CASE STUDY: WOCKHARDT LTD—DIVERGENCE BETWEEN PRECEPTS AND PRACTICES

(This case study is based on reports in the print and electronic media, and is meant for academic
purpose only. The author has no intention to sully the image of the corporate or the executives
discussed.)

COMPANY PROFILE
Wockhardt is a global, pharmaceutical and biotechnology company that has grown by leveraging two
powerful trends impacting the world of medicine— globalization and biotechnology. Its line of business
includes manufacturing and distribution of pharmaceutical products and dietetic foods; biotechnology
research; and provision of diagnostic medical services. Wockhardt is a listed pharmaceutical company
in India.
The company has a market capitalization of US$ 1.3 billion and an annual turnover of US$ 285 million
(INR 12.39 billion). Wockhardt’s pace of growth and momentum permeates every mindset, system and
technology within the organization.
The company has its headquarters in Mumbai, and has 10 manufacturing plants in India and the United
Kingdom, subsidiaries in the United States, United Kingdom and Brazil, majority-owned companies in
South Africa and Mexico, marketing offices in Africa, Russia, Central and Southeast Asia. Wockhardt
has a strong track record in acquisition management, with three successful acquisitions in the European
market. These acquisitions have strengthened Wockhardt’s position in the high-potential markets of the
United Kingdom and Germany, and have expanded the global reach of the organization.
Aiding Wockhardt’s globalization plans are its ten world-class manufacturing plants in India and United
Kingdom, its dedicated complex (comprising six facilities) at its Biotech Park, and its state-of-the-art
research laboratories.
Wockhardt is distinguished by a strong and growing presence in the world’s leading markets, with half
of its revenue coming from Europe and the United States. Wockhardt’s market presence covers
formulations, biopharmaceuticals, nutrition products, vaccines and active pharmaceutical ingredients
(APIs).

WOCKHARDT’S BUSINESS PHILOSOPHY

Wockhardt’s business philosophy is—‘Creating value by understanding and communicating with its
customers and business partners’. The company’s vision is—‘To be the most admired Indian Health
Care Group’.
In order to pursue the above business philosophy and meet the challenges for turning the vision into
reality, the Board of Directors of Wockhardt has adopted a Code of Business Conduct and Ethics for
directors and senior management of the company. This code is intended to focus the board, each
director and each of the senior management personnel on areas of ethical risk, provide guidance to help
them recognize and deal with ethical issues, provide mechanism to report unethical conduct, and help
foster a culture of honesty and accountability. Each director and senior management personnel must
comply with the letter and spirit of this code.
No code or policy can anticipate every situation that may arise. Accordingly, the code is intended to
serve as a source of guiding principles for directors and senior management personnel. Directors and
senior management personnel are encouraged to bring questions about particular circumstances that
may involve one or more of the provisions of the code to the attention of the Chairman of the Board of
Directors.
Wockhardt’s Code of Business Conduct and Ethics dwells on areas of conflicts of interest, misuse of
corporate opportunities, compliance with applicable laws, dealing with accounting complaints and
maintaining confidentiality of information.
Although Wockhardt Ltd says in the Code of Business Conduct and Ethics that the company will follow
ethical practices, the following unethical practices are attributed to the company.

NON-COMPLIANCE OF FDA REGULATIONS

The Food and Drug Administration (FDA) in the United States makes it compulsory for the companies
to adhere to certain stipulations, and inspects factories before allowing foreign pharma companies to
export medical drugs into the United States, and issues warning letters to pharma companies, when
there is non-compliance. According to FDA’s requirements: ‘Written production and process control
procedures are to be followed and documented in the pharmaceutical company and complete and
accurate information about production batch is to be included in the records.’1

However, ‘Wockhardt failed to comply with stipulations of FDA in its manufacturing facility in Waluj
in Aurangabad’.2 Hence the US FDA, the apex regulator of the US pharmaceutical industry warned
Wockhardt Ltd about the same in its letter released on 10 April 2006, refering to Wockhardt’s letter
dated 21 February 2006, and said that a November 2005 FDA inspection of the pharmaceutical plant
had found that ‘written production and process control procedures were not always followed and
documented’.3 Also, the company was warned for not including complete and accurate information
about each production batch in its control records. Dozens of FDA warning letters are issued every year.
While most are resolved without penalty, the FDA can also take other regulatory action.4

