Lupin - Is it the time to buy for long term

Exceptional Item refers to following,

During the quarter, the Company made provision of USD 53.5 million (Rs 3,791.8 million) to be paid towards the settlement amount in respect of State of Texas lawsuit in the USA which is disclosed as an exceptional item. The exceptional item of Rs 3,399.8 million for the year ended March 31, 2019 pertains to provision for fine to European Commission.

Seems they get such issues frequently which dents the Bottom line


Exactly. They seem to get these issues so frequently that the quarter in which they don’t make any extra ordinary provisions would be rare and one of a kind.

Disc: Invested.


Lupin announced divestment of its Japanese subsidiary at a EV/sales of ~2 times while the company itself trades at an EV/sales ~2.3 times. The proceeds from this transaction will help bring down its borrowings significantly, post which the net D/E will come down to ~0.1. With this sale, Lupin will exit the generic business from Japan but will continue with its speciality portfolio in Japan. The sale is expected to be completed by March 2020.


Lupin got a positive opinion from the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) for its biosimilar ethanercept. This is in-line with management’s guidance on ethanercept launch in Europe in 2020. The next step is approval from the European commission. If Lupin gets approval, it can launch the biosimilar in Europe.

On the management front, Ramesh Swaminathan rejoined as CFO, he had earlier left Lupin to join L&T.


Lupin Announces Positive Topline Results from its Phase 3 Study of Single-Dose Solosec® (secnidazole) for the Treatment of Trichomoniasis.

Here are the FY20Q4 updates. The presentation this time around is very elaborate and I will recommend going through it to understand the future pipeline into speciality and complex generics.

Regulatory updates:

  • Goa and Somerset – done with remediation work and will be offered for reinspection in the next couple of months
  • Pithampur - will be offered for reinspection later this year after Somerset & Goa
  • EIR received from FDA in Inhalation Centre Florida, Aurangabad, Nagpur, Mandideep Unit II, Pithampur Unit I, Vizag (none of these had OAI or warning letters, so no real EIRs received :frowning:)

Facilities under FDA scanner continues

  • Goa, Pithampur unit II, Mandideep unit I – still under warning letter
  • Somerset, Tarapur API – OAI issued


  • Ramp up of levothyroxine going well (market share has gone up from 5% in Q3 to 13% in Q4)
  • Significant disruption in solosec because of COVID
  • Pegfilgrastim: Will be filed by the end of FY21
  • Gavis impaired to a large extent
  • Increase in receivables leading to increased short term borrowings
  • Decrease in long term borrowings (from proceed of sale of Kyowa)
  • India growth strong @10.8% for FY20
  • US growth seem to be coming back @4.1% for FY20

Future plans & Guidance

  • Plans to launch 56 complex generics in the next 5 years (cumulative market size: $37 bn)
  • Ebitda will be 19-20% in FY21
  • Domestic market along with lupin will probably de-grow in FY21Q1
  • Expecting albuterol (inhaler) approval soon – generic already occupies 60% of market share (already 6 players exist) – second half launch

Key monitorables

  • Decrease in receivables and short term borrowings in H1FY21
  • Lifting of warning letter/OAI from atleast 2 facilities by Q1FY21

Lupin got approval for marketing its biosimilar Nepexto (biosimilar etanercept whose brand name is enbrel) in Europe. They got positive opinion from EMA Committee for Medicinal Products for Human Use (CHMP) on 27-03-2020. This is big news as this will be Lupin’s first biosimilar launch in Europe. The R&D of a $1bn over the last 5 years will finally start paying off.


My investment thesis in Lupin has always been that it will realize its true potential once the biosimilar and complex drug pipeline unlocks. Unlike Biocon, where we depend mostly on biologics alone, with Lupin, we have a cushion with their existing pipeline.

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Well Biocon also has Syngene which is not dependent on biologics, plus they manufacture smaller molecules as well. Biologics division still doesn’t account for even half of their topline.

By the way, I also think that market is mispricing Lupin. They have 2 biosimilars in pipeline, their India business is 33% of topline (5100 cr. as of FY20) growing at higher than IPM rates. It alone accounts for more than half of its market cap. Lets see how it plays out!


