The master of complex Pharma generics

LUPIN LIMITED

Know the Company

Lupin Limited (Lupin), headquartered in Mumbai, Maharashtra, is an innovation-driven Indian multinational pharmaceutical company, dedicated to the development and production of a diverse range of generic and branded formulations, biotechnology products, biosimilars, and Active Pharmaceutical Ingredients (APIs). The company expertise in therapeutic areas such as cardiovascular, asthma, diabetology, pediatrics, central nervous system, gastro-intestinal, anti-infective, non-steroidal anti-inflammatory drugs, anti-TB, women heaths and cephalosporin.

Lupin operates through 15 manufacturing facilities and seven research centers, spread across India, United States, Brazil, and in Mexico as well as it selling products over 100 global markets. In the U.S. pharmaceutical market, Lupin holds the 3rd largest position by prescription and it is the 6th largest pharma company in India, in terms of revenue.

Lupin’s extensive product portfolio comprises over 1,000 medicines. Out of the 15 manufacturing facilities, 11 of them holding approvals from the U.S. Food and Drug Administration (USFDA). As of March 2023, Lupin got an impressive 911 active patents, one of the largest patent portfolios among Indian pharmaceutical companies. In addition to this, it has filed 463 Abbreviated New Drug Applications (ANDAs) with the U.S, so far.

Strengths

Among the global as well as domestic pharmaceutical segment, Lupin is solidifying its position as a leader in generics, complex generics, APIs, specialty, and biologics through robust manufacturing capabilities as well as strong research and development capabilities. In the U.S., Lupin holds the third-largest position among generic companies by prescription, and contributing to nearly 40% of its total revenue. The Company also stands as one of the largest providers of first-time generic medicines to various regulated markets, including US. The company’s strategic vision now revolves around complex generics with a renewed focus on pioneering first-to-market launches, including biosimilars. Similarly, Lupin is among the leading providers of first-time generic medicines to various highly regulated markets.

Almost 60% of the Company’s revenue getting from five chronic therapeutic areas including cardiology, anti-diabetes, respiratory, anti-infective and gastrointestinal. Lupin can benefit significantly by engaging in chronic areas of healthcare as Chronic conditions, often characterized by long-term and persistent health issues.  Chronic diseases typically require ongoing treatment and management, leading to a steady and consistent demand for medications, which provides pharmaceutical companies with a reliable and sustained market. It also allows pharma companies to build a long-term relationship with patients, that also pave the way to brand loyalty by continued use of specific medications over an extended period.

Lupin is strategically expanding its product portfolio to encompass diverse segments, including Gynecology, Dermatology, Urology, and Pediatrics, in order to effectively reach a broader patient demographic. In Q3FY24, Lupin filed the Risperdal Consta product from Nanomi, marking a substantial validation of its platform as well as there were notable filings for strong complex injectable products associated with it. The company is achieving noteworthy progress in related areas such as Diagnostics, Digital Therapeutics solutions, and Neurorehabilitation. These ventures seamlessly complement Lupin’s core business, providing a distinct competitive advantage in the delivery of comprehensive healthcare solutions.

Lupin is a prominent producer and distributor of tuberculosis (TB) treatment medications, particularly in low- and middle-income countries. With multiple state-of-the-art facilities exclusively focused on Anti-TB products, Lupin stands as one of the largest manufacturers of Rifampicin, Pyrazinamide, and Ethambutol Active Pharmaceutical Ingredients (APIs). In response to the growing demand and to address the rising prevalence of TB in these countries, Lupin has expanded its production capacities in Aurangabad. This expansion enables the company to increase its output by 40%, producing more batches from its dedicated Anti-TB formulation blocks.

Strong R&D Capability

Lupin considers research and development (R&D) as a critical element of its strategy to explore future opportunities in highly regulated markets. The company aims to establish a robust pipeline of complex products to sustain and enhance its revenue and growth in the future. Supported by seven world-class R&D facilities and a team of over 1400 dedicated scientists, Lupin focuses on the development of innovative formulations, novel drug discovery to delivery systems, and advanced Active Pharmaceutical Ingredient (API) synthesis technologies. These state-of-the-art R&D facilities function as the epicenter of innovation within Lupin. The Company’s R&D is evolving to more complex products, especially on the inhalation and complex injectables front, which is expected for the sustainable growth of its business going ahead.  For the Q3FY24, company’s R&D spending was Rs 357 crores, which is about 7% of its sales as compared to Rs 290 crores at 6.8% in Q3FY23. For the full year, it expects R&D spending to be in the range of Rs. 1,500 – 1,550 crores.

Lupin has successfully introduced 21 products in the current year, so far, securing the top position in new product launches in India according to IQVIA. The Company maintains a robust pipeline, making noteworthy progress with both First-to-Files and complex generics. In the third quarter of FY24 alone, Lupin obtained 14 Abbreviated New Drug Application (ANDA) approvals, featuring key products such as the generic versions of Tolvaptan and Ganirelix. Notably, Ganirelix represents the first peptide injectable product. Further strengthening to its portfolio, Lupin launched Bromfenac Ophthalmic Solution, the generic equivalent of Prolensa, leveraging the USFDA approval for its Pithampur Unit 2 facility. It’s worth highlighting that Lupin currently holds a six-month exclusivity period for this product. This multifaceted approach demonstrates Lupin’s commitment to innovation, regulatory success, and strategic market positioning.

Strategies for Value Creation

Lupin has carefully crafted a comprehensive strategy designed to propel growth, foster innovation, and steer the evolution of its portfolio, with a special emphasis on complex generics. In India, the company aims to outpace the market by strategically expanding its presence. This involves the addition of approximately 1,300 sales force members in existing therapeutic areas while concurrently exploring opportunities in new domains. This initiative is anticipated to elevate Lupin’s sales force to nearly 9,100, solidifying its unwavering commitment to growth and market leadership.

