No major respite for Sun Pharma

Halol plant clearance, approval of specialty products are triggers going ahead

The Sun Pharmaceutical Industries stock, which witnessed gains after its September quarter (Q2) results, is now trading below the pre-result level, despite the recent positive news flow.

The latest development pertains to the restart of supplies of some products to the US by Sun Pharma from its key plant in Halol (Gujarat).

A Credit Suisse report, referring to latest IMS data, indicates the firm’s oncology generics of Gleevac has gained market share sequentially in the December quarter (Q3) so far on a trailing basis. The Gleevac generics, which witnessed competitive pressure after the drugmaker’s exclusivity ended in FY17 and contributed $230 million to its FY17 sales, was estimated to see its contribution drop by a third in FY18. So, the news of it gaining market share (19 per cent sequential revenue growth) is positive. This, coupled with Sun’s reentry into key segments such as neurology (Duloxetine, Carbidopa and Levodopa) and ENT (Azelastine nasal spray), all being from the Halol plant, has driven the firm’s US sales (excluding Taro) by eight per cent sequentially in Q3.

Also, oncology generics Odomzo, for which Sun had taken marketing rights, is ramping up. It is estimated to be a $16-million product annually, versus $6 million in annualised sales six months ago.

However, Taro remains the pain point. Sun’s US subsidiary, which had performed better than expectations in Q2 with five per cent sequential growth, is again facing pressure in its dermatology portfolio.

According to Credit Suisse, Taro’s November 2017 sales are down four per cent sequentially due to a loss in Fluocinonide sales (market share down 33 per cent as Teva gains pie). Sales of lice treatment Malathion, too, fell 28 per cent sequentially. Thus, Taro’s sales are down 53 per cent sequentially.

Hopes for Taro in the dermatology business hinge on Mupirocin (sales up 19 per cent sequentially), the launch of Dapsone Gel and its return to the Adapalene market.

Analysts say these can act as saving grace in Q3. But, they may not be able to halt the declining sales of Taro (over half of Sun’s North America business), which is offsetting the gains in Sun’s ex-Taro US sales. In the medium term, the launch of specialty products, ramp-up of limited competition drugs, and approval of its Halol plant by the US drug regulator are crucial.

Analysts said faster product approvals could offset increased competitive intensity and pricing pressure in the US. The launch of dermatology specialty molecule, MK 3222, by FY19 and other products are key. Even as analysts expect Sun’s US sales to be nearing a trough, they don’t see a recovery.