@harsh.beria93 - Do you have any info on the one time exceptional items from Q2 and Q3 especially from the restructuring of Gavis and impairment of Kyowa? What exactly did happen? Are the issues with Gavis better now? Are these exceptional items a huge concern? Because they seem to be getting once every alternate quarter.

As far as I remember, Gavis is the large acquisition in US that didn’t work out. Numerous reasons such as opioid crisis, overpaying for acquisition, etc. More details on the video

As far as exception charges are concerned, there was a lawsuit against generic pharma companies for price collusion which named Lupin along with other large generic companies. Some part of the exceptional charges are for settling the lawsuit. There has also been exceptional income on back of sale of Kyowa’s generic unit in Japan because of price control introduced by Japanese government. Another exceptional item was the partnership with Boehringer Ingelheim for selling their cancer drug for which they will be getting royalty (detail here). I think these are most of the exceptional items, I hope the number of such items go down in the future!


USFDA grants orphan drug status to mexiletine hydrochloride.

  • Lupin’s NaMuscula (mexiletine hydrochloride) is the first and only licensed product to treat myotonia in adults with non-dystrophic myotonic (NDM) disorders.

There is a serious unmet medical need for the management of symptoms in patients with myotonic disorders. The decision by the USFDA to grant orphan drug designation to mexiletine brings us closer to providing a licensed treatment option for patients in the US - Lupin CEO Vinita Gupta


Interesting interview of Ramesh Swaminathan (link)

Some key takeaways:

  • Past generic pharma pricing trends
    – 2001-2005: Good pricing
    – 2006-20009: Bad pricing
    – 2011-2015: Good pricing
    – 2020: Pricing started stabilizing
  • Increasing competition from Indian players (Ajanta, Alkem, Alembic, Torrent)
    – Teva: market share reduced from 25% (in 2010) to 9% (in 2020)
    – Mylan: market share reduced from 9% to 4%
    – Sandoz: down from 7% to 3%
  • Complex injectables is growing at 6-7%, inhalation is growing at 15%
  • Biosimilars: $50-60 mn development costs on each molecule (including clinical trials), high entry barriers, 4-5 players in each molecule leading to price erosion of 30-35%
  • Biosimilars have not yet picked up in American market, it has picked up in European market
  • Specialty requires lot of upfront investment into building a sales force, got into women’s health (solosec) because that space was vacated by big pharma leading to lower competition
  • H1FY20: demand lower in India. For US, prescription has been lower both in acute and chronic with a greater drop in acute [temporary situation because of COVID]
  • Have manufacturing facilities in Sommerset (US), Brazil and Mexico

Lupin recalls some batches of metformin and expects that this scenario will not spill over to other batches. A blanket ban if it happens will be bad for lupin as they get 9-10% eps from metformin (according to cnbc).

It is only in extended release tablets… Standard release tablets seem to have no issue and to my understanding the standard release tablets are the major chunk which most diabetes , women with PCOS are prescribed…
I may be wrong… May be some doctors can confirm…
Discl: not invested… Tracking

All pharma companies those who make Metformin ( almost all pharma companies in india make metformin), they make both in Standard and Extended release form…
Not a big issue in my view…because even USA based pharma companies had also this issue of recall in extended release form of Metformin…

Discl: Not invested in Lupin … Tracking

So for metformin hydrochloride extended release tablets, Lupin seems to have released 500 and 1000 mg tablets (batch number A090692).

Other players in the market who have the extended form of the drug are below

You are right, it seems that every major pharma player produces metformin!

Newly added part: Lupin also released today that they did recall the extended release tablets of 500 and 1000 mg tablets. Their own lab tests show that certain batches had higher than allowed NDMA content. They expect to reintroduce updated tablets in current quarter. (link)

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CNBC interview

  • 18 COVID cases in Ankleshwar facility; 1 production block closed down (no material production loss)
  • Financial impact of metformin recall: Single digit numbers (in mn $); will be reintroduced in current quarter
  • Second half will be much better than first half
  • Indian market: Q1 impacted because of COVID supply change issues
  • Inhalation launch of fostair in Europe will be done this fiscal
  • Focusing on biosimilars and complex injectables


Sharing some important highlights from LUPINs 2020 AR-

Sales - 15,142 cr vs 14,318 cr
EBITDA- 2838cr vs 2893 cr
PBT - 1505 cr vs 1745 cr
PAT - 908 cr ns 852 cr

Both PBT and PAT - adjusted for exceptional items.

