Sun Pharma To Pay USD 550 Million To Pfizer

Pharmaceutical giant Sun Pharma yesterday reported that it is set to pay USD 550 million (Rs 3120 crore) to Pfizer as a settlement in case of the litigation pertaining to the generic of Pantoprazole. The original patent of this was held by Wyeth (now Pfizer), under the brand Protonix, which is a blockbuster drug with annual sales of USD 8 billion. Sun Pharma launched the generic of this drug in 2008 and also attracted a lawsuit. Israel-based generic pharma company Teva had also launched the generic of this drug at a risk in 2007.

Last year, Pfizer had demanded USD 960 million from Sun Pharma as a settlement fee but it now has toned it down to USD 550 million. Sun Pharma has agreed to pay this settlement fee. Teva, on the other hand, would pay USD 1.6 billion to Pfizer in 2 annual installments.

The news is likely to be seen in a negative light by the markets. Sun Pharma, in the second quarter of the last fiscal, made a provision of Rs 583 crore. This, however, is not enough to cover the settlement and hence Sun Pharma will have to further shell out cash from its balance sheet in order to pay this settlement fee.

Sun Pharma has total cash worth Rs 4058 crore by end of FY13. It also had Rs 1305 crore as investment. Its reserves were at Rs 14911 crore. Its balance sheet is strong and hence the company would not have any problem meeting this settlement fee. This, however, has brought to surface the risk profile of the pharma sector.

The valuations of the pharma companies would take a beating due to the recent cases. All of them are pertaining to the US market and hence companies like Lupin, Glenmark, and Dr Reddy's Labs may remain volatile for some time now. We advise readers to exit Sun Pharma at the moment.