Lupin forays into diagnostics business; launch expected next month

Topics Lupin | Diagnostics | healthcare

Pharmaceutical major Lupin is foraying into diagnostics to leverage its ‘doctor-connect’ to tap a sector that has low entry barriers, gives high returns on capital employed, and is witnessing double-digit growth. A formal launch is expected next month, sources in the know said. Lupin Diagnostics will be a part of Lupin Healthcare, a 100 per cent subsidiary of Lupin. It is in the process of recruiting the team, finalising franchise partners, and setting up a 45,000 square feet laboratory in Navi Mumbai. The company did not wish to comment on the development. Lupin .....
Pharmaceutical major Lupin is foraying into diagnostics to leverage its ‘doctor-connect’ to tap a sector that has low entry barriers, gives high returns on capital employed, and is witnessing double-digit growth. A formal launch is expected next month, sources in the know said.

Lupin Diagnostics will be a part of Lupin Healthcare, a 100 per cent subsidiary of Lupin. It is in the process of recruiting the team, finalising franchise partners, and setting up a 45,000 square feet laboratory in Navi Mumbai.

The company did not wish to comment on the development.

Lupin has already hired an experienced team with background in the diagnostics sector and work experience in firms like Apollo Diagnostics, Dr Lal’s Pathlabs, SRL, and Reliance Life Sciences, Credit Suisse analysts noted.

According to Anubhav Aggarwal and Sayantan Maji of Credit Suisse, with the entry of Lupin, the competitive intensity in the diagnostics business will increase. “Low entry barriers, high returns on capital employed (over 50 per cent), and fast growth (double digit) profile of the diagnostics sector has been lately attracting new entrants, including digital health aggregators,” noted the analysts.


So far, pharma companies were not present in the diagnostics space, despite their inherent advantage of a good doctor-connect. Analysts, however, feel that the entry of Lupin marks a new trend of pharma firms diversifying into diagnostics.

Lupin has set up a National Reference Laboratory in Navi Mumbai that has the capabilities to conduct a broad spectrum of tests across molecular diagnostics, cytogenetics, flow cytometry, histopathology, microbiology, etc.

Also, Lupin is looking for franchise partners with an investment of Rs 2-5 lakh without any security deposit, according to a post by Frachise India Holdings. It is following a hub-and-spoke model where all processing labs are operated by Lupin Healthcare and are surrounded by collection centres.

The plan is to focus on western India (Mumbai, Pune, Nagpur, Nashik, and Kolhapur), central India (Patna and Ranchi), and east India (Kolkata, Siliguri, and Guwahati).

Why diversify into diagnostics?

IN FULL SWING
  • Launch expected next month
  • Setting up 45,000 sq ft National Reference Lab in Navi Mumbai
  • Senior management recruited; firm looking for franchise partners
  • Focus on west and east India through hub-and-spoke model
The size of the pathology diagnostics market in India is $6 billion, but hospital laboratories constitute half of that. “While the external market is small at $3 billion, the attractiveness is on account of high valuations ascribed by the market. In FY21, Metropolis Healthcare had a total capital employed base of $105 million but market cap is $2.1 billion (trading at 42X FY23 estimated EV/Ebitda),” Credit Suisse said.

In contrast, Lupin, which had a capital employed base of $2.5 billion in FY21, has a market cap of $5.8 billion, it added.

An asset-light model can potentially attract more pharma companies, which have an inherent advantage – doctor relationships. Leading drug firms that already have strong doctor relationships through their sales force can leverage this prescriber network for generating patient volumes to diagnostic centres.


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