Kotak Sec recommends: sell Rs 1,835

Lower court invalidates Taxotere patent, may be a key drug for SUN in FY2012E.
We believe this could turn out to be a post 180-day exclusivity, low-competition drug for SUN
(four companies have filed till date), although the launch timing is uncertain. Due to the
uncertainty over the launch, we do not include this drug in our estimates. We believe the earliest
SUN could launch is in May 2011E, and it could earn revenues of US$53 mn and PAT of US$34
mn in FY2012E from this drug. We retain REDUCE with PT of Rs1,835.


Lower Court in US invalidates patents on cancer drug, Taxotere.
The Lower Court in US ruled patents on Taxotere invalid (US$1 bn sales in US, drug for cancer),
We believe four generic companies have challenged patents on this drug till date- Hospira, Apotex,
Sun and Sandoz. We believe Hospira is the FTF on this drug and may launch at-risk in November
2010E, post expiry of composition of matter patent (November 2010) which was not challenged
by any of the four companies. Sun may enter in May 2011E, six months after the generic launch,
the timing of launch remains uncertain.
Could turn out to be a low -competition drug for SUN, although launch timing is uncertain
We believe the timing for SUN’s launch is uncertain as (1) the ruling may be appealed in higher
Court by innovator, Sanofi Aventis (2) Sanofi may get an injunction preventing generic launch in
the near term (3) even if final FDA approval comes through for SUN , it may not choose to launch
at risk, while the patent litigation challenge is underway, given the overhang of Protonix patent
invalidation.
SUN could earn PAT of US$35 mn, however we do not include this drug in our estimates
Due to uncertainty over launch of the drug, we do not include it in our estimates. We believe the
earliest SUN could launch the drug is in May 2011E, and it could earn revenues of US$53 mn
(15% market share, 65% price erosion) and PAT of US$34 mn in FY2012E.
We retain REDUCE rating with PT of Rs1,835, key catalyst is resumption of Caraco plant
SUNP has one of the best generic pipelines among global peers (see table inside). At its current
price, SUN trades at 23X FY2012E core earnings (see table inside). We value SUNP at (1)19X
FY2012E core EPS ex-interest income, (2) cash/share of Rs287 and (3) DCF value of settled
challenges of Rs4. Catalysts are (1) resumption of production at Caraco plant and (2) favorable
verdict on generic Eloxatin appeal filed by SUNP (3) launch of generic Taxotere. Any positive news
on the above will lead to an upgrade in our earnings.