Uncertainty over US biz growth keeps Street cautious on Lupin stock

A strong product pipeline and growth in India and emerging markets are positives, but regulatory hurdles, delayed drug approvals in the US could hurt prospects

A day after Lupin signed a second partnership deal for its oncology drugs, the stock gained over 3 per cent. While the Street sentiment remains strong on the prospects of Lupin’s India business, uncertainties over growth in the US are keeping analysts cautious about the stock. 

Lupin’s latest partnership with Boehringer Ingelheim to develop and commercialise a novel oncology drug is a positive step. This should help it in developing a strong oncology pipeline for the world’s largest health care market — the US. 

Lupin has also been investing in developing other specialty portfolios such as respiratory, gynaecology, biosimilars, injectables, but benefits will only accrue over time. And in the near term, growth in the US base business and large product launches remain crucial to driving its earnings. 

Notably, the company has been witnessing strong growth in the US over the past few quarters after feeling the heat of pricing pressure in key products. The June quarter, for instance, benefited from exclusivity sales of generics of angina treatment Ranexa, which drove US sales 29 per cent year-on-year (YoY). However, after the end of Ranexa exclusivity, analysts now are watchful of other large product approvals to compensate. While thyroid treatment Levothyroxine, based on capacity ramp-up and approval for additional dosage, may perform better, analysts also feel ramp-up in branded drug Solosec, which has disappointed until now, may pick up too. 

However, the anticipated delay in approval of respiratory generics, ProAir, and European approval of Etanercept, an autoimmune disorder treatment drug, is keeping concerns elevated. Analysts at HDFC Securities said that at a time when four formulation plants are under official action indicated or warning letter, these big-sized product approvals had become crucial. 

Meanwhile, Lupin has been doing well in the domestic and other emerging markets, which is a positive. The domestic formulation business (30 per cent of revenues) had grown 9.7 per cent YoY, while Rest of World sales (10 per cent of revenues) had clocked 6.8 per cent growth in the June quarter.

Lupin and analysts remain optimistic on domestic sales growing ahead of the Indian pharma market. However, with the US market (39 per cent of revenues) still not completely out of the woods, analysts remain cautious despite reasonable stock valuations.

Analysts at Antique Stock Broking had said that Lupin has one of the most visible pipelines, but it is yet to prove it can launch complex generics, and lack of approvals in key products is a case in point. Hence, despite an estimated growth of 75 per cent in earnings between 2018-19 and 2020-21, they see limited scope for rerating.