Reliance Securities

Sun Pharmaceutical Ind (Buy)

CMP: ₹396

Target: ₹500

Sun Pharmaceutical Industries has launched ophthalmic specialty Novel/NDA drug Cequa (API: cyclosporine; strength: 0.09 per cent solution; US FDA approval: Aug’18; patent expiry: August 2033) in the US. This is the third such product from Sun Pharma’s ophthalmic portfolio (Xelpros and Bromsite) and 9th specialty product in the US. Cequa is the first and only US FDA approved cyclosporine treatment delivered with NCELL (nanomicellar) technology, is indicated for keratoconjunctivitis sicca (dry eye disease; 16mn+ patients in the US). Cequa offers advantages i.e. increased bioavailability, improved ocular tissue penetration, superior tolerability and higher concentration (0.09 per cent vs. available 0.05 per cent). We expect Sun Pharma to generate about $5 million /$20 million revenue in FY20/FY21E (already built in our valuation model) with peak sales of $40-50 million.

Though Sun Pharma has already addressed some corporate governance issues raised by the investors, the SEBI-related issues continue to remain event-specific risk for the stock in the near-term. At CMP, stock trades at about 19.2x and 15.8x of FY20 and FY21 earnings, respectively (12-month fwd 3-yearr average Bloomberg PE at about27x; below 1-SD three-year average), which is attractive to take fresh position, in our view. In light of increasing visibility in India and other geographies, we maintain our BUY recommendation.

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