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When Pharma Is ALL About Pipeline - The $1.7b Cash Begs For Pipeline Investments In New Drugs At Taro - Comparing Sun And Taro Business Development Deals For Patented Drugs In The Period 2014-2018.

Summary

Both Sun and Taro were predominantly generic pharma in 2013. Since 2013 its been very clear to both Sun and Taro managers and owners that generic business will get increased competition as can be seen in their public press releases and heard in the earnings call. Taro had a wide latitude for business development spending with $575m cash, 0 debt beginning of 2014 and ended 2017 with $1.6b cash and 0 debt.

Upon closer analysis, Sun in-licensing deals for patented assets(non generics) appear to be very significant in terms of  a) Number of deals b) Proximity(short time) to the commercial launch  c) Commercial opportunity size relative to Taro deals, all measuring the amount and immediacy of shareholder value creation.

If you account for in licensing deals for drugs with potential launches before 2020, total peak est sales of sun deals is 140x(14000%) higher than taro deals.

Taro stock has declined from $160 in 2014 to $95(oct 15 2018) while there are no significant pipeline investments with its massive $1.7b cash.

Background: SUN gets it that investing in new drugs (vs just generic drugs) is the right thing to do.

Since 2013 its been very clear to both Sun and Taro managers and owners that generic business will get increased competition as can be seen in their public press releases and heard in the earnings call. Taro had (and continues to have) a wide latitude for business development spending with $575m cash, 0 debt beginning of 2014 and ended 2017 with $1.6b cash and 0 debt. So in order to counter the loss in generics business which was expected, it was logical for both the businesses that were predominantly generic drugs based to move up the value chain and get in to patented drugs in addition to their generic business(taro will continue to generate cash flow for many coming decades as a proven low cost market leader for a decade). In fact, Mr Shanghvi, Taro's chairman himself said in a Sun pharma conf call in Aug 2013 the following: There is not a single product in Taro's basket which has any kind of patent protection. Generic competitor can come to market based on when they get FDA approval.  So it was/is amply clear developing a robust patented drug business was needed and the right thing to invest in. In addition to the business development deals (which you will see below), Sun has since been making tremendous investments in building commercial infrastructure Sun Ophthalmics  Sun Dermatology for the patented(branded) drug business, while Taro continues to hoard and hoard cash. (Why this seemingly divergent strategies for Sun and Taro ??)

SUN is able to find it, acquire and remain disciplined.

Here are details of patented drugs in-licensing deals done by the 2 business entities in the period 2014-2018 (please note this does not factor taro's in licensing of novexatin as this was done in Aug 2013. 

Sun Deals

Drug name, Clinical status at time of deal, Est peak sales**,

Seciera , phase 3 ongoing, $1b Login | Evaluate

Tildrakizumab phase 3 ongoing,$700m Tildrakizumab offers limited upside, steep road ahead for Sun Pharma

Odomzo , commercially launched, $120-$150m http://epaperbeta.timesofindia.com/Article.aspx?eid=31816&articlexml=GENERICS-TO-BRANDS-07012017010018

Yonsa, p3 completed,  $400m? Competition Zytiga does $1.2b a year has same active ingredient

https://www.fiercepharma.com/pharma/sun-pharma-s-yonsa-nod-prostate-cancer-threatens-j-j-blockbuster-zytiga

Azasite plus, phase 3 ongoing, $200m Expert Financial Analysis and Reporting/
$500m(est from Insite vision) Annual Meeting of Stockholders Corporate Update - May 2013

Bromsite, NDA pending, $60m
Sun Pharma buoyed by success of new products

Dexasite p3 completed, $300m
Annual Meeting of Stockholders Corporate Update - May 2013

  • Sun Deals Total Estimated Peak yearly Sales =$2.80b
  • Sun Deals Total Est Peak Yearly Sales of Near term launches before 2020 = All 7 accounting peak est sales $2.8b

Taro deals

Drug name, Clinical status at time of deal, Est peak sales,

  • Zalicus z944 assets, p1 completed,unknown  link
  • Bellus's Shigamab, p1 completed, $150m, link   link.
  • Crescita's Pliaglis, p3 completed,unknown $20m(link), March 29 2018 launched-however FDA OB patent expiring in 2019,  link
  • Taro Total Estimated Peak Sales = $200m?
  • Taro Deals Total Est Peak Sales of Near term launches* before 2020 = 1 (psiaglis) accounting for peak sales -$20m

* assuming clinical & regulatory success.

** These are estimates and lot of things have to go right for the estimates to ring true. Because of the risk & uncertainty , market values late stage clinical assets at only (2.5×Est peak sales) even though the patent exclusivity is for 20 years.

Conclusion

Upon closer analysis, Sun deals for patented assets(non generics) appear to be very significant in terms of the below factors that measure size and immediacy of shareholder value creation. The taro deals rank significantly lower on the below factors.

a) Number of deals

b) Proximity(short time) to the commercial launch of assets in-licensed

c) Commercial opportunity size of assets in-licensed. 

  1. If you account for in licensing deals for drugs with potential launches before 2020, total peak est sales of sun deals is 140x(14000%) higher than taro deals