“US generics industry is facing rapidly changing market dynamics, increased competitive intensity and customer consolidation is leading to pressure on pricing,” Dilip Shanghvi said.
India's largest drug maker Sun Pharma shares dropped close to 13 percent on Monday with company’s management hinting at a tough year ahead with a “single digit decline” on consolidated sales due headwinds in US and uncertainty over resolution of its Halol plant, which is critical to company’s big product approvals.
“FY18 is likely to be challenging year for us,” said Dilip Shanghvi, Managing Director of Sun Pharma in the company’s post results earnings call. “US generics industry is facing rapidly changing market dynamics, increased competitive intensity and customer consolidation is leading to pressure on pricing,” Shanghvi said.
“Continued delay in approvals from Halol facility is also impacting us,” he added.
Sun Pharma’s Halol unit was issued a warning letter by the US Food and Drug Administration (FDA) in December 2015 due to violation of good manufacturing practices. Consequently, the pace of product approvals in the US has slackened.
What makes things complicated for Sun Pharma is the lack of any exclusivity benefit like the one it had in the form blood cancer drug imatinib in FY17 and also the uncertainty amongst the trade channels due to upcoming GST implementation in Indian market.
“We may even have a single digit decline in consolidated revenues,” Shangvi said.
While the sales may see a decline but research and development expenses are likely to be shot-up to 9-10 percent on total sales in FY18 compared to 7.6 percent in FY17.
The investments on R&D has become imperative as Sun Pharma invests on funding the clinical development of its global specialty pipeline.The company also hinted of higher tax rate and a capex to the tune of USD 350 million in FY18.
The company’s March quarter earnings were way below street expectations.
Its net profit fell 13.6 percent to Rs 1,223.71 crore, while net sales were down 8 percent at Rs 6,825.16 crore on year-on-year basis.
Sales in the US were USD 381 million, down 34% from a high base last year.
Analysts tracking the company estimate FY18 to be much worse, though they expect things to look up from FY19. “We expect 15 percent decline in US sales in FY18 due to pricing pressure in Sun Pharma and Taro portfolio,” said Kumar Saurabh of brokerage house Motilal Oswal.
Saurabh expects pending launches such as Xelpros, Elepsia, Glumetza and Odomozo ramp-up to partially offset the revenue decline.
Brokerage house CLSA has downgraded Sun Pharma to sell and has cut the target price steeply from Rs 860 to Rs 500 on the back of 25 percent dip in US sales.
Global research firm JP Morgan observed that the company’s revenue decline guidance highlights increasing uncertainty in FY18.
Further, it believes that uncertainty on regulatory issues as well as earnings will keep the stock under pressure.Having said that, JPMorgan expects the headwinds could give better entry point to focus on upside from specialty pharma and is well-positioned to transition into specialty pharma over the medium term.The Great Diwali Discount!
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