After falling 17 per cent since the beginning of the year to its March low, shares of Sun Pharmaceutical Industries, the country’s largest pharmaceutical company, have recovered almost half of their losses. Fresh acquisitions, favorable court ruling in hair loss drug Lekselvi, edge over peers due to specialty portfolio and diversified global reach helped the stock offset the losses.
Helped.
The main reasons for the decline in the stock since January are sluggish US growth, rising research and development (R&D) expenses, regulatory challenges related to USFDA and pricing pressure in the generic segment. Still, most brokerages remain bullish on the company’s long-term outlook. The stock got a recent boost from a US court ruling in Sun’s favor over Lexalvi. The court lifted the preliminary injunction, clearing the way for the potential launch of the drug, which would cater to a $400 million market.
While any new launch will be challenging and unlikely to be very accretive to sales and earnings in the near term, Emkay Research believes the opportunity for Lexelvi will reach the level of plaque psoriasis drug Ilumya (with estimated global sales of more than $500 million) by 2029-30. The other factor is the acquisition of US-based fast-follower company Checkpoint Therapeutics. The immunotherapy and related oncology firm was acquired for $355 million, which included $61 million in future opportunities. The advance payment was made at a 66 percent increase over Checkpoint’s closing price on March 7.
The transaction expands Sun’s global dermatology-focused specialty portfolio. It also has an FDA-approved drug, Alixit, which is used to treat metastatic skin cancer in adults, a segment whose US market size is $1 billion. Despite the high price, Elara Securities sees good potential in the acquisition. “Our analysis suggests that Unlocky could reach annual sales of $200 million in the US,” said brokerage analyst Bino Pathiparampil. Since Sun already has a dermatology-related sales team, the additional cost of marketing the drug will be less.
Keeping the future in mind, the market will keep an eye on signs of improvement in American business. Revenue in the US business declined 1 per cent year-on-year and 8 per cent quarter-on-quarter during the October-December quarter. The decline was due to lower sales of the generic version of cancer drug Revlimid and ongoing pricing pressure on generic drugs. Brokers are linking this poor performance to manufacturing issues (including warning letters and import alerts) and expect it to take a few quarters to stabilise.
HSBC analysts Damayanti Kerai and Gaurang Sakare remain positive on Sun’s specialty order flow, which includes Ilumya (psoriasis), Vinlevy (acne) and Sequa (dry eyes). Although some clinical trials have seen delays, the brokerage believes Sun will continue to prioritize investment in R&D for its specialty portfolio. HSBC has given ‘buy’ rating to the stock with a price target of Rs 2,000.
Kotak Research has maintained ‘Accumulate’ rating on the stock. Despite higher R&D spend to expand clinical throughput, analyst Alankar Garude expects operating margins to improve by 200 basis points to 28.8 per cent over 2023-24 to 2026-27, driven by stronger specialty margins and better domestic productivity.
Amid tariff-related uncertainties, companies like Sun may remain insulated from pressure in the US as there is less competition in the niche segment there. Specialty products account for about 55-57 percent of Sun’s US revenue. A large portion of the profits also come from India and other markets, which helps reduce the potential loss from the US side.
Unlike the US market, Sun’s domestic pharma business is growing rapidly. It reported growth of 14 per cent in the third quarter and several key therapy segments saw growth above the market. This trend is likely to continue in the Indian formulations segment due to growth in sales to brokers.
First Published – April 13, 2025 | 10:49 PM IST
