01-01-1970 12:00 AM | Source: Emkay Global Financial Services Ltd
Buy Sun Pharmaceuticals Industries Ltd For Target Rs.645 - Emkay Global
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SCD-044 Phase 2 trial for Psoriasis bodes well for specialty

* Sun Pharma’s initiation of Phase 2 trials for SCD-044 in Plaque Psoriasis bodes well for its specialty aspiration as SCD-044 could broaden the company’s offering for Plaque Psoriasis, effectively leveraging all the investment made till now for Ilumya.

* We estimate a risk-adjusted NPV of Rs15/share for SCD-044, assuming a very modest market share of low single digit given the competitive landscape. We assume pricing to be in line with Otezla and 12% WACC. We also adjust the base case NPV of Rs101/share for the success probability of ~15%, suggesting a risk-adjusted NPV of Rs15/share.

* We maintain Buy on the stock and raise the TP to Rs660, based on the SOTP value of Rs645/share and SCD-044 NPV of Rs15/share. The SOTP value of Rs645 implies a P/E multiple of 22x on FY23E EPS. Key Catalysts: Specialty sales growth, Halol plant resolution and recovery in the branded markets

 

Sun Pharma initiated Phase 2 trial for SCD-044 in moderate to severe plaque psoriasis patients: The trial is a randomized, double-blind, placebo-controlled study to assess the efficacy and safety and will enroll ~240 subjects. The topline results are expected in 2022. SCD-044 is a novel, orally bioavailable S1P receptor 1 agonist for the treatment of inflammatory diseases such as atopic dermatitis and psoriasis.

 

Amgen’s purchase of Otezla, an oral psoriasis drug, makes us positive: Last year, Amgen purchased Otezla for USD11.2bn to augment its inflammatory disease focused pipeline. Amgen’s Otezla purchase came in at a steep valuation of ~6x FY1 sales. While the steep valuation was a function of strategic fit, Amgen sounded confident about the low double digit annual growth rate for Otezla in the medium term. This, in our view, highlights the need for orally effective psoriasis drugs with good side effect profile (Exhibits 3-4).

 

Risk-adjusted NPV of Rs15/share for SCD-044: Based on the incidence and prevalence, we estimate there are ~3mn people suffering from moderate-to-severe plaque psoriasis in the US and growing at a low single digit CAGR. We assume a very modest peak market share of ~2% for SCD-044, given a significant number of oral psoriasis treatments under development. Our analysis assumes pricing of ~USD43,000, in line with Otezla pricing, total R&D spend of USD150mn, WACC of 12%. We assume minimal other expenses given the existing front-end infrastructure the company has set up for Ilumya. We also adjust the NPV for success probability of 15% from Phase 1 to commercialization (Exhibits 1-2).

 

Maintain Buy and raise TP to Rs660: We modestly raise our FY21 and FY22 earnings estimates by 1% and 4%, respectively, to factor in better Absorica revenue due to delayed competition and QoQ recovery in Specialty and branded businesses. Our TP is based on the SOTP value of Rs645/share and SCD-044 NPV of Rs15/share (Exhibit 5).

 

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