Create a free account or login to access more of investoguru.com
Create a free account or login to access more of investoguru.com
REGISTER NOW OR LOGIN
Create a free account or login to access more of investoguru.com
REGISTER NOW OR LOGINLupin is a leading Indian pharmaceutical company and ranks amongst the top 10 generic companies in the world. It is the sixth-largest pharma company in India. The company’s medications and drugs focus on therapies such as cardiac (~22% of revenue), anti-diabetes (~22%), respiratory (~13%), anti-infectives (~10%), gastrointestinal (7%), etc. Two of its brands - Gluconorm and Huminsulin rank among the top 100 brands in India. The company has 174 products in the U.S. generics market out of which 63 rank #1.
Lupin’s products reach customers in over 100 countries. It derives the majority of its revenue from the US (38% of FY 2020 revenue) and India (34%), followed by APAC, EMEA, LATAM, ROW, API, and NCE regions. The company has 15 manufacturing facilities across India, the US, Mexico, and Brazil. It also has seven R&D centers. Lupin’s API business contributes to both captive consumptions as well as external sales across 70 countries. In addition, Lupin also has a Principal to Principal (P2P) business that aims to provide access to new molecules for first-to-market opportunities and the Global Institutional Business (GIB) which partners with governments and organizations.
Lupin Pros
i) Leading profile in growing chronic diseases in India - Lupin derives 62% of total revenues from the chronic segment and 38% from the acute segment. More than 120 of Lupin’s products rank amongst the top three products in their segment. Some of the company’s leading products are Gluconorm, Ondero, Budamate, Huminsulin, Ivabrad, Rablet D, etc. It is estimated to be the leader in the anti-TB segment and maintains a second position in the respiratory and a third position in the anti-diabetes and cardiology segments (in India). Lupin derives nearly ~75% of its revenue from five core therapies - cardiac, anti-diabetes, respiratory, anti-infectives, and gastrointestinal. All these are chronic ailments and the demand for drugs focusing on the treatment of these ailments is poised to grow in the future.
ii) Diversified Revenue base from two large pharma markets - Lupin derives a lion’s share (more than 70%) of its revenues from the two largest pharma markets in the world - India and the US. The company has steadily grown its Indian market share to 3.61% compared to 3.46% five years ago. Its domestic formulations business registered double-digit growth and crossed the Rs.50,000 million in revenues last year. Lupin is also growing its branded generics sales. Lupin is gaining strong momentum in the North American market aided by key launches. The company sports a ~28% average market share. Its LATAM business recorded growth of 8.6% and contributed 4% to overall revenues in FY20. The company has expanded its presence into Chile, Peru, and Colombia by signing distribution agreements with key players in these markets. Lupin is also diversified by revenue sources. The company derives a majority of its revenue from Advanced Markets Formulations (45%), followed by Domestic Formulations (34%), Emerging Markets Formulations (12%), API (9%), and NCE Licensing income (1%).
iii) Strong Capital expenditures - Lupin continues to expand its capacities and automation to support the growth and commercialization of its existing and complex generics and biotechnology product pipeline. It made solid progress on several key products during the year. It received European approval for Nepexto, a biosimilar to Enbrel, advanced its inhalation pipeline in the U.S. and received tentative U.S. FDA approval for gBrovana. It invested Rs.5,710 million toward CapEx requirements during the year.
iv) Advanced digital solutions - Lupin has been at the forefront of digital transformation and technology adoption. It launched 'Adhero,' a first of its kind Bluetooth-Enabled Smart Device in India to support the treatment of respiratory disease. The company spends nearly 10% of its revenue on R&D with a focus on complex products and FTFs.
v) Recent developments - Lupin received four ANDA approvals during the quarter. It continues to focus on developing its Biosimilar portfolio and building its Generic Injectables franchise. The company’s Anti-Diabetic, Cardiac, and CNS registered robust growth in the mid to high teens range. It launched two respiratory brands and one cardiac brand in the latest quarter. Lupin is also investing heavily in developing high barrier products. The company expects to benefit from the commercialization of generic pipeline with the launch of Etanercept biosimilar in Europe and generic Albuterol in the US.
Future Opportunities
Lupin is targeting to expand its presence in the U.S. which is touted as the world’s largest pharmaceutical market. The company ranks third by prescriptions and enjoys a ~30% market share in the U.S. It registered a 3% YoY gain in US sales in the last year. Lupin filed 21 ANDAs in the U.S., during FY2020. It has 43 First-to-File products pending launch, with estimated market size of US$ 43.6 billion. The company has over 158 ANDAs pending approval from the U.S. FDA, a rich pipeline that includes inhalation, FTF, and injectable products. The company also has a growing focus on developing Generic products, Complex Generics, and Specialty.
Valuation
Shares of Lupin are currently trading near the Rs. 1,000 mark. Lupin’s market capitalization value is more than Rs. 48,200 crores. The company has registered stock returns of 9% CAGR and sales growth of 12% CAGR in the last decade. Shares have returned 45% in the last year. The Board recommended a dividend of 300% for FY20. However, the stock is trading at 3.79 times its book value.
Lupin’s borrowings have considerably reduced to ~Rs.2,400 crores (as of September 2020) from Rs.~8,400 crores at the end of FY 2019. The net proceeds from Lupin’s divestment of Japanese subsidiaries were utilized to pare long-term debt by ~$300 million. This divestiture coupled with debt repayment is expected to improve Lupin’s return on capital employed.
The company’s pace of sales growth has reduced recently and it delivered a poor sales growth of 3.78% over the past five years. It also has a low return on equity of 1.38% for the last 3 years.
Challenges
Lupin competes with the likes of TEVA, Aurobindo Pharma, Zydus, and Amneal in the generics market. It ranks third in this market after TEVA and Aurobindo. The company’s pace of growing market share is, however, slow when compared to Aurobindo and Zydus. Lupin is subject to strict regulatory standards and norms in India and other foreign countries including the USA. The company is highly susceptible to rising input prices and sales mix changes.
Bottom Line
Lupin is focusing on building therapy-specific scientific platforms to enable a long-term association with focused specialties. The company continues to invest in developing complex generic formulations, advancing its biosimilars pipeline and new drug portfolio. An extensive product portfolio and pipeline across the globe, leading market share across the global generics market, supply-chain excellence, cost-competitive manufacturing, and successful partnerships should drive future growth. The divestment of Kyowa, Japan will strengthen Lupin’s capital structure to invest in priorities and strategic focus areas.
share your thoughts
Only registered users can comment. Please register to the website.