Sun Pharmaceutical Industries: Sustained efforts to drive growth in Specialty

17 Mar 2023 , 11:11 AM

Recommendation: Buy

Target Price: Rs 1,150

 

Analysts at IIFL Capital Services believe Deuruxolitinib provides a compelling opportunity to drive medium-term growth in the company’s Specialty business, given Deuruxo’s best-in-class efficacy profile, limited competition in the Alopecia Areata (AA) market from new-age drugs, and prescriber/commercial infrastructure overlap between Sun’s existing derma products and Deuruxo. With nominal market share (MS) assumption of 5% and pricing largely similar to Eli Lilly’s Olumiant, analysts at IIFL Capital Services believe Deuruxo could garner peak US/global sales of USD500/650 million in FY34/35 and estimate its NPV to be USD900 million (Rs30/share). Every 100 basis points increase in MS would add USD130 million to IIFL Capital Services’ global sales estimate for FY34. With robust execution in Specialty/India business and low dependence on US Generics (only 12-14% of overall EBITDA), Sun remains the top-pick of IIFL Capital Services in the large-cap Pharma space.

AA – a potential USD3.5-4 billion market in the making

AA’s prevalence in the US is 0.21%, with ~40% of the patients suffering from moderate to severe disease (>50% loss of scalp hair). While there are only 300K moderate to severe AA patients in the US, there are limited new-age treatment options with Eli Lilly’s Olumiant being the only approved product currently. Given Olumiant’s net pricing (IIFLe) of USD24K per patient per year, analysts at IIFL Capital Services believe AA could become a USD3.5-4 billion market in the US over the next decade, provided half of the severe AA patients start treatment with new-age oral JAK inhibitors.

Estimate Deuruxo’s NPV to be USD900 million (Rs30/share) for Sun

Sun’s Deuruxo efficacy at 38-42% is higher than that of Eli Lilly’s Olumiant (32-35%) and Pfizer’s Ritlecitinib (30%, filed with USFDA). Assuming 5% MS for Deuruxo in moderate to severe AA patients and the pricing similar to Olumiant, analysts at IIFL Capital Services believe Deuruxo could garner peak US/global sales of USD500/650 million in FY34/35, with potential EBITDA margins of 55-60% (90% GMs, 10% royalty expenses and 20-25% SG&A/R&D costs).

Analysts at IIFL Capital Services expect Concert’s annual EBITDA drag to be USD75-100 million p.a. over FY24-26

This will largely be offset by the Revlimid opportunity for Sun. Although Concert will depress Sun’s earnings for the initial 3-year period, analysts at IIFL Capital Services expect Deuruxo to contribute cumulative post-tax profits of USD2.2 billion to Sun during the product’s remaining 14-year patent lifetime.