Lupin tanks 9% on FDA concerns

In March, Lupin received nine adverse observations from US drug regulator at its Goa plant and the company expects resolution in the next 3-6 months

Drug maker Lupin’s stock fell nine per cent on Friday due to concerns over the US Food and  Drug Administration (FDA)’s observations on its Goa plant and the likely impact on its earnings owing to a rise in expenses in FY17.

On Thursday, the company reported a record 47 per cent growth in net profit and a 34 per cent rise in sales, including a sharp growth in its US business. While the company said its growth in the US market would continue, it did not impress investors. The stock closed at Rs 1,505.15 on the BSE on Friday, a nine per cent fall from the previous close. The Lupin stock has declined 20 per cent over three months.

In March, Lupin received nine adverse observations from the US drug regulator at its Goa plant and the company expects resolution in the next three or six months. A delay in resolution will impact new product approvals and, thus, hit sales. On Thursday, the company management informed investors that one-third of its pending filings with the US FDA are from the Goa facility. The management also said it has initiated site transfer of existing products to facilities in Indore, Aurangabad and the US. Along with the Goa plant issue, the other concerns weighing on investors are the rise in expenses due in FY17.

These are related to amortisation, interest costs, and research & development (R&D) expenses. The management said that FY17 would see doubling in depreciation and amortisation charge following the acquisition of Gavis. It also said that R&D expenses that were 11.7 per cent of sales in FY16 would increase to 12-15 per cent in FY17 and indicated that interest cost would rise because of the $800 million loan it availed to finance the Gavis acquisition.