Sun Pharma forecasts annual sales below estimates, shares fall

A man carrying a gas cylinder walks out of the research and development centre of Sun Pharmaceutical Industries Ltd in Mumbai May 29, 2014. REUTERS/Danish Siddiqui/Files

India’s Sun Pharmaceutical Industries Ltd issued a weaker-than expected annual sales outlook as it grapples with increased competition in the United States as well as supply constraints, sending its shares 5 percent lower.

The world fifth-largest generic drugs maker said it expects sales to climb between 8 and 10 percent this financial year, below an average analysts’ estimate of a 20 percent rise.

Chief Executive Dilip Shanghvi also said on a conference call with analysts that profit would be hurt in the near term as Sun Pharma spends heavily on building up its specialty drugs business in the United States, its largest market.

The downbeat forecasts come after Sun Pharma reported a near-doubling in fourth-quarter profit to 17.1 billion rupees ($255 million). That, however, missed analysts’ estimates as weakness in emerging markets outweighed higher sales in India and the United States.

Over the past year, Sun Pharma has sharpened its focus on developing drugs in limited-competition “specialty” therapy areas such as dermatology and opthalmology by buying up assets in the United States.

Its U.S. sales have been affected by supply constraints as five of its factories have been banned due to inadequate manufacturing standards. Costs remain high as it works on improving standards at those plants.

A key facility in Halol in western India is expected to restart some supplies this year, said billionaire Shanghvi, who is India’s second-richest man.

The company has also come under U.S. regulatory scrutiny over drug prices. It said on Saturday the U.S. Department of Justice had subpoenaed it for information on pricing and marketing of its generic drugs.

Chief Financial Officer Uday Baldota said the subpoena was not a product-specific query.

Sun Pharma’s research expenses have also risen over the past year, mainly due to a psoriasis drug, tildrakizumab, which the company is co-developing with U.S. firm Merck & Co Inc. Shanghvi said the companies are now working on applying for U.S. approval for the drug.

While U.S. sales in the fourth quarter were up 19 percent and India sales rose 17 percent, sales in emerging markets that include Brazil, Mexico, Russia and South Africa were flat due to adverse currency rates, the company said.

Sales in what Sun Pharma calls “rest of the world markets” that include Australia and New Zealand as well as some countries in Western Europe fell 6 percent as it decided to not participate in some “non-remunerative” businesses.

($1 = 67.1755 Indian rupees)