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Sun Pharmaceuticals Industries Ltd.

BSE: 524715 Sector: Health care
NSE: SUNPHARMA ISIN Code: INE044A01036
BSE LIVE 11:36 | 13 Dec 522.85 2.05
(0.39%)
OPEN

521.00

HIGH

525.10

LOW

517.50

NSE 11:21 | 13 Dec 522.40 1.55
(0.30%)
OPEN

521.00

HIGH

524.40

LOW

517.05

OPEN 521.00
PREVIOUS CLOSE 520.80
VOLUME 67211
52-Week high 728.45
52-Week low 433.15
P/E 746.93
Mkt Cap.(Rs cr) 125,447
Buy Price 522.85
Buy Qty 185.00
Sell Price 523.15
Sell Qty 129.00
OPEN 521.00
CLOSE 520.80
VOLUME 67211
52-Week high 728.45
52-Week low 433.15
P/E 746.93
Mkt Cap.(Rs cr) 125,447
Buy Price 522.85
Buy Qty 185.00
Sell Price 523.15
Sell Qty 129.00

Sun Pharmaceuticals Industries Ltd. (SUNPHARMA) - Chairman Speech

Company chairman speech

Dear Shareholders

The global pharmaceutical landscape is rapidly changing. There are both opportunitiesand challenges. Opportunities include an ageing population leading to growing needs ofmodern medicines at affordable cost and evolution of new chemical and biologicalapproaches towards targeted drug delivery. At the same time rising healthcare costs(which force governments to intervene on pricing) increasing competitive intensitycustomer consolidation and increased focus on value delivered; imply that businesses offuture will need to develop an ability to constantly move up in the pharmaceutical valuechain. This will mandate identifying new ers in order to generate consistent drivandprofitable growth shareholder value.

HIGHLIGHTS OF FY17

Our FY17 topline grew by 9% to Rs. 302 Billion which was in line with our annualguidance. In the US which is a large contributor to our revenues we faced increasedpricing pressure driven mainly by customer consolidation and higher competitive intensity.We also faced anticipated delays in product approvals at the Halol facility driven by thecGMP compliance remediation efforts at the facility. However the US performance waspartly boosted by the 180-day exclusivity on generic Imatinib which expired in July 2016.Overall we recorded 2% growth in the US for the year.

Our subsidiary Taro recorded 8% decline in overall revenues for the year. This declinewas mainly driven by a difficult pricing environment in the US resulting from increasedcompetitive intensity and buying consortium pressures.

We recorded a steady 8% growth in our India formulations business while ourperformance in emerging markets improved resulting in 26% growth in revenues. This growthwas broad-based across emerging markets and was driven by improvement in underlyingbusiness supported by stable currencies.

Our R&D investments for the year were Rs. 23 Billion targeted mainly at developingcomplex generics and specialty products. R&D is the engine which will drive ourjourney of moving up the pharmaceutical value chain. We are also investing in enhancingour product pipeline for emerging markets and other non-US developed markets. We continuedto build our specialty pipeline during the year and simultaneously investing in developingthe requisite front-end for this business in the US. We expect this trend to continue infuture as well.

BUILDING THE SPECIALTY BUSINESS

Over the past few years we have allocated significant resources in building thespecialty business. Since this business is in an evolutionary stage it currently does notgenerate revenues commensurate to our investments. Our current profitability is aftertaking into account these investments.

Our specialty initiatives target the global market with the US being one of theimportant markets. Our strategy entails building a pipeline of patented products forglobal markets with a focus on improving patient outcomes either by targeting unmetmedical needs or by enhancing patient convenience through differentiated dosage forms.

Specialty projects have long-gestation timelines and we have to cover a long distancein this journey. Our initiatives in this segment cover the entire value chain fromin-licensing early-to-late stage clinical candidates as well as getting access toon-market patented products. Dermatology Ophthalmic Oncology and CNS are the keysegments targeted through these initiatives.

Over the past two years we have also focused on establishing the requisite front-endcapabilities for our specialty business. This involves setting up relevant sales force(for promoting these products to doctors) establishing the required regulatory andreimbursement teams along with support staff.

SIGNIFICANT RAMP-UP IN SPECIALTY PIPELINE

During the year we significantly ramped-up our specialty portfolio.

