Sun Pharma expects FY18 revenues to decline due to pricing pressure in US

Firm plans to spend up to 10% of its revenues on R&D activities

Pharma major Sun Pharmaceutical Industries said its short-term outlook continues to be challenging and expects a single-digit decline in consolidated revenues for FY18.

"The short-term outlook continues to be challenging as the US generics industry is facing rapidly changing market dynamics.

"Increased competitive intensity and customer consolidation is leading to pressure on pricing, while continued delay in approvals from the Halol facility is also impacting the company's working," Sun Pharmaceutical Managing Director Dilip Shanghvi said in its annual report.

"In the Indian market, there is uncertainty amongst the trade channels due to the GST implementation, although it may be temporary. Given these factors, growth could be a challenge in FY18 and we expect a single-digit decline in consolidated revenues for FY18 over FY17," Shanghvi said.

"Despite these challenges, we continue to invest in enhancing our global speciality and complex generics pipeline. Investments will also continue for setting up the requisite front-end capabilities for our speciality business in the US. These investments may not have commensurate revenues in FY18, but in the long term, the revenue from speciality products will justify these investments," he added.

The company's consolidated R&D investments for FY18 will be about 9-10 per cent of revenues.

"Our R&D investment in FY17 was Rs 23 billion, targeted mainly at developing complex generics and speciality products. R&D is the engine, which will drive our journey of moving up the pharmaceutical value chain.

"We are also investing in enhancing our product pipeline for emerging markets and other non-US developed markets. We continued to build our speciality pipeline during the year and simultaneously investing in developing the requisite front-end for this business in the US. We expect this trend to continue in future as well," the managing director said.

On US FDA inspection, Shanghvi said on completion of re- inspection, the USFDA issued nine observations for the Halol facility and the company is currently in the process of implementing the requisite remediation steps.

"New approvals from this facility will continue to be on hold till we have a successful re-inspection," he said.

Post the completion of the re-inspection of the Mohali facility, the USFDA informed that it will be lifting the import alert imposed and remove the facility from the Official Action Initiated (OAI) status.

This has cleared the path for the company to supply approved products to the US market, as well as make this facility available for future filings.

The company is entering into the third and the most important year of integration of Ranbaxy with the company.

"The synergy benefits from this integration are reflected in our financials in FY17 and we expect to build further on these synergy benefits in FY18.

"We continue to target $300 million in synergy benefits from this acquisition by FY18 and are on track to achieve this significant milestone," the report said.