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Lupin (LPC)
Pharmaceuticals
Lower-than-expected results, FY2012E outlook intact. PAT at Rs2.2 bn was lower
than our est. by 12% for underperformance in US branded biz with India/Japan sales in
line and lower EBITDA margin. We reduce FY2011-12E est. by 10-8% for (1) lower US
branded sales and (2) lower margin assumptions. However, with US generic biz outlook
intact, we estimate 27% EPS growth in FY2012E. We value Lupin at (1) 20X FY12E core
EPS, (2) DCF value of Rs9/share from settled exclusivities. ADD; PT Rs465 (was Rs490).
Sales at Rs14.6 bn were 5% lower than our estimate, US branded biz underperforms
While sales were 5% lower than our est., it’s the mix which disappointed (1) with US branded
business flat qoq, 50% lower than our est. due to (a) higher base effect on account of H1N1 last
year and bunching up of Antara sales, launched in 2HFY10 and (b) change in accounting system to
netting of rebates (higher yoy) from net sales vs earlier practice of including it in expenses. While
this has been put into place since 1QFY11, the effect was pronounced in 3QFY11 due to higher
base of last year (2) US generic business was 7% lower than our est. reflecting pricing pressure on
Lotrel, (3) API (15% of sales) surprised with 19% yoy growth after 3 quarters of poor growth, and
(4) India and Japan, up 16% yoy, were largely in line with est.
PAT at Rs2.2 bn, 12% lower than our est. boosted by higher other income and lower tax rate
EBITDA margin at 17.3% was lowest in last five quarters; however, adjusting for forex loss/gain of
Rs170/150 mn in 3QFY11/FY10, margin at 18.5% was flat yoy, 200 bps lower than our est. due to
higher staff cost. Gross margin expanded 200 bps yoy, reflecting growth in branded business
which is intact despite increasing sales of API this quarter. Staff cost increased 30% yoy due (1)
Indore SEZ, (2) increase in R&D manpower, (2) higher branded sales force in US at 160, up 100 yoy.
While EBITDA was 22% below our est., PAT was 12% lower boosted by (1) higher other income
on account of (a) export benefits, (b) dossier sales and (2) lower tax rate at 9% vs our est. of 15%.
We reduce our FY2011-12E est. by 10-8%; US pipeline intact, FY2012E to see at least 12 launches
We reduce our FY2011-12E est. by 10-8% primarily on account of (1) lower sales in US branded
business and (2) lower margin assumptions. While gross margin expansion, up 400 bps yoy to
61% in 9MFY11, is impressive, R&D/staff costs have zoomed, up 35/38% vs sales growth of 21%.
We maintain ADD with PT revised to Rs465 (was Rs490), 20X FY2012E earnings
We revise our PT downwards to Rs465 (from Rs490). We value Lupin at (1) 20X FY2012E core EPS,
(2) DCF value of Rs9/share from settled exclusivities. We refrain from including sole exclusivities of
(1) Glumetza (US$40 mn) , as case hearing is scheduled for Jan 2011E with 30-month stay expiring
in May 2012 and (3) Fortamet ER on account of uncertainty of launch date in our DCF value.
US pipeline remains intact in FY2012E; we, however, reduce estimates for US
branded biz
US generic product pipeline in F2012E intact (see exhibit below). Lupin expects to launch
at least12 products in FY2012E.
3-4 OCs with branded market size of US$300-400 mn. We assume Sept 2011E
launch with revenues of US$17 mn (15% market share, 25% price erosion).
Around 8 generics upon approval which include (1) niche products with limited
competition such as Combivir (US$225 mn) with two filers—Lupin, Teva and (2)
blockbuster products with stiff competition—Tricor, Effexor XR, Levaquin which have
branded market size of >US$1 bn but with many filers.
Second highest # of filings among Indian peers. Among Indian peers, Lupin has
the second largest # of filings awaiting approval at FDA behind SUNP at 90 as of Dec
2010.
Allernaze launch pushed out. Allernaze launch has been delayed with revised launch
timeline of June 2011E due to certain scale-up issues. We assume mid-FY2012E launch
and US$15 mn from Allernaze in FY2012E and US$165 mn for total branded business in
US in FY2012E.
