Lupin: Positives from Gatifloxacin already priced in

Lupin marked its entry into the US ophthalmology segment with its maiden launch of antibiotic Gatifloxacin ophthalmic solution. The product that is a generic version of Allergan’s Zymaxid Ophthalmic Solution with a market size of $62.5 million is being launched with 180-day exclusivity.

Hitesh Mahida, an analyst with Fortune Equity estimates the launch to add $11 million to Lupin’s revenues and $7 million to its profits during the six months exclusivity. The markets have given a thumbs-up to the development with the stock rallying nearly 4% since Thursday and trades at Rs 884 levels now.

Growth engine

Ophthalmology is a limited competition segment in the US that was being eyed by Lupin for growth. The company has been building a product pipeline for products to be launched in this segment. It has already done over 10 filings with the US FDA for ophthalmological products.

The limited competition segments provide a sustained long-term revenue growth with limited price and margins erosion. For instance, ophthalmology products having strict entry barriers in the US in form of clinical trial requirements for generic approval, difficulty in development and separate dedicated facility requirement, thus don’t see more than 2-3 generic players in the market. The overall ophthalmic market size in the US is estimated to be nearly $4.5 billion. Mahida points out that with market share in excess of 50% in most products, Bausch & Lomb seems to dominate this market.

While Ophthalmology is the new segment where Lupin marks its entry, other limited competition segments being eyed by Lupin include Dermatology and Oral contraceptives (OC). The oral contraceptive market in the U.S is valued at over $4- 5 billion and is growing at around 10% annually.

A less competed for space, OC’s are a very niche segment and requires a high level of R&D expertise. Lupin's current ANDA filings for OC's stand at 34, which is the largest and  most qualitative pipeline for the market.  The company is likely to garner more than $100 million from this segment during Fy14 with some contraceptives being launched.

Though the launch of Gatifloxacin ophthalmic solution is an important milestone, the gains remain largely priced-in. Sarabjit Kaur Nangra of Angel broking maintains an accumulate rating on the stock post this launch with a target price of Rs 904. Mahida, too, maintains a ‘hold’ ratings on the stock for now.