Mr Dilip Sanghvi, the MD & CEO of Sun Pharmaceutical Industries Ltd., has decided to go forward with the company operations with a fresh perspective. Sun Pharma is planning to develop higher margin patent drugs in place of the generic version.
On May 13, 2019, The stock plunged 20% at a 52-week low of Rs. 350.40. On the same day, it recovered and settled 6% lower at Rs. 412.15. This was because of the litigation filed by US states against Sun Pharma and 19 other drug companies.
In December 2018, Mr Sanghvi faced a loss of $17 billion and also lost his title of India’s richest man of 2015 in the span of 3 years. The stocks fell largely on account of corporate governance issues. The market value of the firm has decreased by 65% in the last four years. This has also, in turn, decreased the worth of Mr Sanghvi and he is preparing for a bounce back.
US Litigation 2019:
More than 40 US states have sued 20 generic drug companies including the biggest pharmaceutical firms like Pfizer Ltd, Teva Pharmaceuticals, etc. This was in accordance with the price fixing of generic drugs in the market. The companies conspired to increase the price of drugs so that the competition in the market is uneven. The prices of the generic drugs have been kept minimal so that every company gets a chance to enter the pharmaceutical industry.
Revival Plan:
Sun Pharma’s revival won’t be easy as all the big pharmaceutical industries are developing their own patent medicines. The profits from R&D are humongous but at the same time, the cost of conducting it is even more. Looking at Sun Pharma’s recent declining value and increasing issues, it seems difficult for them to cope up with the competition. Also, their relatively smaller size compared to the multinationals makes it more difficult.
The revival plan won’t be easy as other pharmaceutical giants that dominate this business have already paid massive pay-offs on the R&D and the profits are uncertain. Moreover, these companies are turning to new acquisitions to fill in their pipelines. This is where Mr Sanghvi thinks of an opportunity going forward. This will be aided by one benefit Sun Pharma has and that is an ability to move swiftly. In comparison, to other Pharma giants, it is a small company. The company recorded a revenue of USD 4 billion in FY18 whereas, Pfizer clocked USD 53.6 billion in revenue.
Sun Pharma has the ability to pursue opportunities at more ease as Mr Sanghvi still holds a 55% stake in the company. The decisions on this will be faster instead of weighed down by corporate bureaucracy.
Other Pharmaceutical Companies on the path of developing medicines:
Mylan NV and Teva Pharmaceuticals Industries Ltd are also walking on the same path. Mylan NV has contributed a huge amount in their R&D which had adverse effects on their profits. Furthermore, they have invested in their patented medical device, the EpiPen, for which the company is finding a successor. On the other hand, Teva Pharmaceuticals expected more than a billion dollars in revenue from the innovative drug Copaxone. But they made only $100 million in sales in Q3FY19.
Sun Pharma has been using the “search and develop” model instead of “research and develop” model. Which means acquiring and licensing products which are invented by other companies. Sun Pharma became India’s largest drug-maker by acquiring Ranbaxy Laboratories in 2015.
