How will Prandin launch benefit Sun Pharma? - Views on News from Equitymaster

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How will Prandin launch benefit Sun Pharma?

Jul 19, 2013

Sun Pharmaceuticals recently announced that the US FDA (United States Food and Drug Administration) has given final approval for its Abbreviated New Drug Applications (ANDA) for generic version of Prandin tablets, generically known as Repaglinide tablets. Sun Pharma was the first to file the drug and thus is eligible for 180-days exclusivity.

About the drug

Sun Pharma's generic version is therapeutically equivalent to Novo Nordisk's Prandin brand. The drug is indicated for patients suffering from Type II diabetes. The annual sales of this drug have been pegged at US$ 200 m.

About Sun's Para IV and litigation

Sun Pharma's subsidiary Caraco was the first to file an ANDA with Para IV in 2005, over Prandin. The Para IV was filed infringing patent 6677358' which expires in June 2018. There was one more patent RE37035 on which Caraco had filed Para III (this means that the company will not market the drug until its patent expires). The patent of this drug had expired in 2009.

However, unlike various other litigations, there were two litigations for this drug.

  • One, litigation on carve out label. Whenever generic company seeks to get approval for a drug's unpatented uses, there is a section VIII in the FDA that allows the agency to grant a "carve-out" label. This means the generic company is allowed to market the drug for the said purpose only.

    When Caraco had filed Para IV on patent '358 it alleged that the label proposed in its ANDA was a carve out label and did not overlap with the label as mentioned in patent '358. And thus the company should be granted approval.

    After several litigations on this front, Caraco was finally able to win the litigation in federal as well as Supreme Court in the US in 2012.

  • Two, litigation invalidity of patent. In June 2013, the federal circuit had given favorable decision for Caraco, mentioning that the innovator's patent is invalid. This means that as the patent is not considered valid by the court, the generics can get the approval and the company can launch the drug before the expiry of the said patent.

    Thus Sun pharma can launch the drug with 180-days exclusivity.

Sun Pharma's views on this

As per out communication with Sun Pharma, the company has already launched the drug. However, the recent outcome in June 2013 on patent validity is given by the Federal circuit. And hence Novo Nordisk has an option to appeal in the Supreme Court.

Our View

One should also note that Caraco had filed this ANDA from its Detroit facility which was given warning letter by USFDA. Since then the company had taken steps to do the site transfer of the drug. Thus the approval of the drug was one of the challenges for Sun Pharma.

However, Sun Pharma has now launched this drug and will get 180-days exclusivity. Given the market size of US$ 200 m annual sales of the innovator drug, Sun will be able to generate approx US$ 35 m during its 180-days exclusivity. At the given exchange rate of Rs 60, this will add an EPS of Rs 1.5 per share.

Post 180-days, the other companies will be launching the drug as there were other Para IV filers for this drug. However post 180-days exclusivity too, we expect Sun to take the larger market share as more generic companies will gradually enter the market.

Besides this, one should also note that so far the innovator has not filed the litigation in Supreme Court, even after Sun Pharma's launch. Now if the innovator sues Sun Pharma and the latter continues to sell despite this, then the launch will be an 'at-risk' launch. This means if the innovator wins the litigation then the generic company who has launched the drug before the court's verdict will be penalized and will have to pay the damages, as had happened in Sun's Protonix 'at risk' launch. With this situation, even other generic entries will not be imminent, and thus not many generic companies will dare to launch the drug at risk. This will benefit Sun as it will be able to sell its drug with low competition even beyond its 180-days exclusivity.

At the current price of Rs 1,100, the stock is trading at a price to earnings multiple of 18 times our estimated FY16 earnings. We reiterate 'Hold' rating on Sun Pharma. Investors should, however, note that no single stock should form more than 5% of one's portfolio.

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