Sun Pharma Launches Generic Zyprexa Zydis

Sensex participant, Sun Pharma, has launched generic Zyprexa Zydis, a brand originally held by pharma giant, Eli Lilly and Company. The drug has been approved by USFDA in 4 different strengths, i.e. 5 mg, 10 mg, 15 mg and 20 mg. According to IMS Health, the total US market for this product amounts to USD 3.5 billion. The active ingredient of Zyprexa is Olanzapine, which is indicated for the treatment of schizophrenia and Bipolar I disorder.

Another Indian drug company, Dr. Reddy’s Laboratories (DRL), has been the FTF (First to File) for the original brand, Zyprexa. Its USFDA approval is in the strengths of 2.5 mg, 5 mg, 7.5 mg, 10 mg, 15 mg and 20 mg. DRL launched the 20 mg version of this product on 25^th October, 2011, and in a period of just over 2 months, recorded sales of USD 99 million for this product. The company has also gained a market share of 45% for the product.

Our question to the company spokesperson of Sun Pharma about the expected market share remained unanswered.

During the Dec 2011 quarter, Sun Pharma recorded sales of USD 208 million (about Rs 1060 crore) from the US generics market. The share of US generics in its topline was 39% in the last fiscal, and has now grown to 42%, indicating that its ANDAs have added incremental revenues in this year. 

Sun Pharma has a total pipeline of 289 ANDAs (Abbreviated New Drug Application), of which 148 are awaiting approvals. Overall, its USFDA filings have grown by a 4-year CAGR of 41%, while approvals have grown by 67%. 

The table shows that the company has a huge bank of product approvals, which will fire its topline going forward. Investors must note that when the company receives an ANDA approval, it gets access to the US generics market. All big Indian drug companies have gained from patent expiry in the US, showing massive growth in their topline. Sun Pharma, the largest company by market cap, is not an exception, and we see the trend continuing.

For the recent quarter, the company reported a 37% jump in its sales to Rs 2145 crore and a 31% increase in its net profit to Rs 695 crore. Its EBITDA margins also improved to 45% in the quarter, indicating good operating performance. For the 9 months of this fiscal, its topline is up 33% to Rs 5675 crore, while the bottomline has increased by 31% to Rs 1767 crore.

A favourable factor is that it has very little debt (Rs 415 crore), but has cash of Rs 2311 crore, which has resulted in a Net Interest Income of Rs 132 crore in the 9-month period. We see the company’s debt profile as very comfortable, with no interest rate risk. In the past, the company had made several acquisitions in the domestic and international spaces, and it may look to benefit from the same going ahead.

On the valuations front, the stock may seem little expensive as compared to its peers. However, looking at the growth that it is offering, this is well justified. The stock is up 11% on a YTD basis, and we expect a further upside. Investors may look to add the scrip to their portfolio.