Sun Pharma declines nearly 3% as Halol facility gets 8 US FDA observations

Shares of Sun Pharma cracked as much as 2.84 per cent to Rs 426.50 apiece on the BSE on Monday after the company informed that the US FDA has issued a Form 483, with eight observations for its Halol (Gujarat) facility. The inspection was conducted from December 03-13, 2019, the company said in its regulatory filing.

At 09:30 am, the stock was trading over 1.50 per cent lower at Rs 431.70. In comparison, the benchmark S&P BSE Sensex was trading 72 points or 0.18 per cent higher at 41,082 levels.

Sun Pharma further said it was preparing the response to the observations, which will be submitted to the US FDA within 15 business days. "The Company is committed to addressing these observations promptly. The Company remains committed to working closely with the US FDA and continues to enhance its GMP compliance on an ongoing basis," the statement added.

According to reports, global brokerage firm Morgan Stanley has maintained 'overweight' stance on the stock with the target price of Rs 530. The brokerage said it was difficult to assess the severity of Halol observations at present and the positive view on the company is on the back of projected earnings growth.

For July-September period, the pharma major's numbers were mostly in line with Street expectations, with pre-tax profit of Rs 1,433.38 crore, against Rs 111.94 crore last year, which was impacted by settlements related to an antitrust litigation concerning Modafinil in the US. It noted that China and Japan are becoming increasingly important markets for growth.

Net profit stood at Rs 1,064 crore, with the resulting net profit margin at 13.4 per cent, against a net loss of Rs 269.6 crore in Q2FY19. Adjusted for the exceptional item of Rs 1,214 crore for Q2 last year (related to the Modafinil settlement), net profit growth was at 12.6 per cent, the company said.

Income from operations came in at Rs 7,949 crore, up 16 per cent YoY. The India business clocked a robust 35 per cent YoY growth to Rs 2,515 crore, while US-finished dosage sales remained flat at $339 million.

Sun Pharma stock has risen only around 2 per cent so far in the calendar year 2019 as against around 14 per cent increase in the benchmark S&P BSE Sensex.

SPARC zooms 6% after US-based firm withdraws patent infringement complaint

Sun Pharma Advanced Research Company (SPARC) jumped 5.6 per cent to Rs 162.40 on the BSE on Monday after the company said Abraxis Biosciences LLC has dismissed the patent infringement complaint filed against it regarding the company's New Drug Application (NDA) for PICS (Paclitaxel Injection Concentrate for Suspension).

“We are very pleased that Abraxis Bioscience LLC. has withdrawn its infringement claims paving the way for a successful launch as and when we receive necessary regulatory approvals,” said Anil Raghavan, chief executive officer (CEO) of SPARC in a statement. READ HERE

SPARC will also inform the USFDA of the dismissal of the complaint to vacate the 30-month stay, the filing added.

In August this year, Abraxis Biosciences LLC had alleged that SPARC’s filing of NDA or Taclantis injection is an act of infringement of the Orange Book listed patents for Abraxane. The complaint was filed in the US District Court for the District of New Jersey.

At 12:03 pm, the stock of the company was trading 3.45 per cent higher at Rs 159 per share, as against a 0.26 per cent rise in the benchmark S&P BSE Sensex. A total of 0.97 million shares have changed hands on the BSE and NSE till the time of writing of this report. Meanwhile, most pharma stocks were trading in the green in the morning trade on Monday. The Nifty Pharma index was trading over half a per cent higher in a flat market. READ MORE

SPARC is engaged in research and experimental development on natural sciences and engineering. The company operates through pharmaceuticals research and development segment.

For the July-September quarter, SPARC reported a net loss of Rs 63.16 crore, relative to a loss of Rs 2.58 crore for the same quarter of the previous fiscal. Total income, too, declined to Rs 19.45 crore during the second quarter as compared with Rs 65.92 crore in the year-ago period.

Nifty Pharma index hits two-month high; Sun Pharma surges 7%

Shares of pharmaceutical companies were trading higher for the fourth straight day, with Nifty Pharma index hitting a two-month high after 7 per cent rally in share price of Sun Pharmaceutical.

At 01:01 pm, Nifty Pharma index, the largest gainer among sectoral indices today, was up 3.5 per cent at 8,122 points. The pharma index was quoting at its highest level since September 13, 2019. In comparison, the Nifty 50 index was up 0.69 per cent at 12,023 points.

Sun Pharma soared 7 per cent to Rs 455. The stock has gained 11 per cent in the past four trading days. The stock of pharma major was trading at its highest level since September 3, 2019. It erased entire losses that it incurred earlier after Sebi ordered forensic audit of the company.

