Sun Pharma’s US eye drug filing reason to cheer but cautiously

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Is this when things begin to look up for Sun Pharmaceutical Industries Ltd? It’s been a long winter for its shares as the chart alongside will attest to. But news that the US Food and Drug Administration (FDA) has accepted a new drug application by a Sun Pharma subsidiary sent the stock soaring by 6.9%, the highest intraday jump since 6 April 2015, and its shares went back to the levels last seen in July.

The first question one is tempted to ask is if the rise in its shares is overdone, assuming all of that increase is attributable to the filing alone. The filing was due in the third quarter and Sun Pharma had said as much during its previous conference call, after the September quarter results.

But yes, that the USFDA has accepted its filing in a way vindicates the acquisition of Ocular Technologies, which brought this under-development product into its fold. It also shows that the subsequent research work that Sun Pharma has done on the product, to get it on the FDA’s table has paid off. In sum, the acceptance of this filing is a pat on its back on the research front.

Of course, there is some way before this product makes it to the market and the company has indicated it will work with the regulator over the coming months to make that happen. Still, the probability that this product will hit the market has improved.

What can happen to Sun Pharma’s US revenue if it gets final approval? Seciera (OTX-01) is a product to treat dry eye disease, which is estimated to be a $5 billion market globally. The US would be a main market in terms of revenue, and if it gets approval, that will smoothen the way for its entry elsewhere. Among other things, Seciera is said to act faster compared to Allergan’s Restasis, the blockbuster drug prescribed for dry eye condition. Sun Pharma will be pitching Seciera as an alternative treatment for this condition.

The uncertainty on whether the filing will be accepted is over now. What remains is the state of the market when it launches.

Some uncertainty has developed on this front. Allergan had lost patent litigation over Restasis, potentially opening the door for a generic launch.

When the impact of this development was raised by an analyst, in a Sun Pharma conference call after its September quarter results, managing director Dilip Shanghvi said that the litigation has still some way to go.

But he did say that generic competition to Restasis could affect how much Sun Pharma could charge for the drug.

But generic competition could also see Allergan withdraw promotional support for Restasis and make it easier for Sun Pharma to market Seciera.

Thus, the filing itself is a good development but external factors could affect how much Sun Pharma benefits if it succeeds in getting the final approval.

While the development is one to cheer, it might be better to hold back some for later.

For now, it’s back to watching for positive regulatory developments on the plant inspection front, which can potentially give a fillip to Sun Pharma’s US market growth.