Markets
Sun Pharma: Down but not out?
Summary
- How will India’s leading drugmaker handle legal setbacks, volatile market trends, and competition in generics and specialty products?
Sun Pharmaceutical Industries Ltd, India’s largest drugmaker, has long been a favourite among investors. However, recent challenges, including a market-wide sell-off and a setback in its strategic plans, have raised concerns.
As the company grapples with these hurdles, the spotlight is back on its ability to navigate both legal battles and market volatility—making it a crucial moment for those closely tracking the pharmaceutical giant’s next move.
On 1 November, a New Jersey-based court blocked the company from launching LEQSELVI, which is used for treatment of adults with severe alopecia areata, a disease that attacks the body’s hair follicles and causes patchy hair loss.
Sun Pharma has highlighted that it will appeal the recent court ruling. With Incyte’s patent for the drug set to expire in December 2026, the company remains hopeful for a favourable resolution, though it may also consider alternative strategies, such as negotiating a royalty-based settlement with Incyte, to navigate the setback.
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The generic exporter was expected to have a revenue of $10 million (about ₹84 crore) from LEQSELVI during the current financial year and $80 million ( ₹672 crore) in the next financial year. And while the current financial year earnings estimates have not materially changed for Sun Pharma, the above development if not resolved quickly could lead to a 3% hit in its earnings for FY 26.
In a scenario, If Sun Pharma loses the case in the appeals court, it will have to wait till the patent expires in December 2026, and competition from other generic players could intensify. Sun Pharma’s earnings estimates for FY 27 could be hit to the tune of 5-7 %. The recent dip in the Sun Pharma stock has priced in the current uncertainties.
Market momentum
The company is a leader in the domestic pharma market with an estimated market share of 8%. It had launched 14 products in the market in different segments in the second quarter of FY25 and the sales momentum will be visible going forward. Sales in the domestic market accounted for nearly 32% of consolidated revenue from operations in the September 2024 quarter.
Sun Pharma had reported a consolidated revenue from operations of ₹25,944 crore in the first half of the current financial year and a consolidated earning per share (EPS) of ₹24.5.
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The stock has declined marginally -- about 2% over the past four trading sessions however, over the past one year it has gained nearly 57% vis-à-vis a 21% rise in the broader Sensex.
As of mid-Tuesday trade, Sun Pharma’s stock is priced at ₹1,806, not far from its 52-week high of ₹1,960, which was reached on 30 September 2024.
Rival Cipla has gained 33% over the past year and Dr Reddy’s Lab has gained 18.5% over the past year.
US generics market
The US generics market has faced price declines, but recent shortages in categories like attention-deficit/hyperactivity disorder (ADHD), cancer, and antibiotics have spurred action from the government to address the issue.
The administration, through the Health and Human Services (HHS) department, is reportedly working to address the ongoing shortage of generic medicines.
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This has benefitted large Indian generic exporters like Sun Pharma, Cipla, and Dr. Reddy’s, who have seen growth due to shifting focus to specialty products. These top exporters together account for nearly 10% of the $133 billion US generics market in 2023.
Strong quarter for Sun Pharma
Sun Pharma reported a strong performance in the September quarter, with US sales surging 20% year-over-year to $517 million (nearly ₹4,327 crore). The growth was primarily driven by generic lenalidomide capsules that are used for treatment of cancer of white blood cells (WBC).
This led to a 9% increase in consolidated revenue to ₹13,291 crore and a significant expansion in operating profit margin to 30.6%. Consequently, net profit rose 27.3% to ₹3,037 crore.
Growth outlook
Sun Pharma is working with Italy-based Philogen for Nidlegy, which is used for the treatment of skin cancer. They are awaiting approval from the European Medicines Agency, with Sun Pharma having marketing rights for the medication in the European Union, Australia, and New Zealand.
The market for such medicines for skin cancer is valued at several billion dollars each year, however, at this stage there are no clear timelines for the launch of the product.
Sun Pharma’s other generics in the pipeline like Ilumya for arthritis is in phase 3 and further clinical results are awaited.
Valuations
At ₹1,806 in mid-Tuesday trade, Sun Pharma trades at a P/E of 33 times, estimated consolidated FY25 earnings.
Also read: Drugs licence approval only if you show good manufacturing practices: DCGI
Rival Cipla trades at 25 times and Dr Reddy’s Lab trades at about 18 times, estimated consolidated FY25 earnings.
The Sun Pharma stock has broadly factored the growth opportunities in the short run.
Amriteshwar Mathur has over 20 years of financial journalism experience and is a shareholder of Sun Pharma for nearly a decade.
