Sun Pharma expected to shine on domestic prospects, US sales ramp up

Anti-covid drug approval, new facility are the near term triggers for the pharma firm's stock

The stock of India’s largest drugmaker Sun Pharmaceutical Industries (Sun Pharma) was the biggest gainer among Sensex stocks, moving up 2.9 per cent in trade on Wednesday. The stock has extended its gains over the last four trading sessions to around 7 per cent.

The uptrend is on expectations that complex drug approvals in the US, outperformance in the domestic formulations, and incremental gains from anti-Covid launches in India will boost its top line. The decision to set up a manufacturing plant in Andhra Pradesh (AP) is also being viewed positively by the Street.

While there are multiple positives, the near-term trigger is the emergency-use authorisation from the Drugs Controller General of India to manufacture and market a generic version of Merck and Ridgeback Biotherapeutics' Molnupiravir. Sun Pharma will sell the same in India under the brand name Molxvir.

Whether it will be a major opportunity for the company will depend upon the increase in the number of Covid cases, including the Omicron variant of the novel coronavirus.

An analyst at a domestic brokerage pegs the Molnupiravir active pharmaceutical ingredient (API) sales at Rs 1,000 crore, while formulations (branded) sales could be 4x the API number, or around Rs 4,000 crore.

Analysts also believe the company’s decision to set up an end-to-end greenfield facility in AP signifies the company’s confidence about the business momentum and prospects. Sun Pharma is making fresh investments or capital expenditure after a gap of over a decade.

In the domestic market, the company has been outperforming peers on a consistent basis. Aided by sales in cardiac and gastrointestinal therapies, the company posted a 15.4 per cent growth in November, compared to the 6.6 per cent growth in the Indian pharmaceutical market. New launches, expansion of field force, and steady chronic sales could help sustain this growth.

The traction in the US specialty and complex generic approvals is another trigger expected to support the stock. A case in point is the approval of the anti-fungal injection Amphotericin. The company has a six-month exclusivity period for the generic equivalent of Gilead Sciences, Inc.'s product AmBisome liposome. The annualised sales of the same are pegged at $136 million.
 

Analysts at Morgan Stanley believe the drug can generate annual sales of $20-$25 million, assuming 25-30 per cent share in the US market. They expect the generic of AmBisome to remain a low-competition product in the medium term.

While the market size is not large, analysts at Citi Research believe the approval is important as it ranks high in terms of complexity. Further, this approval highlights the company’s generic pipeline strength and research and development capabilities, they add. 

Sales of the company’s current portfolio in the US, too, are on a strong footing and this is reflected in the performance for the three months ended October.

Analysts at Nomura Research highlight that specialty products, particularly Ilumya and Cequa, are recording sustained increase in sales.

While Ilumya, used in treating plaque psoriasis, continues to add $6 million in sales quarter-on-quarter, Cequa (for dry eye disease) reached a 4 per cent market share in the cyclosporin market.

The market share in cancer drug Sunitinib has also moved up to 65 per cent, with the company remaining the sole generic in the market.

Analysts at Nirmal Bang Research believe that the $200-milion market opportunity could be a meaningful contribution to the December quarter of 2021-22. Investors can consider the market leader on dips.