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UPDATE 2-S.Africa's Cipla Medpro CEO quits, shares rise

* CEO and founder quits

* Says to take action against company

* Shares up over 5 pct(Adds analyst comment) By Tiisetso Motsoeneng JOHANNESBURG, Oct 8 (Reuters) - South Africa's Cipla Medpro

said on Monday its chief executive had quit, endingmonths of speculation about his suspension and raising questionsabout the generic drug maker's tie-up with Cipla India.

South Africa's No.3 drug maker said in a statement thatJerome Smith had stepped down from the company he founded, afterbeing suspended in August pending an investigation into chargesagainst him.

Smith had been due to appear at a disciplinary hearing onMonday but resigned first, the company said. Shares of CiplaMedpro, which have been under pressure since Smith's suspension,rose nearly 6 percent.

"I have however been driven to take this decision by theboard's decision to suspend me, to forbid me from coming intothe premises and to thereafter and without any proper foundationaccuse me of a list of misdeeds," Smith said in a statement.

Smith also said he would take legal action against thecompany, but did not give any details.

The hearing was to address more than 20 charges againstSmith, including potential "gross misconduct" for approvingbonuses and pay rises for himself that were not recommended bythe board, the company said.

The charges also allege Smith may have taken loans or otherfinancial assistance from the company without proper approval,and had 45 people on the company's books who were not actualemployees and were paid on his behalf.

"More than anything, the latest development removes a lot ofuncertainty around the company," said Mathew Menezes, an analystat Avior Research in Johannesburg.

But Smith's departure also raises concerns about the futureof the company's lucrative supply agreement with Indian genericdrug giant Cipla India.

Cipla India supplies the bulk of Cipla Medpro's drugs via anagreement spearheaded by Smith, who was mentored by the Indiancompany's senior executives such as its current MD and chairmanYusuf Hamied.

"What's going to happen to the supply agreement? What ifJerome Smith starts his own business? Will Cipla follow him?It's a risk that investors have to take before buying shares inthis company," said one analyst who declined to be identifiedbecause he is not allowed to speak to the media.

Shares in Cipla Medpro, which is valued at $350 million,rallied 5.6 percent to 7.14 rand. Shares are still down around15 percent since Smith's suspension.

(Editing by David Dolan and David Cowell)

((david.dolan@thomsonreuters.com)(+27 11 775 3150)(ReutersMessaging: david.dolan@thomsonreuters.com@reuters.net))

Keywords: CIPLAMEDPROSOUTHAFRICA/

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