Lupin - US Product Recall – Appears Benign :: Morgan Stanley Research,

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Lupin Ltd.
US Product Recall – Appears
Benign
Quick Comment – FDA’s latest Enforcement Report
dated April 13, 2011 has included product recall
information by Lupin. The details available suggest that
the recall is possibly benign and is unlikely to snowball
into a more serious FDA action.

What are the ‘recall’ details – Lupin has recalled 14.2k
bottles (100 count tabs each) of lisinopril 30 mg tablets
by letter dated February 15, 2011. The recall is presently
on-going. It is related to one batch of the drug
manufactured at Lupin’s Goa facility. Recall is being
done in view of possible inclusion of foreign tablets in the
drug product (i.e., adulterated presence of foreign
tablets). This recall has been categorized as Class II.
Contextualizing the recall – Drug and food recall are
reasonably frequent in the US based on the FDA’s
(almost weekly) Enforcement Report, each of which
details a couple of dozen product recalls. FDA classifies
product recalls (Class I to III) depending on the
seriousness of the consequences of consuming the
(recalled) drug. Class I is the most adverse recall
(product may cause serious adverse health
consequences or death), Class II is relatively less
adverse (serious adverse health consequences are
remote) and Class III is most benign (violative product is
not likely to cause adverse health consequences).
Exhibit 2 details several previous drug recalls by the
industry.
Investment implication: As Indian companies gain
scale and complexity (SKUs x markets), GMP lapses
could be expected. However, given the FDA problems in
the sector over past 2-3 years – Ranbaxy, CPD, DRL,
Lupin – we do not expect such GMP lapses to result in
major FDA issues. Lupin stock could correct on this
news, which we would see as a buying opportunity to
play strong earnings growth story over next 2 years. We
believe Lupin, along with DRL (DEDY.BO), is well
positioned to benefit from the coming patent expiration
cycle in the US, and the two stocks remain our top picks
in the sector.


Recalls -  Background and Definitions
Recalls are actions taken by a firm to remove a product
from the market. Recalls may be conducted on a firm's
own initiative, by FDA request, or by FDA order under
statutory authority.
• Class I recall: a situation in which there is a
reasonable probability that the use of or exposure to
a violative product will cause serious adverse health
consequences or death.
• Class II recall: a situation in which use of or
exposure to a violative product may cause
temporary or medically reversible adverse health
consequences or where the probability of serious
adverse health consequences is remote.
• Class III recall: a situation in which use of or
exposure to a violative product is not likely to cause
adverse health consequences.
• Market withdrawal: occurs when a product has a
minor violation that would not be subject to FDA
legal action. The firm removes the product from the
market or corrects the violation. For example, a
product removed from the market due to tampering,
without evidence of manufacturing or distribution
problems, would be a market withdrawal.
Source:  US FDA, Morgan Stanley Research