Sun Pharma's Checkpoint Acquisition To Strengthen Specialty Business, Says HDFC Securities Maintaining 'Buy'

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HDFC Securities Institutional Equities

Sun Pharmaceuticals Industries Ltd.) and Checkpoint Therapeutics Inc. have entered into an agreement under which Sun Pharma will acquire Checkpoint, an immunotherapy and targeted oncology company. Sun Pharma will pay a total consideration of ~$355 million (~$4.1 per share) as upfront cash, plus an additional $0.7 per share as a non-transferable contingent value right upon achieving certain approval milestones in the European Union.

This will add Unloxcyt (Cosibelimab-ipdl), an anti-PD-L1 treatment approved for cutaneous squamous cell carcinoma (cSCC), to Sun Pharma’s global onco-derm franchise, along with other pipeline products (four molecules under development for non-small cell lung cancer and solid tumour indications).

We assume the US launch will occur only after the transaction is completed by September 2025 (the potential market opportunity in the US is ~$1 billion), and Checkpoint is also looking to file in the EU (global market of $40-50 billion).

The acquisition of Checkpoint is in line with Sun Pharma’s capital allocation strategy to strengthen its specialty business, with a focus on dermatology, ophthalmology, and oncology. Unloxcyt (Cosibelimab; skin cancer) will complement its existing specialty products like Odomzo (sonidegib) and Yonsa (Abiraterone acetate) – both approved in the US, Nidlegy (awaiting approval in the EU), and the recently-acquired Fibromun (under Phase III).

Sun Pharma’s progress on specialty molecules such as Ilumya (for psoriatic arthritis), GL0034 (obesity), MM-II (osteoarthritis), SCD-044 (atopic dermatitis/psoriasis), and Fibromun (for soft tissue sarcomas/glioblastoma) provides long-term growth visibility.

Over FY19-24, Sun Pharma delivered an 11% sales CAGR and a 15% Ebitda CAGR. Looking ahead, we expect a sales CAGR of 10% for FY24-27E, with margin improving to ~29.1% in FY27E (from 26.8% in FY24; 9M FY25 margin at 29.4%).

This translates into an Ebitda CAGR of 13% and an EPS CAGR of 14% over FY24-27E. We reiterate our Buy rating and roll forward our target price to Rs 1,970 (32x FY27E EPS). We will factor in the acquisition post-completion of the transaction.

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