Buy Suven Life Sciences - SME Pharmaceuticals - LKP Advisory

Suven Life Sciences is a 200cr drug discovery company with a distinctive business model - CRAMS - Drug Discovery - Collaborative Research Partnership and has 4 fully functional collaborations with Eli Lilly, J&J, BMS & Astra Zeneca. It derives 20% of its revenues from drug discovery and the R&D effort is funded by its CRAMS business which accounts for 80% of its Rs2bn revenues.

Suven is partnering the development of under patent molecules by leveraging its relationship with more than 25 global life science companies worldwide and spends 16% of its revenues on drug discovery (fully charged to the P&L account - a prudent policy of optimizing R&D expenses as and when it happens to ensure that the burden of molecules is not carried on to the balance sheet).

Its most promising compound - SUVN - 502 for treating Alzheimer's disease is progressing well in a space with an addressable business opportunity of $20bn in cognitive neuro de-generative disorders - an unmet medical need. Alzheimer's does not have any cure and is a devastating neurological disorder impacting more than 37 million people worldwide. Suven is taking SUVN - 502 on its own into Proof of Concept which requires funding and capital raising. Once the POC is established we believe that the value of the potential licensing opportunity increases manifold.

With close to 550 product patents and 18 inventions to its credit - Suven we believe can advance at least one molecule from its existing pipeline of 11 molecules into the IND stage every year besides expanding its therapeutic coverage within its focus area - CNS having an addressable market opportunity of $100bn. Promoter - Venkat Jasti holds 63% in Suven Life Science and none of the promoter holding is pledged. Suven has a market capitalization of 360crs and at 10xFY'13E earnings of Rs3 offers value and we recommend a BUY with an 18 month target of 65.

Source : Equity Bulls

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