Sun Pharma’s specialty drugs bet is beginning to pay off

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26 Aug, 2025 12:21

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The year was 2019 and Sun Pharmaceutical Industries was struggling to convince investors and analysts that its multi-billion dollar bet on specialty drugs to revive its fortunes in the world’s most lucrative drug market, the US, would soon pay off.

Brokerage house Goldman Sachs had downgraded the stock to a “sell” after the June quarter earnings that year, as it became clear that the specialty drugs portfolio take-off would take much longer than expected.

Specialty medicines are the latest generation products targeted at treating chronic, complex and rare diseases. The drugs are typically more expensive as their manufacturing is complicated and they often require special handling and monitoring.

"We are a new entrant competing with some of the stronger giants and we have to fight our way through… that's the bottom line," Abhay Gandhi, chief executive officer of North America business, told analysts in an earnings call in 2019.

The past few quarters, however, suggest that the Mumbai-based pharma major has made the breakthrough that many doubted it ever would.

Specialty drug sales are firming up and its products such as Ilumya, used in treating plaque psoriasis, a skin condition, are holding well against competition after early hiccups following its launch in 2018.

Sunshine of specialty kind

The share of specialty drugs sales in the US is expected to rise from less than 5 percent of consolidated annual sales in 2019-20 to more than 15 percent in 2022-23.

“Global specialty business is expected to surpass $850 million in FY23 as Ilumya, Cequa and Winlevi maintain their high growth trajectory,” JM Financial Services’ Cyndrella Carvalho said in a note after the drugmaker’s September quarter earnings.

In the September quarter, the company reported sales of $200 million from specialty drugs in the US market, up 27.5 percent on a year-on-year basis. Products such as Ilumya, Cequa and Winlevi are showing strong traction while helping prop up the company’s consolidated margins.

Cequa eye drops are used by dry eye patients, while Winlevi is used for treating acne.

Sun Pharmaceutical’s foray into specialty drugs was in some ways driven by an existential threat posed by the rising competition its generic drug business faced in the US.

The company, too, rode the generics wave that swept the Indian drug industry in the 2000s, with the country emerging as one of the biggest suppliers of off-patent drugs to the US as the Food and Drug Administration opened the American market to bring down healthcare costs.

A lucrative but risky biz

The company’s acquisition of Ranbaxy Laboratories for more than $4 billion in 2014 was a step towards making itself a dominant player in the US specialty generic market.

But rising competition triggered sharp erosion in prices for all generic drug players in the US between 2014 and 2018, forcing companies like Sun Pharma to step up investments in the lucrative but trickier business of specialty drugs.

Specialty drugs require high upfront investment with a complex manufacturing process that can often cause delays.

Regulators in developed markets, where such drugs have higher sales volumes, have stricter norms, particularly, for manufacturing plants.

The share of specialty products in overall global pharma spending is expected to jump to 45 percent from 38 percent in 2020, according to industry experts.

Higher spending from global pharma giants will bring additional competition for the likes of Sun Pharma in coming years but that is a headache for a later day.

Earnings boost

For now, analysts believe the rising share of specialty drugs in Sun Pharmaceutical’s overall revenue pie will boost earnings in the coming years.

“We believe Sun Pharmaceutical’s specialty business is close to breakeven and as sales scale up further, the medium-term margin’s outlook is sanguine,” Alankar Garude of Kotak Institutional Equities said in a note.

The key, of course, will be for the company to build on the success of Ilumya and Cequa and bring new specialty products to developed markets, which will require channeling millions of dollars to R&D spending.

Sun Pharmaceutical expects to now spend 7-8 percent of sales on research and development compared to a historical average of around 5 percent.

If the current success in execution holds up, Sun Pharma’s stock price may not be too far from the record high of Rs 1,200 scaled in 2015.

At 12,01 pm, Sun Pharma was trading 2.15 percent higher at Rs 1,058.90 on the National Stock Exchange.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.