UNETHICAL ISSUES RELATING TO BREAST-FEEDING REGULATIONS

In India, as in many other countries, aggressive marketing of breast milk substitutes by commercial
interests triggered campaigns for promotion of breast-feeding. Moreover, the promotion of breast milk
substitutes by medical professionals challenged traditional breast-feeding practices. The baby food
industry cleverly sought to promote its products through healthcare facilities.
In India, in the wake of global developments with regard to the promotion of breast-feeding, The Infant
Milk Foods and Feeding Bottles Bill was passed in the Lok Sabha in 1989. It was reintroduced in 1991
but lapsed again. In 1992, the ‘Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of
Production, Supply and Distribution) Act’ was finally passed. It came into force from 1 August 1993.
The Act expressly prohibits:
  distribution of free samples of infant milk foods and feeding bottles to mothers;
 advertising to the public;
 promotion in health care facilities;
 distribution of gifts or samples to health workers;
 promotion of words and pictures that idealize bottle feeding;
 advice to mothers by company sales staff;
 financial assistance to health organizations or associations of doctors to organize conferences,
 seminars, and so on; and
 incentives to sales personnel/retailers based on volume of sales.

The central government has authorized four voluntary organizations to monitor the Act. These are the
Central Social Welfare Board, the Indian Council for Child Welfare, the Association for Consumers
Action on Safely and Health, and the Breast-feeding Promotion Network of India (BPNI).
Thus the Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply
and Distribution) Act, 1992 explicitly prohibits distribution of free samples to mothers.
However, Wockhardt Ltd, in spite of the 1992 regulation went on to distribute free samples, according
to the study conducted by UNICEFACASH. The study revealed that the incidence of free samples
prevailed all over India—it was highest in the country’s capital, New Delhi, followed by eastern,
western and southern India. Seventy-two per cent of the free samples were given by Nestle; other
companies that indulged in such illegal practices included Dalmia Dairy (24 per cent), Wockhardt (19
per cent) and Raptokos Brett (18 per cent). They even sponsored major events for professional medical
and nutrition bodies to win their support. Large commercial interests coupled with the teaching of
formula milk feeding in medical colleges became major barriers to the promotion of breast-feeding.5

VICTIMIZATION OF EMPLOYEES
On 8 May 2003, more than 75,000 medical representatives from the entire country participated in a 50-
day relay strike in Kerala under the aegis of the Federation of Medical and Sales Representatives
Associations of India (FMRAI) protesting againsthe unethical policies of pharmaceutical companies
which (i) denied the fundamental trade union rights of the members; (ii) pursued policies that treated
sales promotion employees as vendible commodities and resorted to ‘hire and fire;’ and (iii) increased
the work-load imposed on the workers.6
However, it was found that Wockhardt Ltd had dismissed more than 77 medical representatives because
of declining sales.7 It had also effected large number of transfers of the sales promotion employees for
the same reason. All these anti-labour activities of the company had nothing to do with labour
indiscipline, but related to unachievable sales targets.
The Wockhardt management with a view to pre-empting the strike, issued an office order on 6 February
2003. It made it known that the management would not in anyway have any truck with the FMRAI and
that ‘any response to FMRAI’s call by an employee would be considered an undisciplined act and
appropriate action would be taken against such respondents; the management would take firm action
against individuals who maintained any relationship whatsoever directly or indirectly, with the
FMRAI.’
Not satisfied with the threat, the circular also announced that the company intended to employ some
well-known police officers in case there was any violation of law and order, arrogantly assuming to
itself the powers of government and refusing to accept the rights of employees for ‘freedom of
association’. FMRAI took up this matter and the various acts of victimization of the employees by
Wockhardt with the Labour Department of the Government of India, but to no avail. The Federation
also took up all these matters with the National Human Rights Commission. With no remedy in sight,
the Centre for Indian Trade Unions (CITU) had approached the International Labour Organization
(ILO) and complained against Wockhardt Ltd. for violation of its labour standards and the Indian
government for being a mute witness to all these infractions by the company.8

LACK OF SECURITY OF SERVICE TO WORKERS

Wockhardt Ltd has been increasingly squeezing the employees, particularly the field workers. On the
one hand, field workers are being thrown out of regular employment with impunity while, on the other
hand, casualization of field workers is on the rise, accompanied by low wages as well as poor working
and service conditions.9

