Sun Pharma specialty strategy for the US is taking space as the company has stepped up business development as per recent in-licensing opportunities, approvals and acquisitions. The company is focusing on building out its branded portfolio for dermatology and ophthalmology in the US. We look at the recent news flow on the potential deal to acquire a US specialty company, InSite, along with the pipeline and SUNP strategy over the medium term. While near term focus is likely to remain on the upside from integration with Ranbaxy and the resolution of outstanding issues in Halol, we view the focus beyond generics positively for medium term growth and margins.
· *Potential deal with InSite.* As per media reports (*Economic Times*), Sun Pharma plans to acquire a specialty ophthalmic product developer, InSite Vision (Not covered) for equity value of Rs3bn. InSite’s DuraSite platform has already been leveraged in two commercial topical ophthalmic products for the treatment of bacterial eye infections, AzaSite 1%, marketed in the US by Akorn (covered by US analyst Dana Flanders), and Besivance 0.6%, marketed by Bausch + Lomb Incorporated (sub of Valeant Pharma covered by US analyst Chris Schott). The company indicated in its presentation that it could see potential milestones and further royalty streams from ROW partnerships for AzaSite (NiCox/Europe, Senju/Japan). · *InSite annual report highlight near term and medium term opportunities.* InSite has already filed NDA with the USFDA for BromSite (0.075% bromfenac for treatment and prevention of ocular pain in the post-cataract surgery setting) and has received a PDUFA date of 10-Apr-2016. Another drug, DexaSite (treatment of blepharitis), is likely to be filed with the USFDA in 1H2016. Unlike AzaSite, the company has retained rights to the product in the US for BromSite and retained global rights for DexaSite. · *Focus on building Specialty portfolio positive for SUNP, in our view.* A positive outcome from any such deal announcement would help augment SUNP’s ophthalmic portfolio in the US, which is in-line with its stated strategy to build branded portfolio in dermatology and ophthalmology segments. SPARC also announced a licensing deal with SUNP for commercialization of its ophthalmology drug, Xelpros (but USFDA approval denied due to ongoing issues in SUNP’s Halol facility). SUNP had indicated in the release then that this deal will facilitate its entry into the branded Ophthalmology segment in the US and strengthen its presence in the US specialty segment. We see SUNP looking at enhancing its Ophthalmology portfolio in the US going forward from any potential deal with InSite, new hire to head the Ophthalmology business in the US and other ophthalmic product in SPARC pipeline (like Xelpros, Brimonidine OD with IND filing by 4QFY16) as potential licensing opportunities. · *M&A – Small and Specialty in the near term*: SUNP has net cash of ~$875Mn as of Mar-15, which coupled with the FCF generation ($4+ bn over FY16-18), will continue to support the company’s inorganic growth strategy to drive earnings growth. The complexity of the recent RBXY deal may provide limited management bandwidth for any large acquisition in new areas/markets in the near term, but continue to see SUNP strengthening its US (specialty, branded and new technology) and EM business through further business development. *Figure* 1: InSite Commercialized and Pipeline Opportunities Source: InSite Annual Report. *Investment Thesis* The integration of RBXY and improvement in operating performance are key potential drivers in the medium term. While the deal is likely to be EPS-dilutive in the first year after completion leading to volatile quarterly results, improvement in trend and expected synergies should add value to SUNP’s existing business over the medium term. Further, strong FCF generation and net cash balance should help drive inorganic growth in the long term. *Valuation* Our Dec-16 PT of Rs1075 is based 24x P/E, a 20% premium to the domestic peer group given the superior margins we see over the medium term and a balance sheet for inorganic growth -- Kindly email stock reports at STOCKRESEARCHER@googlegroups.com For sharing knowledge -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no guarantee for the genuineness of the same."ANY member of this forum doesnt prepare or publish any research report; or ii. provide research report; or iii. make 'buy/sell/hold' recommendation; or iv. give price target; --- You received this message because you are subscribed to the Google Groups "Niftyviews.com" group. To unsubscribe from this group and stop receiving emails from it, send an email to stockresearcher+unsubscr...@googlegroups.com. For more options, visit https://groups.google.com/d/optout.
