Taro’s Earnings Drag Sun Pharma Lower
Weak quarter for Sun Pharma’s subsidiary pulls stock down by as much as 6 percent.
Continued competition and challenging pricing environment in the U.S. led to a steep fall in net profit for Taro Pharmaceutical Industries Ltd. in the January-March quarter.
Sun Pharmaceutical Industries Ltd.’s U.S.-based subsidiary reported a 25.9 percent drop year-on-year in net sales in the January-March quarter, the lowest in at least last six quarters. The topline dipped despite a volume growth of 3 percent in the quarter, reflecting pricing pressure for its drug portfolio. Sequentially also, net sales saw a 11 percent decline.
The company’s net profit fell 27.8 percent to $83 million from $115 million in the same quarter last year, according to a release by Taro Pharma.
The weak quarter highlights the severe pricing pressures, said analysts.
We have been factoring an 8-10 percent decline in Taro sales each year over the next two years, but the current run-rate shows a very high impact of increasing competition in dermatology portfolio and is panning out even weaker than expected.Anubhav Aggarwal and Chunky Shah of Credit Suisse
Taro Pharma contributes nearly 20 percent to Sun Pharma’s consolidated revenue and about 45-50 percent to the bottomline. Sun Pharma will announce its fourth quarter results on Friday.
Operating income fell by a sharp 44 percent to $101.7 million, compared to the same quarter last year, despite the benefit of lower selling, marketing, general and administrative (SG&A) expenses. Operating margin contracted from 68.6 percent in the year ago quarter to 51.8 percent.
Foreign exchange expense decreased $41.6 million to $5.8 million, principally due to the weakening of the U.S. dollar versus the Canadian dollar at a lower rate than in prior period.
The entire generic sector, including Taro, is facing a challenging period, said Abhay Gandhi, Taro Pharma’s interim chief executive officer in the earnings release.
We continue to see a difficult generic pricing environment, particularly in the U.S., driven by intensified competition among manufacturers, new entrants to the market, buying consortium pressures, and higher ANDA approval rate from the FDA.Abhay Gandhi, Taro Pharma’s Interim Chief Executive Officer
Taro Pharma also faces risk from the Department of Justice (DoJ) probe on generic drug prices. “ Taro Pharma had received a subpoena and earnings risk from investigation is high, hence this will be the key risk for the stock” , wrote Aggarwal in the Credit Suisse’s note to clients.
On November 23, 2016, Taro Pharma had announced that its Board of Directors approved a new $250-million share repurchase of ordinary shares. During the fourth quarter, the Company repurchased 207,503 shares at an average price of $103.99.
Shares of Sun Pharmaceutical Industries were trading 6.3 percent lower at Rs 599.65 at 10.34 am, on the National Stock Exchange.