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Home / Markets / Mark To Market /  Sun Pharma’s Revlimid drug patent settlement does not enthuse Street

Sun Pharmaceutical Industries Ltd’s agreement with Celgene Corp. is not enthusing investors. In fact, the Sun Pharma stock has not been able to clock much outperformance. It is just about keeping pace with the Nifty Pharma index. Returns have been around 35%, a tad lower than Nifty Pharma’s 38% gain over the past year. For now, there seem to be limited catalysts to spark an outperformance.

Sun Pharma has been pushing its US business hard. Its US generics revenue grew 7% year-on-year. But even while the numbers are up, competition is catching up.

Its recent agreement with Celgene Corp., a wholly-owned subsidiary of Bristol Myers Squibb, to resolve patent litigation over the generic Revlimid in the US highlights the same.

Tapering off
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Tapering off

The oncology drug is one of several big products with an annual market size of around $8 billion, and it signals a huge opportunity for Indian pharma. But Celgene is granting Sun Pharma a licence to sell a limited quantity of the generic in the US, which is set to begin after March 2022. This licence further extends the potential to an unlimited quantity after 2026.

Still, many Indian generic players are knocking on the doors of this market and have struck a deal with Celgene. This not only crowds the space, but could also see a potential price-erosion in the product point analysts. As a result, the upside for the likes of Sun Pharma stock may be limited.

“Six out of 11 para IV filers have settled the patent litigation case now with the majority entering the market in FY23. We estimate this opportunity represents an upside of 10/share for Sun Pharma on net present value basis," said an analyst with Emkay Global Financial Services Ltd.

Sun Pharma also recently inked a pact to launch the covid drug Molnupiravir in India. But analysts point out that the current contribution of the covid portfolio is minimal.

In the coming quarters, much will depend on the ramp-up in its specialty segment. Analysts are pencilling specialty products to clock revenues of about $600 million in FY22, which is a decent jump compared to $473 million in FY21. But costs are also expected to rise in the second half as marketing and branding costs start to normalize. Hence, despite the uptick in revenues expected, overall margins are likely to shrink a tad this year.

One positive has been the pick-up in domestic chronic segment. In fact, the domestic segment grew 13% y-o-y. However, the acute segment is facing challenges due to lower incidence of infection and low patient inflows, note analysts. That may not help its stock much as valuations are rich. “We believe current valuations amply capture all upside related to specialty," said analysts at Emkay Global.

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