Buy Sun Pharmaceutical Industries; target of Rs 1895: ICICI Securities

ICICI Securities research report on Sun Pharmaceutical Industries

Sun Pharma (Sun) is acquiring US-based early-stage oncology-focused biotech company Checkpoint Therapeutics (Checkpoint) for an upfront cash payment of USD 4.1/share (total outgo of USD 355mn) and USD 0.7/share in cash in future milestones. Checkpoint’s lead anti-PD-L1 drug Unloxcyt (cosibelimab) is approved by the USFDA for treatment of adults with metastatic or locally advanced cutaneous squamous cell carcinoma (cSCC). cSCC is the second most common form of skin cancer with ~1mn new cases detected every year (including 40,000 advance stage cases). Unloxcyt is likely to complement well with Sun’s existing product portfolio, including Odomzo (US) and Nidlegy (Europe). Fortress is the majority shareholder in Checkpoint, owns ~14% stake. Post-acquisition, Sun is likely to pay royalties (~4.5% of sales) to Fortress for a defined period. The transaction is likely to be completed in Q2CY25 and would require approval from majority shareholder of Checkpoint, excluding Fortress. At end-Q3FY25, Sun had net cash balance of USD 3bn, which may be used to fund this transaction.

Outlook

The stock has corrected ~10% in the last two months and currently trades at 28x FY26E and 26.4x FY27E earnings, and EV/EBITDA multiples of 20.9x FY26E and 19.3x FY27E. We upgrade our rating on the stock to BUY (earlier Hold) with a higher target price of INR 1,895, based on 31x FY27E EPS (32x on FY26E EPS earlier).