We anticipate raising our fair value estimate for Sun Pharmaceuticals as we update our model for recent performance and integrate the acquisition of Ranbaxy into our forecast. We also are maintaining our narrow moat rating for the company.
Sun continues to post strong growth, which we expect will continue despite some upcoming challenges on key products. Sun’s consolidated earnings for its first fiscal quarter were up 12%, after adjusting for the one-time settlement for litigation related to generic Protonix last year. Revenues were up 13% with the India formulations business (up 17%) leading the charge, followed by U.S. finished dosage sales (up 7%), and other regions (up 2%). The company’s international business continues to contribute close to 75% of total sales, and we believe regions outside India should continue to be the primary driver of Sun's growth opportunities.
To further strengthen its ability to deliver difficult-to-manufacture, complex drugs in the U.S., last month the company announced the acquisition of a U.S.-based pharmaceutical contract manufacturer, Pharmalucence, that has sterile injectable production capacity in the U.S. While details on price paid or the size of the target are not available, we believe the company eventually should contribute to Sun’s high-margin specialty drug capabilities. This confirms our thesis that management’s ability to identify and enter key limited-competition segments offers compelling opportunities for profitable growth. We laud such capital allocation decisions, which have put the company ahead of its peers for both complex manufacturing capabilities and superior margins.
