Add Sun Pharma Ltd for the Target Rs 2,000 by Emkay Global Financial Services Ltd
Sun’s 2QFY27 EBITDA was above our and street estimates, albeit aided by meaningfully lower R&D spend. EBITDA margin, ex-forex gain, was in line with our estimate. Gross margin was resilient yet again, on the back of sustained domestic outperformance. However, the qoq uptick in US sales in 2Q was an outcome of higher generic sales vs expectations of an uptick in specialty. As of now, we will refrain from jumping the gun based on the slowdown seen in Ilumya this quarter given that the street has mostly gone wrong with its alarmism on Ilumya in the past. We also do not belong to the camp that believes that the market landscape has become more competitive – Ilumya has always competed in a psoriasis market with multiple treatment options and competing drugs with better efficacy profiles have not impacted Ilumya’s scale up (we have argued in the past that the threat from orals + biosimilars might be overstated). That said, the approval for the psoriatic arthritis indication could not have come at a better time and we have moderated our near-term Ilumya assumptions as the management’s course correction takes shape. Beyond Leqselvi and Unloxcyt, we agree with the management’s view that Lyrokaul (Lerodalcibep) is a promising asset (comparable efficacy + convenient dosing vs competing treatment options). Organon’s own earnings print for 3QCY26 was marginally positive and biosimilars (+12% yoy) continued to be the bright spot. We cut our estimates for Sun by ~3%; retain ADD while cutting SoTP-based Sep-27E TP by ~5% to Rs2,000 from Rs2,100.
US sales in line aided by generics; domestic outperformance continues
Global specialty sales were up ~7% yoy to $356mn, below our expectations, with the miss resulting from a slowdown in Ilumya in the US. Overall US sales were in line with our estimate, aided by new generic launches. Domestic formulations growth (at 17% yoy vs our estimate of 15%) was above expectations (6.7% volume growth). Reported EBITDA was above our and street estimates, driven by higher gross margin (mix impact + currency tailwind) and lower R&D spend.
Earnings call highlights
1) Adjusted for gRevlimid, EBITDA growth in 2Q outpaced revenue growth.
2) A soft launch of Ilumya in psoriatic arthritis is planned for Nov-26, with a scale-up expected over subsequent months.
3) The company has taken measures to improve performance in Ilumya and anticipates growth over the next few quarters on the back of those measures + the new indication.
4) Sun has the capabilities and the field force to promote Lerodalcibep to cardiologists in some markets and will make additions wherever required; the company will submit dossiers for reimbursement across countries in Europe (a 6–12- month process).
5) Leqselvi and Unloxcyt are witnessing mom improvement in market share; Leqselvi is receiving positive feedback from physicians on the speed of onset.
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