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Sun Pharmaceutical Industries Ltd (updated - 30 June 2009)
Sun Pharma continues to face rough weather in the US markets. Loss of production at three Michigan units of its subsidiary, Caraco, as a result of the US FDA’s action, could hit the company’s profit before tax by 10-15 per cent, analysts estimate.

The FDA action will not impact drugs made by Sun Pharma in India and distributed by Caraco. Nevertheless, Caraco’s sales of manufactured products account for about a third of the revenues of around $337 million that Sun earns from the US markets. In the year to March 2009, these were approximately $112 million. Sales of Para IV products —those abbreviated new drug applications that face a patent challenge — fetch alarger amount, estimated at $150 million.

Given the uncertainty surrounding sales in the US, which accounts for around 35 per cent of Sun Pharma’s total sales, the company has withdrawn its sales guidance for the current year - it had indicated that revenues could grow between 13 per cent and 15 per cent over the Rs 4,272 crore posted last year.

Industry watchers are not sure about the full impact of the FDA’s action and whether sales of distributed products will be affected.

While Sun Pharma has around Rs 3,500 crore worth of cash on its books and should be able to overcome the regulatory issues, the uncertainty will continue to weigh down on the stock, which has corrected 15 per cent since the news broke to Rs 1,100 levels.
source - BS

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Sun Pharmaceutical Industries Ltd (updated - 04 June 2009)
The management at Sun Pharma has indicated that sales in the current year could grow by about 13-15 per cent. That’s better than what was expected earlier and is probably because of benefits that it will get from selling a couple of products-Protonix and Ethyol---exclusively in the overseas markets. But it’s good news because the Rs 4,272 crore drug firm has been going through a bit of a rough patch in the US.

In October 2008, its subsidiary Caraco had been warned by the US drug authorities about some products made at its Detroit facility. In fact, a Citigroup report says “A longer than expected time for resolution of the FDA warning letter and associated product recalls also adds to the risk level in the business.

” Already, analysts are not too clear about exactly how profitable the sales from Protonix and Ethyol will be. Moreover, the impact of currency fluctuations is hard to determine---in the March 2009 quarter Sun posted forex losses. Nevertheless, the home market continues to see brisk business - sales in the March 2009 quarter were at their highest ever --Rs 650 crore for finished dosages--but that was partly due to some changes in distribution policies. Even adjusting for the changes though, revenues were strong and Sun’s market share is now estimated at around 3.5 per cent. At the current price of Rs 1,255, the stock trades at around 14 times estimated 2009-10 earnings. That’s somewhat expensive despite the firm’s strong profitability vis a vis peers and the stock will probably get rerated only after there’s some good news on the Caraco front and after the Taro acquisition is complete. At lower levels though, the stock is a compelling play on a strong Indian presence and the generics opportunity overseas.
source - BS

Sun Pharmaceutical Industries Ltd (updated - 31 Mar 2009)
Sun Pharma can now sell generic Topamax (an anti-convulsant) in the US market. However, with half a dozen other drug firms, including Zydus Cadila, also being allowed to hawk the product in that market, the upside for the company could be rather limited.
The Rs 3,290 crore Sun plans to sell Topamax in four strengths ranging from 25mg to 200mg, the combined market for which is estimated to be $2.5 billion. There is, of course, no litigation with the patent holder OrthoMcneill Janssen.
The US market, which brings in about 40 per cent of Sun’s consolidated sales and has driven revenues in the past few year could lose momentum. Its subsidiary Caraco, has been warned by the US drug regulator about products made at its Detroit facility. Already, Caraco, in which Sun owns a 72 per cent stake, reported a 32 per cent fall in sales in the December 2008 quarter and there’s concern that revenues for 2008-09 might be flat. That’s one reason why, after a strong performance in 2008, the Sun stock has been somewhat under the weather.

Unless business in the home market picks up, the top line this year may grow by just 17-18 per cent hurting the profit numbers, unless, of course, the depreciating rupee comes to its rescue, as it did in the last quarter. Sun earns around 50 per cent of its revenues from the home market but revenues in the December 2008 quarter rose just 15 per cent compared with 20 per cent in the previous two quarters.
However, it is an efficient player and manages costs exceeding well which is one reason its operating margins are the best in the industry - in the December 2008 quarter, operating margins rose 250 basis points to touch 45 per cent. For margins to sustain Sun needs to sell more generics in the US, and preferably exclusively for some time. That unfortunately isn’t happening as often as it should - the launch of Effexor, (anti-depressant), for instance, has been delayed.
source - businessstandard

Sun Pharmaceutical Industries Ltd (updated - 15 July 2009)
The US authorities still need to bless the settlement that Sun Pharma has entered into with Forest Laboratories Holdings (FRX) over the patent litigation for Lexapro, an antidepressant. However, the Street cheered the move and the stock was up 2 per cent in an otherwise weak market.

Lexapro may have generated revenues of $2.3 billion last year, but there’s no immediate upside for Sun, even after the authorities ratify the settlement. That’s because the drug major cannot launch the generic version of the product before Teva, which has a first to file permission, and another generic player that FRX may choose. Moreover, there are others in the queue and they could choose to enter the market at the same time as Sun.

That could mean quite a crowd of generic players all at once resulting a steep drop in the price of the drug by as much as 95-96 per cent. While volumes may go up, it may not compensate for the fall in the price. However, what Sun has gained from the settlement is that its subsidiary in the US, Caraco, will commercialise and sell several products belonging to FRX’s subsidiary Inwood.

Besides, Sun will also licence some patent applications to FRX’s subsidiary Lundbeck. Analysts point out that Sun appears to be looking for additional revenue streams for Caraco which has been through a bit of a rough patch in the US markets lately. Towards the end of June, the US FDA had asked the company to halt production at three Michigan units.

At the time analysts had estimated that the move could result in the hit to Sun’s profit before tax of around 10-15 per cent in the current year. Caraco’s sales of manufactured products accounts for about athird of the revenues that Sun earns from the US markets of around $337 million and in the year to March 2009, were of the order of approximately $ 112 million. The Sun stock had come off by about 15 per cent after the news broke but has remained more or less steady since then at Rs 1150 levels.
source - BS