Sun Pharmaceuticals - Generic Imitrex Auto Injector – Another Niche Opportunity ::Citi

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Sun Pharmaceuticals (SUN.BO)
Alert:  Generic Imitrex Auto Injector – Another Niche Opportunity
The US FDA approval for Sun Pharma's generic version of Imitrex AutoInjector adds
another niche, complex product to the company's US product basket. With no other
generic version approved & competition likely to stay limited, this should be another
chunky product for Sun. While this is likely included in the company's FY12 revenue
guidance, it was not widely expected and  gives more comfort on the guidance.
Maintain Hold, on high valuations.
 Approval for generic Imitrex AutoInjector –- Sun Pharma announced that it has
received US FDA approval for a generic version of Imitrex (Sumatriptan Succinate)
AutoInjector. The product is indicated for the acute treatment of migraine attacks with
or without aura and the acute treatment of cluster headache episodes. Sun is the only
generic company to receive approval for this product in the US at this point.
 A Niche Opportunity –- Imitrex AutoInjector had annual sales of cUS$190m in the
US. This is a complex product and we do not expect too many competitors in the US
market. Besides, being the first (and sole at this point) generic to enter the market, Sun
should be able to capture decent share without material price erosion - leading to
above average profitability as well. We thus believe that this would be another
reasonably chunky addition to Sun's product basket in the US.
 More Comfort on Guidance –- Our estimates are in line with Sun Pharma's 28-30%
revenue growth guidance for FY12. This approval, while likely already part of the
guidance, provides some more comfort on estimates, given the high base in FY11 and
low traction in the recently launched generic Taxotere (Docetaxel). We maintain our
estimates and target price for the stock.
Sun Pharmaceuticals
Valuation
Our target price of Rs500 is based on a sum-of-the-parts approach, valuing its base
business using a P/E and ascribing an option value for its patent challenge pipeline.
We value frontline pharma stocks such as Cipla and DRL at 20x 12m forward earnings.
However, we believe Sun deserves a premium to these stocks, given its consistent
track record, high profitability and return rations, as well as the potential upside from
the deployment of idle cash in the business, and consequently value it at 22x 12-month
forward earnings. At 22x Jun'12E EPS we arrive at a value of Rs 490/sh for Sun's core
business. We also ascribe an option value of Rs10/sh to Sun's patent challenge
pipeline.
Risks
We rate Sun Pharma shares Low Risk in line with the recommendation of our
quantitative risk-rating system, which tracks 260-day historical share price volatility. Key
downside risks that could impede the stock from reaching our target price include: 1)
FDA issues at Caraco's Detroit plant may take longer than expected to be resolved.
This may also impact US sales of products from Sun's facilities until issues are
resolved; 2) Inability to effectively integrate the Taro acquisition and exploit synergies
could keep earnings depressed for longer than anticipated; 3) Any damages to be paid
in litigation on Protonix with Wyeth; and 4) A stronger IPR law in India could lead to a
gradual slowdown in growth rates for the Indian market. Key upside risks to our target
price include: 1) any new first to file/limited competition launch could act as positive
catalysts. 2) Faster than expected improvement in Taro's financials.