Caraco stalls Sun Pharma stake hike

Sun Pharmaceuticals and the foreign shareholders of the US-based Caraco Pharmaceutical Laboratories, in which Sun has a 48 per cent stake, are at loggerheads over their shareholders' agreement.

The agreement permits Sun Pharma to hike its stake in the Detroit-based Caraco up to 62 per cent in return for transfer of technology.

Sun Pharma picked up a 26 per cent stake in the then ailing Caraco in 1997 with the provision to hike its holding in stages, subject to Sun filing abbreviated new drug applications.

With the help of Sun Pharma, Caraco filed 12 such applications and its turnover jumped from $2.3 million in 2000 to $22 million in December 2002. The company's turnover is expected to top $45 million by the end of December 2003.

Caraco's foreign shareholders have now objected to equity transfer to Sun Pharma against the filing of abbreviated new drug applications.

This has forced Caraco to block Sun Pharma's plan to raise its stake further. It is not clear whether Sun will take legal recourse, but it has refused to renegotiate the shareholder deal with Caraco.

While the Mumbai-based company offered six products to Caraco in 2003, the latter has not filed a single abbreviated new drug application with the US Food and Drug Administration (FDA). Sun will now be filing these products through its FDA-approved Indian facility.

Caraco was now seeking a higher valuation for its equity, sources close to the development said.

"During the last six years, when Caraco was yet to get any new drug approval, and was financially supported by Sun, Caraco's shareholders had promised that Sun's stake hike to 62 per cent would be based on technology transfer. Currently, there is no proposal to renegotiate the technology transfer agreement, which was signed in November 2002," a Sun spokesperson said.

"Other than the delay in the filing of these products, Sun Pharma is not affected by these developments," she added.

"These six products are now in the scale-up, biostudy and pre-filing stages. The abbreviated new drug applications for these are likely be filed in the first half of 2004. The marketing will, however, be done by Caraco, as per the current pact," the spokesperson said.

Also, filings with regulatory or patent challenge would be done out of Sun Pharma because it had the balance sheet strength to support the addi tional costs involved in this the spokesperson pointed out.

In November 2002, the technology agreement between the two companies was renewed. This envisaged the transfer of 25 products from Sun to Caraco over 5 years.

In return, 544,000 restricted shares of Caraco would be converted to normal shares after a three year lock-in period. On completion of the deal, Sun's stake in Caraco would have increased to 62 per cent from 48 per cent currently.

A deal gone sour

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• Sun Pharma gives six ANDAs to Caraco in 2003, to be filed with US FDA
  
  
• Caraco fails to file any of the six
  
  
• Sun's plan to increase stake from 48% to 62% meets road block
  
  
• Sun refuses to renegotiate agreement. To file these products on its own
  
  
• Developments not to impact Sun's prospects, company says