Jefferies retains ‘buy’ call on Sun Pharma with 26% upside, stays bullish on Concert deal

Jefferies expects Sun Pharma to leverage its existing field force to market this product and incremental spend will largely be towards promotion of the product. It forecasts that Deuruxolitinib can achieve sales of around USD 765 million in the US + EU market by 2031.

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Sun Pharmaceutical Industries shares traded flat in the morning session on March 14.

At 12:11am, Sun Pharmaceutical Industries was quoting at Rs 960.35, up Rs 6.15, or 0.64 percent, on the BSE. It touched an intraday high of Rs 961.00 and an intraday low of Rs 950.80. The scrip was trading with volumes of 114,225 shares, compared to its five day average of 34,822 shares, an increase of 228.02 percent.

Global research and broking firm Jefferies maintained its ‘buy’ rating on the stock with target of Rs 1,200 per share, an upside of around 26 percent from current market price.

According to Jefferies, Sun Pharma’s acquisition of Concert adds a complementary derma product to the existing specialty portfolio. It feels that strong efficacy against competing drugs and leveraging existing infrastructure should result in peak global sales of $850 million by 2031 translating into pre-tax net present value (NPV) of Rs 64 per share. Incremental R&D spend is unlikely to be a major drag on FY24-25 profitability, the brokerage firm said.

The stock has gained 15 percent in the last nine months.

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Strong competitive advantage

Deuruxolitinib Phase-III trials data shows 38-42 percent participants met primary end-point at week 24 using Deuruxolitinib against 30 percent for Olumiant and Ritlecitinib. Deuruxolitinib safety data is in-line with competing products. The product has been awarded a breakthrough therapy designation by the US FDA.

Pre-tax NPV of Rs 64 per share for Deuruxolitinib

Sun’s competitive positioning is expected to be strong. Jefferies expects Sun Pharma to leverage its existing field force to market this product and incremental spend will largely be towards promotion of the product. It forecasts that Deuruxolitinib can achieve sales of around $765 million in the US and EU markets by 2031.

“We estimate R&D spend of $100 million over the next two years for Open Label Extension (OLE) studies and its impact on FY25 EBITDA is around 3 percent which should be offset by the recent approval of gRevlimid in the US,” the research firm added.

Ongoing litigation with Incyte a key hurdle to overcome

“Incyte and Concert have been involved in a legal battle over patents for Ruxolitinib and Deuruxolitinib. The patents under question are ‘149 (expires in 2033 as per google patent), ‘335 (expires in 2026) and ‘659 (expires in 2037). The litigations on ‘659 went in favor of Concert whereas Concert’s challenge on ‘335 patent covering Ruxolitinib and its deuterium form was rejected,” Jefferies said in its report.

“For a smooth launch, we expect Sun Pharma to settle with Incyte by giving a royalty payment till the expiry of the patent (Eli Lilly pays up to 20 percent royalty for its product),” it added.

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