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Sun Pharma In The News

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For sheer grit and perseverance, few can beat Dilip Shanghvi. Having carved out a niche in the home market, the founder of Sun Pharmaceuticals forayed into the US generics market, and with Taro Pharmaceuticals now under his belt, has more ammunition to grow While other Indian drug firms are throwing in the towel, Shanghvi's getting bolder, write MG Arun and Shobhana Subramanian
MUCH LIKE his corpo'rate headquarters, that is tucked away in a dis'tant corner of Mum-bai's western suburb of Andheri, Dilip Shanghvi likes to stay away from the limelight. Sun Pharma'ceuticals, which he started in 1983, will probably cross the Rs 5,000 -crore turnover mark this year, but Shanghvi remains elusive as ever. However, now that Israeli drug firm Taro, which Sun Pharma has been trying to acquire since mid-2007, is finally under his con'trol, we request him for some time and Shanghvi's finally persuaded, gener'ously inviting us to lunch.
It's a relatively cool December after'noon and although a Saturday, the soft-spoken Shanghvi's as busy as ever. But the 55-year-old promoter of India's most profitable Pharmaceuticals busi'ness looks more relaxed than he has at any time in the past three years. The Sun chief, however, claims he was nev'er tense and turning a tad philosophi'cal, tells us he doesn't worry about things he cannot change. He'smanaged to conquer stress somewhat, he say s, by hitting his 'mini gym' four or five times a week.
Withoutdoubt,it'sbeenalong-drawn fight for control of the $350-million Taro, and Shanghvi had much at stake, having coughed up $105 million for the initial stake of 36%. But the patience and perseverance have paid off; even Templeton'sMarkMobiuswasforcedto concede that Sun should take control of Taro. In October, Sun ended up with con'trolling interest in the Israeli drugfirm and that, too.atamuchsmallerpricetag of $200 million than the $454 million it had originally plannedfor.
What's the secret of your success with acquisitions, we ask Shanghvi. You seem to do well, where others in the industry have made mess of them. The Sun chief is modest, saying that not all of Sun's 16 buyouts, some at home and some abroad, have done equally well, having seen varying degrees of success. "Our acquisition in Hungary is yet to produce profits. The facility is yet to make money," he say s, adding that there hadbeen a big difference between the time that Sun had originally factored in for a recovery and the time it had finally taken to turn the unit around. Shanghvi's clearly conscious of the costs involved. "What happens is that if an acquisition is not making money, the recovery period keeps increasing and you lose money. And the loss will keep on increasing your total cost of acquisition, so the payback peri'od becomes longer and longer." Shanghvi believes that his most successful acquisition has been that of Tamil Nadu Dhada Pharmaceutical Limited(TDPL).
In the meanwhile, we're being treat'ed to some wonderful, home-cooked Gujarati food; starting off with the traditional farsan, khandvi, we've piled our plates with puran poli, that winter specialty'undhiyo, another vegetablecurry made withpotatoesand peas, some salad and also have bowls of dahi kadi.
What does he make of the growing trend of multinational pharmaceutical companies like Daiichi Sankyo, Sanofi-Aventis or Pfizer paying top dollar for Indian companies like Ranbaxy Shantha Biotech or Piramal Healthcare? Clearly, they're looking at India as a developing market in which they want a more meaningful presence than they have currently, says Shanghvi, adding that they obviously see that India, as a market, will continue to grow. In that case, if the Indian market is so large and attractive, why is it that Indian promoters are willing to cash out? Is the environment so tough and competitive that they are compelled to sell? Shanghvi, al'ways a man of few words, is politically correct, saying it wouldn't be right to typify entrepreneurs or classify them under one heading. "You should look at the decision-makingprocessatthe individual level. How and why they are taking the decision, which is, after all, their prerogative. Also, whether the business is profitable, one's ability to manage the transition in patent regulations and also the ability to grow the business internationally."
Shanghvi, a movie buff and a big fan of action films in English'he saw Avatar twice and hasn't missed a single Harry Potter'is clearly not about to give it up. But, as always, he tempers expectations. "We feel confident we will do well.butweneedtodeliver and there are some challenges," he says, offering us rice, soft rotis, bowls of dal, homemade pickles and papad.
The Sun chief points out that although the work culture andethics in Israel are strong, the ability to manage people will be a challenge. Of course, the existing management at Taro has been retained, but Shanghvi explains that Taro has historically been working somewhat differently and the scientific capability needs to be better harnessed. "We would like the pace to be somewhat faster, in that we would like to accelerate the number of new filings and add more products," he says, pointing out that at one time, Teva and Taro were roughly the same size,butTe-vaforged ahead.
Shanghvi says he will leverage Taro's ability to develop complex prod'ucts in its key areas and will invest in R&D, cautioning that profitability might suffer in the short run. In the meantime, he also has a tough task ahead with Sun's subsidiary in the Unit'ed States, Caraco, which has been through a rough patch. Earlier this month, Sun decided it would try outago-private strategy for the loss-making Caraco,buyingback the 25% that itdoes not own. Caraco needs to become prof'itable soon and Shanghvi says it could take a while before the problems with the US FDA are ironed out and that it might be better if Caraco is a part of Sun, rather than an independent company.
Shanghvi's always been a smart thinker and some of that's reflected in the timing of the buyback; at $4.75 apiece, Caraco's shares are priced way below what they were some time back. The Sun chief, however, plays down the price element. "It could take a while for the products to be back in the market. In the meantime, if the company continues to report losses, quarter after quarter, it may impact shareholders of Cara'co significantly more than it has already," he says. He believes it would help if Sun is more directly involved in Caraco's operations. "How soon the unit recovers is ulti'mately a function of how the US FDA will look at it and it's not so much in our hands," he says.
Clearly, Shanghvi is not fazed. As he says, "Running a Rs 5,000-crore business isn't tough, it's fun." And if there's something he's more proud about than the business he's built, it's the business his son has built. Shanghvi's 25-year-old son is into solar panels, which are exported. Says the Sun chief, "He will possibly do a Rs 50-crore turnover soon, which is something I achieved when I was around 40. And although, Rs 50 crore was a lot in 1995, that still does not take away from what he's doing."