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Sun Pharma – Stock For the Month of April 2018

Date: 9 April, 2018

Price: Rs. 511.40

Sun Pharmaceutical Industries Limited (“Sun Pharma” or the “Company”) is world’s fifth largest specialty generic pharmaceutical company and India’s top pharmaceutical company with 8.5% market share. Sun Pharma’s global presence is supported by 41 manufacturing facilities across India, the Americas, Asia, Africa, Australia and Europe. With more than 2,000 products, the Company has its presence in more than 150 countries across branded and generic markets.

Segments – Specialty products, branded generics, complex generics, pure generics & APIs.

The Company earns 74% of its revenue from international markets.

Revenue Breakup

Sun Pharma Revenue

US Formulations

·   5th largest generics company in U.S. with a strong pipeline (126 ANDAs (Abbreviated New Drug Application) & 5 NDAs awaiting approval)

·   Presence in generics, specialty and branded segments with more than 418 approved products

India Branded Generics

·   Leading position in high growth chronic therapies

·   Specializes in technically complex products.

Emerging Markets

·   Presence in over 100 countries across Africa, Americas, Asia and Eastern & Central Europe

·   Key focus markets – Brazil, Mexico, Russia, Romania, South Africa, and complementary & affiliated markets

Western Europe, Canada, Japan ANZ & others

·   Presence across majority of markets in Western Europe, Canada, Japan and A&NZ

·   Product portfolio includes differentiated offerings for hospitals, injectables and generics for retail market

WHAT’S DRIVING THE STOCK?

Strong Financial Position

Sun Pharma has shown consistent growth over the last five years (i.e. 2012-13 to 2016-17). It’s net revenue from operations over this period grew at an impressive CAGR of 22.82 %. Sun Pharma has reserves in excess of Rs. 36,399.74 Cr and operates with 0.2x debt on its books.

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Leadership position in India | Well-established Presence in the U.S. Generics Market | Diversified Footprint

The Indian formulations business contributed 32% of total revenue in Q3 FY 2018 (26% in Q3 FY 2017). The revenues from this market grew by ~4% YoY in 9M FY 2018, with a market share of 8.5%.

Sun Pharma Market share

As per a Strategic Marketing Solutions and Research Centre (SMSRC) report, Sun Pharma is the leader in terms of prescriptions with 11 classes of doctors.

Sun Pharma also has a well established presence in the U.S. generics market, wherein it ranks fifth in terms of generic sales. The Company has a wide basket of 544 ANDAs & 42 NDAs filed and 418 ANDAs & 37 NDAs approved across multiple therapies.

Key Milestones in U.S. Market

  • FY 1998 – Entry in US through Caraco acquisition
  • FY 2010 – Acquired Taro Pharma – Entry into U.S. dermatology market
  • FY 2013 – Acquired DUSA – Entry in branded specialty market
  • FY 2013 – Acquired URL’s generic business
  • FY 2014 – Acquired Pharmalucence -access to sterile injectable capacity
  • FY 2016 – Acquired InSite Vision – Strengthen ophthalmic portfolio
  • FY 2017 – Tildrakizumab (antibody to treat patients with moderate-to-severe plaque psoriasis) filing in U.S. & Europe market
    • Acquired Ocular Technologies giving access to OTX-101, a product for treating dry eyes
    • Launched BromSite (Sun Pharma’s first branded ophthalmic drug in U.S.)
    • Acquired Odomzo- branded oncology product from Novartis
  • FY 2018 – Launched Odomzo in U.S.
    • Settlement of Patent Litigation for Generic Linzess® in US

The Company has been expanding its presence in the fast growing emerging and rest of world (RoW) markets as well, to expand its geographical presence. Sun Pharma has thus witnessed a YoY growth of 7% and 21% in the emerging markets revenues and RoW markets revenues, respectively, in 9M FY 2018.

Specialty Segment – Key Growth Driver

Sun Pharma is building its specialty drugs business in the U.S. through acquisitions and increased spending on research and development.

The Company’s strategy entails building a pipeline of patented products for global markets with a focus on targeting unmet medical needs through differentiated dosage forms.

Ramping up Specialty Pipeline

  • In-licensed Tildrakizumab from Merck for treating chronic plaque psoriasis- Biologics License Application (BLA) Filed with U.S. FDA and EMA (European Medicines Agency) for European market.
  • Acquired Ocular Technologies – Gives access to global rights for OTX-101 – for treating Dry Eye Disease. Announced positive results from confirmatory Phase-3 trials in Jan’17. Filed NDA with USFDA in Q3 FY18. Evaluate other markets for filing OTX-101.
  • Acquired branded oncology product – Odomzo – in Dec’16. Product is approved in 30 countries globally including U.S., Europe and Australia. Currently marketed in US and Germany.
  • Launched BromSite – first specialty ophthalmology product in U.S. in Nov’16
  • Acquired Dusa Pharma in U.S. – Access to patented drug-device combination useful for treating Actinic Keratosis, a dermatology ailment
  • Acquired InSite Vision – Focuses on developing new specialty ophthalmic products, has three late stage programs.
  • In-licensed Xelpros (ophthalmology) and Elepsia (CNS) products from SPARC
  • Entered into a joint venture with Intrexon Corporation for developing gene-based therapies for ocular diseases

While these investments currently do not generate commensurate revenues streams, they will augur well for the company in the long term as more specialty products get commercialized.

Strong R&D pipeline with 126 Pending ANDA Approvals

Sun Pharma is continuously investing in developing a portfolio of ANDAs on niche and complex molecule for the U.S. market, which is supported by its strong R&D capabilities. The comprehensive product offering in the U.S. market consists of 418 approved ANDAs as on December 31, 2017.

WHAT’S DRAGGING THE STOCK?

U.S. Business Sales Have Remained Subdued During FY 2017 and 9M FY2018

In Q3 FY 2018, Sun Pharma reported 75.2% drop in net profit due to plunging U.S. sales and one-time deferred tax adjustment. Sales in U.S. fell 38% to U.S. $328 million for the third quarter on a year-on-year (YoY) basis. This decline was driven by the overall pricing pressure in the U.S. generics market and the YoY reduction in sales of generic Imatinib (medication used to treat cancer) and Olmesartan (treat high blood pressure) authorized generics.

Q3 FY18

Q3 FY17

Change

9M FY 18

9M FY 17

Change

Formulation

India

2,085

1,969

6%

6,067

5,833

4%

U.S.

2,124

3,419

-38%

6,375

11,204

-43%

Emerging Markets

1,221

1,160

5%

3,560

3,317

7%

ROW

777

760

2%

2,230

1,851

21%

Sub-total

6,207

7,309

-15%

18,232

22,205

-18%

Bulk

370

366

1%

1,067

1,202

-11%

Others

21.5

8.8

144%

56.2

31.6

78%

Gross Sales

6,598

7,683

-14%

19,355

23,439

-17%

Intense Competition in the Pharma Space

Sun Pharma competes with various pharmaceutical companies that have similar products in the same market but manufactured at facilities which have been approved by the highest regulatory authorities in the United States and Europe.

Regulatory Environment

The Company suffers due to adverse developments in regulatory environment and statutory provisions. National Pharmaceutical Pricing Authority (NPPA) controls and regulates the prices of pharmaceutical drugs in India. Price controls imposed by the authority are unpredictable and have a negative impact on company’s profitability margins.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.