Morgan Stanley: Still UW on Sun Pharma

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MS- Sun Pharmaceutical Industries (SUN.NS): SPARC's Baclofen GRS Failed to Meet Pivotal Ph3 End-points, Staying UW

What's new - Sun Pharma Advanced Research (SPARC, SPRC.NS, US$1.45bn market cap) announced that its lead phase 3 compound, baclofen GRS, did not meet the primary end point in placebo-controlled studies. Baclofen GRS is used for treatment of spasticity in patients with multiple sclerosis. Sun is the manufacturing and/or marketing partner of SPARC (de-merged from Sun Pharma in 2006) on a product-by-product, merit-based selection process. The two companies have the same promoter family.

Fineprint - The primary efficacy outcome was the proportion of subjects who experienced loss of efficacy following discontinuation of baclofen GRS. The study consisted of a total of 293 subjects with the intent of treating the population. According to SPARC, although there was a trend towards a difference in treatment failure rates between placebo and baclofen GRS following drug discontinuation, the results did not reach statistical significance. Also, it did not show a statistically significant improvement in total modified Ashworth score (for duration of action) over 24 hours compared to placebo. However, as per company, baclofen GRS met other (secondary) end points, including spasm frequency and nighttime awakenings.

Background - Management was expecting to out-license the molecule in FY18, followed by NDA filing in Q1FY19 had phase 3 data been positive. Also, it guided for peak sales potential of US$100mn (assuming tier 3 on formularies) with premium (to generic) pricing basis.

MS views: Baclofen GRS was the key product in SPARC's pipeline, but it now has a low probability of commercialization in DMs. This somewhat weakens Sun's efforts to build a specialty business in the US (Odomzo, tilkdrakizumab, Seceira, MM-II are the other key drugs). Elepsia XL and Xelpros are the mid-sized opportunities in SPARC's pipeline, which are delayed due to Halol (now under site transfer process). We remain UW on Sun.