Sun Pharma up Against Challenges as it Builds Specialty Biz in US

Sun Pharma, India’s largest drug maker that has invested around USD 1 billion in the specialty business in the US, has so far found it to be a mixed bag due to competition, higher marketing and distribution expenses and gradual off-take in prescriptions of its products. “We committed close to a USD 1 billion on specialty business; we have to justify that investment and produce returns,” said Dilip Shanghvi in the company’s earnings call on February 12. Sun Pharma which built its specialty business through a series of acquisitions over the years, however, pressed the pause button in FY18. Shanghvi said the uncertainty related to the reimbursement and pricing of assets made them circumspect. “I don’ think the valuation totally reflect the underlying value of the product in the market,” Shanghvi said. Sun Pharma has the largest pipeline of specialty drugs among Indian companies in the US, largely built on acquisitions and in-licensing products developed by promoter held Sun Pharma Advanced Research Company (SPARC). The company is focusing on eye care and skin as target therapeutic areas for specialty play. The company launched two assets — Bromsite to treat eye pain and Odomzo to treat skin cancer during FY18. Sun Pharma bought Odomzo, from Novartis paying USD 175 million.

In the current financial year, it had launched three specialty products Yonsa, Ilumya (IL-23) and Xelpros. The company bought prostrate-cancer drug Yonsa from Churchill Pharmaceuticals, Ilumya or Tildrakizumab from Merck in 2014 for USD 80 million and Xelpros was in-licensed from SPARC. Its top-selling specialty drug Absorica used in the treatment of the skin condition called acne, was through Ranbaxy acquisition. Sun Pharma said the launch of the much-anticipated Cequa, is now pushed to first quarter of FY20 due to some manufacturing delays. Cequa is used in the treatment of eye infections The management also said it has decided against the launch of Elepsia as it doesn’t see commercial merit in building a CNS (central nervous system) field force for a single product. The product will now be returned to SPARC. While Sun Pharma doesn’t provide a break-up of its specialty business revenues, analysts estimate the sales to be around 20 percent of the company’s overall US sales. Sun Pharma’s US sales in FY18 were around Rs 8746.6 crore. Kotak Securities estimates the sales of the specialty business to be Rs 4113.8 crore or about one-third of Sun Pharma’s US sales by FY21.

Challenges galore

Faced with competition and commodification of generic drugs in the US, Indian drug makers such as Sun Pharma have been gradually diversifying into specialty drugs. Specialty drugs are medications that provide targeted therapy for severe, chronic and rare diseases, and are often built on incremental innovation like new delivery formulations such as patches, inhalers, topicals etc., or new disease indications or better safety profile, so they get some protection by patents and are also complex to copy, ensuring drug makers limited competition, and much better margins. But unlike generic drugs, specialty requires a lot of investment on development and commercialization, and the payoffs hinge on a lot of factors. Companies have to invest significant time and money on clinical development, regulatory filings, brand building, front-end distribution, ensuring coverage of payers, raising sales force to motivate doctors to write more prescriptions. Since specialty drugs are not breakthrough innovations there is always a sword of a copy hanging. This is somewhat uncharted territory for Indian drug markers in the US. For instance, Sun Pharma’s is competing against well-entrenched rivals Novartis, Eli Lilly and Johnson & Johnson to gain market share of Ilumya. The three competitors also sell broadly the same class of biologic drugs like Ilumya, meant for the same disease segment.

Sun Pharma’s Ilumya has so far been prescribed by 800 doctors at least once. Though its early days, Sun Pharma stays optimistic. The case isn’t any different for its other specialty drug Odomzo, where it is competing against Roche’s Erivedge. Other specialty drugs like Absorica and BromSite are also not immune to generic competition. “There is learning involved, it is a new market, completely different from what we at Sun (Pharma) had done,” said Abhay Gandhi, CEO of North America business for Sun Pharma. “If we didn’t have confidence, we wouldn’t have invested that kind of money in creating a new business. Now that we are there, we have no options but find ways to succeed in that market. We will learn, we will make some mistakes, and we will try and get a fair share of the market,” Gandhi added. Meanwhile, Sun Pharma has guided further increase in  Selling, General & Administrative Expense (SG&A) given the promotional spend on Ilumya and Cequa and higher R&D spend in FY2020 to fund new indication trials for Ilumya. – Money Control