Lupin: Look beyond the short-term concerns

Strong product approval rate in the US and mega launches on exclusivity basis are key positives

News flow around US product approvals and launches remain strong for Lupin. In the past few days, it has received one approval for launch on exclusivity for a Bowel preparation kit. Also, it has launched a scalp treatment and a dermatology drug in the US. Besides, it has also entered into a marketing agreement in Japan to exclusively distribute and promote extended-release tablets of schizophrenia drug. The tie-up in Japan will boost revenue from the world’s second largest drug market, which contributes 10 per cent to Lupin’s top line and the launch of Bowel kit can garner $30 million during exclusivity. The approvals for new launches have caught pace after Lupin got its Goa plant cleared by the US Food and Drug Administration (USFDA); 11 approvals in the December quarter, and more are expected. 

However, the stock has remained range-bound, even after a good performance in the December quarter. One reason could be that these gains might not be as visible in revenue and profits in the immediate term, given the high base of last year. The company had launched mega diabetes product Glumetza generics on exclusivity in the March 2016 quarter and this was more than a $100-million opportunity. During the same quarter, it had also taken price hike for another diabetes drug Fortamet generics. These products have continued to drive earnings in past one year, leading to a high base.

But, as new mega launches happen, it should help sustain growth momentum. Lupin has already lined up big products for approvals. It has about 44 first-to-files (FTF) applications, including 23 exclusive FTF opportunities and cumulative DMF filings stood at 173 as of December 31. So, as these materialise, it should help raise Street sentiment, too.

A few analysts such as those at Religare are a bit sceptical. They say with incremental competition in key products as diabetes treatment Glumetza and Fortamet generics and anti-bacterial Suprax generics and a delay in key launches, the December quarter might well be the company’s peak performance for the next few quarters.  Lupin had seen 57.6 per cent revenue growth from North America, primarily led by the US market with overall margin at 27 per cent, well above expectations. Analysts are looking at key launches like kidney treatment drug Renagel, Renvela generics and cholesterol control Welchol generics.

The company, however, appears confident. It has guided for about 25 new product launches in the US, including limited competition products and a mega launch on an exclusivity basis before the March quarter. If these targets are met, even with a bit of delay, it should help lift the Street sentiment. Nonetheless, given the company’s plans and prospects, the stock, priced at Rs 1,471, is a good medium-term bet.