Lupin may be finally emerging out of the woods, going by the string of positive developments of late. The drug-maker received an earlier-than-expected approval for its much-awaited blockbuster drug, the generic Spiriva, in June. Following that, unit-II at Lupin’s Pithampur manufacturing facility also cleared regulatory hurdles last week after being classified as VAI (Voluntary Action Indicated) by the US Food and Drug Administration (FDA).
The market is betting that these developments will have a material impact on the drug-maker’s bottomline, and for good reason. The approval for Spiriva, an inhaler for asthma patients, means that the high-margin drug, a $140 million annual opportunity for Lupin, may be launched much earlier than anticipated.
Spiriva's push
The upcoming launch of the drug is seen as a major growth multiplier for the company, coming at a time when the drug-maker has been struggling to improve its margins.
An analyst covering the pharma sector at a domestic brokerage also highlighted that the company had previously acquired two inhalable drugs, which, along with Spiriva, will strengthen its respiratory portfolio. He also believes that Spiriva's approval will improve the company's earnings for at least the next 12 months.
Also Read: Aim for 18% margin by FY24 end, Spiriva launch in Q2, says Lupin CFO
Out of regulatory scrutiny
The VAI classification of unit-II of the Pithampur facility also came as a surprise. The unit was previously issued 10 observations by the US regulator during its inspection of the plant earlier in March. Some of those observations were serious in nature, which led analysts to believe that the facility would be classified as OAI (Official Action Indicated).
Unit II of Lupin's Pithampur facility had already been classified as OAI in 2017, and the recent inspection followed by the VAI status cleared the roadblock. This means that the company may get USFDA approvals for drugs manufactured at the site now.
Analysts at Nomura saw this development as a positive surprise. "We expected the site to remain classified as OAI following the March 2023 inspection," they stated in a report.
The Pithampur facility is really important for Lupin as it is among its largest plants and manufactures oral solids, contraceptives, ophthalmic, and dermatological products. Also, around 20 ANDAs (abbreviated new drug applications), or generic drugs, are pending from the plant under question, and another OAI classification would have meant further delay in their approval and commercial launch.
Lupin revealed that the generic Prolensa, an ophthalmic drug, is among the pending ANDAs from the Pithampur unit. Nomura pointed out that Lupin is likely the first filer to submit a drug master file for the product with the FDA, and may therefore get a window of exclusivity (launch likely in Mar 2024, according to the company). A drug master file carries information about the facilities, processes, and ingredients used in the manufacturing, processing, packaging, and storage of a drug.
While Prolensa has annual sales of $180 million as per IQVIA data, Nomura estimates a revenue opportunity of around $50-70 million for Lupin. In addition, it may also commercialise some of its older ANDAs that still hold substantial revenue potential. If Lupin captures the revenue opportunity that opens up with the clearance of the Pithampur unit, Nomura estimates additional annual sales of around $20-25 million, which will add another 4 percent to the company's current earnings estimates for FY24-25E. A drug master file carries information about the facilities, processes, and ingredients used in the manufacture, packaging, and storage of a drug.
Previously, Lupin had managed to get regulatory clearance for its Goa and Somerset sites in December 2021 and July 2022, respectively. That, coupled with the go-ahead for its Pithampur facility, now leaves only two manufacturing units, at Mandideep and Tarapur, under regulatory scrutiny. Both the units are still classified as OAI.
The earlier mentioned analyst also sees the clearance of regulatory hurdles as an opportunity for Lupin to up its game against Cipla, which is its closest competitor in the US. Contrary to Lupin's situation, Cipla's key manufacturing site in Pithampur is still caught up in regulatory headwinds with the USFDA's eight observations, which has delayed the launch of major respiratory drugs like Advair and Albuterol.
A possible restructuring
Rumors are also making rounds in the market that suggest that Lupin is considering hiving off its API (Active Pharmaceutical Ingredients) business into a separate entity.
Moneycontrol reported recently quoting sources that Lupin was planning to carve out its API vertical in a bid to unlock value.
"It remains to be seen if a potential listing or a stake sale of the separated entity is explored at a later stage," said one of the persons aware of the development. Another person also confirmed the internal restructuring plans highlighting that talks for the same were in an advanced stage.
Also Read: Lupin may spin off API business as part of business recast to unlock value
The talks of restructuring also hint towards a shift in the company's future plans, a prospect that the Street is slowing opening up to. Set on the trajectory to turn things around, the management had also stated earlier that they will pivot from low-margin oral solids to high-margin complex generics while ramping up its presence in the India pharma market.
The change in strategy will place the company at a sweet spot to not just benefit from the strong growth prospects of the domestic market but also enjoy the strong margin recovery that comes along with complex drug launches in the US.
Some hiccups also persist
With most roadblocks out of the way, it seems like Lupin is set to fire on all cylinders in the coming quarters. Surya Patra, Research Analyst at Philip Capital, also believes that Lupin's business is on the growth path. And it’s not just analysts who are cheering for the drug-maker, investors too are pleased with the recent string of positive news.
The growing positivity around Lupin is clearly demonstrated in the stock’s performance. The stock had taken a significant beating in 2022 as it slumped around 23 percent, much steeper than Nifty Pharma's over 11 percent decline. The weakness continued in the early months of 2023 as well, as the stock was down nearly 12 percent by the end of March. Since then, it has managed to stage a striking comeback, spiking over 38 percent since the start of April.
However, Patra believes the stock's valuation is a bit stretched, which might restrict its upside hereon. The analyst mentioned earlier echoed this.
Whether or not the stock will extend its upward momentum depends on investor interest, but when it comes to growth, Lupin is all set to turn things around.
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