Pharma major Sun Pharmaceutical Industries said it would supply generics at discounted costs to a third party for an upfront $400 million in order to manage its cash flow and debt better.
Sun Pharma founder and managing director Dilip Shanghvi, in an earnings call, said, "We did this deal to manage our cash flow and debt in a better manner. The $400 million comes to us offhand but this has nothing to do with our fiscal 2015 guidance." Though he did not disclose the tenure of the contract, Shanghvi said this deal may see a drop in the topline.
Margins will not be impacted, he said.
Under a settlement of a patent dispute case with Pfizer in the US last year over the latter's acid reflex brand Protonix, Sun had agreed to pay the multinational $550 million.
According to analysts, though Sun Pharma had made its provisions, the $400 million will help it to improve its cash flow.
"Sun will get $400 million offhand for its supply of possibly a mixed portfolio of generics to the third party at discounted rates. This will help in managing its cash flow and debt," said pharma analyst Bino Pathiparampil of IIFL.
Though Sun had already made provisions towards its litigation on Protonix on Pfizer, this upfront amount will only help the company further. The contract is possibly for mixed generics as we don't see a point in selling generic version of Protonix to a customer since it is unlikely to be launched in the US market anytime soon," said a pharma analyst with a brokerage.
However, Shanghvi expressed concern over reduction in price negotiating ability in the US market. "Around 80% of the business will be consolidated among 3-4 customers in the US, which means it will reduce our negotiating capabilities. This will impact all manufacturers."