Specialty drugs, domestic growth prospects positives for Sun Pharma stock

Shares of Sun Pharmaceutical Industries (Sun Pharma), which have been on an uptrend rising more than 12 per cent from November lows, were among the top Sensex gainers on Wednesday. Analysts say the strong growth in domestic business and gradual ramp-up of its specialty products in the US — the world’s largest health care market — is boosting investors’ confidence.

The news flow on Taro’s (Sun Pharma’s US subsidiary) share buyback and talks to resolve the long-running criminal antitrust probe of alleged price-fixing by various companies (including Sun) in the US are the other positives.

While the buyback of public stake in Taro could give Sun Pharma access to the former’s cash, settlement of price-fixing allegations can end a long-standing overhang.

On fundamentals, analysts see good progress in the ramp-up of specialty products. While pricing pressure in the US generics is also stabilising, the specialty products that Sun Pharma has been investing in are seen as a growth driver of its US business.

In the specialty segment, the management remains confident of sales of its dermatology product Ilumya gaining traction, and is looking to launch it in other geographies. Analysts say the seasonal weakness in dermatology products Levulan and Absorica had offset the benefits from Ilumya ramp-up in the July-September (Q2) quarter, leading to flattish sales in the US specialty sales.

However, the gains from Ilumya sales will be visible, moving forward. The launch of ophthalmic product Cequa in October has also seen encouraging initial response. Analysts at Nomura feel Cequa could ramp up faster than Illumya, given the limited competition in the space. Those at Centrum Broking say Sun’s oncology product (Odomzo), too, continues to expand market share and gain traction.

The domestic business is another strong growth driver. In Q2, a 35 per cent year-on-year (YoY) growth in domestic sales (32 per cent of overall revenues) helped consolidate sales growth at 16 per cent YoY. Even sales in the rest-of-the-world markets (about 14 per cent of revenue) grew 49 per cent YoY, driven by organic initiatives and consolidation of acquisition of Pola Pharma in Japan.

Analysts at JPMorgan see China and Japan as meaningful future opportunities. Sun Pharma also remains among the top ‘buy’ ideas for CLSA.