Lupin: Street waits for progress on new launches, resolution of plants

Growth depends on key regulatory approvals

From being the second-largest pharma company by market capitalisation a couple of years ago, Lupin has slipped to sixth position now.
 
The reason for the decline has been severe pricing pressure in the US market, and lack of revenue triggers despite large acquisitions.
 
Rising competitive intensity and channel consolidation in the US has not only hurt its key diabetes portfolio but also its base business.
 
What has compounded the problems is that acquisitions, such as that of Gavis, have not yielded benefits as expected.
 
In fact, the company had to take a one-time impairment of Rs 14.64 billion on the Gavis acquisition during the March 2018 quarter in line with the changed market conditions, in particular with the opioids in the US.
 
To add to the company’s misfortunes, it is also facing regulatory issues related to its Goa and Indore plants that remain to be resolved.

 
While the company is looking at specialty drugs to overcome the pricing overhang, investments will take time to yield results. It is focusing on specialty, respiratory, biosimilars, and of late injectables as well.
 
The respiratory segment has seen at least three important filings in the last one year (one being a first-to-file opportunity). Analysts at HDFC Securities say the complex generic pipeline should start reflecting in its revenues by FY20, with the European Union’s approval for generics of an inhaler and a biosimilar.
 
Another move by the company is to monetise its R&D assets. It recently announced an out licensing deal for a novel oncology drug to treat hematological cancers, on Monday.
 
While the company will receive $30 million in upfront payment, future cash flows will depend on the progress of the drug through various stages of development, outcomes of which are far from certain. While analysts are positive about Lupin’s efforts, they believe these will not add to its near-term revenues.
 
The Street will await bigger launch triggers. In addition to product launches, another key event will be the warning letter for resolution of Goa and Indore (Pithampura II) plants by end-FY19. 
 
Analysts at Edelweiss say that at current valuations, the stock offers limited downside, given the pain is priced in. Earnings improvement will depend on key launches in respiratory and specialty products in FY20.