Tuesday, December 29, 2015

Glivec generic dose may help Sun Pharma double its earnings in FY-17 over FY-16

In February 2016, Sun Pharma will launch generic copies of Novartis anti-cancer drug Glivec in the US. Surajit Pal - analyst at Prabhudas Liladher in a best  case scenario estimates Glivec to contribute $315m to Sun's net earning during the exclusivity period. The EPS contribution in FY-17 is expected to be INR 8.5  per share.  Most analysts expect Glivec generic sales to range between $250m to $450m.
Based on my calculations, I foresee a good chance that the actual contribution from generic Glivec could be a 150 percent more than the consensus expectation.
The key reasons to expect the same being
1) Price erosion will be limited to 15-30% in the exclusivity period, which would be in the best interest of the innovator - Novartis and Sun Pharma
2) Sun Pharma incremental sales from Glivec generics for the full year would be $800m.
3) The net earning contribution before tax would be close to $780m as the gross margins would be close to 99%. 
4) The post tax contribution could be as good as the pre-tax contribution as Sun's subsidiary (Sun Pharma Global) which has received approval is probably in a tax haven (UAE / British Virgin Islands).
5)An earning contribution of $780m implies an EPS of INR 21 per share, which is more than twice the expected contribution