New Launches

Lupin has an extensive lineup of more than ten products in the pipeline to launch in the coming year, including six injectables. Notable additions to this portfolio including Glucagon and Fosphenytoin. On the ophthalmic front, the company is set to introduce promising products like Prolensa, Loteprednol, and several other ophthalmic solutions, totaling around four or five products. Additionally, there are potential oral solid is pending for patent litigation with Mirabegron and Slynd, however, a favorable outcome will give significant opportunities for the Company.  Clarity on this patent litigation is expected in the coming months. Even without the resolution of patent litigation, the combination of the Tiotropium ramp-up and the introduction of new products is expected to more than offset the erosion projected in oral solids, including products like Suprep. The company foresees business growth in the next year, possibly at a single-digit rate and, if successful in resolving patent litigation, potentially reaching a double-digit growth rate. Looking ahead to the following year, Lupin is optimistic about significant product launches, notably Tolvaptan early in fiscal year 2026, along with other injectable products like Liraglutide. This instills confidence in achieving a double-digit growth trajectory from fiscal year 2026 onwards.

Deleveraging Balance Sheet

Lupin is actively focused on reducing leverage within its balance sheet. Operating working capital was at Rs 5,419 crore as on 31st December 2023, which translates into 96 days of net working capital. This is reduced from 135 days as of 31st December 2022.  Lupin’s net debt for the Q3Fy24 stood at Rs 1,043 crores, which has been reduced from Rs 2,527 crores at the end of March 2023, indicating reduction of about Rs 1,500 crores during the past 9 months period. Company management is confident that the Company will be debt free by the financial year end.

Stellar Financial Performances

Lupin has delivered its highest ever quarterly sales, so far in Q3FY24, crossing the Rs 5,000 crore mark supported by its overall superior performance. The Company’s US business delivered a second consecutive quarter of $200 plus mn revenues and a sixth straight quarter of EBITDA improvement. Apart from the US and India, other regions also have performed very well too. Ex-US and India, Company’s Formulations business has grown 30% YoY during the Q3FY24 and 22% in the nine months during the fiscal led by strong growth recorded in key markets like Canada, Philippines, Australia, and South Africa and also a very strong ramp-up of generic Fostair in our direct markets UK, Germany as well as through partners in the Rest of Europe.

Revenue for Q3FY24 registered at Rs 5,080 crores as compared to Rs 4,245 crores in Q3 last year, a growth of 19.7% YoY. On a QoQ basis, the company reported growth of 2.8% as compared to Q2 of FY24. Coming to profitability, Q3FY24 gross margins were 66% up from 59.8% as against Q3 last year and 65.5% in Q2FY24. Net profit for the Q3FY24 jumped to Rs 619 crore compared to previous year’s Rs 158 crore and sequentially profit of Rs 495 crore.

Outlook

Lupin is the fifth largest pharmaceutical company in India where it is generating about 34% its revenue. The Indian market is growing at the range of 8-10%, which is well above most of the global markets. Outlook for the Indian pharma market is promising as affordability to get diagnosed and then get treated in India is increasing on rising income levels, Government schemes like ‘Ayushman Bharat’ and increasing healthcare facilities as well as high penetration of health insurance.

The key unique selling point of generic drugs is that they are cheaper, as much as 90 percent of its branded drugs. India is the world’s largest provider of generic drugs, and in financial year 2023, the country exported pharmaceuticals worth over 25 billion U.S. dollars. In terms of volume, Indian drugs comprised of 20 percent of the global generic drug exports. Developed markets are contributing almost 48% of Lupin’s revenue.

It seems US generics price pressures ease in Q2, and going forward it looks a bright spot. Lupin is in a very good position now to deliver above-market growth consistently going ahead led by higher productivity from its sales force expansion, new divisions, and enhanced penetration and reach.

Concerns

Lupin is one of the largest anti-TB medicine producers in the world and the company is still investing in this segment even though the market has slowed down because many countries have almost eradicated this disease through massive vaccination campaigns. Company is also investing significantly in low-growth areas such as Central Nervous System (CNS) and Anti-Infective.

Lupin heavily relies on generic medicines, facing formidable competition and margin pressure because of relatively low entry barriers. The U.S. generics market, though large in size, characterized by intense competition, especially in dosage forms. Additionally, marketing specialty products in the U.S. and EMEA region exposes Lupin to the risk of downward pricing pressures, driven by governmental initiatives to curb prescription drug prices. The resultant of high pricing pressure has the potential to erode financial margins and overall competitiveness.

Pharmaceuticals market is a strictly regulated industry across the globe. To comply with regulations may lead to approval delays, penalties, and plant shutdowns, potentially negatively impacting company’s commercial prospects. Non-adherence to Good Manufacturing Practice (GMP) regulations at any production site carries implications for regulatory certifications and poses risks to patient safety. The company heavily relies on regulatory approvals from authorities such as the USFDA, UK MHRA, Japan’s PMDA, and WHO, making them essential for Lupin’s pipeline execution and upholding a robust reputation. As such, prioritizing inspections and maintaining compliance is critical for the company’s overall success.

Sector: Healthcare

Market Price: Rs. 1,611.00 as on today

FV: Rs 2/-

Stock Name: Lupin Ltd

BSE Code: 500257, NSE Code: LUPIN

Market Cap.: Rs 73550 Cr

Book Value: Rs. 291

Segment: Pharmaceuticals

Incorporation: 1968

Headquarters: Mumbai, India.