Sun Pharmaceuticals managing director Dilip Shanghvi told ET in an email interview that executive director Sudhir Valia “has decided to focus more of his time on pursuits outside Sun, but he continues to be a valuable resource for the company.”
The board has agreed to constitute a corporate governance and ethics committee to oversee corporate governance-related matters. This will be formalised at the next board meeting, he said. Sun Pharma has lost nearly $1 billion in valuation in the last six months over corporate governance concerns that have led to changes at the company. The stock has slumped to a six-year low, having dropped 29% since October as the company faces investigation by the Securities and Exchange Board of India (Sebi) over a whistleblower complaint. This alleged that subsidiary Aditya Medisales had lent to companies run by Valia and Sun had used the services of banned traders such as Ketan Parekh and Dharmesh Doshi to run its fundraising mandate in 2004, according to analysts who have seen the complaint. Sun has discontinued its domestic business tie-up with Aditya Medisales, recalled loans to third parties and set up an internal committee to examine corporate governance.
Investors and analysts feel that Sun needs to rearrange its board. The discomfort is especially with regard to the involvement of Sudhir Valia who has multiple business interests. Have you considered asking him to take a non-executive role?
Mr Sudhir Valia has been a key member in helping steer Sun where it is today. Over the last couple of years, Mr Valia has decided to focus more of his time on pursuits outside Sun, but he continues to be a valuable resource for the company ..
Since the whistleblower complaint to Sebi, do you think enough has been done by the company to address investor concerns? What steps have you taken to firm up corporate governance practices in the company? Have you set up a separate team?
In principle, the board has agreed to constitute a corporate governance and ethics committee to oversee corporate governance related matters. This will be formalised in the ensuing board meeting. Our learning is that apart from being right—legally and technically—we also have to take into consideration how the transaction would be perceived by the world outside. Even though our actions were legal and in the best interests of the company, we thought it is important to address investor concerns. There were some perception issues which have already been addressed. Our board has taken necessary steps to strengthen governance standards further.
You have undertaken several changes—recalling loans to third party entities, spinning off the domestic distribution company and changing auditors. What was the cost of these changes?
It will not have a significant impact on our cost structure. We have already disclosed that the transition of domestic distribution business to Sun Pharma’s wholly owned subsidiary will result in a one-time reduction in sales and profit impacting our financial results for the period ended March 31, 2019. Unwinding of the Atlas transaction has no material impact on the financials of the company.
How far has the Sebi case progressed? Are you looking at a settlement?
We received two sets of queries from Sebi and have shared the requisite information. We hope that they will close the investigation at the earliest.
You have defended Abhay Gandhi (CEO, North America), who recently settled with Sebi over insider trading charges in the Ranbaxy case by paying Rs 35 lakh. Does this defence of yours indicate good corporate governance on the company's part?
Without admitting or denying the findings of fact and conclusions of law, Mr Gandhi and his spouse have settled the proceedings with Sebi. Sun Pharma has full faith that Mr Gandhi conducts himself with the utmost integrity in any situation ..
The recent US FDA Form 483 for your Dadra plant has mentioned data integrity as one of the observations. Since Halol and now this, what actions have taken to address data integrity issues?
US FDA has now classified the Dadra (plant) as VAI (Voluntary Action Indicated), which means that the regulator will not take or recommend any administrative or regulatory action. At Sun, we follow a rigorous and all-encompassing quality control framework at all our manufacturing facilities globally to ensure 24x7 cGMP (current good manufacturing practice) compliance. We continuously work on strengthening our compliance and learn from industry inspections as well as our own audits.
How do you assess your investment in Suzlon—are you looking to exit?
This is purely a financial investment made by my family office and has nothing to do with Sun. We have no plans to exit.
Now that you have brought Aditya Medisales into the Sun Pharma fold by making it a subsidiary, will this impact the cost structure for the company’s domestic business?
To clarify, we are not converting Aditya Medisales into a Sun subsidiary. What we have announced is that the distribution business which was being carried out by Aditya Medisales will now be carried out by Sun Pharma Distributors Ltd, one of Sun’s wholly owned subsidiaries, and Aditya Medisales will cease to be our distributor. We have disclosed there will be a one-time reduction in sales and profit impacting our financial results for the period ended March 31, 2019, due to this change. There will be no significant impact on the cost structure of Sun.
Concerted legal action is being planned in the US against potential price fixing of drugs through cartelisation. Sun is one of the names that has featured along with other Indian pharma firms. As a market leader, how do you respond to such charges?
Since the matter is sub judice, we would like not to comment on it.