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Pharmaceuticals

India regulator orders forensic audit on Sun Pharmaceutical after allegations

SEBI scrutinizing financial statements for 2016-2018

On Friday, Sun shares closed down 1.6% in Mumbai trading, while the benchmark S&P BSE Sensex added 0.9%   © Reuters

MUMBAI (NewsRise) -- India's stock market regulator is conducting a forensic audit of some of the financial statements of Sun Pharmaceutical Industries, as the cloud of alleged irregularities and corporate governance lapses looms over the nation's largest drugmaker.

Last evening, billionaire Dilip Shanghvi-backed Sun Pharmaceutical said the Securities and Exchange Board of India ordered a forensic audit of its financial statements for the years ending March 2016 to 2018. The forensic audit is ongoing, it said in a statement.

"As an organization, we are committed to adhering to all applicable legal and regulatory requirements and will ensure that any material developments in this regard are promptly notified to all our stakeholders," the company said.

The regulatory probe comes after early this year reports surfaced that a whistleblower filed a complaint to regulators over transactions involving the company and its founders and other violations of securities rules. The complaint alleged that the drug maker's India distributor Aditya Medisales had transactions worth 58 billion rupees ($806 million) with Suraksha Realty, a firm controlled by Sun's then executive director Sudhir Valia, according to local media reports.

Sun has denied all allegations, and since then restructured its India operations by replacing Aditya Medisales with its wholly owned unit as the new distributor. Valia too stepped down from the position of whole-time director of the company to a non-executive director.

The series of allegations hammered Sun's shares with the stock losing 13% to touch a six-year low on Jan. 18, wiping off $1.5 billion in market value. The shares have since recovered with an 8.7% gain.

On Friday, Sun shares closed down 1.6% in Mumbai trading, while the benchmark S&P BSE Sensex added 0.9%.

Last week, media reports said the regulator has cleared Sun of all charges as a preliminary probe found no merit in the allegations of violations of securities laws. The shares rose 5% soon after the news emerged.

However, on Tuesday, a report on Moneycontrol website said the regulator ordered a forensic audit of the company's financials, pummeling Sun's shares. The share movement forced the exchanges to seek clarification from the drug maker, which it obliged by confirming the report.

"Sun has not been forthright in its disclosures. Only, when the news article surfaced did it rush to confirm the probe," said Shriram Subramanian, managing director of investment advisory firm InGovern. "The company needs to be forthright if it has nothing to hide."

The latest development comes as Sun is barely turning around its operational performance, and sorting out most of the regulatory issues that had in the past cast a shadow over its financials.

The company is turning its business away from cheap copycat generics to specialty drugs in a bid to circumvent the challenges in the U.S., where falling prices amid expedited approval rates for generics had stoked fears of increased competition from new players

It is also investing millions of dollars in new drugs in dermatology, ophthalmology, and oncology, which have started to bear fruit. In its earnings conference call last month, Sun said the company's specialty pipeline is starting to pick up in the U.S., though higher costs related to new launches remain a major overhang next fiscal year.

--Dhanya Ann Thoppil

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