Market

Sun Pharmaceuticals Rating: Buy- Market trends augur well for Ilumya sales in US

After COVID-19 disruptions in H1, a lot of the manufacturers noticed sturdy recovery in H2CY20, which in our view implies sturdy demand and rising market measurement for anti-IL medicine.

Sun reported sturdy pick-up in specialty merchandise sales in Q3FY21 primarily on spectacular Ilumya (anti-IL model) sales. It surpassed FY20 sales of $94 m for Ilumya in 9MFY21 on improved business execution as well as steady market growth for anti-IL (interleukin) inhibitor medicine. Overall anti-IL drug sales in the US at

$11.5 bn grew ~31.5% y-o-y in 2020 (after 38% y-o-y progress every in 2018 and 2019) with strong sales reported by key manufacturers – Novartis’s Cosentyx, Eli Lilly’s Taltz, JNJ’s Stelara and Tremfya, and AbbVie’s Skyrizi. After COVID-19 disruptions in H1, a lot of the manufacturers noticed sturdy recovery in H2CY20, which in our view implies sturdy demand and rising market measurement for anti-IL medicine.

No incremental hurdles for Ilumya on rise in competitors, in our view: We imagine there are a number of considerations on Ilumya on (i) rise in competitors with potential entry of UCB’s bimekizumab, and Eli Lilly’s mirikizumab in near- to medium-term; and (ii) ongoing excessive spend on R&D and advertising. While competitors and ongoing prices for specialty medicine are inevitable, we don’t see incremental hurdles for Ilumya as: (i) anti-IL market is rising and it has all the time been a aggressive house the place Sun is competing towards stronger opponents (e.g. Novartis, AbbVie); (ii) newer medicine are weighing themselves towards established manufacturers (e.g. Cosentyx), so any potential market shift might occur there somewhat than disrupting comparatively small manufacturers like Ilumya, in our view; (iii) Sun has largely optimised advertising prices for Ilumya and scientific trial prices for a further indication is well inside its budgeted R&D.

Remain Buy on working leverage advantages: We stay constructive on the long-term outlook for Sun’s efforts in specialty merchandise, the place it ought to ultimately obtain working leverage advantages with pick-up in prescriptions and sales. We count on US specialty sales to achieve $625 m in FY23e (37% of complete US sales) from ~$340-345 m in FY20 (~24% of US sales). We assume Ilumya sales in the US to achieve $225 m by FY23 (from ~$80-85 m in FY20), implying a sales CAGR of 23%.

Valuation: We worth Sun’s base business by discounting the one-year ahead honest worth, which is predicated on 24x (Gordon growth-based PE, unchanged) our December 2022e EPS estimate of Rs 29.37. We add a NPV of `50 per share (unchanged) for Ilumya and Cequa to the bottom business worth to reach at our honest worth TP of Rs 700.

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