Lupin’s Troubles In U.S. Run Deep

The company’s unit at Tarapur, Maharashtra is the latest to face action by the U.S. Food and Drug Administration, which classified the active pharmaceutical ingredient facility as “official action indicated”, according to its exchange filing. That bars new approvals for U.S. exports while it can continue shipping existing drugs.

The facility joins four other units facing concerns regarding manufacturing standards. Lupin’s Goa, Pithampur unit-II in Indore and unit-I at Mandideep, Madhya Pradesh received warning letters, while the Somerset (New Jersey) facility was classified as official action indicated.

“This spate of compliance issues warrants a serious relook at the company’s regulatory readiness,” Alankar Garude, pharma analyst at Macquarie, said in a report. “Even as the company grapples with an absence of big-ticket opportunities over the near to medium term, worsening regulatory issues multiply Lupin’s woes.”

The Tarapur unit, inspected from Sept.16-20, received three observations. Lupin said it will send updates of corrective actions to the U.S. FDA and doesn’t expect the action to disrupt supplies or revenue from the facility.

But, according to Nomura, the new abbreviated new drug application approvals linked to Tarapur are likely to be withheld till the site is cleared. Kotak Securities and Jefferies said there was a chance of the action status being escalated to a warning letter.

Commissioned in 1992, the API facility—the largest for Lupin—houses fermentation units and is linked to multiple pending ANDAs, particularly from Goa and Indore. While Lupin doesn’t disclose plant-wise details, the company said the North American region and India contributed 31 percent each to its total revenue in the quarter ended September.

Lupin has yet to respond to BloombergQuint’s emailed queries on its strategy for plant remediation.

Managing Director Nilesh Gupta told BloombergQuint in September that the Goa and Somerset facilities were expected to be ready for re-inspection by March and the Pithampur unit-II and Mandideep unit-I by June.

Jefferies said the action against the Tarapur facility raised concerns over these timelines.

Chirag Talati, vice president (institutional equities) at Kotak Securities, said in a note that while the observations for Tarapur “hardly seemed to be of a serious nature”, the U.S. FDA has linked the facility’s outcome to the status of the four other units. That makes a case for the “system-wide remediation”, he wrote.

Nomura, too, said the development raised concerns on the systems, process and leadership in quality and manufacturing roles.

To be sure, Lupin is changing its leadership and standard operating procedures at manufacturing sites. The drugmaker appointed Johnny Mikell as president and global head (quality) in October, according to an exchange filing. Mikell was the global head of quality and compliance at Apotex Inc.

U.S. Troubles

The company’s problems don’t end here. Like other Indian drugmakers, its sales in the U.S. slowed as competition took away pricing power in its biggest market, shrinking margins.

Lupin bet on a ramp-up of capacity for Levothyroxine (thyroid medicine) and Solosec (used to treat vaginal infection), approval of a generic for ProAir (asthma therapy) and market share gains in some of its existing products such as Lisinopril (high blood pressure), Famotidine (stomach ulcers) and Tamiflu (influenza) to drive sales in the U.S.

It hit roadblocks there as well.

Lupin’s copycat version of ProAir failed to receive an approval from the U.S. FDA. Levothyroxine is facing capacity constraints and Solosec sales have fallen.

Alok Dala, investment analyst (healthcare) at CLSA, said 75-80 percent of incremental growth in the U.S. was expected to come from Solosec, Levothyroxine and ProAir, and clearance of the U.S. plant. In December, the brokerage cut its earnings estimates for Lupin factoring in lower U.S. revenue on slowing Solosec sales and a weak pipeline for generics.

According to Piyush Nahar, pharma analyst at Jefferies, risks are high as Lupin depends on select large products. More so since cash flows from growing India sales are funding investments in the U.S., he wrote. Another worry for Lupin, according to Jefferies, is that it trails peers in building a complex generic pipeline for the U.S. market and R&D execution is weak, raising concerns about medium-term growth and return on these investments.