Buy Sun Pharma Ltd For Target Rs. 1,970 by Motilal Oswal Financial Services Ltd
Checkpoint deal bolsters global specialty portfolio
* Sun Pharmaceuticals (SUNP) has entered into an agreement to acquire Checkpoint Therapeutics (current mkt cap: USD120m) for an upfront payment of USD355m to its shareholders.
* This acquisition expands SUNP’s onco-derma offerings and marks its entry into PD-L1 (Programmed Death Ligand-1) inhibitors. These inhibitors are effective against multiple cancers with fewer side effects.
* Specifically, Checkpoints’ Unloxcyt (Cosibelimab-ipdl) is a USFDA-approved potential drug to treat cutaneous squamous cell carcinoma (cSCC) patients. In fact, this drug holds the potential for additional indications through combining the drug with synergistic molecules.
* Considering a) evolving products in the PDL1 inhibitor category and the commercial success of already approved products at the industry level, b) superiority of Unloxcyt due to fewer side effects with similar efficacy, and c) significant scope to add new indications using Cosibelimab combinations, we believe this acquisition will provide robust commercial benefits going forward.
* We largely maintain our estimates for FY25/FY26/FY27. We value SUNP at 30x 12M forward earnings to arrive at our TP of INR1,970. Maintain BUY.
Checkpoint Therapeutics – focuses on development of cancer immunotherapy and targeted oncology treatments
* Checkpoint is a Nasdaq-listed commercial-stage company focused on developing novel treatments for patients with solid tumor cancers.
* Checkpoint has received approval from the USFDA for Unloxcyt (cosibelimabipdl) for the treatment of adults with metastatic cSCC (type of skin cancer) or locally advanced cSCC, who are not candidates for curative surgery or curative radiation. It is the second most common form of human cancer.
* Checkpoint was founded in Nov’14. In addition to approved Cosibelimab, it has a pipeline of drugs (Olafertinib – starting Phase1) and early stage programs (CK-103, CK-302, CK-303)
Transaction to be completed by 2QCY25
* SUNP will acquire all outstanding shares of Checkpoint by an upfront cash payment of USD4.1 per share (CMP USD2.47; Mkt cap: USD120m). The deal is expected to be compinleted in 2QCY25.
* The eligible stockholder will receive USD0.7 in cash, if Cosibelimab is approved prior to certain deadlines in the European Union pursuant to the centralized approval procedure or in Germany, France, Italy, Spain or the UK, subject to the terms and conditions in the contingent value rights agreement.
* The aggregate consideration (excl USD0.7/share) is expected to be USD355m.
* For 9M ending Sep’24, Checkpoint had revenue of USD0.04m and a net loss of USD27m. The R&D expense was USD19.3m. Checkpoint had a cash balance of USD4.7m.
PD-L1 market on strong growth path; Advantage Cosibelimab (Unloxcyt)
* In this note, we have highlighted the overall landscape of PDL1 inhibitors.
* PD-L1 inhibitors are a class of checkpoint inhibitor immunotherapies that block the PD-L1 protein on cancer cells, restoring T-cell activity and allowing the immune system to attack tumors.
* They are used to treat various cancers, including lung cancer, bladder cancer, and cSCC.
* Key FDA-approved PD-L1 inhibitors include Atezolizumab (Tecentriq), Durvalumab (Imfinzi), Avelumab (Bavencio), Cemiplimab (Libtayo) and Cosibelimab-ipdl (Unloxcyt).
* The six commercialized drugs have made sales of ~USD48b (CY24) and still the demand remains unmet.
* Specifically, Libtayo had sales of USD1.2b, a close comparison for Cosibelimab. In fact, Cosibelimab has fewer side effects than Libtayo, implying technical superiority.
* Checkpoint has scope to add more indications through Cosibelimab combinations and non-small cell lung cancer (NSCLC) expansion strategy in place.
Valuation and view
* SUNP, our top pick in the pharma space, is in good stead to deliver superior performance in the branded generics market of India as well as globally.
* It continues to implement efforts to strengthen specialty offerings through steady market share gains in already commercialized products and adding differentiated products to the portfolio with a focused approach to dermatology, ophthalmology and onco-dermatology.
* The acquisition of Checkpoints adds a new growth lever in SUNP’s oncodermatology segment.
* In fact, Cosibelimab (Unloxcyt) has the potential to achieve USD1b in sales over the next 5-7 years.
* We largely maintain our estimates for FY25/FY26/FY27 as we believe that in the medium term, SUNP will make efforts to market the products acquired through Checkpoint. We value SUNP at 30x 12M forward earnings to arrive at our TP of INR1,970.
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