Sun Pharma: Multiple triggers point to a healthy outlook

Upsides from research pipeline of SPARC and first approval from Halol facility are positives

 

Sun Pharma and Sun Pharma Advanced Research Company (SPARC) gained 4.5-6 per cent each after the latter got an approval for a new drug application for treating seizures in conditions such as epilepsy. SPARC had indicated last year that the peak sales potential for Elepsia or Levetiracetam would be $30-$50 million. Analysts say the market for this drug could be much more as the company could charge a premium on this novel drug delivery system. While competing products are available in higher doses, this comes in lower doses (extended-release tablets in dosages of 1,000 mg and 1,500 mg) and thus could be preferred.

The product will be made by Sun Pharma at its Halol, Gujarat facility - which is other positive news as this is the first approval for Sun Pharma from this facility after the company received Form 483s on this plant after the Food and Drug Administration (FDA) audit in September 2014. This alleviates concerns about any escalation of the Form 483 and lifts the overhang of any adverse FDA action on this facility, say analysts at Edelweiss Securities. The Halol facility contributes about 20 per cent of the company’s US sales. Among other products that could add more upsides from the SPARC portfolio is Latanoprost BAK-free eye drops to treat glaucoma with sales potential of $25-50 million. The other trigger is the acquisition GlaxoSmithKline’s opiate business in Australia. Analysts estimate the acquisition would have been worth $150 million given that it would be about three times the sales of the opiate business of GSK Australia of $50-55 million. The acquisition gives Sun Pharma access to raw materials such as poppy and derivatives codeine, morphine and thebaine. These are used in pain management medications. Elara Securities says the deal will strengthen Sun’s presence in the $11-billion global controlled substance market with the company having assets in Hungary and the US. The firm sells its controlled substances portfolio in the US market.

Although the Sun Pharma stock has gone up by seven per cent, analysts say there is an upside of 17-20 per cent over the next year. After Wednesday’s rise, the stock trades at premium valuations of 24 times its FY17 earnings estimates, which analysts feel is justified given the company’s execution track record and includes the benefits to accrue from the merger with Ranbaxy.