SPARC: More sparks to follow?

The business model has ensured medium-term cash flow and long-term funding of R&D

Investors seem to be betting highly on the prospects of Sun Pharma Advanced Research (SPARC), with the stock gaining 33 per cent since March 4, when the company announced the US Food and Drug Administration (FDA) approval for a drug, used in treating seizures. The upsides from the drug (Levetiracetam), with estimated sales potential of $30-50 million, could be higher, as the company could charge a premium from the same as the medication, unlike competition, is available in lower doses. With the approval of this product, the Street is looking at the possibility of the company bringing other products to the market such as Latanoprost BAK-free eye drops to treat glaucoma, with sales potential of $25-50 million. Analysts say if the company, making losses for some time, is able to get about $30 million in annual revenue from out-licensing and royalty fees, then it is positive for the stock. This is because it can generate cash flow and fund its R&D programme.

While the company is focusing on oncology, ophthalmology, neuroscience and respiratory segments for its novel drug delivery systems (NDDS) portfolio, the new chemical entity (NCE) segment seeks to discover molecules in the respiratory and oncology segments. Unlike a typical R&D company, SPARC’s business model is de-risked with NDDS ensuring cash flow while new chemical entity business keeping the long-term prospects alive. Even in the case of Levetiracetam, the drug will be marketed by Sun Pharma, which will share part of the revenues/profits as royalty with SPARC.

  For the company, the benefit of the regulatory approval process of 505(b)(2), which includes NDDS, is that they are low-cost given that part of the data is already accepted by the FDA and thus avoids costly development time.

Secondly, they qualify for exclusivity which can range from three to seven years depending on the type of clinical data in the application, say analysts at Karvy Stock Broking.

While the Street was expecting some progress on the two drugs and only one approval has come through, the company has another four-five drugs under development as part of its new drug delivery system programme and three drugs under the new chemical entity R&D effort. Among other drugs, Baclofen and Venlafaxine used as a muscle relaxant and depression are in the Phase III and pre-registration phase, respectively.