Sun Pharmaceuticals - Inline Quarter; Tildrakizumab Prospects Look Bright; Result Update Q2FY15:: Edelweiss

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��
-->

Sun Pharmaceuticals (SUNP) reported Q2FY15 EPS that was largely inline despite some increased overheads due to the impending Ranbaxy Laboratories (RBXY) merger. SUNP’s evaluation of Tildrakizumab’s clinical profile showcases the immense potential of this asset and resonates with our assessment. We continue to believe that SUNP will continue to scout for opportunities as it targets becoming a specialty player. Its execution history of M&A/business development and cash on books will sustain premium valuations.

Inline quarter: Taro, India led growth

Driven by Taro’s Q2FY15 performance, sales grew 13% YoY while EBITDA margin improved to 45.7%, 1%/70bps above our estimates, respectively. While gross margin (150bps beat) was higher than estimates, overheads related to the RBXY merger (recurring for few quarters) restricted EBITDA margin expansion. India revenues grew 21% YoY, while US grew 12% despite a higher YoY base due to Doxycycline and Prandin. The performance leaned towards Taro, and hence adjusted for minority interest, PAT was 3% below our estimate.

Tildrakizumab (novel molecule): An exciting prospect

R&D expenses towards Tildrikazumab’s (in Ph-III trials) development will be in the USD250mn range over the next 5 years. SUNP believes that the safety profile of IL-23 molecules is rather benign compared to anti-TNFs. That J&J is pursuing the same class of molecule (IL-23) despite having a comparable asset (Stelara, USD1.5bn annualised sales in the US) provides confidence on this opportunity.

Other key takeaways

(a) Minor delay in RBXY-SUNP merger possible as CCI (Competition commission of India) response is still awaited; (b) Halol plant remediation (post Form 483) under progress; c) 15 ANDAs filed in H1FY15; d) R&D expenses at 6.6% of sales in H1FY15.

LINK

https://www.edelweiss.in/research/Sun-Pharmaceuticals--Inline-Quarter;-Tildrakizumab-Prospects-Look-Bright;-Result-Update-Q2FY15/27582.html