By ED SILVERMAN @Pharmalot
APRIL 29, 2019
Earlier this month, a senior executive at Sun Pharmaceuticals, one of the world’s largest purveyors of generic drugs, and his wife settled insider trading allegations brought by Indian regulators. The case stemmed from an episode five years ago, when Abhay Gandhi traded in Ranbaxy Laboratories stock soon after Sun Pharma agreed to buy the company from another drug maker.
Despite the infraction, Gandhi remains with the company as both head of its North American operations and as a director of Taro Pharmaceuticals, in which Sun Pharma owns a controlling stake. Meanwhile, a just few days after he and his wife agreed to pay $100,000 to settle the case, Sun Pharma sent an email to employees about a new policy to make it easier for whistleblowers to convey information about insider trading.
In the April 17 email, the company adopted a new “global whistleblower policy” as of April 1, less than two weeks before the settlement was announced. The policy “enables employees (to) raise concerns against any malpractice like immoral and unethical conduct, fraud, corruption, potential infractions of the global code of conduct,” according to the email, which STAT has obtained.
The series of events, however, raises questions about double standards and a commitment to corporate governance. If Sun Pharma is concerned about insider trading violations, is it good practice to retain Gandhi? And what is the company telling employees about the value of any tips they convey? A potential violator may suffer the consequences — unless they happen to be a senior executive?
“It’s rather odd. There is an issue of fiduciary duty. Are they going forward appropriately as a steward of shareholder assets? It does make you wonder what the reason might be to keep someone after that sort of situation,” said Charles Elson, who is the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
“And by keeping the person, despite the new policy, are you not sending a signal to everyone else (at the company) that you don’t take it particularly seriously? It’s confusing and concerning.”
A Sun Pharma spokesman wrote us that the company is “pleased that the matter … has been brought to a closure. Without admitting or denying the findings of fact and conclusions of law, Mr. Gandhi and his spouse have proposed to settle the proceedings with (the Indian securities regulator). Sun Pharma has full faith that Mr. Gandhi conducts himself with utmost integrity in any situation.”
However, the spokesman did not address our questions about the new policy. Taro, by the way, has its own code of conduct that states “We must be vigilant in guarding against insider trading, the illegal practice of buying or selling securities of a company based on inside information.”
The questions emerge as Sun Pharma undergoes a raft of challenges to its business practices. And one burning issue has, in fact, been corporate governance.
Twice in recent months, whistleblower allegations were forwarded to the Indian securities regulator and various Indian media about purported conflicts of interest involving corporate directors. In response to the first disclosure, the regulator indicated it would investigate allegations of insider trading and other irregularities involving fundraising overseas.
Still another set of whistleblower allegations surfaced in January claiming that an Indian pharmaceutical manufacturer, Aditya Medisales, had various transactions with Suraksha Realty, which is controlled by Sun Pharma executive director Sudhir Valia and is also a shareholder in the big drug maker. The poor optics have battered Sun Pharma stock since December.
Meanwhile, Sun Pharma has been under a regulatory microscope of a different sort. The U.S. Food and Drug Administration issued at least five inspection reports for manufacturing problems at different facilities over the past three years and the company has issued nearly a dozen product recalls. Like some other Indian drug makers, Sun Pharma is closely watched by the agency over ongoing quality-control concerns.
The difficulties also occur as Sun Pharma attempts to expand beyond its traditional generic business into brand-name medications, specifically, the specialty drug business in the U.S. So far, about $1 billion has been invested in the effort, according to remarks that Dilip Shanghvi, the Sun Pharma founder and managing director, made this past February to investors.
The move comes, in part, as some of India’s big generic drug makers face pricing pressure but hope to leverage their presence in the U.S. to expand into a more lucrative market. However, Sun Pharma is struggling to gain traction.
A dry-eye treatment that was approved by the FDA last August will not launchuntil early 2020 due to manufacturing issues. And a recently approved medicine for moderate-to-severe plaque psoriasis has not yet taken off. As of early March, its market share was in the low single digits amid stiff competition from several of the world’s biggest brand-name drug makers, but it is projected to get a bump in coming months, according to PiperJaffray analyst Christopher Raymond.
