NEW DELHI - India's Sun Pharmaceutical said it is "on strong ground" to complete a merger with Taro Pharmaceutical at $10.25 a share, despite a rebuff by the Israel-based firm, as it reported higher than forecast earnings for the fourth quarter ended March 31 on strong sales of generic Protonix (pantoprazole) in the U.S.

"Based on our understanding and our lawyers' advice, we believe we are on strong ground" to complete the merger with Taro, Sun Chairman Dilip Shanghvi told a conference call following earnings on May 30.

Last week, Taro cancelled a year-old $455 million deal to merge with Sun citing improved cash flow (PharmAsia News, May 29, 2008).

Shanghvi, however, in a letter to Taro rejected the attempt to scrap the deal and offered to raise the price per share to $10.25 a share from $7.75.

"Taro is not entitled to terminate the merger as per our agreement," Shanghvi said in a statement May 29. "We continue to believe that a merger with Sun … is in the best interests of all Taro shareholders."

Sun currently holds about a third percent of Taro after buying a 9.4 percent stake from Brandes Investment Partners in February (Also see "Sun Pharma Buys Additional Stake In Taro, Will Tender Offer Follow?" - Scrip, 20 February, 2008.).

Shanghvi said on the conference call that the Mumbai-based generic drug maker now has "around $600 million" in cash and forecast revenues would expand by 25 percent in the year started April based on its pipeline of abbreviated new drug applications in the U.S. and that Taro was a crucial part of its U.S. generic expansion strategy.

"Between Sun Pharma and our U.S. subsidiary Caraco Pharma, ANDAs for 53 products are now approved compared to 29 at the end of 2007. For the year, ANDAs for 48 products have been filed, of which 41 were filed from Sun Pharma and seven from Caraco. With this, ANDAs for 89 products await U.S. FDA approval, including eight tentative approvals; this is one of the strongest pipelines amongst all generic companies," the company said.

Sun also made an at-risk generic launch in the U.S. of AstraZeneca and MedImmune's Ethyo l (amifostine) in the fourth quarter, which also helped earnings.

Analysts say the firm however faces significant hurdles to its aggressive expansion strategy despite the strong cash flow as it attempts to manage the Taro merger, its at-risk launch of Wyeth's generic Protonix and expand the product mix of its U.S.-based generic unit Caroco against competitors.

"Sun is more aggressive and comfortable with risk than some of the other large Indian pharma companies," Mumbai-based IDFC-SSKI pharma analyst Nitin Agarwal told PharmAsia News. "But there are downsides to that strategy."

"Termination of the Taro deal would be strategically negative. We have been bullish on this proposed acquisition as it had multiple synergies with Sun's strategy and could have been potentially EPS accretive from the first year itself. This would have implied a very fast payback given the modest acquisition cost and significantly strengthened Sun's position in the U.S. generic market."

Analysts also questioned the stability of the at-risk launch of generic Protonix during the conference call, specifically asking Shanghvi if he would stop sales after the first quarter (April-June) to minimize the impact if a U.S. court rules against the firm (Also see "Sun Pharmaceutical To Start Generic Protonix Sales in U.S." - Scrip, 31 January, 2008.).

"We cannot comment on that," Shanghvi said. But he added that the company was "comfortable with its risk appetite."

"We've achieved higher than expected sales and profit, built one of the strongest product pipelines, and begun to take calculated risks," Shanghvi said in a statement. "This quarter, we've begun to see value creation from our intellectual property and NDDS capability. Our U.S. performance complements strong numbers across all our business segments. All-in-all, it [has] been a good year."

Sun said net profit for the fourth quarter more than tripled to a record 7.23 billion rupees ($172 million) from 2.22 billion rupees ($53 million) in the same period a year ago on revenues that more than doubled to 12.57 billion rupees ($299 million) from 5.48 billion rupees ($130 million).

For the year, net profit nearly doubled to 14.87 billion rupees ($354 million) from 7.84 billion ($187 million) a year ago on revenues of 35.02 billion rupees ($834 million), compared to 23.78 billion ($566 million).

The company's shares ended Friday at 1,402.90 rupees ($33.40) on the Mumbai stock exchange, compared to their 52-week high of 1,481 rupees ($35.26).

- Ed Lane (pharmasia@elsevier.com)

India’s Sun Pharma To Pursue Taro Merger As Q4 Profits Surge On U.S. Protonix Sales

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