There is no independent way for Mint to ascertain additional details of the imports, including whether other suppliers could have provided the same raw materials at the prices cited.
Pfizer did not return repeated calls nor did it respond to detailed questions that were sent by email to its New York headquarters. A. Majeed, director and company secretary for Pfizer in Pakistan, declined to answer questions.
In an email, Majeed wrote: “The issues raised in your questions are all subject matter in a court case thereby making the issues subjudice and therefore, we cannot provide any comment at this stage.” Asked if an appeal was planned, Majeed simply wrote “yes.”
But a judge in Karachi agreed with the minority investors, citing Pfizer’s treatment of them as “oppressive.” The ruling of the Sindh high court also ordered an independent auditor to calculate a new valuation of PLL’s shares, taking into consideration the “artificial losses” created by Pfizer’s “transfer pricing.”
The decision comes at a time when Pfizer, the world’s largest drug company by sales, is reporting weak earnings—its second-quarter earnings fell 48%, and emerging markets in Asia and Eastern Europe are increasingly becoming more important for growth. Meanwhile, Pfizer also faces a much more high-profile legal battle in another emerging market—Nigeria—where the government is planning a lawsuit seeking at least $7 billion in damages from Pfizer for what it alleges were illegal drug trials on children there. Pfizer has denied any wrongdoing.
Back in Pakistan, the minority shareholders insist that even if their battle is about much smaller amounts, it is a matter of principle.
“When you’re young and starting out, you invest something for your old age and your kids,” Mohammed Ali Khan said of his paediatrician father’s motivations in buying 100,000 shares in the late 1950s. He recalls his parents meeting Pfizer board members in New York, then later entertaining company executives in their Karachi home in the 1950s and 1960s.
For the next three decades, some of the shareholders, including Khan, note that PLL was largely profitable, declaring dividends and bonus shares on a regular basis. By 1990, it reported profits of Pakistani Rs160 million, with equity amounting to Rs98 per share. But, in 1991, the company embarked on a change in business strategy, which one of the shareholders describes as the beginning of the downturn.
But investors were still hopeful about the company’s prospects. In 1995, chartered accountant Azfar Hasnain bought 126,242 shares in PLL for his son Zahid, then in college, at about Rs12.50 per share. Back then, about 23% of the company was held by minority shareholders, with the rest owned by Pfizer, he said.
For the next few years, PLL’s sales still grew steadily, at an average of 4% per year. But, because of the huge markup on drug ingredients—offset by money pumped in from the parent and taken back in the form of shares—the Pakistan unit began operating at a loss and shareholder equity shrank.