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Lupin Ltd.
Expectedly Modest Quarter,
OW for 2012-13 Pipeline
Quick comment – modest quarter: LPC reported 18%
yoy growth in sales, to Rs15.4 bln. OPM compressed 250
bps yoy to 18.8%, leading to a 7% yoy rise in net profits to
Rs2.1 bln (our estimate was Rs2.18 bln). We note price
erosion in Lotrel, Indore SEZ overheads, cost pressures
in solvents/energy, increase in field force and planned
shutdown. Lupin views this as a temporary lapse in a
multi-year margin expansion story (50-75 bps p.a.).
Key highlights from the call:
• F12 outlook: LPC targets 20-25% overall sales
growth, domestic business to grow at 20%, Japan to
grow at 15%, 8-10 product launches in the US, R&D
expenditure to be 7-8% of sales, tax rate to be
14-15% and capex of about US$100 mln.
• Branded business: It seeks to switch Suprax
suspension prescription to drops after approval,
sometime in F2H12. Allernaze launch possible in
F4Q12. It is realigning PED sales force to focus on
primary care too (Suprax tab/Antara).
• Others: Indore SEZ to be at full capacity utilization
in the next 24 months. Company expects no
material impact from the product recalls in April’11
(perindopril and lisinopril) in the US.
Thick product flow: Possible key product launches
over the ensuing few quarters include – Fortamet ER
(currently evaluating ‘at risk’ launch options); Femcon
Fe (F3Q12 launch on 181 day as an AG, after Teva’s
exclusivity); 3-4 OC products in F3Q12, Geodon
co-exclusivity in F4Q12; Combivir (after Teva’s
exclusivity, expects low competition); Tramadol ER
($100 mln market, low competition); Solodyne (3
strengths - $200 mln market, low competition); and
Tricor (sometime after generic launch in July’12).
Retain OW: We position LPC as a multi-year growth
story driven by depth in its US pipeline, profitable RoW
expansion, and early signs of IPR buildup (NDDS deal
with Salix/Medicis). LPC’s aspirational F14 sales target
is $3 bln ($1.3 bln in F11).
Conference Call Details
Outlook for FY12
Management expects:
• F2H12 to be better than F1H12, driven by 8-10 new
launches in the US market.
• Domestic formulations to grow at 20%
• Japanese business growth of 15%
• Tax rate in range of 14-15%
• Capex of US$100 mln
• R&D expenditure in the range of 7-8% of sales
Joint development deal with Medicis
Lupin has entered into a joint development agreement with
Medicis to apply Lupin’s platform technologies to various
compounds.
Lupin has received an upfront payment of US$20 mln, which
will be recognized in the income statement in F2Q12.
Lupin will receive various development and regulatory
milestones (up to US$38 mln), and single-digit royalty on sales.
Medicis is responsible for further development and
commercialization of the products.
The companies are currently framing various timelines, though
management expects first NDA filings under the deal to be
about three years from now.
US Generics
Lupin posted revenues of Rs3.5 bln, up 8% yoy. This was
slower, driven by price erosion in generic Lotrel in lower
strengths. Underlying prescriptions grew 23% yoy during the
quarter. US generics business contributed 70% to the total US
business.
New launch pipeline: Lupin plans to launch 8-10 products in
FY12, of which two have been launched already (levofloxacin
and generic Lotrel higher strengths). Key launches over the
next nine months include - Femcon Fe (AG) in F3Q12 (after
Teva’s exclusivity), 3 to 4 OC products, Goedon co-exclusivity
in F4Q12 and tramadol ER.
Oral contraceptives: Management expects 10-12 approvals
in the first 12 months from the date of first product approval.
Further, it expects meaningful contribution to revenues from
F2H13 onwards.
Combivir opportunity: Lupin believes this product is a
low-competition opportunity and expects this to be a 2-3 player
market. It targets to launch after Teva’s exclusivity. According
to management, Teva is scheduled to launch sometime in
C4Q11.
Fortamet ER opportunity: Lupin has received USFDA
approval for generic Fortamet ER (about US$100 mln brand
sales). Management is currently evaluating options for
launching the product. To recap, Lupin is the sole FTF for this
product and patent litigation is ongoing.
Effexor XR opportunity: So far, Lupin has not received
USFDA approval for generic Effexor XR. However
management highlighted that this is a highly competitive, very
competitive market
Generic Lotrel higher strengths: Lupin launched generic
Lotrel higher strengths during the quarter. This is a fairly
competitive market (six generic players) and gross margins for
Lupin are the same in lower and higher strengths. It has
23-24% market share in lower strengths and 26% in higher
strengths.