We enhanced both our specialty pipeline as well as our on-market portfolio. Some ofthe key highlights are:

1. We received approval from USFDA for the New Drug Application (NDA) related toBromSite™ (bromfenac ophthalmic solution) 0.075%. This product was subsequentlycommercialised in November 2016.

2 We also continued our investment in the development and commercialisation oftildrakizumab which we had in-licensed from Merck in 2014. In May 2016 we announcedpositive results from the Phase-3 trials of tildrakizumab to treat chronic plaquepsoriasis. Subsequently in July 2016 we announced a licensing agreement with AlmirallS.A. (Spain) for the development and commercialisation of tildrakizumab for psoriasis inEurope. In March 2017 Sun Pharma and Almirall announced the validation of the regulatoryfiling of tildrakizumab with the European Medicines Agency (EMA). Post the close of theyear we announced the acceptance of the regulatory filing of tildrakizumab by the USFDA.Hence tildrakizumab is now awaiting regulatory approval from both the US and Europe.

3. During the year Sun Pharma announced the launch of Gemcitabine InfuSMART in Europe.InfuSMART is a technology in which oncology products are developed in aready-to-administer (RTA) bag. With the roll-out of Gemcitabine InfuSMART Sun Pharmabecomes world's first pharmaceutical company to manufacture and launch a licensed RTAoncology product.

4. We also in-licensed ELEPSIA XRTM (Levetiracetam Extended

Release tablets) from Sun Pharma Advanced Research Company Ltd. (SPARC). ELEPSIA XRTMwas approved by the USFDA in March 2015. However in September 2015 SPARC received acomplete response letter (CRL) from the USFDA rescinding its earlier approval citing thatthe compliance status of the manufacturing facility of the Company at Halol was notacceptable on the date of approval. We are currently in the process of de-risking thesefilings them to alternate facilities.

5. In October 2016 Sun Pharma announced the acquisition of Ocular Technologies(Ocular) which gives us exclusive worldwide rights to Seciera™ (cyclosporine A0.09% ophthalmic solution) targeted at Dry Eye Disease. Subsequently we announcedsuccessful

Phase-3 confirmatory clinical trial results for Sun Pharma's existing ophthalmicportfolio consisting of BromSite™

Xelpros™ and DexaSite™ this acquisition will enable Sun Pharma tosignificantly expand its ophthalmic presence and reach to millions of patients - globally.We expect to file this product with the Q3FY18.

6. During the year we also enhanced our specialty oncology portfolio through theacquisition of a branded oncology product Odomzo from Novartis. Odomzo (Sonidegib)was approved by the USFDA in July 2015. It is a hedgehog pathway inhibitor indicated forthe treatment of adult patients with locally advanced basal cell carcinoma (laBCC) thathas recurred following surgery or radiation therapy or those who are not candidates forsurgery or radiation therapy. Odomzo gives Sun Pharma an opportunity to meaningfullyexpand its already established branded dermatology business and support its expansion intobranded oncology with a launched brand. This acquisition has the potential to leverage andexpand the relationships that the Dusa sales team has with dermatologists that treatcommon pre-cancerous skin conditions.

7. During the year we also entered into an exclusive worldwide licensing deal tofurther develop MM-II a novel pharmaceutical candidate for the treatment of pain inosteoarthritis. MM-II is a novel non-opioid product that leverages the physical propertiesof proprietary liposomes to lubricate arthritic knee joints thereby reducing friction andwear consequently leading to joint pain reduction. The product is based onpatent-protected technology licensed by Moebius Medical from the Hebrew University ofJerusalem Technion Israel Institute of Technology and Hadassah Medical Centre.

RANBAXY INTEGRATION

We are entering the third and the most important year of integration of Ranbaxy intoSun Pharma. The synergy benefits from this integration are reflected in our financials inFY17 and we to build further on these synergy benefits in FY18. to target US$ 300 Millionin synergy benefits from this acquisition by FY18 and are on track to achieve thissignificant milestone. The synergy benefits will arise from both will be driven by thecombined technology capabilities combined R&D pipeline and the global productportfolio.

GLOBAL cGMP COMPLIANCE

Given the stringent cGMP requirements of global regulators pharmaceutical companiesneed to focus on 24x7 compliance status. Ability to successfully adhere to these cGMPstandards has become a key determinant of future for the pharmaceutical industry.

During the year Sun Pharma made significant progress towards 24x7 cGMP compliance.Many of our facilities underwent successful audits by multiple regulatory agenciesincluding the USFDA. At the same time remediation work continued at some of thefacilities which have been impacted by cGMP deviations.

