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Research
Sun Pharmaceutical Industries - More trouble with the USFDA - PINC Event Update
Posted On : 2010-09-02 09:59:32( TIMEZONE : IST )
Sun Pharma (SUNP) has reported that its facility in Cranbury, New Jersey received a warning letter on August 25th, 2010. This facility does not meaningfully contribute to SUNP's current revenues and hence SUNP has also not changed it guidance for FY11. However this facility is an important for the launch of controlled substances in US. Controlled substances (addressable market of US$4-5bn) are an important growth driver for SUNP's base business in US in FY12. To that extent we believe street estimates for the base business for FY12 could be at risk. Re-iterate SELL.
USFDA warning letter highlights some difficult issues
A quick examination of the letter indicates some serious and some procedural issues at the facility. The USFDA has highlighted some lapses wherein it wants SUNP to conduct an investigation {observation 2(a)} while in some other cases it wants standard operating procedures to be set and approved by the USFDA{observation 4}. We believe such issues will take time to get resolved even as it is difficult to set a hard time frame to it.
What now?
SUNP has 15 days to respond to the letter with the specific requirement as highlighted in the letter after which the USFDA will decide the future course of action.
FY12 estimates for base business could be at risk
We believe street estimates (as well as ours) for FY12e factor in a resolution of the issues with the Caraco facility in Detroit and also do not factor in any issues at any other facility. To the extent of delay in resolving these issues and consequent delay in getting product approvals (more so for the controlled substances) the FY12 estimates could be at risk.
VALUATIONS AND RECOMMENDATION
We re-iterate our 'SELL' with a TP of Rs1,500 (22x Sept'11 earnings). We retain our FY12 estimates as we await greater clarity on the issue. With the base business in US under pressure due to the ongoing issues with the USFDA there is little margin of safety at current valuations of 24x FY12e recurring estimates.
