Rating: buy; Lupin’s current US sales to suffer – The Financial Express

The Financial Express
Drug firm lupin last month said that the US health regulator has issued a Form-483 with ten observations after inspecting its Pithampur (Indore) Unit-2 between 21 March and 29 March 2023. The number of inspection observations is high and compares to six observations that were issued following the inspection at the facility in January 2019. An assessment of the outcome cannot be made until details of the observations are available, which is likely to be in the near term. Until then, we expect investors’ concerns to remain high, owing to the large number of observations.
The site is already under warning letter. Previously, management had commented that Lupin had implemented remediation measures and undertaken changes in the standard operating procedure and was thus hopeful about an resolution. We have factored in $20mn of incremental sales in FY24/25 from the Indore facility resolution.
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In the past, Lupin’s track record with regard to US FDA inspections has been mixed. Lupin’s facilities at Goa and Somerset were cleared by the US FDA in Dec 2021 and Sept 2022. A delay in the resolution of Indore Unit 2 could present risk to $20mn of US revenues factored into our estimates. This would impact FY24F/25F EPS by 5%/4%. In the worst case scenario of an import alert at the Indore site, 15-20% of current US sales may be impacted. The sales contribution from Pithampur Unit 2 includes oral contraceptives. We have a Buy rating and TP of Rs 856 The valuation multiple is supported by: high contribution from India and growth markets. Approval for gSpiriva (likely in April-July 2023) is a key positive catalyst.
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