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Lupin: Betting on oral contraceptives

Source : BUSINESS_STANDARD
Last Updated: Fri, Apr 26, 2013 04:19 hrs

Lupin’s stock has been hitting new highs almost every day in the past one week on an improving outlook, led by new product approvals. The sentiments have got a boost after US federal courts cleared the way for Lupin to get approval from the FDA for the launch of generics of a key oral contraceptive, Yaz, in the world’s largest healthcare market. While the lower courts in the US had upheld the patents for Bayer AG’s $350-million brand Yaz, the higher courts ruled the patent to be invalid, reversing the district court’s decision.


The development paves the way for Lupin, along with Sun Pharma, Famycare and Pharmaceutics International which are awaiting approvals, for the launch of the generics. Now, there are three generic players with approvals: Teva (selling an authorised generic), Actavis and Sandoz.

The development is important as Lupin is looking at launching the blockbuster generics of oral contraceptives Yaz and Yasmin (already approved) during FY14. Yasmin is likely to be a $25-million per annum product while Yaz’s contributions may be slightly higher, feel analysts. The oral contraceptives segment, which enjoys high margins due to limited competition, is seen driving the company’s US business, which now accounts for 40 per cent of revenues, and thereby overall growth in FY14 and FY15.

Due to improving visibility, most analysts (44 out of 57) polled by Bloomberg have a Buy’ rating on the stock. Though the consensus target price of the stock stands at Rs 685 according to Bloomberg data, upgrades are likely after the company declares its FY13 results. Analysts in their revised estimates will start taking into account the impact of recent launches, product approvals and other favourable litigation outcomes. The spate of approvals over the last three-four months has increased the visibility on FY14 earnings, add analysts at Nomura. With approvals of low competition oral contraceptives as well as potential upsides from certain other products on favourable litigation outcome, analysts at Nomura have already raised FY13-15 EPS estimates by 7-12 per cent and target price for the stock (now at Rs 691) by 12 per cent to Rs 790.

 
Lupin is banking on oral contraceptives for growth in the US market in the coming days along with derma, asthmatic and other product ranges. Over the past three months, it has received approval for a series of oral contraceptives. Some of the interesting approvals so far include Seasonique (current market size $160 million), Lutera ($105 million) and Yasmin ($275 million). Lupin has now obtained approvals for 12 oral contraceptive products, a segment that will be one of the key drivers of the US business in FY14, feel analysts at Nomura.

The company in the current financial year (FY14) already has launched generics of oral contraceptive, Seasonique, while generics of Lutera were launched a little earlier. The former, analysts at Nomura say, is likely to be a $15-million revenue contributor for Lupin. It had launched generics of Seasonale and Nordette in the December 2012 quarter itself. In total, Lupin plans to launch at least 10 oral contraceptives in calendar year 2013; these will start contributing significantly in FY14.

The US has now become significantly important for Lupin as it contributes around 40 per cent to its total revenues. The company has seen growth of 56 per cent in the US during the December 2012 quarter. While this growth was led by the extraordinary sales of antibacterial brand Suprax due to onset of the flu season, growth in the March 2013 quarter is still likely to be close to 50 per cent.

In the March quarter, Deepak Malik at Emkay Global expects Lupin to report revenue growth of 27.9 per cent year-on-year (y-o-y) driven by 48 per cent growth in US business on the back of 34 per cent market share in cholesterol lowering agent Tricor ($57 million), and launch of new products such as Plan B, Lutera, Suprax drops and Lorazepam. The domestic business is expected to grow 19 per cent y-o-y, Malik says.

Given the company’s plans to continue with a run-rate of at least 20 new products a year in the US, this geography is expected to contribute 50 per cent to revenues.

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