Citigroup on Sun Pharma

Citigroup believe thats Sanofi’s recent settlements with several generic companies for Eloxatin could potentially leave Sun Pharma as the sole generic player in the $1.3-bn market over July ‘10 to Aug ‘12. This could lead to the potential NPV (net present value) of this opportunity, during exclusivity, being much higher than current estimate of about Rs14/share. Sun appears to be the only generic firm with approval that will continue selling the product. Sanofi had sued several generic companies for infringement of its patents on Eloxatin. Sun settled its litigation in May ‘09. A favourable ruling for generic companies in June ‘09 triggered “at risk” launches by Teva and Hospira.

Sun launched generic Eloxatin in the US in Mar ‘10 and, unlike the other generic companies in the market, its launch is not “at risk”, given its earlier settlement. This has effectively strengthened its position vis-àvis the other generic companies, whose launches were “at risk”, allowing it to hold on in the market unlike other generic cos such as Teva, Hospira and Sandoz. However, there is upside to this if Sun remains in the market as the sole generic player till August ‘12. If Citigroup assumes a single-player market (30% price erosion and 30% market share) till August ‘12, the NPV from this opportunity would work out to Rs 65/share. Earlier than expected entry of other generic players is a potential risk to this valuation.