Key takeaways from conference call
Lotrel, major contributor in FY2011E. Lupin maintained it has not taken any
chargebacks on Lotrel. While it has witnessed some pricing pressure, Lupin maintains it’s
still among its top 5 products in US. Lupin intends to participate in higher strength
versions of Lotrel post Par’s exclusivity ending June 2011E. The higher strengths (/320mg
and 10/320mg strengths) accounted for annual sales of US$361 mn.
Lupin to focus on lifecycle management strategies for Antara/Suprax. It has filed
drops dosage form with FDA post launch of chewable tablets in Nov 2010. Rx growth for
suspension was 9% yoy, 70% yoy for tablets.
Inventory correction in trade channels in US impacted sales both for branded business
and generic business. According to Lupin, inventory levels are down to 5 days from 3-4
weeks earlier and it expects to normalize at 2-3 weeks going forward; however, branded
business could see some further pressure on account of inventory rationalization in near
term.
ANDA filing run rate maintained. 3 Opthalmic ANDAs have been filed till date and
Lupin plans to focus on 25 more filings in Opthalmics. It filed 27 ANDAs in FY2010 and
expects to close the year with at least 30 ANDAs filings, inline with earlier guidance of 35
ANDA filings/year. In FY2012E, it will file in dermatology and asthma in FY2013E.
Europe reported 72% sales growth yoy due to bunching up of product introductions.
Lupin expects these sales to sustain going forward. German subsidiary reporting 14%
sales growth in rupee terms and 35% growth in Euro terms due to low exposure to non-
AOK tenders.
Pace of product launches to pick up in Japan with gross margin benefit to come in
from API linkages to Indian plant. The first of APIs have been filed from India while
finished products will be filed in FY2012E.
EBITDA margin expansion underway. Lupin expects EBITDA margin to expand 75 bps
in FY2011E on account of increasing gross margin as reported in 9MFY11, up 400 bps
yoy to 61% despite
(1) increasing R&D. R&D is up 38% yoy to 8% of sales from 7%
(2) increasing staff cost, up 35% yoy vs 20% sales growth in 9MFY11 due to (a)
increase in staff cost for Indore SEZ, (b) increase in sales force for branded biz in US,
(c) increase in MRs in India to 3,100.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin (LPC)
Pharmaceuticals
Lower-than-expected results, FY2012E outlook intact. PAT at Rs2.2 bn was lower
than our est. by 12% for underperformance in US branded biz with India/Japan sales in
line and lower EBITDA margin. We reduce FY2011-12E est. by 10-8% for (1) lower US
branded sales and (2) lower margin assumptions. However, with US generic biz outlook
intact, we estimate 27% EPS growth in FY2012E. We value Lupin at (1) 20X FY12E core
EPS, (2) DCF value of Rs9/share from settled exclusivities. ADD; PT Rs465 (was Rs490).
Sales at Rs14.6 bn were 5% lower than our estimate, US branded biz underperforms
While sales were 5% lower than our est., it’s the mix which disappointed (1) with US branded
business flat qoq, 50% lower than our est. due to (a) higher base effect on account of H1N1 last
year and bunching up of Antara sales, launched in 2HFY10 and (b) change in accounting system to
netting of rebates (higher yoy) from net sales vs earlier practice of including it in expenses. While
this has been put into place since 1QFY11, the effect was pronounced in 3QFY11 due to higher
base of last year (2) US generic business was 7% lower than our est. reflecting pricing pressure on
Lotrel, (3) API (15% of sales) surprised with 19% yoy growth after 3 quarters of poor growth, and
(4) India and Japan, up 16% yoy, were largely in line with est.
PAT at Rs2.2 bn, 12% lower than our est. boosted by higher other income and lower tax rate
EBITDA margin at 17.3% was lowest in last five quarters; however, adjusting for forex loss/gain of
Rs170/150 mn in 3QFY11/FY10, margin at 18.5% was flat yoy, 200 bps lower than our est. due to
higher staff cost. Gross margin expanded 200 bps yoy, reflecting growth in branded business
which is intact despite increasing sales of API this quarter. Staff cost increased 30% yoy due (1)
Indore SEZ, (2) increase in R&D manpower, (2) higher branded sales force in US at 160, up 100 yoy.
While EBITDA was 22% below our est., PAT was 12% lower boosted by (1) higher other income
on account of (a) export benefits, (b) dossier sales and (2) lower tax rate at 9% vs our est. of 15%.
