Shares of Sun Pharma were down more than 4 per cent on Wednesday tracking the release of third quarter earnings.
In the December quarter (Q3 FY17), the consolidated net profit of Sun Pharmaceutical Industries, the country’s largest drug maker, fell 4.7 per cent to Rs 1,471.8 crore against Rs 1,544.9 crore reported in the same quarter last year.
The fall in net profit was mainly attributed to the US base business’ pricing erosion coupled with higher interest expense on account of forex losses. Consolidated revenue of the company came in at Rs 7,683 crore, posting 8 per cent rise year-on- year.
EBITDA margin stood at 31 per cent (down 732 bps QoQ). A 22 per cent sequential increase in the material cost impacted on EBITDA.
Revenues from US formulations business, one of the key drivers for the company, were Rs. 3,419 crore for the quarter, witnessing a growth of 7 per cent over the same period last year. The US business accounts for 45 per cent of the total sales of the company.
However, sequentially, revenues of the US business fell 8 per cent due to supply constraints and pricing pressure.
The sequential decline in sales numbers was also attributable to the increased competition in the generic version of cancer drug Gleevec, after the expiration of the 180 days exclusivity-period sales on July 2016.
However, the launch of authorised generics for Olmesartan, used in the treatment of high blood pressure, has helped the Q3 numbers.
At the same time, one of its subsidiaries, Taro posted Q3 FY17 sales of $220 million, down 15 per cent over Q3 last year. Taro's net profit for the December quarter was $140 million, down 26 per cent YoY.
Regulatory issues surrounding its Halol facility also dampened the business in the US. The facility has been under the scanner of USFDA for alleged violations of good manufacturing practices.
During the earnings call, the company has guided that it has responded to the latest notice, with nine observations by the USFDA issued to the company after the recent inspection on December 1, 2016.
USFDA’s clearance to Halol unit is vital for the company's future revenue. The Halol plant contributes 7-8 per cent of Sun Pharma's overall sales and 15 per cent of its US sales. Getting an okay for Halol plant will open the door to more approvals from this plant.
As of December 2016, Sun Pharma has a strong pipeline for the US market with ANDAs (Abbreviated New Drug Applications) for 424 products, while filings for 149 ANDAs await USFDA approval. Additionally, the pipeline includes 36 approved NDAs (New Drug Applications) of which 2 NDAs were filed in the first nine months of FY17.
Sun Pharma's domestic business showed a moderate growth during the third quarter with a 5 per cent growth YoY, impacted by the combined effect of multiple regulatory changes and demonetisation.
Sale of branded formulations in India for Q3 FY17 stood at Rs 1,969 crore. Sun Pharma’s Indian business has accounted for 26 per cent of its total sales. The company had launched six new products in the Indian market in the December quarter.
Sales in emerging markets grew 14 per cent YoY to $ 172 million in the December quarter, while the formulations sales in rest of world stood at $113 million, a growth of 33 per cent YoY, partly attributable to the sales from Novartis AG in Japan.
Consolidated R&D expenses for Q3FY17 were at Rs 613 crore.