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Lupin Ltd: Emerging Strong - Views on News from Equitymaster

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Lupin Ltd: Emerging Strong

Dec 18, 2001

Last year, Lupin Chemicals and Lupin Laboratories merged to create a giant entity, Lupin Ltd., with sales turnover in excess of Rs 9 bn. The merger has helped the company in consolidating its leadership position in the anti –TB market. Further, the company is taking strides to become a recognized global player in the Cephalosporin (new generation anti-infectives) and is now considering research as a new thrust area. Lupin Chemicals manufactured Rifampicin while Lupin Laboratories manufactured Ethambutol. Together both these molecules command almost the entire anti-TB market. The consolidation helped the company in becoming a world leader in the anti-TB market, with a market share of more than 40% in the domestic anti-TB market, which is estimated at Rs 3.3 bn. In a segment, which registered, de-growth in last two years, Lupin recorded a double-digit growth in this segment.

A higher incidence of HIV in the developed nations has resulted in significant rise in TB cases worldwide. Further, with global agencies like WHO funding anti-TB drugs, the global market is expected to grow considerably after witnessing a plateau. Lupin plans to enter into US$550 m global anti-TB market and is creating a manufacturing facility at Aurangabad with a capital outlay of Rs 200 m, complying with the US FDA specifications. Lupin aims to achieve more than 50% global market share in the anti-TB segment.

The new thrust area for the company is Cephalosporins. Lupin has just commenced a state of art US FDA approved oral Cephalosporin bulk active plant. Cephalosporin enjoys global sales of US $ 11 bn. Several combinations of Cephalosporins, injectable and orals are going off patent. This provides the company good opportunity to develop competencies and launch these products in the generics market.

Lupin plans to market its Cefotaxime Sodium in the US through its US partner, American Pharmaceutical Partners (APP). Cefotaxime formulations have reported sales of US$ 100 m in the year 2000. Lupin will supply the bulk drug to APP who in turn will formulate and market the product in the US. The company expects to achieve sales of US$ 14 m (Rs 680 m) in the first year of launch. The company has identified four other anti-infective molecules whose patents expire in 2002.

The company is also aggressively launching new products to reduce its therapeutic segment dependence. The company has launched new products in cardiovascular, cephalosporin and herbal segments with plans to launch 40 new products in the current year. Lupin also plans to become a dominant player in the phytochemistry (alternative medicine) segment and has launched a range of products. The company has recently launched 3 herbal products namely: Anxicalm for anxiety, J.Wort for depression and Fibril Rich for the regulation of bowel movement.

Though late, Lupin is now recognizing R&D as a thrust area. The company has established state-of-the-art R&D centre spread over an area of 19 acres at Pune. Lupin has 6 molecules in the pipeline and has plans to file 4 ANDA and 2 INDA in FY02 in the area of neurology, asthma, dermatology, herbal medicines and NDDS (New Drug Delivery System) in Cephalosporins.

The merger has helped Lupin to catapult its position in the league of few Indian pharma companies with Rs 10 bn plus mark. However, company lacks presence in specialty pharma segment and both the company’s key segments (anti-TB and Cephalosporin) are highly price competitive and margins are unlikely to be lucrative. Hence, Lupin would have to push hard to drive growth in the domestic market. In the exports front, though the company is taking the right steps, it seems to be a bit late in cashing on the generic opportunity as it lacks an ANDA pipeline. Even on the exports front, the company would face competition from players from domestic pharma majors.

However, the company seems to be rushing to make up for being a late entrant. To summarize, though the road ahead would not be smooth and easy, the company seems to have right plans in place. At the current market price of Rs 115, the stock trades at 7.6x FY01 earnings.

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