Sun Pharma share price jumps 4.2%; $400 million outgo turns out to be company’s gain

The stock was among the handful shares that were up in the green on the BSE Sensex. Sun Pharma shares were trading at Rs 496 per apiece

Pharmaceutical major Sun Pharma’s share price surged 4.2% on Friday morning despite the weaker sentiment in the domestic equity markets, which were down close to 1%. The upward swing in the share price was following a resolution of an investigation by the United States Department of Justice, which was probing Sun Pharma’s US subsidiary Taro Pharmaceutical Industries. The stock was among the handful shares that were trading with gains on the BSE Sensex. Sun Pharma shares were trading at Rs 496 per apiece.

In a regulatory filing, Sun Pharma said that the company has resolved all cases in connection with the multi-year investigations by the Department of Justice, Antitrust Division, and Civil Division into the U.S. generic pharmaceutical industry. The pharma major said that it has reached an agreement with the Department of Justice, which will file an Information for conduct that took place between 2013 and 2015. After its agreement with the justice department, Taro Pharma will pay $205.7 million and another $213.3 million to resolve all claims related to federal healthcare programs. 

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“Although this settlement is likely to address the overhang of price-fixing allegations, it is going to cause a substantial dent in the cash balance ( ~US$1.2 billion as of March 2020), which will have negative implications in the near term,” said ICICI Securities in a note. Taro, a science-based pharmaceutical company, contributed 13% to Sun Pharma’s total sales in 2019 translating to Rs 4,655 crore.

“A key risk for SUN pharma is a reversal of the strong momentum in specialty sales in the US, particularly Ilumya, on account of slowdown in new prescription generation with dermatology prescriptions heavily hit on account of Covid-19,” said analysts at Kotak Securities. Kotak Securities has an ADD rating on the stock with a fair value of Rs 510. “In the meantime, recent trends suggest recovery from May, with office visits down 10-15% yoy in June 2020, and elective surgeries at ASCs growing yoy in June 2020,” Kotak Securities said in a note earlier this week. With the IPM growth recovering in June to grow 5.8% on-year analysts are positive when it comes to Indian pharma space.