Levofloxacin: Levofloxacin is very competitive with over
seven players in the market. Lupin has garnered over 35%
market share.
US Branded Business
Overall performance: Lupin’s branded business grew 9% yoy
during the quarter. Suprax suspension grew 30% in US$ terms
(8% volume growth) and tablet grew about 25%. Branded
business remains 30% of the overall US business.
Suprax: Management expects approval for its drop form over
the next two quarters and seeks to switch its suspension
business to the form of drops.
Antara gained market share during the quarter from 2% to
2.2%: According to management, finofibrate brand market
contracted 14% during the quarter, driven by concerns
highlighted in ACCORD trials. Pre-trial conference for patent
litigation with generic companies is set for Nov-11.
Allernaze launch: Lupin is currently seeking to resolve
scaling-up issues and expects to launch the product in F4Q12.
Sales force realignment: Lupin has a total sales force of 160
representatives, split between primary care (90) and PED (70).
According to management, it is re-aligning its sales force in
PED to target primary care during non-peak seasons and plans
to implement this in Sept’11
Domestic formulations segment: Domestic formulations
segment recorded revenues of Rs4.97 bln, up 17% yoy. Its
key focus segments continue to post strong growth, including
CVS (22% growth), diabetics (30% growth), and gynecology
(35%), while Anti-TB and anti-infectives segments were flat.
Lupin increased its field force by 400 (to a total of 4,000) during
the quarter.
Other Notable Points
Japanese segment performance: This segment generated
revenues of Rs1.7 bln, up 28% yoy (15% in constant currency
terms). The company launched six products during the quarter
and expects full quarter benefit from new launches in F3Q12
onwards.
Indore SEZ: Currently the facility has 15% capacity utilization
and manufactures only one product (lisinopril). Management
seeks to transfer products from Goa facility in a phased manner
and expects full utilization over the next 24 months.
US product recall: According to management, both the
recalls in April 2011 (perindopril and lisinopril), had no material
impact, with lisinopril recall restricted to one batch only.
Net debt: As of June 30, this stood at Rs5.5 bln.
GMP issues in the industry: According to management, in
general gaining back customer confidence after a serious GMP
issue takes time. It doesn’t expect material impact in FY12
from certain players coming back following the resolution of
GMP issues in the US market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin Ltd.
Expectedly Modest Quarter,
OW for 2012-13 Pipeline
Quick comment – modest quarter: LPC reported 18%
yoy growth in sales, to Rs15.4 bln. OPM compressed 250
bps yoy to 18.8%, leading to a 7% yoy rise in net profits to
Rs2.1 bln (our estimate was Rs2.18 bln). We note price
erosion in Lotrel, Indore SEZ overheads, cost pressures
in solvents/energy, increase in field force and planned
shutdown. Lupin views this as a temporary lapse in a
multi-year margin expansion story (50-75 bps p.a.).
Key highlights from the call:
• F12 outlook: LPC targets 20-25% overall sales
growth, domestic business to grow at 20%, Japan to
grow at 15%, 8-10 product launches in the US, R&D
expenditure to be 7-8% of sales, tax rate to be
14-15% and capex of about US$100 mln.
• Branded business: It seeks to switch Suprax
suspension prescription to drops after approval,
sometime in F2H12. Allernaze launch possible in
F4Q12. It is realigning PED sales force to focus on
primary care too (Suprax tab/Antara).
• Others: Indore SEZ to be at full capacity utilization
in the next 24 months. Company expects no
material impact from the product recalls in April’11
(perindopril and lisinopril) in the US.
Thick product flow: Possible key product launches
over the ensuing few quarters include – Fortamet ER
(currently evaluating ‘at risk’ launch options); Femcon
Fe (F3Q12 launch on 181 day as an AG, after Teva’s
exclusivity); 3-4 OC products in F3Q12, Geodon
co-exclusivity in F4Q12; Combivir (after Teva’s
exclusivity, expects low competition); Tramadol ER
($100 mln market, low competition); Solodyne (3
strengths - $200 mln market, low competition); and
Tricor (sometime after generic launch in July’12).
Retain OW: We position LPC as a multi-year growth
story driven by depth in its US pipeline, profitable RoW
expansion, and early signs of IPR buildup (NDDS deal
with Salix/Medicis). LPC’s aspirational F14 sales target
is $3 bln ($1.3 bln in F11).
Conference Call Details
Outlook for FY12
Management expects:
• F2H12 to be better than F1H12, driven by 8-10 new
launches in the US market.