“A forensic audit has been ordered by SEBI w.r.t. the financial statements of Sun Pharma for the financial years ending March 31, 2016, March 31, 2017 and March 31, 201 8. The said forensic audit is presently ongoing,” Sun Pharma had said in a regulatory filing on September 5, 2019.

Sun Pharma outpaced the market by surging 20 per cent from its recent low of Rs 380 on October 10, against 9 per cent rally in the S&P BSE Sensex.

Analysts at KR Choksey expect Sun Pharma’s topline/bottom-line to grow by CAGR 12.3 per cent/18.6 per cent over the period FY19 to FY21 on back of specialty revenue and with launch of Cequa (launched in Oct2019) while EBITDA margin is forecast to further expand in near term with traction seen in Ilumya. Domestic business is now getting back on track, it should normalise further, the brokerage firm said in Q2 result update with ‘buy’ rating and target price of Rs 511 per share.

Among other individual stocks, Lupin, Dr Reddy’s Laboratories, Divi’s Laboratories and Aurobindo Pharma from the Nifty Pharma index were up 3 per cent each on the NSE.

Glenmark Pharmaceuticals (up 4 per cent at Rs 365) bounced back 37 per cent from its 52-week low of Rs 267 touched on last Thursday, after global brokerage firm CLSA upgraded the stock to 'buy' from 'Sell', citing attractive valuation.

The brokerage firm, in its review report on Glenmark Pharma, said the US sales momentum is expected to remain strong whereas India should continue growing above the industry rate. It also noted that all geographies witnessed year-on-year growth for the first time in over three years.

Sun Pharmaceutical bullish on Japanese market as peers lose interest

India’s largest drugmaker, Sun Pharmaceutical Industries, is expanding in the Japanese market when most of its peers have indicated they are not bullish on it.

Mumbai-based Lupin is Japan’s sixth-largest drug generics player but it recently said the annual price cuts imposed there had made the market unattractive. It would continue to grow there but only in single digit (in value terms).

There were also reports that Lupin was looking at selling its Japanese subsidiary, Kyowa. The company did not confirm any such development but it had earlier this year divested the Japanese injectables business to Neo ALA Co, wholly owned subsidiary of Abu Dhabi-based Neopharma Group.

Most Indian players have exited Japan over the past decade. Ranbaxy was one of the early entrants. It exited a joint venture with Nippon Chemiphar in December 2009. Dr Reddy’s Laboratories, Orchid Chemicals and Cadila Healthcare wound up their Japan business in the following years. They found it did not make enough strategic sense to stay invested in a highly regulated market, one where margins were comparatively lower than in other developed ones.

A senior official at a pharma firm that had exited its Japan business some years before recently described to Business Standard how the regulatory landscape in Japan has been changing. The government there wants nearly 80 per cent of the pharma market to be of generic drugs by 2020.

Sunnier

For Sun Pharma, however, its rest-of-the-world markets grew 49.1 per cent during the second quarter. Analysts said this was due to consolidation of Pola Pharma in Japan. Sun had completed its acquisition of Japan-based Pola last January, to strengthen its presence in the dermatology segment. Pola makes and distributes branded and generic products in Japan, the portfolio primarily of dermatology products.

Sun forayed into the Japanese prescription market in 2016 with the acquisition of 14 established prescription brands from Novartis. Why is it bullish on Japan, when others are wary of the price cuts there?

Dilip Shanghvi, managing director, said during a recent earnings call: “For long-listed brands, there would be a decline in pricing. The Pola portfolio is a mix of branded product and long-listed products but the majority are of our branded products.”

Sun Pharma has also indicated higher research and development spending in the coming quarters for its speciality business. This would include clinical studies for the China and Japan markets. Shanghvi says of these: “These are mostly products we are developing for markets other than China and Japan. Looking at the size of these (latter two) markets, we do not rule out developing something specific for them.”

Analysts say Sun is betting on the branded products portfolio to sail through pricing pressure in the Japanese market.

“If it is able to gain significant market share in Japan in the branded segment, then it may make sense in the future. However, Sun has to be very careful about its Japan strategy now, as the country is increasingly becoming a generic drugs market,” said a Mumbai based analyst. The Japanese market has annual price erosion of seven to eight per cent.

Sun has also indicated it would continue to focus on developing and utilising Active Pharmaceutical Ingredients for captive consumption and for benefits from vertical integration. Lupin manufactures in India for the Japan market, where it uses its plants primarily for packaging. Sun did not elaborate on its manufacturing rationalisation plan for Japan. Pola Pharma has two manufacturing facilities in Saitama, with capabilities to manufacture topical products and injectables.

