Sun Pharmaceuticals - Prandin approval - Edelweiss

Sun Pharma (SUNP) has received USFDA approval for Prandin (Repaglinide) tablets. On June 18, 2013, the US court of appeals had ruled in favour of the company, there by invalidating Novo Nordisk's patent. SUNP was expected to gain approval within 75 days of the ruling and post approval, it has 180 days' exclusivity. We expect the product to generate USD35-40mn in FY14E or NPV of INR4/ share (USD/INR average 58). Though the product was being filed from Caraco, pertaining to manufacturing issues there was an uncertainty cited on delay in approval. We highlight that SUNP has site transferred the product and the resultant approval clears the ambiguity. Maintain 'HOLD' rating.

Approval in line with expectation; USD35-40mn incremental sales

The final approval is in line with our expectation, post favourable ruling from appeal court in June 2013. Prandin or generic Repaglinide in conjunction with Metformin is used to treat Type 2 diabetes and has total market size of USD200mn at the innovator level. SUNP is the FTF for generic Prandin and we expect USD35-40mn incremental sales during exclusivity (six months) for the drug assuming 30% price erosion and 50% market share for the generic. The total NPV during exclusivity is INR4/ share built in our target price. Post exclusivity, we expect three-four generic players including Dr. Reddy's, Aurobindo and Torrent to enter the market, leading to higher price erosion.

Outlook and valuations: Cautious; maintain 'HOLD'

SUNP has outperformed the broader Healthcare Index over the past three months (35% returns versus BSE Healthcare Index's 15%). In our view, current valuations fully build in upsides from continued opportunities such as Doxycycline and Lipodox, which will enable the company to continue to deliver strong growth over H1FY14. However, given that the opportunities are semi-exclusive, the benefit may remain unsustainable as competition creeps in. Further, Taro sales, which contribute ~35% to SUNP's total sales, may post low-single digit growth over FY13-15E, factoring incremental competition in its key product (Nystatin/Triamcinolone), which contributes ~14-15% to Taro sales. Hence, we remain wary of potential risk to margin and expect SUNP's valuation premium to narrow. We maintain 'HOLD/Sector Performer'.

Source : Equity Bulls

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