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Favourable developments in Eloxatin case
�� Sun pharma wins appeals decision in Eloxatin case: On 22-Dec-10, the
appeals court vacated the consent judgment and order given by the district
court. Also the injunction under the consent agreement entered by the district
court no longer holds. The case now goes back to the district court to provide
an opportunity to conduct discovery and allow Sun/Sanofi's to present
evidence as to the proper resolution of the ambiguous language in the license
agreement that is incorporated in the parties’ original proposed consent
judgment.
�� Presents an interesting opportunity for Sun: The appeals decision means
that Sun can now launch the product at-risk which will mean other generic
players also enter the market. Considering a best case scenario with potential
for up to sales of $50m/year (Pre-generic entry brand size: $1.3bn; 40%
share; 90% erosion), will be a +1-2% upside for Sun. Even if Sun does not
launch the product immediately it will provide the company substantial
advantage in the settlement discussions with Sanofi. Given the market
dynamics, we believe Sun is likely to settle the case to maximise value. We
believe such settlement could lead to 2-3% upside to Sun’s market cap. Also
appeals win in a US litigation (Sun has done this twice in a row now after
Gemcitabine) will be a positive for sentiment.
�� Sun’s stand vindicated: Sun had earlier launched generic Eloxatin at-risk in
Jan-10, following launch by other players from Aug’09. In Apr-10, Sanofi
settled the litigation with other generic players such as Teva, Sandoz,
Hospira, APP, Par and Actavis. As per that settlement, these generic
companies were required to stop selling their products from 30th June, 2010
and were allowed to re-enter on 9th Aug, 2012. This settlement raised a
question of whether even Sun would be required to stop selling its generic.
According to Sanofi, their Consent Agreement required even Sun to stop
selling. This was based on the interpretation of the term “decision (s)
enjoining” to include settlements entered into with other parties that were
entered by the court. However, Sun disputed this meaning. According to Sun,
this term required a court-mandated injunction. The district court had
previously adopted Sanofi’s version of the agreement and Sun had appealed
that decision. The appeals decision has vacated that district court decision
recognizing that the term is ambiguous and asking the district court to
conduct discovery on the issue and allowing both parties to present evidence.
We believe this opens up an opportunity for Sun to launch its generic version,
which may lead to even other companies launching their generic versions. On
the other hand, a preferred outcome for both Sun and Sanofi would be to
settle the dispute. We think this represents significant upside for Sun.
�� We reiterate our BUY on Sun pharma with a Dec-11 target price of `532
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