In 1982, as Dilip Shanghvi graduated BCom from Calcutta University, he wondered what he was going to do. Agitation was not his style; his voice was not made for shouting. He picked up five psychiatric drugs, and tried flogging them to psychiatrists and chemists in Bengal and Bihar. In the first year, he managed to sell drugs worth a million rupees; the profit was enough for a modest life. But his ambition went beyond that. He set up a small tabletting facility in Vapi in south Gujarat, so that he could package drugs of his choice. He was looking for drugs with a large market. In 1988, he got into drugs for the heart, and next year into drugs for the stomach; with these, he achieved a 0.1 per cent share in the Indian pharmaceutical market that year.

That was the era of patent-breaking. India had abolished product patents in pharmaceuticals in 1970 and opened the way for any Indian firm to read foreign patents, reproduce a drug and sell it in India. But in the Uruguay round of trade negotiations, India was offered a bargain by industrial countries: reintroduce product patents, and we will give your textiles duty-free access. The end of the era of patent-breaking was nigh. Shanghvi felt that he needed his own stable of drugs that were sufficiently different from those patented by foreign companies. So, in 1993, he set up a research laboratory.

By then, Sun Pharmaceuticals, Shanghvi’s company, had crossed a turnover of Rs 10 crore. The stock market was booming; investors were lapping up shares of unknown entrepreneurs. Sun made an initial public offer that was oversubscribed 55 times. With the war chest, he set up his first plant for active pharmaceutical ingredients (API) in Panoli, an industrial estate of Gujarat Industrial Development Corporation near Broach. He bought Knoll’s Ahmednagar plant, and merged Milmet, Gujarat Lyka, TDPL and Pradeep Drug with Sun Pharmaceuticals.

By 2002, Sun Pharmaceuticals had captured 1/40 of the country’s drug market; expansion within its specialities was becoming difficult. So it started looking out of India. It got its Halol plant inspected and approved by the drug regulators of the US, UK, South Africa, Brazil and Colombia. It bought into Caraco in Detroit in 1997, and in 2004, got a controlling stake in it. In the next two years, it set up a joint venture in Dacca, bought a plant in Bryan, Ohio, the business of ICN in Hungary, and the patents and assets of Able Labs, a bankrupt firm in New Jersey.

World War II left Britain enfeebled. It gave up India in 1947, and looked likely to leave Palestine as well. Anticipating its departure, Palestinian Jews rebelled and set up an enclave in 1948. The enclave which they called Israel received support — money, men, arms — from rich Jews in America. Amongst them were two mutually related families, Levitt and Moros. They began exporting medicines to Israel, and set up a company called Taro in 1950. Since Israel was always short of foreign exchange, they then started importing active pharmaceutical ingredients and packaging them into formulations. Then they began to manufacture APIs. The company made an initial public offering in 1961, and was listed on Nasdaq in 1982. Its market capitalization was under $5 million then.

The fortunes of this modest company were transformed by the acquisition of a small Canadian manufacturer in 1988 which manufactured gels and ointments, especially for skin ailments. This facility enabled Taro to enter the US market. As it got familiar with the US regulatory environment, Taro learnt the game, and worked out how to develop variants of medicines, file abbreviated new drug applications with the Federal Drug Authority of the US, and start making and selling them. With this formula, Taro reached $100 million in sales in 2000; next year it did an IPO and netted $126 million. In 2002, its sales were 87 per cent in the US, 6 per cent in Canada, 5 per cent in Israel, and 2 per cent elsewhere; it had become a North American company in effect.

As often happens with private businesses going public, Taro went on a buying spree; it bought a manufacturing unit in Ireland in 2003, and a huge 315,000-sq-ft distribution centre in New Jersey in 2004. The company ran short of cash. It issued $60 million of bonds. They got superlative ratings from investment analysts; no one asked why a company which had shown $115 million cash in its last balance sheet needed to borrow more. A few months later, it issued another $50 billion of bonds. Its share price continued to rise; some investors were obviously not watching the company’s cash position. In April 2003, Robert J. Mauro, the son of one of the founders who had headed Taro’s generics division, left.

What followed is not entirely clear; but Taro’s financial accounts for the next three years could not get past auditors. There are two interpretations. First, the company tried to push sales, and built up inventories to be ready to feed the market, and it sold drugs on credit to wholesalers who did not pay. What the traders owed the company and what stocks they held was not clear. Second, the company fiddled accounts to show a better financial situation than actually obtained. It does not much matter which was the case. The point is that the number of people with money who were prepared to trust the management dwindled, and the company ran out of cash. Shareholders sued it for having misled them.

Taro shares, which in 2003 had gone over $60, were trading close to $6 in 2007. That was when Sun offered to buy Taro. In May 2007, it offered to buy out the Levitt and the Moros families, at $7.75 a share — except that Levitt would get nothing for his 2,600 founder’s shares, which carried a third of the voting power. Templeton Asset Management, which held 9 per cent of Taro’s shares, wanted more, but at that point, the Taro management supported the Sun takeover.

Over the following year, however, Taro’s finances started looking up. In July 2008, the Taro board asked shareholders to reject the Sun offer. Taro went to court, alleging that Sun had not complied with Israeli Special Tender Offer requirements. The district court dismissed Taro’s plea. Taro appealed to the Israeli Supreme Court. It also filed a suit in the US alleging that Sun misappropriated confidential information about Taro gathered as part of the proposed merger transaction, and used such confidential information to disrupt and harm Taro’s customer relationships and undermine Taro’s revenues.

Two weeks ago, the Israeli Supreme Court dismissed the case against Sun, and allowed Sun’s tender offer to proceed. But the victory of Sun was short-lived; its tender offer, which could now proceed, attracted holders of only 0.07 per cent of the shares. Sun now has to go back to negotiating with the Levitt-Moros families for purchase of their shares. Meanwhile, they have obtained the support of Jewish American financiers, who are prepared to buy off the shares Sun has acquired. So the war will continue.