Sun Pharmaceutical Industries Ltd and Merck and Co. Inc.’s partnership for emerging markets has excited shareholders.
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On Monday, the Sun Pharma stock rose by 2% in anticipation, compared with a flat showing by the healthcare index of the Bombay Stock Exchange, as the deal announcement was scheduled after the market hours. Limited details about the joint venture’s (JV) structure and its long-term nature may disappoint investors a little.
Investors in Sun Pharma Advanced Research Co. Ltd (Sparc), whose shares rose by about 4%, have much to cheer about. This company is the research arm of Sun Pharma, which was demerged into a separate company.
The Sun Pharma-Merck JV will sell innovative generic products in emerging markets. Details such as investment, shareholding pattern, therapeutic categories or number of products under consideration have not been shared. Usually, investors guesstimate the potential, using some of these details, but in this case, forecasts will have to wait.
What is known is that the venture will drive the sale of generic drugs in emerging markets. The venture will be akin to a special purpose vehicle: it will choose the products, get the work done by companies independently, and share the costs and revenues with them.
Sparc and Sun Pharma’s responsibilities pertain to research, product development and supplies. Sparc is working on novel drug delivery systems for administering medicines. Merck will do the clinical development, get regulatory approvals and market the products.
Sparc’s benefits are more apparent, despite not getting an equity stake in the venture due to tax reasons. Earlier, for emerging markets, Sun Pharma had the first right over Sparc’s products. Thus, Sparc’s future depended on Sun Pharma’s ability to take its products to market.
Merck’s larger presence in emerging markets increases the potential market for Sparc’s products. Its future revenue streams appear more secure now and investor confidence is likely to improve after this transaction.
Sun Pharma does not expect any revenue to flow in from the venture in the next few years, said the company in a conference call. That is understandable, as the clinical development and regulatory processes will take time. Thus, the longer-term benefits of the deal appear to be promising, but lack of basic details such as the investment required and Sun Pharma and Merck’s share in the venture make it difficult to assess the potential benefits to Sun Pharma. The benefits to Sparc are more apparent, even if they are longer-term in nature.
Graphics by Ahmed Raza Khan and Sandeep Bhatnagar/Mint
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