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After achieving significant scale and size in US and India, Sun is now strengthening its presence
in EMs through its JV with Merck. Given the timelines required for product development and
registration in multiple markets, we expect significant synergies to flow in from 2014-15 onwards.
Sun and Merck enter into a JV targeting innovative branded generics in EMs
Sun Pharma and Merck & Co have entered into a JV to develop, manufacture and
commercialize new combinations and formulations of incrementally innovative, branded
generics in the Emerging Markets (EMs). Each entity (Sun and Merck) would retain its
existing relationships and business (including India). The company indicates that the current
portfolio of products under consideration is less than 12 with the addressable market being
about 100 countries. However the focus would be on the top 10 countries which are expected
to generate about 80% of the JV's revenues.
Operational road map of the JV
JV management: The JV would be managed by a Joint Board comprising of equal
representation from Sun Pharma and Merck.
Product selection: The Joint Board would be responsible for product selection which could
either be from Sun, Sun Pharma Advanced Research Company (SPARC) or Merck. Sun
Pharma has the right of first refusal for distributing SPARC's products in the EMs. If SPARC's
product gets selected, it could receive an upfront payments as well as milestone payments.
Product development: Sun Pharma would be responsible for developing the product through
its initial life cycle and then handing it over to Merck for clinical development and registration
in various markets.
Manufacturing and marketing: While Sun Pharma would be responsible for manufacturing the
products, Merck would use its strong marketing footprint in the EMs to distribute these
products.
Profit sharing arrangement: The JV would utilize the infrastructure of Sun (manufacturing,
product portfolio) and Merck (development, registration and marketing) and reimburse them
adequately. The equity structure of the JV, which would determine the profit sharing
arrangement between the partners. is not decided as yet.
Financial deal not disclosed; JV synergies likely to flow in from 2014-15
The JV synergies are apparent - Merck's innovative product portfolio, registration expertise
and a broad geographic commercial footprint combined with Sun's manufacturing expertise
and understanding of diverse needs of patients and physicians across the EMs. However, as
financial (JV share) and other strategic information (product details, target market size, etc)
have not been disclosed, it is difficult to quantify the benefits arising from the JV. We also
believe that given the timelines required for the process of product development and
registration in multiple markets and Sun indicating that it is unlikley to make any significant
transfer of products from its existing portfolio for next 3 years, significant upsides could only
translate from 2014-15 onwards, in our view.
We maintain Hold on Sun Pharma
We note that Sun Pharma derived 83% of its 9MFY11 revenues from US and India and has
relatively weaker presence in emerging markets other than India. The JV with Merck allows
Sun Pharma access to these markets without entailing investment on building up a front end
presence in these markets. SPARC has also now got a lucrative gateway for its products. Our
SOTP-based target price of Rs420 for Sun Pharma is derived by valuing Sun's core business
at Rs387 (21.4x FY12F PE in line with the sector); Taro at Rs25; and one-offs at Rs7. While
Sun's strong ANDA pipeline along with similar JV agreements could surprise, upside looks
limited from current levels. We maintain Hold.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
After achieving significant scale and size in US and India, Sun is now strengthening its presence
in EMs through its JV with Merck. Given the timelines required for product development and
registration in multiple markets, we expect significant synergies to flow in from 2014-15 onwards.
Sun and Merck enter into a JV targeting innovative branded generics in EMs
Sun Pharma and Merck & Co have entered into a JV to develop, manufacture and
commercialize new combinations and formulations of incrementally innovative, branded
generics in the Emerging Markets (EMs). Each entity (Sun and Merck) would retain its
existing relationships and business (including India). The company indicates that the current
portfolio of products under consideration is less than 12 with the addressable market being
about 100 countries. However the focus would be on the top 10 countries which are expected
to generate about 80% of the JV's revenues.
Operational road map of the JV
JV management: The JV would be managed by a Joint Board comprising of equal
representation from Sun Pharma and Merck.
Product selection: The Joint Board would be responsible for product selection which could
either be from Sun, Sun Pharma Advanced Research Company (SPARC) or Merck. Sun
Pharma has the right of first refusal for distributing SPARC's products in the EMs. If SPARC's
product gets selected, it could receive an upfront payments as well as milestone payments.
Product development: Sun Pharma would be responsible for developing the product through
its initial life cycle and then handing it over to Merck for clinical development and registration
in various markets.
Manufacturing and marketing: While Sun Pharma would be responsible for manufacturing the
products, Merck would use its strong marketing footprint in the EMs to distribute these
products.
Profit sharing arrangement: The JV would utilize the infrastructure of Sun (manufacturing,
product portfolio) and Merck (development, registration and marketing) and reimburse them
adequately. The equity structure of the JV, which would determine the profit sharing
arrangement between the partners. is not decided as yet.
Financial deal not disclosed; JV synergies likely to flow in from 2014-15
The JV synergies are apparent - Merck's innovative product portfolio, registration expertise
and a broad geographic commercial footprint combined with Sun's manufacturing expertise
and understanding of diverse needs of patients and physicians across the EMs. However, as
financial (JV share) and other strategic information (product details, target market size, etc)
have not been disclosed, it is difficult to quantify the benefits arising from the JV. We also
believe that given the timelines required for the process of product development and
registration in multiple markets and Sun indicating that it is unlikley to make any significant
transfer of products from its existing portfolio for next 3 years, significant upsides could only
translate from 2014-15 onwards, in our view.
We maintain Hold on Sun Pharma
We note that Sun Pharma derived 83% of its 9MFY11 revenues from US and India and has
relatively weaker presence in emerging markets other than India. The JV with Merck allows
Sun Pharma access to these markets without entailing investment on building up a front end
presence in these markets. SPARC has also now got a lucrative gateway for its products. Our
SOTP-based target price of Rs420 for Sun Pharma is derived by valuing Sun's core business
at Rs387 (21.4x FY12F PE in line with the sector); Taro at Rs25; and one-offs at Rs7. While
Sun's strong ANDA pipeline along with similar JV agreements could surprise, upside looks
limited from current levels. We maintain Hold.
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