Sun Pharma's stock dips before Q1 results

Loses Rs 30,000 cr market cap in 16 trading sessions

Sun Pharmaceutical Industries hit a four-year low of Rs 451 a share on the BSE exchange, a day before the largest medicine exporter is to announce its quarterly results.

The stock had fallen five per cent on Wednesday to Rs 474.7, after a 31 per cent drop in sales for US subsidiary Taro. The company had cited a "difficult generic pricing environment" for the downfall.

This has mean a nearly 20 per cent drop in the share over 16 trading sessions since the recent high of Rs 588 on July 19. A Bloomberg poll average of 18 analysts says the company is expected to report a 42 per cent decline in net profit for the quarter ending June, due to shrinking margin from the US business.

Sun Pharma is also facing a challenge in its earnings. Its unit at Halol in Gujarat continues to be under the US sector regulator, the FDA's watch, hitting sales and profit in the biggest international market. The facility, catering to the US market, first got a warning letter from the FDA in 2015. Even after remedial work, the regulator said it found breaches at the plant company last year.

The company management had earlier said it would shift filings for key products awaiting FDA approvals from Halol to alternative sites. "Halol would require re-inspection before fresh approvals come through, extending the final clearance timelines well into FY19," said Jatina Kotian, analyst at Emkay Global in a report on Wednesday. "Overall, Taro's vulnerability and high base business erosion at Sun Pharma's US business provide low visibility on FY19 expected earnings."

"We believe FY18 will be a washout year for the company due to the slowdown in its US generic business," says Amey Chalke, analyst with HDFC Securities. "Our hopes lie on the success of its speciality pipeline in the US, where there are three big novel products in the pipeline, along with sizable specialty products from the SPARC ( Sun Pharma Advanced Research Company) portfolio."

Teva

All generic pharma producers are facing pricing pressure in the US. The assets of Teva Pharmaceutical Industries have become acquisition targets after the results announced last week by the world's biggest maker of generic medicines. Teva's profits in the second quarter dropped to $1 billion from $1.2 bn a year earlier. Its stock slumped the most in almost two decades and the yield on its bonds jumped after the drug maker warned it might breach some debt covenants this year if sales did not rise.

Teva's profits in the second quarter dropped to $1 billion from $1.2 bn a year earlier. Its stock slumped the most in almost two decades and the yield on its bonds jumped after the drug maker warned it might breach some debt covenants this year if sales did not rise.

Teva's acquisition of Allergan's generic business last year for $40.5 bn has become troublesome, as generic drug makers' profit margins are being squeezed in the US. The FDA is speeding up on drug approvals, flooding the market with products from smaller companies that compete on price. It also came at a time when pharmacy chains and retailers had consolidated their orders to a point where four groups accounted for 80 per cent of the purchases, Teva said in an earnings call.