Sun Pharmaceuticals has strong approvals and a robust pipeline in the US, prompting a rating upgrade from neutral to overweight.
Recent FDA approvals, including those for quetiapine, olanzapine,and metoprolol tartarate, have added to the company?s base business. The company recently launched gStalevo in the US market under first-to-file opportunity in certain strengths, which we estimate as a c$30 million opportunity in FY13. Near-term pipeline, including gPlavix in May, gEloxatin in August and gLexapro in October, should continue the US sales momentum, already boosted in FY13e by Lipodox.
After recent commentary from Johnson & Johnson, which indicates strong possibility of a Doxil (liposomal doxorubicin) shortage for 2012, we believe Lipodox could be a material opportunity of $90-100 million at a significant margin.
Additionally, uncertainty about any further favourable development in Prandin (another FTF opportunity) could be a catalyst. Caraco has yet to receive final ANDA approval for the drug and the launch timing is uncertain due to continuing litigation and an FDA import freeze on Caraco manufacturing products.
The strong performance in 2011 for Taro is courtesy of new launches and increases in prices of dermatological products. While we have seen price increases by certain other players in the market, the extent is variable. We believe that part of the price increases could be sustainable and could maintain strong performance in Taro.
We are lowering our FY13e and FY14e EPS by 3.9% and 3.5%, respectively, as we increase our forecast of the tax rate from low double digits to close to MAT (post-extension of MAT on partnerships in the recent Budget).
We increase our multiple to 24x from 22x on the back of recent strong generic wins, clarity on tax, and continued strong growth in the domestic market. We roll our target price to March 2013 and raise it to R670 from R605, derived using 24x March-14e EPS of R27.8. We are updating our rating to overweight from neutral. Key downside risks include delays in US approvals, protonix-related damages and slippage in Taro?s core performance.
HSBC
