Declining sales of drug weigh on Sun Pharma

Sales of acne drug Absorica are down 26% on a sequential basis in the March quarter

The Sun Pharma stock has shed nine per cent last week, as the declining sales trend for a key specialty product, coupled with worries over continued price erosion, weighs on the drug major’s revenues and earnings. Given that specialty products are expected to be the mainstay of Sun Pharma’s revenue growth amid rising pressures in the generic business, hurdles for its specialty pipeline would have an impact on earnings.

One such specialty product whose revenues are under pressure is acne drug Absorica. Kartik Mehta of Deutsche Bank says that revenues from the drug declined 26 per cent on a sequential basis to $89 million in the March quarter. Absorica is a key product for Sun Pharma, with sales of about $200 million in FY18.

Analysts at Kotak Securities estimate that there is likelihood of $30-60 million sequential decline in Absorica revenues. This, according to them, reflects the promotional sensitivity of the product, with the brand losing 10 percentage points in market share to 12 per cent within a quarter of Sun Pharma reducing the promotional intensity on the product.

Given that it is a key product, analysts believe that the sharp decline in revenues for it would have to be balanced by a rollout of other specialty Net sales % change y-o-y Ebidta

% change y-o-y Ebidta (%) Net profit % change y-o-y 261.5279.9 -13.6 52.5 -40.1 20.1 28,2 -59.4 7.1 60.1 14.5 21.5 38.6 36.7 products in its pipeline.

The most important speciality asset for the company is Tildra, used for the treatment of inflammatory disorders.

While the company has already spent $300-350 million on development and purchase of the drug, it will be a challenge, according to analysts at Edelweiss Securities, to make a mark in a market where five biologics with better efficacy have already been launched in the past two years. Tildra is expected to be launched in the current financial year.

Most analysts are sceptical about the pace of uptick for the company’s revenue streams, and this is reflected as the stock has shed 27 per cent of its value over the past year. The stock is currently trading at 25 times its FY19 earnings estimates (19 times its FY20 estimates) and already discounts the positives from Halol recovery and some specialty revenues ramping up.