Sun Pharma shines on positive headlines

An acquisition in the US, upgrades by Credit Suisse on a drug launch, will lead to gains for the stock

After nearly five months of a weak show on stock exchanges and underperformance versus the BSE healthcare index, the Sun Pharmaceutical stock has seen some buzz following a product launch and an acquisition.

The positive news flow saw Credit Suisse raise its earnings estimates for the company on Tuesday. This marks a reversal in the trend seen in the past couple of months, wherein analysts have lowered their earnings estimates for Sun to factor in higher remediation costs pertaining to Ranbaxy integration and US Food and Drug Administration issues related to the Halol plant. Remediation is the process of improving something.

  The launch of a new chemical entity also led Credit Suisse to upgrade its target price for the stock. On Wednesday, Sun also announced an acquisition of InSite Vision Inc, an ophthalmology company based in the US, outbidding a Canadian drug firm. While the potential from the new drug is significant, the acquisition, comparitively small, will boost Sun’s ophthalmic portfolio in the US.

Not surprisingly, the stock gained 2.4 per cent on Wednesday to Rs 887, consolidating its previous day’s gain of 2.5 per cent.

While Sun will be spending about Rs 300 core, largely on equity, for the acquisition, InSite Vision is a speciality player and its buy should give benefits for Sun, which is establishing its ophthalmic portfolio in the US, say analysts.

Meanwhile, Sun’s US subsidiary Taro had launched a new chemical entity, Keveyis, in the US market for the treatment of periodic paralysis. The drug, according to conservative estimates of Credit Suisse, could garner $120 million a year in sales. This number is arrived at by taking into account a thousand patients shifting to this new drug. There are others who believe if the drug is successfully accepted by patients, revenues could grow multi-fold. While there is potential, one needs to closely watch the progress, as the drug is expensive, costing $163.8 a tablet.

Sun had also launched neuro drug generics of Tetrabenazine. The latest data, according to Nomura, indicate Sun gaining a 23 per cent market share and is the only approved generic producer of the drug that had recorded $288 million sales (in trailing 12 months ended July 2015).

Led by these two launches, analysts at Credit Suisse have raised their FY16 and FY17 earnings per share estimates by four and three per cent, respectively, and their target price to Rs 1,000.

While drug launches pacing well is positive and so is the acquisition there also are talks of Sun Pharma divesting its Ireland plant. The company is trying to do so to control costs that have spiraled since it bought Ranbaxy Laboratories Ltd. The management had earlier indicated its intent to divest non-core assets and divestment attempts on Ireland plant is showing the intent.