1. Retain ‘sell’ on Sun Pharma, expect pricing to collapse

Retain ‘sell’ on Sun Pharma, expect pricing to collapse

At its 1QCY16 results, Novartis indicated it expected Gleevec to emerge as a four-to-six-player generic market in 3QCY16, in line with our contrarian view of at least four generic players competing on day-181.

By: | Published: April 26, 2016 6:23 AM

At its 1QCY16 results, Novartis indicated it expected Gleevec to emerge as a four-to-six-player generic market in 3QCY16, in line with our contrarian view of at least four generic players competing on day-181.

In such a scenario, we expect pricing to collapse by 80-90% and face further erosion over time as the market eventually will settle at eight-to-10 players by 2HFY18. Following this, we believe FY2017/18 consensus EPS estimates will face more downward pressures. ‘Sell’ stays.

Novartis’ 1QCY16 results suggest 35-40% price erosion for Gleevec with Novartis retaining over 50% market share so far. While Gleevec’s exclusivity will boost SUNP’s FY2016/17 EPS materially (`1.5/share EPS in FY2016 and `3.5/share EPS in FY2017), we believe the key sensitivity for Gleevec is the competition it will face after the 180-day exclusivity.

At its 1QCY16 results yesterday, Novartis highlighted that it expected Gleevec to turn into a four-to-six player generic market in 3QCY16. This is in line with our expectations of the drug turning into at least a four-player generics market on day-181.

Our position on Gleevec’s competitive landscape is based on our IP analysis and channel checks which indicate that most generic filers for Gleevec have straightforward non-infringement positions (non-needle shaped a polymorph bypassing CY2019 expiring formulation patents).

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