Navigating Deuruxolitinib's road: HSBC and Nomura weigh in on Sun Pharma's outlook

HSBC has maintained its buy rating and increased its target price to Rs 1275, up 13.5 percent from its earlier target. Nomura also maintained its buy rating.

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Brokerage firm Nomura and HSBC have chosen to uphold their current buy rating for Sun Pharmaceuticals Industries Ltd despite a US court ruling against the company in a patent dispute over Deuruxolitinib.

HSBC and Nomura maintain buy ratings, with HSBC increasing target price to Rs 1275 (+13.5% from earlier) and Nomura to Rs 1313 (from Rs 1138).

Analysts are optimistic about Sun's performance in key specialty brands (such as Ilumya, Winlevi, and Cequa), which are expected to boost its sales and earnings. Despite anticipating continued cost increases (like R&D and sales & marketing) to back growth plans in focused sectors (like India and specialty areas) and accounting for Halol plant remediation expenses, experts believe that strong specialty sales will aid in mitigating the margin impact.

Nomura believes that this recent development might not heavily influence the commercial potential of the product.

The US Court of Appeals for the Federal Circuit made a decision on August 22, ruling in favour of Incyte Corp and against Sun Pharma in a patent dispute concerning deuruxolitinib, a possible treatment for Alopecia Areata (AA). This drug was obtained by Sun Pharma through its acquisition of Concert Pharma. The Federal Circuit upheld a previous ruling by the Patent Trial and Appeal Board (PTAB) that invalidated US patent ‘149, which covered the deuruxolitinib compound.

According to the HSBC report, the court's decision on deuruxolitinib is unlikely to affect Sun's drug development plans for AA or the FDA review process. However, it raises worries about potential sales losses due to royalty payments to Incyte. Additionally, the ruling might constrain Sun's capacity to extend deuruxolitinib into other uses, although Sun hasn't yet determined its course of action regarding other indications.

Incyte's Jakafi is authorized for myelofibrosis, polycythemia vera, and acute and chronic graft-versus-host disease, which are distinct from Sun's goal of treating Alopecia Areata. Therefore, HSBC anticipates that Sun can introduce the product after obtaining FDA approval. However, the specific timing of the launch is likely to hinge on various factors.

In a pessimistic scenario, HSBC envisions Sun launching deuruxo in the US after the composition patent for ruxolitinib expires in December 2027 (with pediatric exclusivity extending it until June 2028). Additionally, they consider a net present value (NPV) of zero for deuruxo for Sun in this scenario, in contrast to an NPV of Rs15 per share as assumed in their base case.

"We have a Buy rating on Sun Pharma. Our target price of INR1,313 is based on 28x FY25-26 average adjusted EPS of INR46.9. We have adjusted the EPS for contribution from gREvlimid and excess spending on speciality R&D on account of the Concert acquisition", Nomura said in its latest note.