Meanwhile, Sun is in the process of consolidating at Pola Pharma. During the second quarter, Sun’s staff cost was up 10 per cent in absolute terms due to annual increments, speciality staff cost increase and the addition of Pola. The other expenses were also higher due to branding and promotional activities for the speciality business and consolidation of Pola on Sun Pharma Distributors.

Sun Pharma shuts two clinical units in Vadodara for cost efficiency

Drug major Sun Pharma on Saturday said it is discontinuing operations at two clinical pharmacology units in Vadodara (Gujarat) to bring in efficiencies in cost and processes.

"While we continue to make investments in our R&D operations, we also constantly evaluate our resources and future capacity requirements to bring in efficiencies in cost and processes," a Sun Pharmaceutical Industries spokesperson said in a statement.

To ensure optimal utilisation of clinical pharmacology units (CPUs) that conduct bio-equivalence studies, the company is discontinuing operations at two centers at Tandalja and Akota in Vadodara, the spokesperson added.

"The bio-equivalence studies from these centers will be transferred to our other facilities. We are offering full support to the affected employees and helping them with out placement services," the spokesperson said.

According to industry sources, the move would impact around 80 staffers at the two locations.

Sun Pharma has six major R&D centers at Vadodara, Mumbai, Gurgaon, Haifa (Israel), Brampton (Canada) and New Jersey (US).

Sun Pharma aims to clock 'low-to-mid teens' growth in revenues in FY20

Drug major Sun Pharmaceutical Industries is gradually ramping up its speciality business across global markets as it aims to clock "low-to-mid teens" growth in consolidated revenues in the current fiscal.

Addressing shareholders in the company's annual report for 2018-19, Sun Pharma Managing Director Dilip Shanghvi said the company is focused at growing each of its business verticals faster than the market in which it operates.

"Our consistent focus is on growing each of our businesses faster than the market in which they operate. Our global specialty initiatives will supplement this objective as an additional growth engine," Shanghvi said.

The company is targeting key ailments like psoriasis to gradually ramp up its global specialty business, he said adding that Sun Pharma would continue to invest in branding and promotion of its various specialty products.

Besides, R&D investments for funding clinical trials of some of the specialty products are also likely to continue in future, Shanghvi noted.

On business outlook for the current fiscal, he said: "For 2019-20, we expect our consolidated revenues to grow by low-to-mid teens, while R&D investments are estimated at 8-9 per cent of sales."

The Mumbai-based drug firm had reported consolidated revenue from operations at Rs 28,686.28 crore for the fiscal year ended March 2019.

Shanghvi said the company would also continue to invest in the generics business with a focus on developing differentiated complex products and building a product pipeline across markets.

"Our strong positioning in the global generics space will ensure that we remain an important player in the generics industry," he added.

Shanghvi said the company will also continue to focus on optimising its costs, given the tough phase that the global generics industry is passing through.

"We strive to optimally utilise our resources with greater involvement of people to make the company more efficient," he added.

Sun Pharma launches drug in US to treat lipid-linked swallowing problems

Sun Pharma Monday announced the launch of Ezallor Sprinkle capsules, used for treatment of elevated lipid disorders in people who have difficulty swallowing, in the US market.

Ezallor Sprinkle (rosuvastatin) capsules is indicated for three types of lipid disorders in conjunction with diet in adults, Sun Pharma said in a regulatory filing.

The company said this problem is estimated to affect approximately 30-35 per cent of long-term care residents.

"With the introduction of Ezallor Sprinkle, Sun Pharma continues our commitment of providing a portfolio of alternative formulation products to address the needs of people who have difficulty swallowing, which is especially prevalent among residents in long-term care facilities," Sun Pharma North America CEO Abhay Gandhi said.

"These patients often encounter more medication errors and challenges with medication administration as compared to long-term care residents who do not have difficulty swallowing," he added.

Shares of Sun Pharma were trading 3.03 per cent higher at Rs 420.05 apiece on BSE.

US antitrust probe singes India's pharmaceutical firms; Sun Pharma falls 9%

Share prices of some leading domestic pharmaceutical companies, led by Sun Pharmaceutical Industries, fell 4-9 per cent on Monday, after being named in a price-fixing lawsuit in the US.

The biggest loser was Sun Pharma, whose stock tanked as much as 20 per cent intraday in late afternoon trades, but recovered to close 9.4 per cent lower on the BSE. Sun Pharma, which is India’s largest pharma company by sales, is already under a cloud over corporate governance issues and is facing Sebi probe on charges of funds diversion. It did not respond on the sharp fall in its stock price, but has denied charges of price fixing.

Twenty drugmakers have been accused of collusion to inflate prices of drugs by up to 1,000 per cent in the lawsuit filed by 44 US states in a district court in Connecticut on Friday.

