dividends, but learning from the past to focus on the future would give us richer dividends. Whether there is consent decree or not, life in Ranbaxy should follow one pattern. If there is certain behaviour that is expected, specific protocols, processes and documentation practices that are expected, they should run as efficiently irrespective of whether the company is under consent decree or not. From the situation that we are in, we should make it a point to follow the right and best management practices for all times to come.

In the US market, you are now pursuing a strategy of chasing limited competition complex molecules and branded business in dermatological segment. But some of your domestic peers have already done a great deal of groundwork in this direction. Do you think you have arrived slightly late on the scene

I would like to correct your perception here. We were probably the first company from India to have identified these opportunities in the US, somewhere around the middle years of the last decade. We understood that these two niche areas would be the future high-growth drivers in the US. In fact, we had developed a very good brand Isotretfirst branded product Sortet (Isotreti-noin) in 2003which enjoyed a good market position. It was unfortunate whatever happened in 2008; otherwise our derma portfolio would have taken off in the US by now. So we were the pioneers in this area actually and led the way. I agree we have some catching up to do now because of the setback in between, but with the slew of products that we have in our pipeline in dermatology, I am confident we would do it. In fact, I keep telling my team that the clock has been reset for us, so where we stood in 2007, we are in 2012, and what we had imagined 2012 to be in 2007, we would certainly be there by 2017.

As the patent cliff nears an end, the conventional business model of most generic companies of reverse engineering branded drugs will not remain very lucrative. How do you think generic drug firms are gearing up for the challenge of rediscovering themselves, say, post 2016

There would have to be a change in the mindset. If a company gets stuck with identifying itself to only generics as we understand it today, it would be restricting itself in the bounds of limited opportunity. I think there are unlimited opportunities for innovation between the area of pure generics and new chemical entities (NCEs or new drugs). It is this expanse that the generic companies have to tap. While you may still refer to firms as generic companies as we did in yesteryears, in future the companies that will flourish would essentially be those that are innovative, even if these innovations are not led by discovery.

But how do you rate the past record of generic pharma firms with regard to innovation

You have more than one way to look at records. Looking at the past is akin to driving ahead while constantly focusing on the rear-view mirror. That may be not the best way to move forward. You have to see what has already begun for the Indian companies. In fact, we have developed the first new drug in the country called Synriamthat targets Malaria. I see this new energy within Ranbaxy channelised towards innovation and I am sure this is happening across the industry.

Now that your professional fate is in a way interwoven with Ranbaxys for next five years, what is your vision for the company

I want to see Ranbaxy emerge as the best globally in the space of generics innovation. I believe that Ranbaxy has the possibility and the capability. In addition to the new drug Synriam, a second instance of this innovative streak is evident in the recent launch of Absorica (Isotretinoin) in the US. (Indicated for severe recalcitrant nodular acne. This product comes with value addition to conventional drug in the market and is not being marketed as a substitute of any existing product. This product doesnt need to be taken with high-fat meals and hence has an edge over existing competing product.) Five years from now, we need not be gigantic in size but the company should be recognised as the best in generics innovation space. That sums up my vision.

Could you define in detail this space of generics innovation for us

Innovation in the generics space that improves patient convenience, patient compliance, safety and efficacy. If you map this space by taking the universe of existing molecules (drugs), it is a mammoth business opportunity. We are just beginning on the path and should refrain from turning back to look at the track record, where very little has been done on this account. Therefore, focus should not be on precedents but on possibilities.

The company launched Project Viraat with much fanfare in April 2010 to reclaim its top position in the domestic market by 2012. What went wrong with the approach

I wouldnt say that things didnt go right with Project Viraat, but to explain what happened in this case, I would dwell on innovation again. Innovation doesnt necessarily have to breed in research and development, it could stem out of any of the business processes, when we are talking in context of a corporate set-up-sales, marketing, distribution, HR, and finance. Our core strategy in Project Viraat of a mass recruitment drive got easily replicated by other players in the industry and suddenly you saw many others hiring as aggressively. And we realised that if you have to remain ahead of the pack, you have to do things distinctly. The moot lesson from that experience was to do things that are not so easily replicable. If your strategies are so easily duplicated, they do not remain distinctive for very long. And from there on, our innovations that straddle across different functions in the company keep that in mind.

So, what are the new differentiated strategies you have employed in the domestic market

That is work in progress and not something we would like to reveal.

Has the latest recall of generic Lipitor in the US come as a setback

Yes, any recall of this magnitude, one has to admit, is a setback.

Meanwhile, in the few weeks following the announcement, you have lost substantial market share for the product, from over 40% to 22%. Will that have a significant impact on the earnings for the quarter

We have not made a fine dollar calculation but losing market share is definitely another setback. But I have a team in the US that will work well to see how we reclaim our market share in this product. And we have excellent customer relationship in the US that has seen us through in the difficult phase of last few years.

What is the nature of relationship that you share with the parent company Daiichi and how much does it influence decision making

Ranbaxy is managed by a board. It is an independent listed company on the stock exchange. So the governance is through that board. For instance, I report to the board and the company is managed with the guidance of the board. So it is like any other independent company in India with a global footprint. That is how we can essentially characterise Ranbaxy today.

How has the front-end and back-end integration between the two firms come through

The roles are very well defined and clearly demarcated. For back-end, Daiichi Sankyo would essentially, but not only, operate in the discovery space and Ranbaxy would operate in the generics space. When I say generics, it is not limited to pure generics but generics innovation as well. At the front-end, we are in the process of implementing a hybrid business model, i.e., whichever company has a stronghold in whichever geography, would become the face for both the companies. For instance, in India, Ranbaxy would market all the products of both the companies. And in Mexico, where Daiichi Sankyo is strong, it would market Ranbaxys products in addition to its own. And those markets where Ranbaxy and Daiichi are equally strong or equally weak, both companies would go their own way. Case in point is the US market. So we will be evaluating countries, markets and regions to see which of the two companies is strong and where to allocate the responsibility of marketing products of both firms. As far as the cooperation between back-end and front-end are concerned, both firms are keen to see how the best from each can be migrated to bring value to the two companies.

Has the Japanese corporate culture penetrated Ranbaxys management style in any way

I think diversity of culture is good for a company with a global footprint but that diversity of culture must be accompanied by uniformity of values. And Ranbaxys set of values were created in 1993. We feel those values are valid even today and they continue to be the governing principles for the company even today, and Daiichi has supported us in upholding them totally.