With the company’s Goa and Pitampura plants already having received warning letters, its Somerset (New Jersey) facility too — having received OAI status after inspections and under scrutiny — is bound to turn the Street’s sentiment cautious. All this puts the company under pressure to address these deficiencies and carry out remedial measures. Given the fresh warning letter, expected increase in remedial costs, and delays in new drug launches, analysts are lowering their forward earnings estimates.
Analysts at Elara Capital say the management had guided for a resolution of at least two plants in 2019-20 (FY20), which may see some delay. Not only does the resolution timeline remain unclear, some analysts also feel the resolution may take more time.
Surajit Pal at Prabhudas Lilladher says the USFDA’s special mention of repeat observations at multiple sites such as Goa and Indore has implied that Lupin has to follow similar corrective action in other plants as well. This will result in wide expansion of work across geographies and require significant time to achieve resolution at multiple plants, similar to what was observed in the manufacturing issues of the IPCA with the USFDA.
The IPCA is still awaiting plant clearance from the US drug regulator.
Against this backdrop, while Pal has cut his FY20 and 2020-21 (FY21) estimates for Lupin, any delay in major product approvals may place further pressure on the stock. There already exists uncertainty on timing of the launch of generics of the respiratory product Proair, which was anticipated to contribute $50 million to Lupin’s US revenues in FY21 (about 8-10 per cent of earnings), according to analysts. Given some key plants are stuck over regulatory issues and there is limited visibility on the new big-ticket pipeline in the US, ramp-up in US sales will be gradual, say analysts at Elara Capital.