Sun Pharma (SUNP) announced approval for gGleevec on December 4, 2015. SUNP will launch gGleevec on February 1, 2016 with 180-day exclusivity. The development is positive and in line with expectations. The key positives are: a) Gleevec is a growing product in the US, driven by price increases; b) lack of authorised generics during the exclusivity period is a possibility; and c) staggered post-exclusivity entry of generics could keep pricing healthy. We estimate Sun Pharma could clock revenue of $340-380 million if there are no authorised generics. We factor in $370mn in revenues and $230mn in earnings during the six-month exclusivity period. Further, we expect Ranbaxy synergies (which we estimate at $350mn in FY18F) to also drive growth. We factor in resolution at the Halol facility by mid-FY17F. We arrive at a 12-month target price of Rs 817/sh, based on SOTP valuation: a) Taro at Rs 147.1/sh, based on 14x Nov 2017 EPS of Rs 10.5; b) Gleevec exclusivity at Rs 6.3/sh; and c) base business at R664/sh, based on 23x Nov 2017 adjusted EPS (adjusted for gGleevec exclusivity, R&D spend on MK-3222, Taro earnings) of Rs 28.9. Our target price implies 8.2% upside from current levels, hence we upgrade to Neutral.
Our valuation multiple factors in growth beyond FY18F (after resolution at Halol and realisation of Ranbaxy synergies). Failure to scale speciality business presents a downside risk to long-term growth assumptions, hence valuation multiples.
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