Lupin Ltd got a breather this week. That’s because at least one of its multiple plants pending regulatory approvals, received an USFDA (United States Food and Drug Administration) clearance. The USFDA, after inspecting Lupin’s Goa manufacturing facility in September, gave an Establishment Inspection Report (EIR), which marks the successful completion of inspections and indicates that the facility is compliant with the norms set by the USFDA on good manufacturing practices.
“This is a big relief from a compliance standpoint, given the reasonable contribution in the base business as well as double-digit ANDAs (abbreviated new drug applications) pending approval from the Goa site," said analysts at Motilal Oswal Financial Services Ltd.
The manufacturing facility that was a significant contributor to exports to the US was issued a warning letter by the USFDA after an inspection in April 2017. Since then, Lupin has been working on remediation measures. During this period, the company may have shifted manufacturing of key products from Goa to its other FDA-compliant sites. The immediate benefits on exports, therefore, remains to be seen. But clearance of the site will expedite approvals pending with the regulator.
Faster approval for products and launches are crucial for Lupin, which has been under pricing pressure on the US base business. The company’s US formulation revenues grew just 2% year-on-year during the September quarter.
Further, the clearance of one plant boosts confidence that the company may be able to resolve regulatory issues pertaining to other plants as well. Antique Stock Broking’s analysts believe there is a high probability that other critical plants such as Pithampur Unit 2 and Mandideep Unit 1, if inspected, can also get similar clearance from the FDA. This they believe is because the nature of observations cited for these plants were largely similar to the Goa plant and the remediation work undertaken by Lupin has been robust across its plants. The clearance of other facilities could trigger approvals for key products such as generics of Lialda, Nexium, Travatan Z, and Uceris, which provide fairly large market opportunities.
Against this backdrop, it is essential that the above-mentioned plants and a manufacturing facility in the US at Somerset get clearance from the USFDA, point out analysts.
Meanwhile, the company has a very strong product pipeline for the US. It is also working on speciality products range such as respiratory and biosimilars. Lupin clocked $172 million and $184 million sales in the US during the first two quarters of FY22, respectively, and is targeting a run rate of $200 million per quarter during the second half.
To be sure, the domestic growth trajectory also needs to maintain pace. The company’s tepid single-digit domestic growth during FY21 rebounded to 15-16% during the first two quarters of FY22. During November, while the Indian pharma market (IPM) marked a growth of 6.6%, Lupin grew 5.1%. Analysts at Nomura Research said, “The average two-year CAGRs over the past four months for Lupin has been below IPM."
As a result, a pick-up in US growth trajectory and sustained domestic growth hold the key for Lupin’s earnings in the days to come and enable its stock to command better valuation multiples. Motilal Oswal’s analysts reckon that the recent regulatory clearance removes a key overhang on the Goa facility. Even so, from a medium-term perspective, limited earnings’ triggers have weighed on the sentiments for the stock, which has declined by 7.5% so far this calendar year. The Nifty 100 index has gained nearly 25% during the same time frame.
