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Sun Pharma ties with US arm under share shadow

Mumbai, Dec. 15: The partnership between US-based Caraco Pharma and its major shareholder Sun Pharma, an Indian drug major, has hit a low point on royalty payment issue.

Three independent directors on the board of Caraco have resigned recently citing personal reasons. Sources, however, said the real reason could be different. The directors felt Sun Pharma should voluntarily lower the number of shares it gets as a fee in view of the rise in value of Caraco shares in the US stock markets.

Officials at Sun Pharma, however, termed the resignations as routine. “There are no risks and no disruptions,” an official said.

“For good governance and transparency, all negotiations, where Sun Pharma is an interested party, have been done at an arm’s length. When the technology-transfer agreements on new products were signed by Caraco’s board, Sun Pharma directors did not vote to avoid a conflict of interest,” the Indian drug major said.

Sun Pharma had acquired a sizeable holding in Caraco and is credited to have nursed the US company back to health. The markets re-rated the stock after the turnaround that saw Caraco shares touching a high of over $10 from below a dollar.

Sun Pharma used to get 4.5 to 5 lakh Caraco shares for every new drug approval when the share was low-priced. However, with the stock markets re-rating the company, it was argued by the then independent directors that the agreement should be revised as it would mean Sun Pharma receiving over $2-3 million for every new drug approval.

“Sun Pharma has a significant equity in Caraco, and the company's financial success in the US is linked with the success of the Caraco business,” the company said. “Sun Pharma has a significant interest in making the company successful both in the short term and long term,” it added. Sun Pharma and Caraco are two separate companies with different sets of shareholders.

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