Teva Pharmaceutical Industries, which is the world’s largest generic drugmaker, is accused of orchestrating the scandal which includes seven Indian drugmakers, including Aurobindo Pharma, Dr Reddy’s Laboratories, Glenmark Pharmaceuticals, Lupin, Wockhardt, Cadila Healthcare (Zydus), and Taro Pharmaceutical Industries (a subsidiary of Sun Pharma). Executives of Lupin, Aurobindo, and Glenmark, too, have been named as accused in the case.

The latest lawsuit is a result of a countrywide probe into unfair trade practices, which commenced in Connecticut in 2014 and expanded to other states. Lawsuits against companies have been filed in other states, too, in 2016 and 2018 and the scope was expanded to cover more drugs.

According to the court documents, the alleged collusion impacted the prices of more than 100 drugs, including those used to treat HIV, cholesterol, anti-depressants, asthma, and other ailments. According to Bloomberg, the complaint puts Teva at the centre, saying it colluded with a core group of competitors to follow each other’s price increases. During a 19-month period, Teva significantly raised prices on about 112 generic drugs and colluded with its competitors on at least 86 medicines, the states said.

“Prices of many generic pharmaceuticals were and remain artificially inflated through collusive bid rigging and market allocation agreements designed to prevent price wars from occurring when key competitive opportunities arise in the marketplace,” the complaint said. The company executives named in the case have been accused of exploiting their various interactions at industry events and coordinating anti-competitive agreements at parties and golf events, among others. Teva has denied charges and said it would contest the charges.

A Sun Pharma spokesperson said, “We believe the allegations made in these lawsuits are without merit and we will continue to vigorously defend against them.” Dr Reddy’s Laboratories said it would not comment on an ongoing litigation.

Analysts say the litigation is negative for domestic drugmakers whose profitability has been impacted due to price erosion and consolidation in the US. They say this will further subdue investor sentiment though some believe that the impact on companies due to penalties and fines would not be significant.

The lawsuit has added a new overhang for the Indian pharmaceutical companies in the US, and will have an additional impact on Street sentiment, said Ranjit Kapadia at Centrum Broking. The companies are likely to face penalties and their operating costs will increase in the near term on account of ongoing as well as future possible litigations, said Purvi Shah, analyst at Sharekhan. “In our opinion, the US pharma market is getting stringent in terms of pricing environment coupled with regulatory compliance,” she said.

Surajit Pal, senior analyst with Prabhudas Lilladher, observed that many of the drugs mentioned in the lawsuit are old and their contribution to the revenue and profit is minimal. “In case companies are found guilty and fined on the basis of profit on these drugs, the impact on companies would be marginal,” he said.

Indian pharma companies are already facing heat on pricing pressure in the US, which has led to impact on their earnings. Though earlier it was largely due to increasing competition on the back of more new product approvals and consolidation at dealer level, the charges on pricing cartel will lead to further stress on pricing environment and add a fresh overhang on pricing. The Street already remains cautious towards players with US focus. The litigation costs, which already remain high, are likely to only increase.

USFDA issues Form 483 to Sun Pharma's Dadra plant over quality issues

Raising concerns over data collection and quality control unit, the US Food and Drug Administration (USFDA) has reportedly issued a Form 483 to Sun Pharmaceutical Industries Ltd for its Dadra plant.

As per media reports, the regulator is learnt to have found deficiencies relating to medicine quality, data collection, maintenance as well as quality control unit. After an inspection of Sun Pharma's Dadra plant in March this year, USFDA has reportedly issued 11 observations on the site.

The observations include lack of written procedures for production and process controls designed to assure that drug products have identity, strength, quality, and purity they are represented to possess, said media reports.

The 10-page Form 483 to Sun Pharma, which is issued to companies as an observation by investigators over deemed violation of US drug regulations upon completion of an inspection, also observed that the latter's Dadra plant's quality control unit lacked authority to fully investigate errors that have occurred. In other words, the quality control unit at the Dadra facility did not always ensure complete investigation of errors that may have occurred at the plant.

USFDA's 483 to Sun Pharma reportedly also includes observation regarding its laboratory records which do not include complete data derived from all tests and examinations. The regulator's observed that these data were imperative to assure compliance with established specifications and standards. Further, the regulator also did not find the Dadra facility's electronic records meeting requirements that would ensure trustworthiness and reliability.

When asked about the observations, a Sun Pharma spokesperson stated, "We have submitted our response to the US FDA. Sun Pharma intends to implement promptly any corrective actions and improvements that may be necessary and remains committed to following the highest levels of quality and 24x7 cGMP compliance at all its manufacturing sites globally.