SHAREHOLDING PATTERN AT SUN PHARHARMACEUTICALS LTD. AS ON 31ST MARCH, 2009 :
Table -3
Type Of Shareholder %
Of Shar es
Promoters and group 63.7
1
Mutual Funds or UTI 3.52
Financial Institutions or banks 2.29
FII 18.1
Corporates/HNIs 5.89
Retail Investors 6.49
Total 100
Gragh: 1
CONSISTANT PERFORMANCE IN DOMESTIC MARKET:
1. Sun Pharma is the sixth largest company in India (in terms of prescription sales) with a market share of 3.5%. Sun has witnessed a revenue CAGR of 28% over FY05-FY09, driven by its focus on chronic space, vertical integration and strong doctor relationships. Sun’s efforts have translated into a top 3 position in over 50%
of its strong 450 brands. Sun is No.1 in key therapeutics like Psychiatry, Neurology, Cardiology, Ophthalmology, Diabetology and Orthopedics. These segments are not easy to penetrate.
2. Despite a high base, Sun’s strong performance in the domestic market is likely to continue, driven by new product launches and volume growth in existing products.
Graph 2:
SUN PHARMA PERFORMANCE FROM JUN 04 TO JUN 09 : Graph 3:
SUNPHARMA
0 500 1000 1500 2000 2500 3000
Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08
MONTH
STOCK PRICE
Series1
Reason for stock price hike in June 1999 to Jan
2000-1) The Company has merged its wholly owned export subsidiary Sun Pharma Exports with itself. Sun Pharma merged its 99.28% subsidiary - Sun
Pharmaceuticals Exports.
2) Sun Pharmaceutical Industries Ltd has approved the merger of the ailing Pradeep Drug Company Ltd.
3) The company, ranked 5th by domestic prescription product sales, has been consistently adding to market share from 2.47% in November 2000 to 2.78% in November 2001 (ORG Retail Chemist Audit, November 2000 and 2001). Forbes Global, the prestigious international magazine recently rated Sun Pharma among the best 200 global companies for 2002.
Reason for stock price hike in April 2004
Sun Pharmaceutical Industries purchased additional stake in Caraco enhancing it’s holding to 63.14%
Reason for stock price hike in 2007
1) Sun Pharmaceutical acquires Taro for 4 million
KEY FACTORS IN SUN PHARMA’S PERFORMANCE:
DESPITE CORACO’S SETBACK, US SALES TO GROW FROM SUN’S OWN FILINGS:
1. Sun’s subsidiary in the US, Caraco’s 33 products was recently seized by the US FDA for non compliance of cGMP requirements for a sustained period. The US FDA also mentioned that these products would not be allowed to be distributed in the US till the time Caraco’s facility comes up to the US FDA standards. The recent action is a significant setback as the 33 products accounted for a major chunk of Caraco’s own manufactured products having sales of US$ 112mn in FY09. In addition, Caraco’s 25 ANDAs pending approval would not be considered for approval as well.
2. Despite the setback on Caraco, Sun’s own filings will drive growth for the US market. Caraco is a facility specializing in oral solids (tablets) while complex products are from Sun’s facilities in India, which have all clearance from the US FDA. Sun and Caraco together have 108 ANDAs awaiting approval, of which Sun alone has 83 ANDAs, including filings from its Cranbury facility. These filings include products for controlled substances a US$ 6bn opportunity with limited competition due to the nature of the products. Sun is looking at vertical integration in
this area which would be a key differentiator.
Graph 4:
LAUNCH OF TECHNICALLY COMPLEX PRODUCTS HAS ENSURED CONTINUING CASH FLOW BEYOND THE LIMITED PERIOD:
1. Sun’s forte has been the launch of technically complex products in the US, which not only generate cash flows during the exclusivity period, but beyond that as well. Sun has a mix of products, both blockbuster (Pantoprazole-US$ 2.3bn) and small size products (Ethyol-US$ 80mn), but these have witnessed limited competition due to the complex nature of products.
2. Generic Ultracet, launched in Dec ’05, is still a market with three other generics apart from the innovator. Generic Protonix, launched at risk with a 180-day exclusivity, has generated sales of US$ 340mn, while generic Ethyol launched at risk with 180-day exclusivity is estimated to have generated US$ 25mn with no generic
competition. Protonix patent expiry is in Dec ’10 while Ethyol’s patent expiry is only in July ’12.
3. Sun has refiled its ANDA for generic Effexor XR with the US FDA based on Osmotica’s product. Sun has not been sued by Wyeth and is now awaiting approval from the US FDA. Sun is confident of generating some revenue from the US$ 2.6bn opportunity during the exclusivity period starting July ‘10. Effexor XR is not a part of our estimates
4. While there are no other big opportunities visible currently, we believe that each of these existing opportunities have the potential to generate sustainable cash flows in the near future.
TARO ACQUISITION STILL PENDING:
➢ Sun has been unable to close the proposed US$ 454mn acquisition of Taro
announced in May 2007. There has been a series of allegations/counter allegations from both the parties, but the issues remain unresolved. After the failure of both parties to settle out of court, the verdict will be presented by the Supreme Court of Israel. Sun had a favourable verdict from the lower court, but it was challenged by Taro in the Supreme Court. Sun has so far infused US$ 105mn for a 36% stake and 22% voting rights
Table 4:
ACQUIRES ASSETS WITH AN AIM TO GENERATE HIGH ROI
➢ Sun Pharma has historically shown interest in acquiring distressed assets, which could emerge as a strategic fit or as an entry point in key markets for the company.
Sun’s key acquisition includes Caraco in 1997, which then was loss-making and had a turnover of US$ 0.8mn. Sun’s technology transfer resulted in a turnaround in Caraco’s operations in 2003. For FY09, Caraco reported sales of US$ 317mn with a profitability of US$ 21mn.
➢ Sun’s other strategic acquisition includes a plant in Hungary (Alkaloida Chemicals) which makes controlled substance APIs for entry into the US$ 6bn controlled substances market in the US which has significant entry barriers. It later acquired manufacturing assets of Able Labs for the manufacture of controlled substances from the US Bankruptcy Court of the District of New Jersey for US$ 23mn.
➢ Sun strengthened its position in the controlled substances space by acquiring Chattem Labs, a narcotic raw material importer and manufacturer of controlled substances with a facility in Tennessee.
KEY RISKS TO SUN PHARMAEUTICALS:
DELAY IN ANDA approvals for launch in US MARKET:
➢ Since Coraco’s facility faces a warning letter , its 25 pending ANDAs are likely to be considered for approvals. Sun’s ANDA (83 pending approvals) are therefore crucial for driving growth in US. If the ANDA approvals are delayed , the economic benefit may not be realized at its highest potential as the dalay may cause company’s approval to be behind the competition.
Further negative news flow on Coraco,s US FDA status
➢ As Coraco’s own manufactured products have been seized by US FDA , it wil not able to distribute these products in the US till the the facility does not meet the US FDA cGMP requirements. While our US numbers for Sun Pharma are conservative , any further negative news from US FDA could have asignificany negative fallout.
AUDITED TARO NUMBERS ARE AT SIGNIFICANT DEVIATION:
➢ Taro is in process of restating its historic financials . Its current financials are baesd on the management estimates and may change when audited numbers are reported.If these numbers are at a significant deviation, particularly on the lower side , it may result in a drag in probability of Sun’s operations.