• Domestic formulations to grow at 20%
• Japanese business growth of 15%
• Tax rate in range of 14-15%
• Capex of US$100 mln
• R&D expenditure in the range of 7-8% of sales
Joint development deal with Medicis
Lupin has entered into a joint development agreement with
Medicis to apply Lupin’s platform technologies to various
compounds.
Lupin has received an upfront payment of US$20 mln, which
will be recognized in the income statement in F2Q12.
Lupin will receive various development and regulatory
milestones (up to US$38 mln), and single-digit royalty on sales.
Medicis is responsible for further development and
commercialization of the products.
The companies are currently framing various timelines, though
management expects first NDA filings under the deal to be
about three years from now.
US Generics
Lupin posted revenues of Rs3.5 bln, up 8% yoy. This was
slower, driven by price erosion in generic Lotrel in lower
strengths. Underlying prescriptions grew 23% yoy during the
quarter. US generics business contributed 70% to the total US
business.
New launch pipeline: Lupin plans to launch 8-10 products in
FY12, of which two have been launched already (levofloxacin
and generic Lotrel higher strengths). Key launches over the
next nine months include - Femcon Fe (AG) in F3Q12 (after
Teva’s exclusivity), 3 to 4 OC products, Goedon co-exclusivity
in F4Q12 and tramadol ER.
Oral contraceptives: Management expects 10-12 approvals
in the first 12 months from the date of first product approval.
Further, it expects meaningful contribution to revenues from
F2H13 onwards.
Combivir opportunity: Lupin believes this product is a
low-competition opportunity and expects this to be a 2-3 player
market. It targets to launch after Teva’s exclusivity. According
to management, Teva is scheduled to launch sometime in
C4Q11.
Fortamet ER opportunity: Lupin has received USFDA
approval for generic Fortamet ER (about US$100 mln brand
sales). Management is currently evaluating options for
launching the product. To recap, Lupin is the sole FTF for this
product and patent litigation is ongoing.
Effexor XR opportunity: So far, Lupin has not received
USFDA approval for generic Effexor XR. However
management highlighted that this is a highly competitive, very
competitive market
Generic Lotrel higher strengths: Lupin launched generic
Lotrel higher strengths during the quarter. This is a fairly
competitive market (six generic players) and gross margins for
Lupin are the same in lower and higher strengths. It has
23-24% market share in lower strengths and 26% in higher
strengths.
Levofloxacin: Levofloxacin is very competitive with over
seven players in the market. Lupin has garnered over 35%
market share.
US Branded Business
Overall performance: Lupin’s branded business grew 9% yoy
during the quarter. Suprax suspension grew 30% in US$ terms
(8% volume growth) and tablet grew about 25%. Branded
business remains 30% of the overall US business.
Suprax: Management expects approval for its drop form over
the next two quarters and seeks to switch its suspension
business to the form of drops.
Antara gained market share during the quarter from 2% to
2.2%: According to management, finofibrate brand market
contracted 14% during the quarter, driven by concerns
highlighted in ACCORD trials. Pre-trial conference for patent
litigation with generic companies is set for Nov-11.
Allernaze launch: Lupin is currently seeking to resolve
scaling-up issues and expects to launch the product in F4Q12.
Sales force realignment: Lupin has a total sales force of 160
representatives, split between primary care (90) and PED (70).
According to management, it is re-aligning its sales force in
PED to target primary care during non-peak seasons and plans
to implement this in Sept’11
Domestic formulations segment: Domestic formulations
segment recorded revenues of Rs4.97 bln, up 17% yoy. Its
key focus segments continue to post strong growth, including
CVS (22% growth), diabetics (30% growth), and gynecology
(35%), while Anti-TB and anti-infectives segments were flat.
Lupin increased its field force by 400 (to a total of 4,000) during
the quarter.
Other Notable Points
Japanese segment performance: This segment generated
revenues of Rs1.7 bln, up 28% yoy (15% in constant currency
terms). The company launched six products during the quarter
and expects full quarter benefit from new launches in F3Q12
onwards.
Indore SEZ: Currently the facility has 15% capacity utilization
and manufactures only one product (lisinopril). Management
seeks to transfer products from Goa facility in a phased manner
and expects full utilization over the next 24 months.
US product recall: According to management, both the
recalls in April 2011 (perindopril and lisinopril), had no material
impact, with lisinopril recall restricted to one batch only.
Net debt: As of June 30, this stood at Rs5.5 bln.
GMP issues in the industry: According to management, in
general gaining back customer confidence after a serious GMP
issue takes time. It doesn’t expect material impact in FY12
from certain players coming back following the resolution of
GMP issues in the US market.
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