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Sun Pharma Bets On Specialty Products To Drive Growth

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India’s largest drugmaker Sun Pharmaceutical Industries Ltd. is betting big on its specialty pipeline in a bid to climb up the value chain, and deal with increasing U.S. market pressures.

Sun Pharma has a portfolio of about 10 specialty products, of which five are already in the market, two more are likely to be commercialised in the next few quarters; and two more await U.S. Food and Drug Administration’s approval, according to its latest annual report. The company has invested significant resources in this initiative in the past; and will continue to invest in building the business.

The move towards specialty is due to severe pressure in the U.S. market, which will mean that research and development spends will have to be upped, the report said. Indian generic drugmakers have faced pricing pressure due to intense competition in the U.S., hurting their margins.

Sun Pharmaceuticals has been investing in building its global specialty business for the last few years so that they continue to earn reasonable returns on investments, said Dilip Shanghvi, managing director of the company.

"These changing dynamics are also likely to have an impact on competition since return ratios on investments in the U.S. generics business are coming down and not every generics company will be able to remain economically viable at the current rate of price erosion. As a result, companies will have to optimise their future R&D investments." - Dilip Shanghvi, MD, Sun Pharma, In Annual Report

Road Ahead

Sun Pharma will now focus on building the relevant front-end presence in the U.S. for marketing and promoting specialty products. It also plans to increase the specialty contribution to the consolidated revenues in the long term.

The short-term outlook for the U.S. generics market would continue to be challenging in the current financial year given the pricing pressures, Sanghvi said. The India business is likely to normalise this year and favorable demographics would ensure reasonable volume growth in India, the report said. The company expects a low double-digit year-on-year growth in consolidated revenues for the current year.

Brokerage Take

Credit Suisse expects the specialty business of Sun Pharma to break even in financial year 2021. Specialty-related spend was high in FY18 at $165 million compared with $123 million the year before, and could touch $200 million in FY19 with the launch of drugs MK-3222 (psoriasis), Yonsa (prostate cancer) and Cequa (dry eye), it said in a note.

Shares of Sun Pharma were trading 0.2 percent higher at Rs 657 as of 12.20 p.m. compared with 0.7 percent decline the NSE Nifty Pharma.

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