India's Sun Pharmaceuticals reports unexpected loss after US antitrust settlement
MUMBAI (NewsRise) -- Sun Pharmaceutical Industries, India's largest drug maker, posted an unexpected loss in the first quarter after the company incurred a one-time charge related to a payment settlement in the U.S, its largest market.
The consolidated net loss for the quarter ended in June stood at 4.25 billion rupees ($66 million), compared with a net profit of 20.34 billion rupees a year earlier. Analysts were expecting a profit of 20.34 billion rupees.
The latest quarter included a one-time loss of 9.51 billion rupees related to the settlement of an antitrust litigation in the U.S. with Canadian drug maker Apotex, the company said. Excluding the impact of this settlement payment, Sun posted a net profit of 5.26 billion rupees.
Revenue plunged 25% to 62.09 billion rupees. Sales of formulations in the U.S. declined 42% to $351 million, as the year earlier period included six months of exclusive sales of generic version of Novartis' leukaemia drug Gleevec, which ended in July.
On Wednesday, Sun's U.S. unit Taro Pharmaceutical said its net profit halved after a 31% decline in sales in the quarter. Sun holds a 69% stake in Taro, which contributes over 20% of the parent's sales and more than 40% of its consolidated profit.
The first quarter was "not good and not in line with our past performance," Dilip Shanghvi, managing director of Sun, said in a statement. "We expect our performance to gradually improve in the second half of this year."
The performance was hit by the combined impact of increasing investments in global specialty business, temporary disruption in India business due to the implementation of the Goods and Services Tax, a challenging U.S. generic pricing environment, and the settlement with Apotex, Shanghvi said.
Sales of branded formulations fell 5% in India after retailers cut down old stocks to avoid dealing with two different prices for the same product due to the introduction of GST. India switched to the new tax regime from July 1.
Earlier on Friday, smaller rival Cipla reported a 21% jump in first-quarter net profit on the back of strong growth in Europe and South Africa that offset the pressure in domestic market.
Cipla, which earns almost half the revenue from the domestic market, reported a 13% decline in India sales ahead of the GST roll out. The company has been working towards expanding its presence in the U.S. and said it is on target to ramp-up its "launch trajectory in the U.S."
Sun and many other Indian drug makers are grappling with declining sales in the U.S., the largest dug market in the world, where prices have been falling at a dramatic pace. The competition intensified after the U.S. drug regulator enhanced the pace of approvals for generics in a bid to make medicines more affordable.
These companies are also facing increased scrutiny from the U.S. drug regulator over lapses and quality control issues at their local manufacturing plants. In December 2015, Sun received a warning letter from the FDA, indicating manufacturing issues at its Halol plant in the western Indian state of Gujarat. Last December, the company said the regulator has raised more concerns about the plant.
In the past one month, Dr Reddy's Laboratories and Lupin reported weaker-than-expected quarterly earnings reflecting the difficult market conditions in the U.S. Third-ranked Lupin warned of a decline in sales in low-single digit.
The string of bad results from most Indian drug majors has been hammering their stocks over the last two weeks. Ahead of the release of the earnings on Friday, shares of Sun fell as much as 3.3% to touch their 52-week low. The shares later pared the losses to close 1.92% lower, while the benchmark S&P BSE Sensex lost 1%.
To skirt competition in the crowded generics market in the U.S., Sun has been working toward developing more specialty drugs in dermatology and ophthalmology.
The company said its research and development expenses in the last quarter accounted for 8.5% of sales, compared with 6.6% a year earlier. The R&D expense included investments for funding the clinical development of global specialty pipeline, it said.
--Dhanya Ann Thoppil