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Dissecting the Winlevi launch: The devil is in the details

* We believe that the recent run-up in Sun Pharma stock due to the good traction for the Winlevi launch is an over-reaction to a typical launch strategy of having a Patient Assistance Program (PAP). A careful analysis of Winlevi prescriptions (Rx) suggests that two-thirds of the Rx come via the PAP.

* The company is offering a coupon card that limits out-of-pocket (OOP) cost for patients to as low as ~US$25/month. The patient can use the card for as long as 12 months, with total benefits of US$7,231 for 14 tubes. Based on this, we believe the revenue realization for PAP Rx would be very low.

* PAP is a typical launch strategy used by pharma companies to garner insurance (formulary) coverage. However, literature indicates PAPs rarely drive higher insurance coverage. This is something we have already witnessed with multiple drugs (e.g., Absorica). Hence, we believe total Rx, excluding PAP Rx, is a true reflection of the underlying demand, and we will monitor it to assess Winlevi’s potential.

* For now, we maintain our below-Street expectation for Winlevi peak sales at ~US$60mn, based on: 1) Rx trend, excluding PAP, 2) efficacy profile and 3) competitive landscape. We maintain our Hold rating on Sun with a TP of Rs775.

* Aggressive PAP is inflating the total Rx for Winlevi: We believe PAP-led Rx growth is giving Winlevi launch the illusion of being one of the best launches in the topical acne treatment category. However, excluding PAP Rx, Winlevi prescription trajectory falls to second last in the topical acne treatment category. As much as two-thirds of Winlevi’s Rx have been generated through PAP, which is much higher than other topical acne treatments. The proportion of Rx coming from PAP in the first 9 weeks of launch was ~67%, 25%, 14% and 3% for Winlevi, Aczone (7.5%), Epiduo Forte and Onexton, respectively.

* Revenue realization in PAP Rx very low: The Winlevi PAP program limits OOP cost for patients to as low as ~US$25/month. In other words, the company is realizing a meagre ~US$35 per tube vs. the list price of US$600+. Hence, a patient utilizing the PAP for a year could be paying only ~US$300 from the pocket, which translates to the company’s revenue, assuming no formulary coverage by the patient’s insurance. So, having a high number of PAP Rx would be unlikely to help the topline.

* Aggressive PAPs rarely offer better insurance coverage: First of all, only commercially insured patients are eligible for Winlevi PAP, suggesting a clear focus on garnering insurance coverage. However, commercial payers dislike PAPs because they subsidize patients for costlier drugs and lead to higher costs for payers. As this strategy has been utilized by many pharma companies, payers have realized its long-term impact and remain unmoved by such tactics. Even the likes of Gilead Sciences, with its Hep C miracle drug Solvadi, have failed to boost insurance coverage through PAP. Similarly, Sun Pharma’s revamped coupon program for Absorica led to rapid Rx growth in H1FY18 but didn’t induce additional insurance coverage, and at the same time, it reduced profitability as Sun was losing money on PAP Rx. Once the program was scaled down, total Absorica Rx normalized in Q4FY18.

* Maintain Winlevi peak sales est. of US$60mn; Retain Hold: We maintain our expectation for Winlevi peak sales of ~US$60mn, based on more fundamental factors such as 1) efficacy and 2) competitive landscape. Given the lower efficacy and majority of products going generic in the topical acne category, preferred (insurance) coverage is expected to be limited.

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