Sun Pharma: A dose of good news

The US authorities still need to bless the settlement that Sun Pharma has entered into with Forest Laboratories Holdings (FRX) over the patent litigation for Lexapro, an anti-depressant. However, the Street cheered the move and the stock was up 2 per cent in an otherwise weak market.

Lexapro may have generated revenues of $2.3 billion last year, but there’s no immediate upside for Sun, even after the authorities ratify the settlement. That’s because the drug major cannot launch the generic version of the product before Teva, which has a first to file permission, and another generic player that FRX may choose. Moreover, there are others in the queue and they could choose to enter the market at the same time as Sun.

That could mean quite a crowd of generic players all at once resulting a steep drop in the price of the drug by as much as 95-96 per cent. While volumes may go up, it may not compensate for the fall in the price. However, what Sun has gained from the settlement is that its subsidiary in the US, Caraco, will commercialise and sell several products belonging to FRX’s subsidiary Inwood.

Besides, Sun will also licence some patent applications to FRX’s subsidiary Lundbeck. Analysts point out that Sun appears to be looking for additional revenue streams for Caraco which has been through a bit of a rough patch in the US markets lately. Towards the end of June, the US FDA had asked the company to halt production at three Michigan units.

At the time analysts had estimated that the move could result in the hit to Sun’s profit before tax of around 10-15 per cent in the current year. Caraco’s sales of manufactured products accounts for about a third of the revenues that Sun earns from the US markets of around $337 million and in the year to March 2009, were of the order of approximately $ 112 million. The Sun stock had come off by about 15 per cent after the news broke but has remained more or less steady since then at Rs 1150 levels.