In every conference call held in fiscal year 2018 (FY18) after Sun Pharmaceutical Industries Ltd’s quarterly result, the launch of tildrakizumab was a key point discussed. The Halol plant’s non-compliant regulatory status was another. It’s a bit of a surprise then that its shares yawned at the announcement that the firm got a novel drug approval for Ilumya, the brand name for tildrakizumab.

This could be a case of the news already in the price but this was by no means a slam dunk, as seen from the conversations in these calls.

There is the possibility that the company’s continuously flagging US sales growth and inability to clear the Halol hurdle has made investors circumspect, even in the face of positive news. At Halol, new generic approvals have stopped as even a recent inspection of the plant saw observations regarding deficiencies.

Ilumya is good news in that light, becoming a key contributor to US revenues eventually. This drug was licensed by Sun Pharma from Merck and Co. in 2014, by paying an initial sum of $80 million and while Merck did the work and filings to bring it to market, Sun Pharma has borne all costs.

It has worldwide rights for this product and has out-licensed it for Europe. Sun Pharma will pay Merck milestone-related amounts (the approval itself will trigger a payment) and then royalty on sales that will range from mid-single digit through teen percentage rates on sales.

Sun Pharma deserves a pat for getting its licensing candidate right, which targets a large market opportunity. In recent calls, Sun Pharma’s management has said its marketing organization for Ilumya is in place, and some field force recruitments are already done. That means related investments and expenses, to an extent, are already in its expenditure.

Initially, Merck will supply the product and later Sun Pharma will shift production to a third-party facility. Sun Pharma’s management had said that the investment phase for Ilumya—where the company will spend more than it will sell—may last for 1.5-2 years.

In the US, the market for psoriasis drugs is a sizeable one. For instance, Janssen Biotech Inc.’s Stelara earned $4 billion in global revenues in 2017. Janssen also launched a product Tremfya, which is in the same sub-category of IL-23 products, as Sun Pharma’s Ilumya. There are some concerns too, on whether too many products are crowding this market, whether Tremfya will be preferred over llumya, and also positive trial data for a new product risankizumab (being developed by AbbVie Inc.).

In response to a question that asked the revenue potential from speciality products, Sun Pharma’s managing director Dilip Shanghvi said that IL-23 and IL-17 (different sub-categories of immunology products targeting diseases such as psoriasis) are being sold by very large companies with more experience in speciality biologics than Sun Pharma. While the company may not have the same success the large firms may have (in turning it into a blockbuster drug), Shanghvi said it has a good product and sees no reason to not try and match those revenues. He also clarified that the current spend is not geared to handle that kind of volume and upside but Sun Pharma will take that decision closer to market.

After its March quarter results, the management will give a guidance for FY19, which should factor in the impact of Ilumya’s launch. Sun Pharma will probably share some details on its plans for the product and its future. Investors are keeping their hopes low. Whether they are surprised by the management’s guidance remains to be seen. The company has passed a key near-term milestone with the Ilumya approval. Sun Pharma’s investors seem to be fixated more on its ability to get the Halol facility compliant for them to change their cautious view.

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