Lupin - Is it the time to buy for long term

Here are my notes from today’s concall:

  • Excluding last time NCE licensing income, sales were slightly up YOY (by ~3%; not sure about number)
  • India sales growth should be 6-8% YOY in H2FY21 (IPM should grow 4-5% in H2FY21); chronic part has done well but acute is lagging (bigger brands have done better and Lupin doesn’t have big brands in acute);
  • Overall sales growth will be ~10% in H2FY21
  • Q4 EBITDA margins will be back to ~18.5% and EBITDA margins should come back to 20-22% in few quarters; gross margins will go up going forward because of flu products (Tamiflu etc.) and also higher sales from products such as albuterol and ramp up of levothyroxine; Manpower costs should be 18% of sales going forward
  • Levothyroxine: 13% market share currently from the 12% in last quarter; 16% market share in generic market
  • A large chunk of the remediation costs are done, waiting for the FDA audits (currently FDA is not having virtual audits)
  • Launch of albuterol and relaunch of glumetza (metformin) were done at the end of quarter
  • Albuterol: Ramping up supply due to very strong demand because of supply shortage due to perrigo recall; pricing is holding up as Lupin is the only generic for proair; Expect complete ramp up (with sales >1mn units/month) from Q4FY21; Harder to ram up as product has a complex supply chain due to 3rd party vendors in the supply chain (especially for the medical device);
  • gSpiriva: Is in constant dialogue with the FDA; product launch date is after June 2022 (positive that will get approval by then); not aware of any other company that has made significant development on the product
  • Fostair: Approval should come next quarter from MHRA
  • Solosec: Business was down 50% due to covid and restructuring of manpower (reducing number of people from 120 to 45). Scrips and revenues were flat from FY21Q1 to FY21Q2; Majority of revenues is coming from one time product use only
  • Injectable portfolio: Should ramp up in the next 3 years (4 target areas: peptide, iron chloride, depo injectables out of Netherlands (like provera); Liposomal product from Fordoz); Will first file the peptide product glemeremex (hopes to launch in FY22); Liposomal products will be launched in FY24 & FY25
  • Near term growth will be driven by inhaler portfolio
  • Somerset inspection: Still ongoing; Longer inspection in COVID times + facility had a COVID positive case leading to a 2-week hiatus
  • Quality action plan: Observations from any regulatory body will be addressed across sites; Was launched in July 2020; Gives example of how problems in “investigations” have been addressed across manufacturing sites
  • Flu season has been delayed
  • Other regulatory bodies such as DGCA have done virtual desktop audits
  • FDA might start asking to compare impurity data from the reference drug during approval of injectable products

Disclosure: Invested (position size here)

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