Sun Pharmaceutical Industries Ltd, a Rs.30,000 crore plus company is passing through a difficult phase especially during last few quarters due to warning letters from US FDA, fewer launches and competition. It suffered heavy setback during the first quarter ended June 2017 incurring a net loss of Rs.323 crore before non-controlling interest as against net profit of Rs.2,268 crore. Its consolidated net sales also declined by 23 per cent to Rs.6,167 crore from Rs.8,007 crore. With net loss, its EPS worked out to negative Rs 1.8 as compared to Rs.8.5 in the last year.
The poor performance reflected in share price movements and Sun scrip of Rs.1 touched to its yearly lowest level at Rs.433.15 on August 14, 2017 as against its yearly peak level of Rs.759 during last October 19, 2016. Currently its market capitalisation worked out to Rs.1,30,000 crore. As on October 18, Sun scrip closed at Rs.540. Thus the last one year Sun Pharma's share was under tremendous pressure and if the company fails to solve US FDA issues as early as possible, the financial performance for current year will be quite bad and investors may lose confidence. However, the management is taking steps and increasing the share of complex generics and specialty products to its overall business in the coming years. The company is selling its products in more than 150 countries supported by 42 manufacturing facilities.
Its R&D expenditure during the June quarter declined marginally to Rs.522 crore from Rs.531 crore and worked out to 8.5 per cent of sales. Cumulative, it received final approval for 433 products and filings for 151 ANDAs await US FDA approval. It filed 5 ANDAs during the quarter under review and received 8 approvals. Additionally, the pipeline includes 37 approved NDAs while 5 NDAs await US FDA approval.
Sun has completed the integration of Ranbaxy Laboratories and it is on-track to achieve the targeted synergies of US $ 300 million in the current year. However, the cGMP problem with US FDA may put hurdles in its growth plan. The company management is taking every step to resolve cGMP problem with US FDA as US market is very important for its growth. During first week of October, it received favourable Establishment Inspection Report (EIR) from US FDA in respect of inspection completed in April 2017 of its Dadra facility. Its another major facility at Halol is also undergoing cGMP compliance remediation efforts. Halol facility received Form-483 observations in November 2016 from US FDA. The approval for two specialty products viz., Xelpros and Elepsia has been delayed due to cGMP problem at Halol facility. The company is planning to shift these two products to alternate sites. During March 2017, Sun received positive replay from US FDA regarding import alert on the Mohali facility.
For the full year ended March 2017, its consolidated net sales increased by 8.8 per cent to Rs.30,264 crore from Rs.27,888 crore in the previous year. EBIDTA increased by 22.9 per cent to Rs.10,713 crore from Rs.8,717 crore. After adjustments its net profit moved up 38.7 per cent to Rs.7,846 crore from Rs.5,658 crore. As against the equity capital of Rs.240 crore, its reserves & surplus increased to Rs.36,400 crore from Rs.32,742 crore in the previous year. The company buyback 75 lakh shares at a price of Rs.900 per share during 2016-17. Its US sales increased marginally by 2 per cent to Rs.13,759 crore and that in domestic market moved up by 8 per cent to Rs.7,749 crore. The sales in emerging market went up by 26 per cent to Rs.4,530 crore and that in Rest of the World increased by 19 per cent to Rs.2,583 crore.
Its R&D expenditure remained almost same at Rs.2,102 crore and worked out to 6.9 per cent of net sales. Sun is also investing in enhancing product pipeline for emerging markets and other non-US developed markets. As at the end of March 2017, its cumulative ANDA filing reached at 584 and it received approval for 427 ANDAs.
The company is focusing on specialty segment as its future growth plan along with pharmaceutical and investing accordingly. It has significantly enhanced its global specialty pipeline through acquisitions and partnerships during last couple of years. It also made substantial progress in completing clinical trials for key products. It has commercialized four specialty products in the US market viz. Absorica, Kerastick, Odomzo and BromSite. It filed Tildrakizumab with US FDA and European Medicines Agency and awaiting regulatory approvals. Sun is also planning to file NDA for Seciera with the US FDA shortly. The company acquired Biosintez in Russia and entered licensing agreement with Almirall for tildrakizumab for Psoriasis.
It also acquired 14 brands from Novartis and entered Japanese market for a total amount of US$ 293 million. It also acquired a branded oncology product, Odomzo from Novartis for an upfront payment of US$ 175 million and additional milestone payments. Sun entered distribution agreement with AstraZeneca for marketing Oxra and Oxramet brands in India. Further in December 2016, it entered into an exclusive worldwide licensing deal to further develop MM-II, a novel pharma candidate for treatment of pain in osteoarthritis.
The company's subsidiary Taro Pharmaceuticals suffered heavy setback during 2016-17 on account of difficult pricing environment in the US. Taro's net sales declined by 8 per cent to US$ 879 million and its net profit declined by 15 per cent to $456 million. Even in quarter ended June 2017, Taro's net sales declined by 31 per cent to $161 million due to competition and pricing pressure and net profit declined by over 50 per cent to $55 million. Taro has a total of 33 ANDAs awaiting US FDA approval, including six tentative approvals. Taro has plans to repurchase its ordinary shares worth $250 million and during the June quarter, it repurchased 80,007 shares at average price of $106.07.
The company and its wholly owned subsidiary Sun Pharma (Netherlands BV, had purchased additional 8.3 per cent stake for a consideration of Malaysian Ringgit 28.61 crore in Ranbaxy Malaysia Sdn Bhd, Malaysia and increased their holding from 71.2 per cent to 79.5 per cent in October 2017. The Malaysian company is manufacturing and selling its pharmaceutical products in Malaysia and the Republic of Singapore.
During October 2017, CRISIL has rated its commercial paper of Rs.4,000 crore as A1+ and also reaffirmed ratings of CRISIL AAA/Stable and CRISIL A1+ on the long term and short term bank facilities worth Rs.176 crore of the company. Further, ICRA has also rated its short term fund based & non fund based bank facilities, short term borrowings, commercial papers programmes and the long term borrowings as ICRA A1+ and ICRA AAA/Stable.
Financial Highlights