15 July 2013
Update |Sector: Healthcare
Sun Pharma
CMP: INR1095
TP: INR 1040
Neutral
US FDA approves exclusive copy of generic Prandin; Marginal
upside
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Sun Pharma received FDA approval for launching its generic version of Novo
Nordisk’s Prandin (Repaglinide 1mg & 2mg tablet). Prandin generates USD200m
in sales annually.
After a long winding patent litigation, Sun Pharma won a favorable ruling in June
2013 from US court allowing it to launch its generic copy of Prandin, should it
receive FDA approval for the same.
SUNP is the sole FTF filer and will enjoy 180‐day exclusivity for this product.
Other known filers include Mylan, Actavis, Paddock and Aurobindo Pharma and
will enter the market post the SUNP’s exclusivity.
We estimate one‐off sales of ~USD50m with PAT of USD35m from this launch, to
be realized over the next 6 months. Since this is a non‐recurring opportunity, we
add INR2/share to our DCF estimate for one‐off opportunities. As such, we
believe this will have marginal impact for SUNP.
The stock currently trades at 28.9x FY14E and 26.4x FY15E EPS. Maintain Neutral
with target price of INR1040 (25x FY15 EPS + INR4 DCF value for Para‐IV
upsides).
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Background
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Sun Pharma had filed a Para IV ANDA for Prandin (Repaglinide 1mg& 2 mg) from
its wholly owned subsidiary Caraco.
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Novo Nordisk sued SUNP in June 2005, triggering a 30‐month stay. SUNP
received a tentative approval in the interim.
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However, final approval was being delayed due to the filing from Caraco’s
Michigan facility which was issued a warning letter (resolved in August 2012).
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The recent court ruling in June 2013 invalidated the ‘358 patent (set to expire in
June 2018) on grounds of obviousness, paving way for SUNP’s FTF launch. This
FDA approval enables it to monetize the opportunity.
Impact
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Sun Pharma will be the only player in the market for the first 6 months from
date of launch.
We
note that there are at least 4 other known filers: Mylan,
Paddock, Actavis (has tentative approval) and Aurobindo Pharma. These
companies could enter the market post SUNP’s exclusivity.
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We estimate one‐off sales of ~USD50m with PAT of ~USD35m from this
opportunity, which will be realized over the next 6 months.
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The per share upside of INR2 from this launch has been added to our DCF
estimate of INR4/share for such one‐off opportunities. As such, we believe this
will have marginal impact for SUNP.
Valuation & view: Neutral with target price of INR1040
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Key drivers for future include: (1) Continued traction in US business aided by
recent acquisitions, (2) Monetization of the Para‐IV/low‐competition pipeline in
the US, (3) Launch of controlled substances in the US, (4) Sustaining Taro's high
profitability & (5) Ability to leverage on DUSA's technology franchise.
1
 Motilal Oswal Financial Services
Sun Pharma
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While we are positive on SUNP's business outlook, rich valuations have
tempered down our bullishness. Price increases for certain products by Taro
(due to absence of competition), positive impact of a favorable currency and
Doxil supplies to US were the key reasons for the significant increase in growth
and profitability for SUNP in FY13.
The significant jump in profitability at Taro is not sustainable in the long term
and is likely to reverse post the re‐entry of some of the competitors. While the
recent acquisitions of DUSA and URL Pharma will add to the sales growth, their
low profitability will drag SUNP's consolidated profit margins until turnaround is
achieved.
We maintain Neutral with target price of INR1,040 (25x FY15 EPS + INR4 DCF
value for Para‐IV upsides). Inorganic initiatives are a key risk to our rating.
15 July 2013
2
 Motilal Oswal Financial Services
Sun Pharma
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15 July 2013
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