MOSL: SUN PHARMA (Buy)-Halol resolution in sight-status changed to VAI; Raising target price
Sun Pharma: Halol resolution in sight; status changed to VAI; Raising target price; maintain Buy
(SUNP IN, Mkt Cap USD18.7b, CMP INR528, TP INR610, 16% Upside, Buy)
US FDA today changed the status of Sun Pharma’s (SUNP) Halol facility to voluntary action indicated (VAI). After its inspection in February 2018, this plant had received three 483 observations. Though this does not mean that the warning letter has been lifted, it provides comfort around the management’s guidance of a resolution for the Halol facility by mid-FY19.
- Background: The Halol facility received 23 483 observations post US FDA inspection in September 2014. Later, in December 2015, US FDA had issued a warning letter for the facility. In November/December 2016, US FDA re-inspected the facility and issued nine 483 observations and maintained OAI status. OAI is given when objectionable conditions are found and regulatory action should be recommended. In February 2018, US FDA re-inspected the facility, and this time, issued three 483 observations, with no data integrity issue and no repeat observation, following which it received VAI status today (Link). VAI status is given when objectionable conditions are found and documented, but the agency is not prepared to take or recommend regulatory action.
- Key product approvals linked to Halol facility: Halol is SUNP's largest facility supplying to the US market. SUNP's US business has been under pressure since the warning letter, as it has not received any product approval from this facility in three and a half years. The facility contributes 8-10% of US sales for SUNP, currently - down from >15% at the time of warning letter. Resolution of the Halol issue is critical for the company, as it would provide visibility on key approvals including Xelpros, Elepsia, Vagifem, etc. (It has initiated the process of site transfer of key products including Xelpros and Elepsia). We expect incremental sales of ~USD100m from this facility post resolution.
Sun Pharmaceutical and its subsidiaries are principally engaged in developing, manufacturing and marketing generic pharmaceutical products and bulk drugs. Co.'s products are mainly for the following therapy areas: psychiatrists, neurologists, gastroenterologists, diabetologists, chest physicians, consultant physicians, orthopedics, oncologists, gynecologists, ophthalmologists and cardiologists. Generic names of three principal products of Co. is Pentoxifyline, Pentoparzole Sodium, and Metformin Hydrochloride. Co.'s business can be divided into four segments: Indian branded generics, U.S. generics, international branded generics (ROW) and Active Pharmaceutical Ingredients (API).
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