Sun sales, earnings pummeled by plant problems, integration costs

Sun Pharmaceutical Managing Director Dilip Shanghvi warned that the cost of fixing up the plants that it got in its Ranbaxy buyout was going to weigh on earnings, and indeed it has. But it actually was one of Sun's original facilities, one which the FDA has had issues with, that Sun named this week as the culprit for falling sales in the U.S.

The company reported this week that while net sales were up slightly for the last quarter, U.S. sales fell, as did sales in emerging markets and the rest of the world. For the U.S., Sun said, sales of $488 million were down 4%, "impacted primarily due to competitive pressure on some products and temporary supply constraints arising from remediation efforts at the Halol facility."

The Halol facility in Gujarat is a Sun plant that FDA inspectors homed in on after they first found issues with another Sun plant in Gujarat that ended up with a warning letter and on the import alert list last year. The Halol plant had a number of recalls last year over issues of poor dissolution of meds.

But Sun had plenty of other costs undermining its results. It said in its earnings release that earnings had been hard hit by "one-time and exceptional charges." The exceptional charges actually added up to 685 crore ($105.8 million) and included costs for "impairment of fixed assets and goodwill and other related costs and have arisen on account of integration and optimization measures."

In March, Sun completed the $4 billion buyout of long-troubled Ranbaxy Laboratories and set about the task of integrating the two companies and upgrading the four Ranbaxy plants in India that have been banned by the FDA for data integrity and other issues. Shanghvi has said Sun will spend whatever is necessary to get the plants back to FDA expectations.

While its own sales in the U.S. have faltered, the company pointed out that Taro Pharmaceuticals, the U.S.-based generics specialist it bought out in 2012, had an exceptional quarter. It reported Q1 FY16 sales of $215 million, up 65% from the previous year, and a net profit of $104 million, up 125%.

- get the earnings release here (PDF)