Sun Pharmaceutical Industries

Sun’s EPS may take a hit if co stops cancer drug sale

Stock Falls For The Fourth Day Following Legal Tussle

THE stock of Sun Pharmaceutical Industries fell for a fourth day in a row, as investors are worried about the company’s legal tussle with Sanofi-Aventis over cancer drug oxaliplatin.

Sanofi, the innovator of oxaliplatin wants Sun Pharma to stop selling oxaliplatin from June 30 this year. But so far, Sun Pharma has not indicated if it will comply with Sanofi’s demand. Analysts estimate that Sun Pharma could lose as much as Rs 20 earning per share (EPS) this year, if it stops selling the cancer drug. However, the company could net huge gains if it defies Sanofi and later wins the legal battle with the multinational firm.

Some analysts have trimmed their full-year EPS forecast for Sun Pharma, expecting the firm to capitulate shortly. The Sun Pharma stock closed at Rs 1,770.25 on Friday, down marginally. In the past four sessions, the stock has shed nearly 4%. Sanofi had recently cut a deal with six rival firms, to stop them from selling the drug from June 30 to August 9, 2012. Sun Pharm had signed a settlement with Sanofi-Aventis in May 2009, and subsequently, launched a generic version of the drug in early 2010. Sanofi says its agreement with Sun Pharma was that the latter must stop distributing the drug, if all other generic makers withdrew.

Sanofi has asked the court to enforce restriction on Sun Pharma as part of the patent litigation. The court’s decision to accept all the outof-court agreements, along with a final verdict, is awaited.

If Sun Pharma pushes ahead with oxaliplatin sales after June 30, and the court verdict goes against it, the company will be liable for damages with retrospective effect. It is the penalty that investors are worried of, though the gains could be huge if the court decides in Sun Pharma’s favour.

Also, if Sun Pharma sells the drug after June 30, it will be the only generic in the market, giving it pricing power, said an analyst with a domestic broking firm.

Ms Kour does not see much upside for the stock which, she says, is fairly valued at 22 times one-year forward earnings. In 2009, Sanofi’s sales from Eloxatin (the branded oxaliplatin product) was 957 million euro. In 2008, before the launch of generic versions, the sales were 1,345 million euro. Broking firm Karvy estimates Sun Pharma’s sales from oxaliplatin at $39 million this financial year and $31 million next year, assuming at least three competitors. However, with other generic competition out of the market, Sun Pharma’s oxaliplatin sales could be much higher, said an analyst who did not want to be named.

Ms Kour estimates oxaliplatin to contribute Rs 50 to Sun Pharma’s EPS this year, assuming the Indian company is the only generic player in the market till August 2012. The contribution for the following year would be Rs 47, she said. The consensus estimates for Sun Pharma’s earnings from oxaliplatin, prior to Sanofi’s deal with other players, was Rs 26 for this year and Rs 14 next year.