Q4FY23 Review: Sun Pharma: Specialty & India to lead growth momentum

29 May 2023 , 02:07 PM

Analysts of IIFL Capital Services find Sun Pharma’s FY24 guidance of high-single-digit top-line growth to be conservative given the growth momentum is expected to continue in Specialty and India businesses at mid-teens and lowdouble-digit respectively, while Revlimid will broadly help offset the impact of Halol IA and Mohali non-compliance. Ilumya, Winlevi and Cequa will drive growth for the Specialty business in FY24/25. Although Deuruxolitinib will potentially start contributing from FY26, USFDA’s safety-related clinical hold on the higher dose raises questions on the product’s peak sales potential, particularly given Eli Lilly’s Olumiant ramp-up has also been limited to <USD100mn in Alopecia indication probably due to its black box warning. Nonetheless, scale-up in Specialty business and consistent lowdouble-digit growth in branded Generic markets has diversified Sun’s business away from US Generics, and should enable the company to deliver ~12% EPS Cagr over FY23-26.

Analysts of IIFL Capital Services expect Specialty business to grow at 14% Cagr over FY23-26, driven by Ilumya, Winlevi and Cequa in FY24/25 and Deuruxolitinib in FY26. Specialty revenue (ex-milestone income) grew 26% in FY23 to USD850mn and its cost base remained flat, which would have driven an improvement in the profitability profile of the Specialty business. Deuruxolitinib’s USFDA filing is expected in Q2FY24 (mgmt indicated safety data for 8mg dose is satisfactory), while completion of Ilumya’s Psoriatic Arthritis study likely in FY25. Winlevi’s coverage has improved, along with increase in net realizations and its Rxs are also likely to pick up from Q2/Q3FY24.

India business volume growth has been strong since past 2 years: 

Per secondary data, Sun’s India business has grown at ~11% Cagr over FY20-23, driven by volume/price/new launches contribution of ~5/4/2% resp. Sun’s volume growth has been ~7-8% Cagr over past 2 years, with the company seeing good growth across most of its key therapies. Analysts of IIFL Capital Services expect Sun’s India business to grow in line with IPM at ~10% Cagr over FY23-26.

Revlimid & Specialty drove GM beat in Q4: 

Sun’s ex-Taro US generic sales of USD120mn in Q4 (vs USD130mn in Q3) would have benefitted from USD25- 30mn of Revlimid sales. Of the 400bps QoQ improvement in Sun’s GMs in Q4, we estimate Revlimid/Specialty business to have contributed 200/100bps. Revlimid sales of USD120/150mn in FY24/25 would enable Sun to offset the impact of Halol/Mohali issues and Concert costs.