>SUN PHARMACEUTICALS: Prandin patent case: A positive win

■ Event: The US Supreme Court ruled in favor of Caraco, US subsidiary of Sun Pharma, in its patent litigation against Novo Nordisk’s diabetes drug Prandin. The court concluded that Caraco can seek correction of Novo’s inaccurate use-codes over the drug; however, the court’s ruling on whether the correction applies to Caraco’s labeling is still pending.


■ Background: Prandin is approved by the USFDA for three specific uses, but Novo’s original patent covered only one usage. Thus, post filing the ANDA for gPrandin, Caraco also filed a section 8 statement which seeks approval for two other uses not covered by the patent listed in the Orange Book. Novo then changed its use-code for the ‘358 patent’, broadening the scope of the usecode to cover all the three approved uses. Usually, the USFDA approves the generic drug within the scope of the use-codes and does not determine the scope of the same. Post favorable ruling, Caraco could get approval for the two other uses without infringing Novo’s patent.


■ About Prandin: Prandin (known as Repaglinide is used to cure diabetes) has a market size of US$230mn in US and its patent is held by Novo Nordisk till 2018. Caraco holds an FTF status on the drug and is still awaiting the final approval from the USFDA (post the site transfer).


■ Impact: We believe that Sun Pharma can clock US$30mn in terms of revenues from the Prandin supply during exclusivity. While, Novo has filed its appeal against Caraco in 1QCY2012, the final approval could take some time, leaving options open for an “at-risk launch” for Sun Pharma.


Outlook and Valuation
We view this ruling as a benchmark for the generic companies where they can appeal for either invalidity of the patent and/or counterclaim brand’s inaccurate use codes. This procedure could stall the unnecessary delays caused to stop generic companies in marketing their drugs.


We believe that the positive ruling could pave way of faster approval for gPrandin. Along-with strong product pipeline (Uroxatral, Duloxetine, Pregablin, Eszopiclone, Memantine) spread across FY2013E and FY2014E, such incremental opportunities would boost the gains of the company. We remain positive on Sun Pharma, given its steady performance, superior brand franchise in the domestic market, growth prospects in the US market and the excellent M&A track record. We factor high tax liability post the budget in our FY2013E numbers and introduce FY2014E numbers in this note and roll over our target price on new projected EPS.


We recommend Accumulate on the stock with the price target of Rs650. Sun is currently trading at 25x and 20.4x its FY2013E and FY2014E EPS respectively.


Risks to the view
■ Delay in product approvals and higher than expected liability on Protonix litigation
■ Lower than expected performance from Taro


To read report in detail: SUN PHARMACEUTICALS
RISH TRADER