Sun Pharma Q4 profit halves to Rs 636 cr on distribution strategy change

Sun Pharma Founder and Managing Director Dilip Shanghvi said the company would grow its speciality drug pipeline globally and expand manufacturing facilities
Sun Pharmaceutical Industries, the country’s largest drugmaker by sales, on Tuesday reported a 52 per cent drop in net profit in the fourth quarter of FY19 as against the year-ago period, and projected its sales growth for FY20 in a single digit to mid-teens. The firm in a regulatory filing also stated that Sudhir Valia, its whole-time director, has resigned and been assigned the role of a non-executive director. 

Investors had expressed apprehension over reports of diversion of funds from the company to a realty firm promoted by Valia. Both company and Valia, however, have denied diversion of funds. But after the allegations surfaced, Sun Pharma decided to constitute an ethics committee to oversee corporate governance matters.

In the March quarter, the company’s net profit stood at Rs 636 crore as against Rs 1,342 crore in the same period last year. The company, however, said the result was not comparable due to the one-time impact of Rs 1,085 crore owing to a change in distribution strategy in India. Excluding the impact, it consolidated sales grew 21 per cent year-on-year to Rs 8,129 crore.

Sun Pharma said that the past quarter saw higher employee costs as it continued to focus on building the speciality business in the US. It is an investment phase for Sun Pharma in the US speciality business where the company has started direct-to-consumer campaigns for its psoriasis drug Ilumya. 

In a post-results conference call, Sun Pharma Founder and Managing Director Dilip Shanghvi said the company would grow its speciality drug pipeline globally and expand manufacturing facilities. He said sales growth would be in single to mid-teens in FY 20 and profits would be affected in the near term due to continued investments in speciality drug development and clinical trials. The firm’s R&D spend would be around 8-9 per cent of the sales and will spend around $200 million in FY20 to expand existing plants or set up new facilities. “In spite of the one-time impact for India business, our full-year sales have grown by double digits. We continue to focus on executing our global speciality strategy. Ilumya (psoriasis drug) is expected to gradually gain traction in the US in FY20, while Cequa’s (ophthalmic drug’s) launch is expected in the coming months. At the same time, we are strengthening our core operations, optimising the cost structure and enhancing our overall efficiencies,” Shanghvi said. Sun Pharma holds approximately an 8.2 per cent market share in the Rs 1.31-trillion Indian pharmaceutical market as per AIOCD AWACS March-2019 report. For Q4FY19, the company launched 12 new products in the Indian market. 

Sales in the US were $443 million for the quarter, a 20 per cent increase over the same period last year, and accounted for 44 per cent of total sales. For the full year FY19, sales were $ 1,526 million, recording growth of 12 per cent YoY. Sales for the quarter and the full year include the contribution from a significant business of generic supply to a customer, to be serviced over six months starting Q4FY19. 

The company did not wish to disclose further details of the supply contract but claimed that the overall margin from this contract was good. 

At the same time, Taro posted Q4FY19 sales of $180 million, up 3 per cent over Q4 last year. For the full year FY19, sales were $ 670 million, marginally up over full year FY18. Taro’s net profit for Q4 was $58 million, while for the full year FY19, it reported a net profit of $282 million. 

As for Japan, another major regulated drug market, Sun Pharma said the financials of Pola Pharma (Japan) have been consolidated with effect from January 1, 2019. For the full year FY19, sales were $494 million, up 7 per cent over full year last year.

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