We reduce our FY2011-12E est. by 10-8%; US pipeline intact, FY2012E to see at least 12 launches
We reduce our FY2011-12E est. by 10-8% primarily on account of (1) lower sales in US branded
business and (2) lower margin assumptions. While gross margin expansion, up 400 bps yoy to
61% in 9MFY11, is impressive, R&D/staff costs have zoomed, up 35/38% vs sales growth of 21%.
We maintain ADD with PT revised to Rs465 (was Rs490), 20X FY2012E earnings
We revise our PT downwards to Rs465 (from Rs490). We value Lupin at (1) 20X FY2012E core EPS,
(2) DCF value of Rs9/share from settled exclusivities. We refrain from including sole exclusivities of
(1) Glumetza (US$40 mn) , as case hearing is scheduled for Jan 2011E with 30-month stay expiring
in May 2012 and (3) Fortamet ER on account of uncertainty of launch date in our DCF value.
US pipeline remains intact in FY2012E; we, however, reduce estimates for US
branded biz
US generic product pipeline in F2012E intact (see exhibit below). Lupin expects to launch
at least12 products in FY2012E.
3-4 OCs with branded market size of US$300-400 mn. We assume Sept 2011E
launch with revenues of US$17 mn (15% market share, 25% price erosion).
Around 8 generics upon approval which include (1) niche products with limited
competition such as Combivir (US$225 mn) with two filers—Lupin, Teva and (2)
blockbuster products with stiff competition—Tricor, Effexor XR, Levaquin which have
branded market size of >US$1 bn but with many filers.
Second highest # of filings among Indian peers. Among Indian peers, Lupin has
the second largest # of filings awaiting approval at FDA behind SUNP at 90 as of Dec
2010.
Allernaze launch pushed out. Allernaze launch has been delayed with revised launch
timeline of June 2011E due to certain scale-up issues. We assume mid-FY2012E launch
and US$15 mn from Allernaze in FY2012E and US$165 mn for total branded business in
US in FY2012E.
Key takeaways from conference call
Lotrel, major contributor in FY2011E. Lupin maintained it has not taken any
chargebacks on Lotrel. While it has witnessed some pricing pressure, Lupin maintains it’s
still among its top 5 products in US. Lupin intends to participate in higher strength
versions of Lotrel post Par’s exclusivity ending June 2011E. The higher strengths (/320mg
and 10/320mg strengths) accounted for annual sales of US$361 mn.
Lupin to focus on lifecycle management strategies for Antara/Suprax. It has filed
drops dosage form with FDA post launch of chewable tablets in Nov 2010. Rx growth for
suspension was 9% yoy, 70% yoy for tablets.
Inventory correction in trade channels in US impacted sales both for branded business
and generic business. According to Lupin, inventory levels are down to 5 days from 3-4
weeks earlier and it expects to normalize at 2-3 weeks going forward; however, branded
business could see some further pressure on account of inventory rationalization in near
term.
ANDA filing run rate maintained. 3 Opthalmic ANDAs have been filed till date and
Lupin plans to focus on 25 more filings in Opthalmics. It filed 27 ANDAs in FY2010 and
expects to close the year with at least 30 ANDAs filings, inline with earlier guidance of 35
ANDA filings/year. In FY2012E, it will file in dermatology and asthma in FY2013E.
Europe reported 72% sales growth yoy due to bunching up of product introductions.
Lupin expects these sales to sustain going forward. German subsidiary reporting 14%
sales growth in rupee terms and 35% growth in Euro terms due to low exposure to non-
AOK tenders.
Pace of product launches to pick up in Japan with gross margin benefit to come in
from API linkages to Indian plant. The first of APIs have been filed from India while
finished products will be filed in FY2012E.
EBITDA margin expansion underway. Lupin expects EBITDA margin to expand 75 bps
in FY2011E on account of increasing gross margin as reported in 9MFY11, up 400 bps
yoy to 61% despite
(1) increasing R&D. R&D is up 38% yoy to 8% of sales from 7%
(2) increasing staff cost, up 35% yoy vs 20% sales growth in 9MFY11 due to (a)
increase in staff cost for Indore SEZ, (b) increase in sales force for branded biz in US,
(c) increase in MRs in India to 3,100.
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