Ranked -1 in Hypertensive drugs in US
Ranked-1 in 63 products in US , out of a total of 164 products
Ranked-4 in Chronic therapies in India
Ranked-4 amongst Generic players in Aus + NZL

R&D spend - 10.3 pc of revenues

Manufacturing sites -
New Jersy, Mexico, Brazil - 1 each
India- 12 sites

R&D sites -

Mexico, Brazil, Netherlands - 01 each
US- 2

Debt to Equity - down to 0.12 vs 0.38 last year ( positive development )

Divestment of Kyowa has helped reduce debt.

API sales as a percentage of total sales - 9 % ( APIs have a lot of tail winds )

Company seeing reduction in pricing pressures in US mkts. ( lets see how this pans out )

Levothyroxine ramp up in US- progressing well.
Etanercept - Biosimilar got EU approval.
Na Muscla - Speciality product ramping up well in Europe
Expects to launch first major Inhalation product- Albuterol in US in 2020-21
Expects to launch gFostair ( limited competition product ) in US
Ramp up of Solosec- sub par. Company has high hopes from this speciality product
India business grew 13 % - 34 pc of company sales. Now, the company has 10 products among top 300 vs 6 produsts 3 yrs ago
All USFDA in last 2 Qts went off well. Lets see if the company can resolve the pending sites
A lot of talk about cost control, throughout the AR
EBITDA for 2019-20 at 18.7%- subpar by company admission
US growth-3 %- 38 pc of company revenues.
Apart from regular ANDAs, company has a descent pipeline of FTFs, Injectables and inhalation products
Intends to launch Pegfilgrastim in US in FY 21- first US-biosimilar launch for the comapny
In India, Lupin is No-1 in anti TB meds, 2nd in respiratory and 3rd in anti- diabetes meds and cariology meds
Company intends to ramp up India OTC products- Softovac, Lupizyme and Aptivate
Lupin is Ranked 2nd in Mexico in Opthalmology. Mexico is a fast growing, large pharma mkt
Besides Brazil and Mexico, company has recently entered Chile , Peru and Columbia
Company intends to enter cardio, pain management and CNS segments in Mexico ( to diversify beyond opthalmology )
Lupin has 2.1 pc Mkt share in Brazil ( 15th largest )- grew 28 pc last year
Company intends to enter similar segments as in Mexico
Asia - Pacific, Latin America - 4 pc of sales each
Divested Kyowa ( Japnese Subsidiary )
Intends to launch complex generics and biosimilars in Japan via marketing tie-ups
Launched Etanercept ( bio similar ) in Japan
Australia rank-4 amongst generic players
Phillipines rank-5 amongst generic players
Intends to launch complex generics and injectables in both Mkts
EMEA, Europe, Middle East and Africa- europe growth last yr-13 pc, intends to launch first respiratory produsct- fostair in europe, fast growth in South Africa specially in OTC and CVS products

06 manufacturing sites
9 pc of sales over and above the captive consumption

Biosimilar pipeline-

Pegfilgrastim - helps increase production of WBCs
Ranibizumab - helps prevent decreased vision and blindness
Aflibercept- oncology drug

These notes are not exaustive. However, cover imp highlights.

Key monitorables -

The street is sick of exceptional items. Lets hope, not many are in store now.
Pricing scenario in US business.
Scale up of complex generics, speciality and bio-similar portfolio
Domestic performance
Sucess of cost control measures.

Disc: invested.
Small portion of portfolio.


