Sun Pharma - Competition for Doxil appears premature - Ambit

Event: Azaya Therapeutics, a US generic company, has indicated that they would begin bioequivalence studies for Doxil (generic: Liposomal Doxorubicin). If successful, then according to the company, this product would be ready to be approved by the US FDA. This would translate into more competition for Sun Pharma's copy of the same drug, which is the lone generic player in the ~US$250mn US market.

Background: Yesterday, Sun Pharma received US FDA approval for Doxil, which is likely to be a high-margin product for the company. Note that apart from the patent holder, J&J, no other approved products are available in the market. Assuming a price erosion of 30-35% and a market share of 50%, Sun Pharma would still garner about US$90mn in sales, with a likely EPS impact of about ~2- 2.5% on FY14 earnings. Azaya could potentially put this upside at risk.

Where do we go from here? We believe that the news about the US FDA approval for Azaya is premature. The drug would undergo bioequivalence studies, which could take at least 4-5 months. Doxil is difficult to manufacture, given issues related to its stability and potential toxicity. To date, Azaya has no track record of developing such products. Moreover, it is still an early stage medical technology company. If the drug does make it successfully through trials, even by the company's own admission, it would take the US FDA at least another 8-10 months under its accelerated product approval programme to approve the generic copy. This puts the potential timeline of release to be beyond FY14. Sun Pharma's limited competition period beyond 2014 would anyway be under threat from other generic companies. Hence, we believe that the news is not a material threat to the recent approval for Sun Pharma. The stock is currently trading at 22.9x FY14 earnings and 19.7x FY15 earnings, a 17-18% premium to its comparable peers.

Source : Equity Bulls

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