Sun Pharma: Can the stock climb higher than all-time high?

Sun Pharma was at lifetime high on Tuesday at Rs 874 per share on the back of price hikes and consistent performance in the US aided by acquisitions of URL and Dusa Pharma.

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Anmol Ganjoo, Antique Stock Broking told CNBC-TV18 said URL Pharma has a great room for pricing. "They have taken 15-18 times price hike on that. Given that it’s a three way market and the move has been fairly synchronised, it doesn’t look like the upside is going to go away in a hurry." 

He says given the huge pipeline of products, there is a great optimism which will be reflected in the stock in the days to come.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: What did you make of the recent development on Sun Pharma? How materially positive is it?

A: Our sense is that it is materially positive. The data coming from the US indicates that on URL Pharma, which Sun Pharma acquired recently, there is great room for pricing power for the company. They have taken 15-18 times price hike on that. Given that it’s a three way market and the move has been fairly synchronised, it doesn’t look like the upside is going to go away in a hurry.

Also to put in some perspective by way of numbers, URL Pharma, most of the street is pencilling in around USD 80 million revenue off take. While it is just one month-one product sale has contributed 25 percent of their run rate, which has again led to optimism on the street. That URL Pharma as an asset could be extremely valuable for Sun Pharma.

Given the huge pipeline of 107 products, 60 products just in the market, there is huge room for upside from there. In the days to come, some more of that optimism will get built in the stock price. Yes, excited for sure, but obviously we will have to look at what pans out in the coming months.

Q: The stock is not very cheap on current estimates at about 23 times next year’s earnings. Do you think there might be significant earning upgrades which may take out some of the steam from the valuations?

A: That has been the Sun Pharma’s story so far in last 30 months. The stock has looked expensive and earnings upgrades have followed, which will make stock look cheap on retrospective basis. Whether that process continues into next 12-14 months, I think there is reason to believe that that might be the case. There is a lot of optimism which is getting built in now both from the URL Pharma acquisition as well as the DUSA Pharmaceuticals acquisition, which the company did in the US.

One has to also bear in mind, this will more than offset any moderation that one might see in Taro Pharma because the company is exactly from an acquisition stand point. The point when it was going after Taro pharma and today around 30-35 percent of EBITDA of Sun Pharma’s consolidated earnings comes from Taro Pharma.

There are initial signs that it is not completely off the mark to believe that URL Pharma and DUSA Pharmaceuticals could also be similarly accretive. Given the acquisition track record, they have done eight acquisitions in last 12 years. All of the acquisitions have turned out to be accretive and growth drivers into new geographies.

There is reason to give company the benefit of doubt and the stock will continue to trade at premium valuations, unless there is a set back on the assumptions that we mentioned just now.

Q: How do you read the news on Glenmark Pharma this morning that Merck has taken it to court on violation of patent on its diabetes drug? How significant is that development?

A: I think that’s fairly significant because if one looks at it from a financial impact, on a number impact of Glenmark as well as MSD, this is far more significant than what we heard on Glivec. This is a very active market - 65 million type two diabetes patients in India, 30 percent discount, market dynamics could change as a consequence of that.

So, financial impact of Januvia and Janumet which Glenmark launched is going to be huge. Plus, we also think that this is in fact the first case where there has been a patent challenge on a lifestyle/chronic disease drug as oppose to lifesaving drug. Whatever adverse news flow from intellectual property stand point we have been seeing in last 12-18 month has been concentrated on lifesaving drugs.

This is the first time one is going to see such a high profile case on a lifestyle/chronic disease. So, it is far more significant in my view than what we saw on Glivec although that was much publicized, but I think this is more significant.

We also think that MSD, Sun Pharma who is the co-plaintiff in this appeal have a very strong case because this is a drug which has been out just for four years and Glenmark is taking advantage of state marketing approval to get this drug approved. This drug in 2012 has been the fastest growing drug globally at least in the top three. Our sense is that this is something which will be watched very closely and will have a much more material financial impact than the Novartis case that was in the news yesterday.