Drug Production

A scam in the making?

Print edition : July 31, 2020

Gujarat Chief Minister Vijay Rupani and Deputy Chief Minister Nitin Patel at a meeting to take stock of the COVID situation, in Surat on July 4. Photo: PTI

At the 1,200-bed Civil Hospital in Ahmedabad, now a dedicated to COVID treatment. A file photograph from May. Photo: Vijay Soneji

B.R. Shetty at an investors’ meet in Lucknow in July 2018. Photo: Rajeev Bhatt

Two government institutions are collaborating with a private pharmaceutical company to come up with drugs for COVID treatment. The company’s connections are dubious; nor does it have a great track record in business achievement or scientific research.

The alleged “scam” involving ventilators that did not apparently meet quality standards, which made news in Gujarat in May, also brought up questions about the manufacturing company’s close links with the leaders of the ruling Bharatiya Janata Party (BJP), including Prime Minister Narendra Modi.

The trouble started when senior doctors at the General Hospital in Ahmedabad, the city’s largest COVID hospital, repeatedly pointed out that many of the 5,000 ventilators "did not meet the standards of clinically usable quality ventilators”. The supplier was Rajkot-based Jyoti CNC Automation Ltd.

Chief Minister Vijay Rupani had launched the ventilators at a function attended by, among others, Deputy Chief Minister Nitin Patel. The BJP governments at the Centre and in the State were involved in the purchase and deployment of these ventilators. Later it was revealed that due diligence was not done on the company manufacturing the machines and they were installed after only one person was tested on one of them. The close relationship between some of the company’s top brass with Prime Minister Modi and Chief Minister Rupani was the topic of discussion not only in the media and political forums but also within the pharmaceutical industry and the scientific community.

One name that came up frequently in the media (for instance, in Ahmedabad Mirror and The Wire) was Rameshkumar Bhikhabhai Virani. (Virani had gifted the much talked about “name inscribed” suit that Modi wore during United States President Barack Obama’s visit in January 2015. That sartorial “statement” generated much debate, much of it downright critical of the Prime Minister.) The Surat-based Virani family has had a significant financial stake in Jyoti CNC for many years. The company’s chairman-cum-managing director, Parakramsinh Jadeja, is also known to be close to Rupani, who has repeatedly praised Jadeja’s “inspiring” words and deeds on social media and in public forums.

After the controversy broke out, the Gujarat government issued a statement saying it never described Jyoti CNC’s product as a ventilator. However, the government’s earlier press releases show that the machines were not only termed “ventilator” nine times but also touted as a “glorious achievement” that would “add a new feather” to Modi’s “dream campaign of Make in India”.

Another controversy?

Another pandemic-related controversy may well be in the making. A Press Information Bureau (PIB) press release on April 251 announced a Central government initiative involving the Council of Scientific and Industrial Research (CSIR), the Indian Institute of Chemical Technology (IICT), Hyderabad, and some private companies “to reduce dependency [on China] for active pharmaceutical ingredients (APIs) and drug intermediates”. The initiative, the release announced, would have a special focus on Umifenovir, Remdesivir, and a key intermediate of Hydroxychloroquine (HCQ), all important ingredients in COVID treatment. 2 a The release said that the IICT, a laboratory under the CSIR, was working with LAXAI Life Sciences (LLS) Private Ltd, a Hyderabad-based pharmaceutical company, for the synthesis of drugs to treat coronavirus infection.

The release added that “realising that drug security and undisrupted access to essential medicines are critical for public health, the Union Cabinet chaired by the Prime Minister has approved a special package 2 b for promotion of bulk drug manufacturing in India and reduction of our dependence on China”. It stated that the “collaboration will result in a cost-effective process with minimal dependency on China for key raw materials”.

Highlighting other key aspects of the project and the collaboration, the release said: “India, one of the largest producers of anti-malarial drug HCQ, has seen a spurt in demand in the recent weeks. India has sent HCQ to over 50 countries over the last few days, including the United States. The LAXAI Life Sciences Pvt. Ltd. (LLS) was established in the year 2007, with a vision to accelerate the discovery chemistry campaign of global pharmaceutical companies. Today LAXAI has grown into an integrated pharmaceutical company with presence in API [Active Pharmaceutical Ingredient] formulation development as well as API manufacturing. The collaboration will use the know-how for commercial manufacturing of the products. LAXAI Life Sciences shall be one of the first few to commercialise these products. The manufacturing of these APIs and intermediates will be taken up at U.S. Food and Drug Administration (USFDA)/Good manufacturing practice (GMP) approved plants held by LAXAI through its subsidiary, Therapiva Private Limited.” 2 c

The LLS website states that its vision is to “accelerate the discovery chemistry campaign of global pharmaceutical companies, by supporting the high quality intended compounds in reduced pricing and timeline”. This is what it says about its objective: “Our goal is to produce fast and innovative solutions to global pharmaceutical and biotechnological firms within the space of integrated contract research. We combine Science, Innovation and People to help our clients strengthen their competitive advantage, while providing high quality, quick and reliable services. LAXAI acknowledges and strongly supports international efforts, to advance drug discovery. We especially value the human capacity of creative imagination, and believe that it should be essentially nurtured. The dogma for business ethics at LAXAI is, that humanity should very responsibly use modern technologies to improve the human condition in the present and the future generations.” 3 a and b

In a section titled “Newsroom”, the website highlights the selection of Vamsidhar Maddipatla, chairman and managing director, LLS, as the “Transformational Entrepreneur of the Year in 2018” by “Pharma Leaders”. It also lists the achievement of Nikhil Baheti, chief financial officer of OSR Infra, Therapiva Private Ltd, and additional Director of LLS, in three acquisitions in 2018. 4 a and b

Significantly, the website makes no references to recent research undertaken by, or the achievements of, LLS in its self-professed core areas. There is also no mention of specific COVID-related projects or pharmaceutical investigations that the company has carried out. Calls to the numbers listed on the website of the company’s offices in Hyderabad did not evoke a response, probably on account of the multiple lockdowns in different parts of India since the last week of March. However, the profiles of LLS and its core manufacturing subsidiary, Therapiva, as listed in public, quasi-government platforms and credit rating agencies such as the ICRA Limited—a joint venture between Moody’s and various Indian commercial banks and financial services companies—reveal much about their credentials and activities, and perhaps more importantly, their ownership. Going by the Ahmedabad ventilator experience, the question whether the ownership of these companies had anything to do with the sanctioning of CSIR-IICT collaboration to LLS is pertinent.

