No trouble for Mohali unit, claims Ranbaxy; but what about governance?

Ranbaxy Laboratories, after getting hammered by investors for a day, has clarified its Mohali unit is not in trouble and that it stopped supply of atorvastatin, or Lipitor, to the US markets from the unit purely for commercial reasons.

The company's shares had hit a 52-week low yesterday, after the Business Standard reported the unit has been issued the Form 483 by the US FDA indicating the manufacturing practice at the unit does not conform to its rules.

The report also said the company has not yet resumed supply to the US of its cholestrol lowering generic Lipitor from the unit.

"We will resume supplies of atorvastatin for US pharmacies and retail market, manufactured at the Mohali facility over the next few months," Ranbaxy CEO and MD Arun Sawhney has been quoted as saying in a report in the Times of India today.



The company's Lipitor had 55 percent market share in the US which significantly eroded late last year, after the company voluntarily recalled 41 lots of 10 mg, 20 mg and 40 mg tablets on suspicion that they contain very small glass particles.

In a bid to reinforce investor confidence, Sawhney has also said the US FDA has not conducted any inspection of the unit this year.

About receiving the Form 483 from the US FDA, he downplayed it saying they were just the regulator's observations about manufacturing at the unit and has no impact on regulatory filings from the unit.

However, the issue has brought into focus the shoddy corporate governance at the company. According to the BS report, the Form 483 was issued to the unit a few months ago. However, the company has not make any disclosure about this till date.

The reason for this, according to Amit Chander, partner, Baring Private Equity, quoted in the BS report, is that it is not mandatory for companies in India to disclose the receipt of the Form 483.

So, it is easy going for the companies. They can hold back the sensitive information as long as they want to. That is what Ranbaxy did.

So technically, the company cannot be blamed. But just adhering to laws does not mean good corporate governance. That is the reason analysts are bothered. According to the ToI report, they have raised concerns saying Ranbaxy should have made necessary disclosures much earlier.

What Ranbaxy need to understand is that, whether legally required or not, it is better to make such disclosures, which will increase transparency and boost the company's image. For Ranbaxy, which is under intense scrutiny after its run-ins with US FDA, this is of utmost importance now.

Updated Date: Dec 20, 2014 22:03 PM

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