Yesterday, Sun Pharma announced that its US subsidiary, Caraco, has received tentative approval to market generic version of Glucophage. Glucophage is a multi billion-blockbuster diabetic product from Bristol Myers with sales currently pegged at US $ 1.8 bn annually. Caraco also announced that the company is also expecting 5 additional approvals in the current year.
Though Glucophage is a blockbuster product, we don’t expect major revenues for Sun Pharma. This is due to the fact that there would be several other generic companies, marketing the same product. Goldline Inc., which is a subsidiary of generic major Ivax has already received the approval for marketing the drug, a week before Sun Pharma and there are atleast 5 other companies whose application is pending.
Further, Bristol Myers, the originator for the product, has already launched once a day formulation for Glucophage and is aggressively trying to switch patients to this new delivery system. Further, the timing of the generic launch is uncertain due to the fact that legal issues related to pediatric patent extension are yet to be resolved.
It may be recalled that Caraco Pharma is Sun Pharma’s vehicle for launch of generics in the US markets. Mounting losses of Caraco have remained a cause of concern for Sun Pharma and the company is expecting the subsidiary to break even by end of the current calendar year. On a trailing twelve month basis Caraco has losses in excess of US $ 7 m, with accumulated losses close to US $ 55 m.
Caraco has already received 3 FDA approvals and has already launched two products in the US markets. The current tentative approval for generic Glucophage would be the fourth in a row. Though, the generic strategy of Sun Pharma is shaping up steadily, it needs to gear up as none of the above approvals are big in size to help the company achieve breakeven for its US subsidiary.
Sun Pharma continues to be a leader in the specialty pharma segment, with strong growth rates and highest operating margins. At the current market price of Rs 570, the stock quotes at around 16x FY02 expected earnings. Creation of a strong product basket and breakeven of the subsidiary as promised, could be a trigger for the stock.
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