Sun Pharma can now sell generic Topamax (an anti-convulsant) in the US market. However, with half a dozen other drug firms, including Zydus Cadila, also being allowed to hawk the product in that market, the upside for the company could be rather limited. The Rs 3,290 crore Sun plans to sell Topamax in four strengths ranging from 25mg to 200mg, the combined market for which is estimated to be $2.5 billion.
There is, of course, no litigation with the patent holder OrthoMcneill Janssen. The US market, which brings in about 40 per cent of Sun’s consolidated sales and has driven revenues in the past few year could lose momentum. Its subsidiary Caraco, has been warned by the US drug regulator about products made at its Detroit facility. Already, Caraco, in which Sun owns a 72 per cent stake, reported a 32 per cent fall in sales in the December 2008 quarter and there’s concern that revenues for 2008-09 might be flat.
That’s one reason why, after a strong performance in 2008, the Sun stock has been somewhat under the weather. Unless business in the home market picks up, the top line this year may grow by just 17-18 per cent hurting the profit numbers, unless, of course, the depreciating rupee comes to its rescue, as it did in the last quarter. Sun earns around 50 per cent of its revenues from the home market but revenues in the December 2008 quarter rose just 15 per cent compared with 20 per cent in the previous two quarters.
However, it is an efficient player and manages costs exceeding well which is one reason its operating margins are the best in the industry — in the December 2008 quarter, operating margins rose 250 basis points to touch 45 per cent. For margins to sustain Sun needs to sell more generics in the US, and preferably exclusively for some time. That unfortunately isn’t happening as often as it should — the launch of Effexor, (anti-depressant), for instance, has been delayed.