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RESEARCH
16 February 2012
Sushant Dalmia, CFA
SUN PHARMA
Poonam Sanghavi
Wyeth claims USD960mn damages for Protonix
Sun Pharma has announced that in the on-going patent litigation on generic Protonix in the US district court of
New Jersey, Wyeth (Pfizer) has submitted expert reports claiming damages to the tune of USD960mn (Rs42/share)
from Sun Pharma. Wyeth has now claimed USD2.1bn from Teva and USD960mn from Sun Pharma for the at-risk
launch of generic Protonix. Thus, Wyeth in totality is claiming USD3bn for the launch. Our assessment would be
that the claims from Wyeth are on the higher side on back of 1) Protonix was a USD2bn brand for Wyeth before the
launch of generic. 2) Wyeth generated revenues of USD806mn (including AG contribution) from Protonix in CY2008
post the at-risk launch by Teva and Sun. 3) Sun Pharma launched the drug post the launch by Teva and AG. 4) Sun
Pharma could have made profits to the tune of USD240-280mn from the launch.
We expect that the claims could be in the range of USD300-500mn (Rs13-22/share), if Sun Pharma is unable to get
a favourable judgment on the patent litigation. Sun Pharma has a strong balance sheet (cash of USD1bn) and the
generic Protonix trial could be a long time driven process, however we expect this to be a sentimental negative
for the stock. The stock is up ~8% in last one month, and is trading at 25.9x FY12E and 23.2x FY13E earnings.
We maintain REDUCE on the stock with a Target Price of Rs534 (22x one year forward earnings) on back of rich
valuations.
Protonix Litigation- A run through: In June 2007, Wyeth filed a motion in the US Court seeking preliminary injunction
against both Teva and Sun preventing them from launching the generic version of Protonix pending Court’s final decision in
patent litigation. In September 2007, the court denied the motion, however the court did not conclude that the patent was
invalid. Teva launched at-risk the generic version of Protonix in Dec. 2007, post the approval on its ANDA in Aug 2007.
Following this, Watson launched Authorised Generic (AG) in Jan 2008. Subsequently, Sun Pharma also launched the product
in Jan 2008. In July 2010, the US district court upheld the jury verdict there by concluding that the Protonix patent is not
invalid. As a result, Sun Pharma stopped the shipment of the product.
Sun Pharma’s plan of action: Sun Pharma has indicated that the claim by Wyeth is overstated and continues to believe
that Protonix patent is invalid. The US district court has upheld the patent as valid and now is proceeding to ascertain the
damages. Sun Pharma would submit its report on the amount of damages. Post the decision by the US district court, Sun
PINC QUICK BITE Pharma has a right to appeal in higher court on patent validity and the amount of damages.
Our take: Wyeth has now claimed USD2.1bn from Teva and USD960mn from Sun Pharma for the at-risk launch of generic
Protonix. Thus, Wyeth in totality is claiming USD3bn for the launch. Our assessment would be that the claims from Sun
Pharma are on the higher side on back of 1) Protonix was an USD2bn brand for Wyeth before the launch of generic. 2) Wyeth
generated USD 806mn (including AG contribution) from Protonix in CY2008 post the at-risk launch by Teva and Sun. 3) Sun
Pharma launched the drug post the launch by Teva and AG. 4) Sun Pharma could have made profits to the tune of USD240-
280mn from the launch. We expect claims could be in range of USD300-500mn (Rs13-22/ share), if Sun Pharma is unable to
get a favorable judgment on the patent litigation.
KEY FINANCIALS (CONSOLIDATED)
KEY RATIOS
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OUTLOOK AND VALUATIONS:
Sun Pharma has a strong balance sheet (cash of USD1bn) and the generic Protonix trialcould be a long time driven process, however we expect this to be a sentimental negativefor the stock. The stock is up ~8% in last one month, and is trading at 25.9x FY12E and23.2x FY13E earnings. We maintain ‘REDUCE’ on the stock with a target price of Rs534(22x one year forward earnings) on back of rich valuations. Exhibit: Key events pertaining to Protonix
The US court denied the motion filed by Wyeth seeking preliminary injunction againstTeva and Sun Pharma Teva launched at-risk the generic version of Protonix Watson launched the Authorised Generic (AG). Post that Sun Pharma also launchedthe product In a separate Para IV litigation, the jury in New Jersey held that the patent was notinvalid.
The US Court ruled against the arguments put forth by Sun Pharma regarding theobviousness type double patenting defenses and upheld the patent.
The Company put all its shipments of the product on hold, re-evaluating the marketingof the product as a part of its at-risk launch of Protonix.
Wyeth claims USD960mn damages from Sun Pharma RESEARCH
Consolidated Financials
Income Statement
Cash Flow Statement
Cash flow from oper (a)
Cash flow from inv.(b)
Free cash flow (a+b)
Reported EPS (Rs)
Cash flow from fin. (c)
Recurring EPS (Rs)
Net chg in cash (a+b+c)
Balance Sheet
Key Ratios
Shareholders' funds
Capital Employed
Total Assets
1-Year forward P/E Band
Key Assumptions
RESEARCH
Head of Research, Auto, Cement
Construction, Power, Capital Goods Rating Objective
Large Caps
M.Cap > USD1bn
M.Cap <= USD1bn
More than 15
More than 20
Accumulate
(-)5 to +5
Below (-)5
Less than 0
bright thinking
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