Sun Pharma: Generic, speciality drugs can drive medium-term earnings growth

The US Food and Drug Administration’s (US FDA’s) approval to Sun Pharmaceutical Industries’ plaque psoriasis drug tildrakizumab, or tildra, has given a push to the company’s speciality foray.
 
The drug, developed in partnership with Merck, is expected to be launched in early FY19.
 
Given pricing pressure in the US on its generic portfolio, Sun Pharma has been focusing on bringing to the market its next growth vehicle in the form of speciality drugs that are difficult to make, administer and typically fetch higher margins due to limited competition.
 
Analysts expect tildra, branded as Ilumya, to see a gradual uptick in sales. While sales over the next two years are expected to be upwards of $125 million, most analysts estimate that peak sales would be in the $400-500 million range five years from now.
 
While the psoriasis space is crowded with multiple treatment options available with rivals such as Novartis, J&J, and Lilly, analysts at JM Financial said the product’s benign safety profile, coupled with convenient dosing frequency and competitive pricing, should help it garner market share.
 
However, analysts at Kotak Institutional Equities said the company would face commercial hurdles, given a relatively weaker efficacy profile and limited incremental safety benefit over key competing drugs, increasing promotional activity and reimbursement challenges for psoriasis biologics.
 
Kotak Securities is less optimistic about the potential and expects the product to generate $350 million in peak sales.
 
The company is planning to launch another speciality drug Seciera this year, which is used in the treatment of dry eyes.
 
Nirmal Bang Institutional Equities estimates a peak market potential of Seciera at $400-600 million.

What will add to Sun Pharma’s overall revenues are drugs in its current portfolio such as Bromsite (anti-inflammatory), Odomzo (cancer drug) and Absorica (acne treatment).
 
While the company’s financial performance in the fiscal year so far has been disappointing, a combination of generic and speciality drugs can drive medium-term earnings growth and profitability, said analysts at IDFC Securities.
 
US FDA clearances for the company’s Halol facility as well as for speciality drug Seciera are the key near-term triggers for the stock that has gained 0.6 per cent on Thursday.
 
At the current price, the stock is trading at 19 times its FY20 estimates. While the valuations are not demanding, investors should refrain from taking an exposure, given uncertainties on price erosion, launch timeline of key drugs and cloud over Halol facility.