UNETHICAL SALES PRACTICES

Apart from indulging in violation of basic trade union rights of employees, Wockhardt management
also victimized the company’s field workers, who had to face medical practitioners, traders and the
general public, when the company resorted to several unethical trade practices. Concerned with this
problem, FMRAI wrote a letter to the company’s chairman and requested his personal attention in the
matter of unfair sales and marketing practices indulged by the management and the terrible
embarrassment faced by field workers. But the management resorted to derecognition of the union,
discontinued its talk with FMRAI and went on victimising the field workers on a large scale. The field
workers of Wockhardt-Merind who are affiliated to FMRAI, went on a strike protesting against the
management’s anti-labour policies.10

PROMOTING HEALTH CARE SYSTEM THROUGH IMPROPERLY LABELLED SAMPLES

Infant food samples should conform to labelling requirements and every infant food should comply with
section 6 and Rule 7 and 8 of the 1992 Act. However, Wockhardt distributes free samples of ‘Dexrice’
to doctors promoting it as delicious weaning food with enriched vitamins. Even though free samples of
infant foods are permitted by law, sample packs of Dexrice, an infant food from Wockhardt do not
conform to labelling requirements.
Wockhardt promotes ‘First Food’, an instant milk cereal weaning food with health claims and the
product label is not in conformity with the IMS Act. Wockhardt’s ‘First Food’ comes with a health
claim, ‘Every feed of First Food is fortified to provide protein, vitamins, minerals which are essential
for your baby’s healthy growth’.
Wockhardt’s also promotes ‘Easum’ weaning food baby cereal through doctors and the message on the
label reads, ‘… Easum Rice Moong Dal Cereal is simple to digest first solid food for babies…’. The
company uses a health claim to influence mothers. The labelling requirements are not complete as laid
down in the IMS Act.11
HARASSING COMPETITORS IN MATTERS OF CLINICAL TRIALS
A ‘non-existent’ NGO linked to a senior Wockhardt executive attempted to use the Public Interest
Litigation (PIL) route in the Supreme Court to derail the launch of insulin by its rival, Biocon, and has
focused the public’s attention on the business of clinical trials.
The biotech regulator, Genetic Engineering Approval Committee (GEAC), received a complaint against
Hyderabad-based Shantha Biotechnics in 2003. A Bangalore-based non-governmental organization
(NGO), Anikethan, alleged that eight people had died in the clinical trials of streptokinase conducted by
Shantha Biotechnics.12
As part of its routine processes GEAC sent the complaint to Shantha to seek its comments. The query
got splashed in newspapers thus defaming Shantha. Shantha’s comments on the issue were sent by the
GEAC to the NGO. The mail was returned as ‘addressee unknown’.
The publication Bio Spectrum, in an investigation some months later, revealed that the unsuspecting
NGO was used by some of Shantha’s competitors to make wild accusations and delay the approval of
the product.
The competitor’s name is still not known. The clinical trials data was apparently ‘procured’from some
of the agencies involved in the study.
Wockhardt had introduced an insulin drug in 2003 and has had limited market success. Apparently, it
feared the entry of another home-based competitor. Wockhardt has so far not refuted the connection and
has also not clarified its use of such a ruse against a competitor.13

WINDING-UP PETITION
In the meantime, in March 2011 in a winding-up petition filed against Wockhardt by a group of three
Foreign Currency Convertible Bond (FCCB) holders led by the US-based fund QVT was admitted by
the Bombay High Court. They were seeking recovery of their investments through sale of the
company’s assets. The company was proceeded against for defaulting on the repayment of $110 million
FCCB. However, a Division Bench stayed the admission of the winding-up petition granting interim
relief to the company.

CONCLUSION
The above instances of unethical practices by one of India’s leading pharmaceutical companies
Wockhardt, reveals the divergence that exists between precepts and practices. Unethical companies tend
to use codes of business conduct and ethics as a mask to show a humane face to the outside world, while
they adopt all kinds of unethical practices in their workplace. Consumers, employees, government and
the society at large, get adversely affected by the malpractices of these corporations that want to
promote themselves as the ‘most admired companies’ to the outside world, mainly with the intention of
making fast money.