Sun Pharma’s R&D Focus a Good Sign
timesinternet.in ET Intelligence Group: The real test of an investment happens during tough times, and the country’s most valuable pharma company is going through one such period. However, investors would rather appreciate the company’s efforts to invest in its future while trying to maintain its current base business in a challenging time. S u n Phar ma’s third-quarter performance while being disappointing hardly had anything new for the Street. After a strong performance in the firsthalf of the fiscal, the company had maintained its annual revenue guidance at 8-10%— making it evident that the second-half performance was going to be sub- dued — especially with the end of Gleevec exclusivity sales in the US and the supply disruption associated with the Halol plant where the resolution of USFDA issues is still going on. The company posted 8% growth in consolidated revenues — lowest in the past five quarters. The performance in both the US and India was disappointing — with revenue growth at 4% in case of the former and 5% for the latter. In the US, the company is facing pricing pressures, lumpiness in the business, customer consolidation as well as an ongoing Department of Justice (DOJ) probe on price collusion. Besides, there is a lot of uncertainty about what the new Trump Presidency will mean for the pricing of generic drugs. (On a trailing four quarters basis)
The demonetisation move partly impacted the company’s domestic business, which was already facing headwinds like increased competition, regulatory changes and price control.
In this context, what appears to be a strong silver lining is that the company’s commitment and investment in growing its spe- Sun Pharma cialty product pipeline through research and acquisitions. Sun has identified dermatology, ophthalmology and oncology as its key areas of foray. The company is investing its cash flows in enhancing its specialty pipeline of differentiated products, which incidentally cannot produce commensurate returns on the revenue and profit fronts immediately. Sun spent 7% of its revenues on R&D for the nine months of this fiscal. The benefits accruing from the Ranbaxy acquisition are being ploughed back into investment in research. Sun’s inorganic g rowth continues through a series of small strategic acquisitions in niche therapeutic areas and key growth markets of Russia and Japan. Little wonder, 80% of the 47 analysts tracking the company’s stock have a ‘buy’ recommendation on it, as per data from Bloomberg. For now, phar ma investors, which were used to seeing super normal performance of companies selling low-priced generics, will have to start getting used to the companies now playing the long-term R&D game as doing the generics business increasingly becomes less attractive.