Sun Pharmaceutical Industries Ltd has announced several measures to address investors concerns following the complaints by two whistleblowers on violation of corporate governance norms at India’s biggest pharmaceutical company.
The company on Tuesday said its domestic formulation distribution will be shifted to its wholly-owned subsidiary. “Sun Pharma’s distribution related to India Domestic Formulations Business shall be transitioned from Aditya Medisales Ltd., the current distributor, to a wholly owned subsidiary of Sun Pharma. This change will be made effective by Q1FY20, post receipt of all requisite regulatory approvals,” Sun Pharma said in a filing with stock exchanges.
The whistleblowers had accused Aditya Medisales of having transactions worth ₹5,800 crore with Surekha Realty, a company owned by Sun Pharma Executive Director and co-promoter Sudhir Valia.
On the transactions relating to Atlas Global Trading, which was also pointed out by the whistleblowers, Sun Pharma said, “As at 31st March 2018, Sun Pharma’s consolidated balance sheet, reflected a liability towards obligation of supplies to Atlas Global Trading amounting to Rs. 2,238 crore. This liability was in respect of Atlas assuming the damages on account of Protonix patent litigation settlement entered by Sun Pharma which was disclosed in Sun Pharma’s Annual Report FY14 (Page No. 91, Note 48 (iii)).”
“In September 2014, Sun Pharma’s Halol facility (Gujarat) was impacted by USFDA cGMP issues which were finally resolved in June 2018, after nearly 4 years. These cGMP non compliances resulted in supply constraints thereby, Sun Pharma was not able to adhere to the agreed supply schedule with Atlas,” it said.
“Sun Pharma, in FY18, has funded Atlas towards non-fulfilment of its supply obligations till the time such obligations are fulfilled as per the agreement. The said funding was included in Loans & Advances schedule of Sun Pharma’s FY18 consolidated balance sheet (Annual Report FY 18, Page 162, Note No. 7, Loans (Non-Current) – Loans to Employee & Others),” it added.
Further it said, “The parties to the supply contract have now agreed in principle, that Atlas will assign its rights and obligations arising from this contract, to a wholly owned subsidiary of Sun Pharma.”
“This assignment will ensure that the Loans & Advances given to Atlas will be settled. On conclusion of this transaction, in the consolidated balance sheet, this loan and the obligation will cease to exist as it gets squared up. This transaction is expected to be concluded in FY19,” the statement added.
Sun Pharma has also decided to change its auditors. It said steps have been initiated to induct S R B C & CO LLP as its statutory auditors, and auditors of subsidiaries that are currently audited by Valia & Timbadia. However, the company has categorically denied any financial dealings with Surekha Realty.
“Sun Pharma hereby confirms affirmatively that neither any loans nor guarantees have been given to Suraksha Realty. Sun Pharma would like to dispel all falsehoods being spread about its financial dealings with Suraksha Realty,” it said.
“The company states unequivocally that it does not have any financial transactions with Suraksha Realty,” it added.
Commenting on the development Sameer Kalra, Equity Research Analyst & Founder Target Investing said, “The company has taken an active approach to address the investor concerns and rectify the structure of companies related.
“This will be very positive from the investor point of view and it will provide higher revenue and lower liabilities to the company once the process completed,” he said.
Reacting to this news, Sun Pharma stock gained 5% in early trade at the BSE.