Our Halol facility which was impacted by cGMP deviations in FY15 underwent are-inspection by the USFDA in November 2016. On completion of the re-inspection the USFDAissued nine observations for the facility. While none of these are repeat observationscompared to those issued for the September 2014 inspection we will need to remediatethese nine observations also. We are currently in the process of implementing therequisite remediation steps. New approvals from this facility will continue to be on holdtill we have a successful re-inspection.

During the year we also had a re-inspection of the Mohali facility Wecontinue by theUSFDA. Post the completion of the re-inspection the USFDA informed Sun Pharma thatit will be lifting the import alert imposed on Sun Pharma's Mohali manufacturing facilityand remove the facility from the Official Action Initiated (OAI) status. This has clearedthe path for Sun Pharma to supply approved products from the Mohali facility to the USmarket as well as make this facility available for future filings. The Mohali facilitywas inherited

Pharma as part of its acquisition of Ranbaxy Laboratories Ltd. in 2015. The USFDA hadacted against the Mohali facility in 2013 when it ordered the facility to be fullysubject to Ranbaxy's Consent Decree of permanent injunction. Certain conditions of theConsent Decree will continue to be applicable to the Mohali facility even after thelifting of the import alert. This development illustrates Sun Pharma's commitment to workclosely with the USFDA and strive for 100% cGMP compliance at its manufacturingfacilities.

JAPAN ENTRY

During the year Sun Pharma initiated the process of transferring marketingauthorisations of the 14 brands (acquired from Novartis in March 2016). The transfer ofthese brands has commenced in a phased manner beginning October 2016 onwards.Simultaneously Sun Pharma entered into a distribution alliance with Mitsubishi TanabePharma Corporation (MTPC) for these brands. Under this alliance following the transfer ofmanufacturing and marketing rights to Sun Pharma MTPC will market and distribute all 14brands as well as provide information on their proper use to healthcare professionals inJapan. Through this alliance Sun Pharma can leverage MTPC's specialised expertise tocreate a strong business foundation in Japan.

ENHANCING PRESENCE IN RUSSIA

During the year we also enhanced our presence in Russia through the acquisition of JSCBiosintez a Russian pharmaceutical company engaged in manufacture and marketing ofpharmaceutical products in Russia and CIS region for US$ 24 Million. Sun Pharma alsoassumed a debt of approximately US$ 36 Million as part of this transaction. Biosintezfocuses on the hospital segment and had annual revenue of approximately US$ 52 Million for2015. It has a manufacturing facility in Penza region with capabilities to manufacture awide variety of dosage forms including pharmaceuticals for injections blood substitutesblood preservatives ampoules tablets ointment creams gels suppositories APIs andso on. This acquisition is consistent with Sun Pharma's philosophy to invest in strategicemerging markets. It provides the Company access to local manufacturing capability acrossmultiple dosage forms in Russia enabling it to serve the Russian pharmaceutical marketeffectively.

OVERALL OUTLOOK

As we target moving up the pharmaceutical value chain Sun Pharma is undergoing agradual transformation. We need to cross many milestones in this transformation. Ourcapable and committed employees will be key drivers of this transformation.

The short-term outlook continues to be challenging. The US generics industry is facingrapidly changing market dynamics. Increased competitive intensity and customerconsolidation is leading to pressure on pricing; while continued delay in approvals fromthe

Halol facility is also impacting us. Also we had the benefit of Imatinib exclusivityin the US in FY17 which has ended in July 2016. In the Indian market there isuncertainty amongst the trade channels due to the GST implementation although it may betemporary. Given these factors growth could be a challenge in FY18 and we expect asingle-digit decline in consolidated revenues for FY18 over FY17. Our consolidated R&Dinvestments for FY18 will be about 9-10% of revenues.

Despite these challenges we continue to invest in enhancing our global specialty andcomplex generics pipeline. Investments will also continue for setting up the requisitefront-end capabilities for our specialty business in the US. These investments may nothave commensurate revenues in FY18 but in the long term the revenue from specialtyproducts will justify these investments.

As a shareholder you have continuously supported our endeavours over the past manyyears. As always we are grateful to you for this confidence.

Warm regards

Dilip Shanghvi

Managing Director

Sun Pharmaceutical Industries Ltd.