SUNPHARMA - Sun Pharmaceutical Industries Ltd. Share Price

Sun Pharmaceutical's management outlined a positive outlook driven by strong performance across key markets and strategic initiatives. Major highlights include:

1. Financial Performance: Q3 FY25 consolidated sales grew 10.5% YoY to Rs.13,436.9 crore, with EBITDA up 15.3% (margin at 29.3%). Adjusted net profit rose 24.1%, excluding a one-time opioid litigation settlement.

2. India Business: Revenue grew 13.8% YoY, maintaining the #1 position with 8.2% market share. Growth was volume and new product-led (12 launches in Q3), outpacing the price-driven IPM growth.

3. U.S. Business: Specialty drugs (ILUMYA, CEQUA, WINLEVI, ODOMZO) drove growth, offsetting generics decline. Q3 U.S. sales were $474 million (-1% YoY). Specialty revenue surged 24.8% globally to $370 million.

4. Emerging Markets & ROW: Sales rose 10.1% YoY (14% in constant currency). ROW markets grew 21%, aided by milestone income and partner inventory builds.

5. R&D & Pipeline: R&D spend at 6.3% of sales (41% on specialty). Focus on accelerating clinical trials (delays due to protocol finalization) and expanding specialty portfolio. Deals like Antibe (pain therapy) aim to diversify beyond dermatology/oncology.

6. Guidance: FY25 R&D spend expected below 7% of sales. Specialty growth to remain robust, supported by U.S. and international markets. Emerging markets and India to sustain momentum.

7. Compliance & Litigation: Progress on resolving FDA issues at key facilities (Halol, Mohali). LEQSELVI (psoriasis) launch timeline hinges on patent litigation resolution (oral arguments in April 2025).

8. Dividend & Cash: Interim dividend of Rs.10.50/share declared. Net cash position at $3 billion supports strategic deals, prioritized for specialty assets.

Management remains optimistic on outperforming markets, driven by specialty innovation, India's leadership, and disciplined execution.

Question 1: "Congratulations on a good set of numbers. The first question, if I look at our recent Specialty deals, these are basically emerging in new therapeutic areas, diverging from our current focus on derma, derma-onco and opthal. So could you clarify whether this shift represents a strategic change? Or these are more opportunistic? How should we think about it?"
Answer: Sun Pharma emphasized that new therapeutic areas are adjacencies linked to existing specialties (dermatology, ophthalmology) and do not require extensive new field forces. The company remains opportunistic but maintains its core focus on dermatology and ophthalmology.

Question 2: "Sure, sir. And the second question is on the specialty growth, which has been quite strong for us. And we have highlighted that ILUMYA, CEQUA, WINLEVI, and ODOMZO have been drivers. But apart from that, would you say some seasonal products like LEVULAN also helped us in this quarter? And if yes, how are the trends panning out in the ongoing quarter?"
Answer: Specialty growth was driven by both U.S. and ex-U.S. markets. Seasonal products like LEVULAN contributed to Q3 performance, though underlying business trends remain strong. Ex-U.S. growth included partner inventory adjustments, suggesting potential lumpiness in future quarters.

Question 3: "My first one was on the Antibe acquisition. I just wanted to check. I think the company's lead drug was placed under a clinical hold sometime in March last year. So has that hold been subsequently been lifted by the FDA?"
Answer: The FDA clinical hold on Antibe's lead drug remains pending resolution. Sun Pharma is conducting additional studies to address FDA concerns, aiming to lift the hold and position the asset as a non-opioid pain management solution globally.

Question 4: "Got it. My second question was on the ex-Taro, ex-REVLIMID generic business. So while I think you alluded to the REVLIMID decline Q-o-Q, but has there also been a meaningful decline sequentially in the ex-Taro ex REVLIMID piece as well?"
Answer: Excluding REVLIMID, the U.S. generics business saw only marginal decline. Specialty growth offset generics erosion, with stable underlying performance excluding one-time factors like Lenalidomide sales fluctuations.

Question 5: "Yes. My first question is on LEQSELVI. Any update on the litigation, what's happening and what is our expected launch time line?"
Answer: LEQSELVI litigation oral arguments are expected in April 2025. If the patent validity ruling is unfavorable, launch may be delayed until December 2026 when the patent expires.

Question 6: "And even if the judgment is against us, the December launch timeline stays intact. Is it?"
Answer: No. If the patent is upheld, Sun Pharma cannot launch before December 2026. Timelines depend on litigation outcomes and patent validity rulings.

Question 7: "Second question on your depreciation and amortization amount. The amount has not grown much year last year also and this year also for 9 months, it's actually a little below last year's run rate..."
Answer: Depreciation fluctuations reflect asset lifecycles (fully depreciated assets vs. new capitalizations). Future trends will depend on capital expenditure, with no significant near-term spikes expected unless major additions occur.