AR20 notes below

USA (38% of sales; growth of 3%):

  • 174 products in market, market leader in 63 products, average market share: 30%; #3 by prescriptions, 6.3% market share
  • Pending ANDAs: 158 (market size: $71.7 bn); Approved: 272 approved till date; 43 FTF pending applications (market size: $43.6 bn), 14 of them are exclusive opportunities
  • ANDAs filed in FY20: 21; Received 14 approvals; launched 18 products
  • 85% of US products are sourced from Indian facilites
  • All inspected facilities in Q4FY20 and Q1FY21 had positive outcomes
  • Excluding one-time ranolazine opportunity, business grew by 5% on launches of Levothyroxine, Oseltavimivir
  • Expect Albuterol launch in FY21 (first inhaler launch)
  • Solosec: hasn’t performed upto expectation
  • Generics product price erosion in mid-single digits

India (34% of sales; growth of 13%):

  • 6 rank in IPM, 10 brands in top 300 (up from 6 in FY18); 3.61% market share (up slightly from 3.46% in FY16)
  • 4-yr growth of 11.7% outpacing IPM growth of 9.4%
  • Chronic: 62%; Acute: 38%

Specialty pipeline and biosimilars:

  • Fostair (inhalation) will be launched in UK in FY21
  • Etanercept (biosimilar) will be launched in Europe in FY21
  • Pegfilgrastim (biosimilar): Achieved successful results in FDA clinical studies; will be filed in US in FY21
  • Ranibizumab (biosimilar): Phase 3 trials ongoing in India and initiated globally
  • Aflibercept (biosimilar): Received $3.5 mn grant for development
  • NaMuscla in Europe: first orphan drug and marks foray into rare-disease space
  • Solosec: hasn’t performed upto expectation; Reduced team size and hired a specialist in women’s health (Jon Stelzmiller);
  • Nanomi (Netherland subsidiary) has a complex injectables platform based on Microsieve technology
  • Coral springs facility in Florida specializes in inhalation research, target products: g-Sprivia in FY21; g-Dulera ANDA submitted; g-ProAir successfully addressed all regulatory questions; Developed prototypes of g-Qvar and g-Ellipta
  • Filed 5 major inhalation products in developed markets (market size: $6 bn)

EMEA (8% revenues) – Europe, Middle east and Africa

  • Launch of NaMuscla
  • Europe sales growth of 13% (German subsidiary: Hormosan Pharma); Plans to launch g-Fostair (first inhalation product), Etanercept (first biosimilar) and expand NaMuscla
  • South Africa sales grew by 4.9% vs 1% market growth (subsidiary: Pharma Dynamics); Anticipate delays in product approvals and pricing pressure because of funding agencies

LATAM (4% revenues; 12% growth):

  • Mexico (22%) and Brazil (42%) form 64% of market (~$35 bn)
  • Laboratories Grin is Lupin’s subsidiary in Mexico (3.6% growth lagging industry growth of 8%)
  • MedQuimica is Lupin’s subsidiary in Brazil; Growth of 28.1% outpacing industry (2.1% market share)
  • Expanded into Chile, Peru and Colombia

APAC (4% of sales; 8.4% growth):

  • 4th largest generic company in Australia (name: Generic Health)
  • 5th largest branded generic company in Philippines (name: Multicare Pharma) – growth of 13% vs industry growth of 8.3%; Overall market size of APAC: $230 bn (grew at 6%)
  • Entered Japan generic market in 2007 but exited in FY20 because of government pricing pressure; Proceeds used to reduce debt; Continue supplying APIs and certain drugs; Commercialized etanercept

New chemical identity (NCE) pipeline (1% revenue):

  • Focus on oncology, immunology, and metabolic disorders
  • MALT1 AbbVie partnership: Received $30 mn upfront, milestone payments upto $947 mn + royalty on sales
  • MEK Boehringer partnership: Received $20 mn upfront, milestone payments upto $700 mn + royalty on sales
  • Successfully closed second NCE licensing with Boehringer Ingelheim following previous year’s successful pact with AbbVie for its MALT1 inhibitor program

API business (9% revenue):

  • 46% market share in TB; 36% domestic and 64% exports
  • Targeting a strong anti-retroviral portfolio (overall market size: $1.8 bn)
  • 6 API facilities: Tarapur, Ankleshwar, Dabhasa, Mandideep, Indore, Vizag
  • 21.31 cr. of CSR money to be spent
  • Undertook restructuring of global operations
  • Employees: 18302, median salary: 4.6 lacs, increase in median salary: 6.15%
  • Numer of shareholders: 299’792
  • Inventory write-down of 248.4 cr. vs 251.26 cr. last year
  • Auditor remuneration: 15.07 cr. vs 14.54 cr. in FY19
  • Raw material dependence on China: 30%