APRIL 29, 2019
Earlier this month, a senior executive at Sun Pharmaceuticals, one of the world’s largest purveyors of generic drugs, and his wife settled insider trading allegations brought by Indian regulators. The case stemmed from an episode five years ago, when Abhay Gandhi traded in Ranbaxy Laboratories stock soon after Sun Pharma agreed to buy the company from another drug maker.
Despite the infraction, Gandhi remains with the company as both head of its North American operations and as a director of Taro Pharmaceuticals, in which Sun Pharma owns a controlling stake. Meanwhile, a just few days after he and his wife agreed to pay $100,000 to settle the case, Sun Pharma sent an email to employees about a new policy to make it easier for whistleblowers to convey information about insider trading.
In the April 17 email, the company adopted a new “global whistleblower policy” as of April 1, less than two weeks before the settlement was announced. The policy “enables employees (to) raise concerns against any malpractice like immoral and unethical conduct, fraud, corruption, potential infractions of the global code of conduct,” according to the email, which STAT has obtained.
The series of events, however, raises questions about double standards and a commitment to corporate governance. If Sun Pharma is concerned about insider trading violations, is it good practice to retain Gandhi? And what is the company telling employees about the value of any tips they convey? A potential violator may suffer the consequences — unless they happen to be a senior executive?
“It’s rather odd. There is an issue of fiduciary duty. Are they going forward appropriately as a steward of shareholder assets? It does make you wonder what the reason might be to keep someone after that sort of situation,” said Charles Elson, who is the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
“And by keeping the person, despite the new policy, are you not sending a signal to everyone else (at the company) that you don’t take it particularly seriously? It’s confusing and concerning.”
A Sun Pharma spokesman wrote us that the company is “pleased that the matter … has been brought to a closure. Without admitting or denying the findings of fact and conclusions of law, Mr. Gandhi and his spouse have proposed to settle the proceedings with (the Indian securities regulator). Sun Pharma has full faith that Mr. Gandhi conducts himself with utmost integrity in any situation.”
However, the spokesman did not address our questions about the new policy. Taro, by the way, has its own code of conduct that states “We must be vigilant in guarding against insider trading, the illegal practice of buying or selling securities of a company based on inside information.”
The questions emerge as Sun Pharma undergoes a raft of challenges to its business practices. And one burning issue has, in fact, been corporate governance.
Twice in recent months, whistleblower allegations were forwarded to the Indian securities regulator and various Indian media about purported conflicts of interest involving corporate directors. In response to the first disclosure, the regulator indicated it would investigate allegations of insider trading and other irregularities involving fundraising overseas.
Still another set of whistleblower allegations surfaced in January claiming that an Indian pharmaceutical manufacturer, Aditya Medisales, had various transactions with Suraksha Realty, which is controlled by Sun Pharma executive director Sudhir Valia and is also a shareholder in the big drug maker. The poor optics have battered Sun Pharma stock since December.
Meanwhile, Sun Pharma has been under a regulatory microscope of a different sort. The U.S. Food and Drug Administration issued at least five inspection reports for manufacturing problems at different facilities over the past three years and the company has issued nearly a dozen product recalls. Like some other Indian drug makers, Sun Pharma is closely watched by the agency over ongoing quality-control concerns.
The difficulties also occur as Sun Pharma attempts to expand beyond its traditional generic business into brand-name medications, specifically, the specialty drug business in the U.S. So far, about $1 billion has been invested in the effort, according to remarks that Dilip Shanghvi, the Sun Pharma founder and managing director, made this past February to investors.
The move comes, in part, as some of India’s big generic drug makers face pricing pressure but hope to leverage their presence in the U.S. to expand into a more lucrative market. However, Sun Pharma is struggling to gain traction.
A dry-eye treatment that was approved by the FDA last August will not launchuntil early 2020 due to manufacturing issues. And a recently approved medicine for moderate-to-severe plaque psoriasis has not yet taken off. As of early March, its market share was in the low single digits amid stiff competition from several of the world’s biggest brand-name drug makers, but it is projected to get a bump in coming months, according to PiperJaffray analyst Christopher Raymond.