Governance concerns continue to loom over Sun Pharma with second whistleblower complaint

By PharmaCompass

2019-01-24

Impressions: 169 Article

India’s largest drugmaker Sun Pharmaceutical has been facing concerns over corporate governance since September last year, when the first whistleblower report was submitted to the market regulator Securities and Exchange Board of India (SEBI). In the sensational 150-page document, a whistleblower has alleged numerous irregularities against Sun Pharma, its main promoter Dilip Shanghvi, his brother-in-law Sudhir Valia, and Dharmesh Desai (an associate of Ketan Parekh, who was convicted of wrongdoings in the Indian stock market scam of 2001).

Earlier this month, a second whistleblower report was submitted with SEBI. According to an article published in The Economic Times (ET), a real estate firm named Suraksha Realty, owned by Valia, has raised money using Sun Pharma shares as collateral on at least three occasions in the past two years. The latest pledge has come from Shanghvi Finance, a major shareholder in Sun Pharma. Shanghvi Finance has reportedly pledged a portion of its stake in Sun Pharma to help Suraksha raise US$ 14.02 million (INR 1 billion) through commercial paper.

Sun, however, has requested the market regulator to examine the second whistleblower complaint filed against the company. “There is a great asymmetry in the information circulating between analysts, investors and media leading to intense speculation,” the company said in a letter addressed to SEBI.

In a statement, Sun has said it neither lent money to Suraksha nor provided any guarantee, even as investors and observers took to the social media to question governance at the company.

Meanwhile, in a damage control exercise, Sun has discontinued its super stockist arrangement with related party Aditya Medisales (AML) and unwound loans given to a third party (Atlas Global Trading), say news reports. Sun’s domestic formulation business is entirely routed through a promoter-owned AML, a super stockist that was declared as a related party of the company last financial year.

In 2017-18, Sun Pharma had funded Atlas towards non-fulfilment of its supply obligations till the time such obligations were fulfilled as per the agreement. Sun clarified that its loan to a third party were a part of its settlement with this company, after it failed to supply drugs because of the US regulator’s restrictions on its Halol plant. The liability stems from Dubai-based Atlas Global assuming the damages on account of Protonix (a drug used to treat stomach ulcers).

“Till concrete steps are taken by the company and the regulators officially comment on the whistleblower letter, investor concerns can linger on,” research firm Nomura said.

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