Question 8: "My first question is on the India business. We continue to see higher than industry growth for quite some time for Sun Pharma. One, where are we on MR productivity to sustain this rate of growth, do we need to add more MRs to maintain this growth."
Answer: India growth is driven by branded generics (not OTC/trade). Field force expansion (14,000+ MRs as of March 2024) and new launches contributed to outperformance. Further MR additions will be evaluated post-FY25.

Question 9: "My second question is on R&D. Mr. Shanghvi, you mentioned that there's been delay in clinical trials because of which we are lowering our guidance. What are the key reasons for the delay in the trials?"
Answer: R&D delays stem from prolonged protocol finalization and CRO onboarding. Milestone timelines remain unaffected, with plans to accelerate trials via expanded sites/geographies. FY25 R&D spend is now guided below 7% of sales.

Question 10: "First, a clarity on what Murali sir talked about. One, on the specialty side, when you said that sequentially, half has come from ex U.S. and half has come from U.S. Is that excluding licensing income, milestone income..."
Answer: Specialty growth (ex-milestone) was evenly split between U.S. and ex-U.S. in Q3. Ex-U.S. benefited from partner inventory adjustments, causing lumpiness. The U.S. remains the larger absolute contributor.

Question 11: "Second question for Dilip bhai is you made a comment that on the Canada asset, which is in the pain and inflammation space, you may look at it because it doesn't require a large field force. Is this because it's a hospital product?"
Answer: The Canada pain asset targets hospital and emerging markets, leveraging existing field forces. Initial focus is resolving the FDA clinical hold, with studies planned for expedited approval in prioritized indications.

Question 12: "One comment I wanted, Dilip bhai, from you is that biosimilars now in the U.S. is increasingly moving towards interchangeability now, would you be interested now in looking at the space or it's still a no, no for you?"
Answer: Sun Pharma prioritizes R&D allocation between specialty and generics. Biosimilars remain under evaluation but are not a current focus due to competing investment needs and market dynamics.

Question 13: "Thanks for taking my second question. It's about this milestone income in specialty. So last quarter -- last year also in 3Q, you had this income. So is this something that we can expect every year going forward..."
Answer: Milestone income is tied to partner sales targets, not seasonal. Future inflows depend on product performance and contractual triggers, making them intermittent rather than recurring.

Question 14: "Sir, in the opening remarks about the India business, you have talked about the lower distribution cost during this quarter or kind of a lowest distribution cost during the quarter. What is the reason for that?"
Answer: Lower U.S. selling expenses (reduced pre-launch costs for LEQSELVI) drove the decline. India distribution costs remain stable, with no material changes in trade channel dynamics.

Question 15: "My second question was about the change in the U.S. government and the kind of initiatives that has been talked about, whether restricting about the direct-to-market initiatives or spends by specialty companies..."
Answer: Sun Pharma is monitoring U.S. policy shifts but notes limited clarity on proposals like tariff changes or marketing restrictions. Impact assessments will follow finalized regulations.

Question 16: "Just one more point, Dilip bhai, about the consumer health business... So what is the current size? And what is the outlook that you are having?"
Answer: Consumer health (India + ~$200M in EMs) is material but integrated into overall sales. Growth aligns with prescription business strategies, with no separate disclosure planned.

Question 17: "Can you please throw some more light on the inventory buildout that we had suggested for one of the specialty products at our partner end?"
Answer: Ex-U.S. specialty sales included partner inventory stocking, causing lumpiness. Royalties are tied to partner sell-through, not bulk purchases, implying potential quarterly variability.

Question 18: "And the second question, if I look at our specialty R&D now as a percentage of specialty revenue, excluding milestones, it's coming out to be roughly around 12% of the specialty revenue, right?"
Answer: Specialty R&D spend (~12% of revenue) trails large innovators' 16-17%, reflecting delayed trial spends. FY25 guidance cut to <7% of sales; normalization expected as trials accelerate.

Question 19: "Sir, in the opening remarks about the India business, you have talked about the lower distribution cost during this quarter or kind of a lowest distribution cost during the quarter. What is the reason for that?"
Answer: Lower U.S. selling expenses (reduced pre-launch costs for LEQSELVI) drove the decline. India distribution costs remain stable, with no material changes in trade channel dynamics.

Question 20: "My second question was about the change in the U.S. government and the kind of initiatives that has been talked about, whether restricting about the direct-to-market initiatives or spends by specialty companies..."
Answer: Sun Pharma is monitoring U.S. policy shifts but notes limited clarity on proposals like tariff changes or marketing restrictions. Impact assessments will follow finalized regulations.