The recent jury decision determining that Nycomed?s ?579 patent on Protonix DR Tablets is not invalid is a setback to Sun Pharmaceuticals? (SUNP) current sales from the product ($100 m in FY10E). We expect the company to discontinue current sale of generic Protonix, leading to potential loss in revenues ($40 m of sales from generic Protonix in FY11E). The district judge?s decision, which is pending, could possibly overrule the current jury decision. A final adverse decision on the case (including appeals) could also expose SUNP to punitive damages (based on court discretion), but would be mitigated by the company?s relative late entry in the product, in our view.
Eloxatin opportunity also reduced: As per the recent court order on the Sanofi-Sun settlement agreement, SUNP will discontinue the sale of generic Eloxatin (oxaliplatin) by end of June 2010, impacting potential revenues from this opportunity. This decision comes post-Sanofi?s recent settlements with six other generic companies requiring generic manufacturers to stop selling generic Eloxatin from June 2010 with relaunch by August 2012. We expect loss of exclusivity sales from this product in FY12 and estimate lower sales in FY11 due to aggressive pricing until end-June 2010. We believe SUNP will abide by the decision and choose not to challenge the ruling. We are revising down our FY11 and FY12 estimated revenues by 5% each to factor in recent developments in exclusivity driven revenues, including oxaliplatin and pantoprazole. We exclude future exclusivity-driven revenues from pantoprazole ($40 mn in FY11E earlier) and also remove $35 m oxaliplatin sales from our earlier FY12 estimates.
We highlight that our exclusivity-driven FY11 revenues assume $50 m revenues from launch of generic Effexor XR (non-AB rated tablets to Wyeth?s capsules) where we expect approval shortly. While the opportunity is sizeable, timely approval and competitor approval and launch of Effexor XR capsules (Teva has entered into a settlement with Wyeth to launch generic Effexor XR by July 1, 2010, with a possible earlier launch if other generic companies get approval) could have a significant impact on the overall size of the opportunity for SUNP. Moreover, SUNP?s ability to get market share is also inhibited as its product is non-AB rated to Wyeth?s Effexor XR.
We maintain our SOTP-based target price of Rs 1,450, valuing core business earnings at 18x FY12E EPS. Our NPV-based value of one-off exclusivity revenues stands reduced to Rs 13 (Rs 36 earlier). Option value of almost Rs 32 bn cash provides downside support to valuations. We maintain ?hold? recommendation on the stock and rate it ?sector performer? on a relative return basis.
Outlook and valuations: We maintain our SOTP-based target price of Rs 1,450, valuing core business earnings at 18x FY12E EPS. Our NPV-based value of one-off exclusivity revenues stands reduced to Rs13 (Rs 36 earlier). Option value of almost Rs 32 bn of cash provides downside support to valuations.
