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Pharmaceuticals

Sun Pharmaceutical's profit slumps 59% on declining U.S. sales

India's biggest drug maker expects better performance in second half

Sun Pharmaceutical Industries' research and development center in Mumbai   © Reuters

MUMBAI (NewsRise) -- Sun Pharmaceutical Industries, India's biggest drug maker, reported a 59% slump in second-quarter net income as intense competition in the U.S. continued to crimp sales in its largest market.

Consolidated net profit for the quarter ended in September fell 59% to 9.12 billion rupees ($139 million) from 22.35 billion rupees a year earlier, the company said in a statement on Tuesday. However, the profit exceeded analysts' expectations of 8.27 billion rupees on back of a sharp cut in tax expenses.

Revenue dropped 20% to 66.50 billion rupees while the tax expenses slumped 75% to 1.11 billion rupees.

Sales of formulations in the U.S. declined 44% to $309 million, as the year-earlier period included six months of exclusive sales of generic version of Novartis' leukemia drug Gleevec, which ended in July. Sun's U.S. unit Taro Pharmaceutical reported a 58% decline in net profit after sales fell 26%. Sun holds a 69% stake in Taro, which contributes more than 20% of the parent's sales and more than 40% of its consolidated profit.

"A challenging U.S. generic pricing environment, coupled with continued investments in building our global specialty business, has impacted our second quarter performance," Dilip Shanghvi, managing director of Sun, said in the statement. "We expect our performance to gradually improve in the second half of this year."

Sun and smaller rivals are grappling with falling drug prices in the U.S., where the Food and Drug Administration has expedited its approval rate for generics, paving the way for increased competition from new players. A rising number of retail pharmacies in the U.S. are joining hands to gain leverage in buying generic drugs in bulk, pushing prices down further.

In the past one month, Sun's smaller rivals Dr. Reddy's Laboratories and Lupin reported sharp decline in sales in the U.S., though profits at both companies exceeded expectations thanks to cost controls.

To skirt competition in the crowded generics market in the U.S., most drug makers, including Sun, have been working toward developing more specialty drugs. The company said its research and development expenses in the last quarter accounted for 7.7% of sales, compared with 7.4% a year earlier.

Amid the declining sales in the U.S., most Indian drug makers, including Sun, are plagued with regulatory issues as they struggle to match up to the high manufacturing standards set by the U.S. drug regulator.

Sun has yet to resolve issues raised in a December 2015 FDA warning letter about the manufacturing practices at its Halol plant in Gujarat state. According to media reports, starting Tuesday, the U.S. drug regulator is conducting a surprise inspection at another plant in Baska, near Halol, that manufactures several injectable drugs the company filed for approval in the U.S.

Last week, Lupin said it received a warning letter from the FDA, citing quality issues at two of its plants in Goa in western India and Indore in the central part.

Ahead of the earnings, shares of Sun closed down 1.2% in Mumbai trading, while the benchmark S&P BSE Sensex lost 0.28%.

--Dhanya Ann Thoppil

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