Sun Pharma slumps on $550m settlement with Pfizer
Sun Pharma will pay USD 550 million to Pfizer to settle a case related to Protonix. This is higher than the USD 107 million it had set aside earlier. Nomura says this settlement will dent balance sheet strength to an extent.
June 13, 2013 / 17:54 IST
Moneycontrol Bureau
Sun Pharmaceutical Industries closed down more than 3 percent on Thursday at Rs 949.40 on NSE after the drug maker said it has settled an ongoing litigation with US-based Pfizer, related to the acid-reflux drug Protonix (pantoprazole), for USD 550 million, which is much-higher-than the amount it had earlier set aside.
"Sun Pharma had set aside USD 107 million, last financial year towards potential damages to Pfizer. Now it is suddenly saying it will pay about USD 450 million more to settle the case. That is a major reason for the pressure on the stock today," Hitesh Mahida of Fortune Equity Brokers, told moneycontrol.com.
Further, the analyst says, 60 percent of Sun Pharma's USD 1.3 billion in cash is with its subsidiaries Taro and Caraco, which can't be used. So Sun will have to pay the settlement amount through its own pockets and that will leave little or no cash for acquisitions in the near future, Mahida added.
In 2005, Wyeth (now a division of Pfizer) and Altana Pharma (now Takeda GmBH) had filed a patent infringement suit against Sun Pharma after it filed its ANDA (abbreviated new drug application) for pantoprazole. Sun Pharma launched the drug in 2008, but in 2010, a jury held Altana's patent as valid.
Under the terms of the settlement, the parties have dismissed all the claims and Sun Pharma will pay a lump-sum USD 550 million as a part of the agreement.
The settlement amount is even higher than the USD 300 million, which Nomura Financial Advisory and Securities India had factored in.
Sun Pharma's payout is about 42 percent of Sun Pharma's consolidated cash balance and the incremental liability of USD 440 million is 17 percent of the company's net worth as of March 2013, Nomura analysts Saion Mukherjee and Aditya Khemka said.
Sun Pharma is trading at 23.8 times FY14 earnings forecast and 22.2 times FY15 forecast, which is a 15 percent premium to peers, the analysts said, adding reduction in the cash balance could lead to some correction in PE multiples.
"With the cash outgo for the settlement, the balance sheet strength is dented to an extent," the Nomura analysts said.
They have a "neutral" rating on the stock, with a target price of Rs 842.
Also Read: Teva, Sun Pharma settle patent suit with Pfizer for $2.15bnNachiket Kelkar
nachiket.kelkar@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
