Sun Pharma buoyed by success of new products

However, near-term prospects hinge on base business performance and growth guidance

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Sun Pharmaceutical reported positive headline results for the two Phase-3 trials of psoriasis treatment molecule MK3222 (Tildrakizu-mab). This is a big positive for Sun Pharma (Sun) and indicates that the molecule (worldwide rights acquired from Merck in 2014) is now ready to be filed as a novel biologic product in the US.

This is the second success reported by Sun and follows the approval received for its ophthalmic product Bromsite in April. Ophth-almic product Xelpros, licensed by its subsidiary SPARC (Sun Pharma Advanced Research) to Sun Pharma, is already awaiting approval from Halol plant.

Analysts at Edelweiss say the developments are quick steps in succession for Sun to evolve into a specialty company. They reiterate their thesis that FY17 will be the year of transformation for Sun in which earnings will accelerate and the move towards specialty will become more apparent.

In financial terms, while Bromsite is to be launched in a few months in the US and is set to garner $40-80 million peak sales in the $400-million market according to analysts at Macquarie, the MK3222 is estimated to be launched in FY19 (market size $6 billion).

Sun’s product might attain peak annual sales of $600 million for several years beyond FY22/23, according to Edelweiss estimates, while analysts at HSBC see base case sales assumption of $500 million.

The company is currently poised at a crucial juncture and facing headwinds because of the US Food and Drug Administration ire on its Halol plant and Ranbaxy's integration costs. However, analysts feel Sun's growth momentum would pick up once Halol remediation gets over (currently in last stages) and as Ranbaxy integration starts accruing synergy benefits.

For the quarter ending March 2016, IMS data indicate strong growth for Sun Pharma. The company had launched generics of oncology product Gleevac and sales at $69 million in March were much higher than $59 million recorded in February 2016. Analysts at Nomura see Gleevac contributing $180-200 million in revenues during the March 2016 quarter. This will drive overall revenues.

However, the Street will be monitoring the growth in base business and guidance by the company. Analysts at Credit Suisse believe that US sales for the first three quarters FY16 build in sales and margin recovery; as for India, they expect 14 per cent growth. They have a target price of Rs 1,075 for the stock trading at Rs 804 levels. Edelweiss has a target price of Rs 920 and Religare Rs 940, while the more conservative Nomura has a target price of Rs 817.