The credentials of Therapiva, which are available in these public listings, show these entities as having a modest scale of operations but higher fixed costs. A recent ICRA rationale report shows that the company incurred operating losses with operating margin (OPM) of −15.3 per cent and − 20.4 per cent in FY2019 and H1 FY2020, respectively. The report points to high debt levels and relatively low net worth and adds that the company’s capital structure and coverage indicators were stretched and adjusted to total debt/OPBDITDA of 5.1 times and -8.4 times respectively as on September 30, 2019. 7 The report expects net losses in FY2020 and FY2021. Clearly, LLS and Therapiva are not recording huge successes in terms of either business or advancement of research.

A curious connection

The most important fact that comes up from a perusal of credit agencies’ public documents is that Therapivia is a joint venture between Omnicare Drugs India (ODI) Private Ltd and LLS. Significantly, the ratio of ownership is listed as 61 per cent with ODI and 39 percent with LLS. Yet, there is no mention of the predominant partner of Therapiva in any of the government or quasi-government pronouncements regarding the API project. 5a

In yet another twist, ODI is a 100 per cent subsidiary of Neopharma 5b International Holding Company, Dubai, which in turn is owned by Dr Bavaguthu Raghuram Shetty, the billionaire-founder of scores of enterprises, including NMC Health, once the biggest private health-care company in the United Arab Emirates (UAE). Shetty’s business empire comprises various businesses, including money transfer agencies such as the UAE EXCHANGE and the forex major Travelex based in the United Kingdom as well as enterprises in hospitality, education, pharma, real estate and film production.

Shetty happens to be going through legal and financial problems in recent times. Allegations about misappropriation by Shetty in many of his companies and public limited firms have been coming up over the past year. He was forced to resign from the positions of director in many of his companies. On April 8, NMC Health went into administration in the U.K. on account of insolvency.

A sharp drop in share prices and shares pledged by Shetty to pay off debts reportedly saw his net worth falling to a fraction of the earlier estimate of $3.5 billion. On April 15, 10 days before the PIB release was issued, the Abu Dhabi Commercial Bank filed a criminal complaint against NMC Health with the Attorney General’s Office of the UAE. On April 27, the Central Bank of the UAE ordered the freezing of his accounts and the blacklisting of his firms. 6a and b

Around the same time, Indian agencies also initiated inquiries to identify potential risks caused to Indian banks through Shetty’s operations. In the last two weeks of May, the Bank of Baroda (BoB) moved lower courts and the Karnataka High Court, seeking the prohibition of sale of assets, even those not pledged to the bank, by Shetty. The billionaire had an outstanding loan of approximately Rs.1,912 crore with BoB. He and his wife had pledged 16 properties as collaterals for these loans. There were reports of other banks, including the Union Bank of India, planning to take recourse to multidimensional judicial options to reclaim the loans they had offered to Shetty.

High-level connections

This, then, is the context in which one must view the API project, which appears connected with a pharmaceutical company linked to Shetty. The UAE-based billionaire’s deep connections with the BJP leadership, particularly with Modi, is well recorded. Shetty was prominently visible around Modi every time the Prime Minister visited the UAE. Shetty’s praise of Modi’s leadership has always been fulsome. At a public reception during one of those visits, Shetty proclaimed that Modi was the best Prime Minister India had ever had. He said he was such an ardent fan of Modi that he would fetch even tiger’s milk if Modi asked for it.

When Frontline made enquiries with IICT on whether due diligence was carried out in choosing private entities for collaboration before the API project was announced, the response was affirmative. Dr M. Chandrasekharam, Senior Principal Scientist and Chair of Department of Knowledge and Information Management at IICT, said in an email response to Frontline’s questions: “CSIR-IICT is an R&D lab, where one of the focus areas of research is to transfer some of its bench-scale technologies to the industry for commercialisation. During the COVID-19 pandemic situation, the effort was to transfer technologies on Non-Exclusive basis to pharma companies, so that a drug to the pandemic is quickly made available to the industry. So, the same technology can be transferred to several other companies who are interested in getting a licence to the technology. Before entering into an agreement with a company, we see if there is any directive from State/Central government against the company. We have not received/ noticed any such directive. We then see if the company is technically competent to commercialise the bench-scale technology being transferred. The company was found to be technically competent. We have seen that the company has been prompt in making payments for the services rendered by us in the past. So, we had no issues regarding finances.”

Questions on the current progress and status of the project are yet to evoke a response from IICT. As the PIB release mentioned, there is a special package allocated by the Prime Minister for promotion of bulk drug manufacturing in India, which covers the API project. However, the quantum of allotment for this project is not yet known, though the total approved package has an outlay of Rs.13,760 crore. Evidently, there are many questions that beg answers in relation to this project, not least about the owners of the private companies that are set to benefit from IICT innovations through this collaboration.

Gautam D. is a science researcher interested in public health and communication.

Sheetal P. Singh is a freelance journalist and social activist. He is co-founder of the Satya Hindi web portal.

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