Indian Pharma Companies May Pass On Costs Of A Border Tax To U.S. Consumers, Says Lupin
Demonetisation knocks of 2-3% growth in India, but Lupin’s U.S. growth accelerates.
Pharmaceutical companies are likely to pass on costs arising out of a border adjustment tax proposed by the Trump administration, to its customers in the region, its Chief Executive Officer Vinita Gupta said.
The proposed tax aims to adjust taxes at the border, essentially subsidising exports and taxing imports.
The increasing public outcry and regulatory scrutiny around drug pricing in the U.S. has more to do with the branded side than the generics industry, said Lupin’s Chief Executive Officer Vinita Gupta in a conference call with analysts on Thursday. She expects the generics industry to grow, going forward.
Measures to bring down drug prices in the U.S. will be positive for the generics industry, said Gupta, adding that the “Trump administration’s policies may accelerate approvals.” Lupin expects to see price erosion in its U.S. portfolio in high single digits.
The management, however, remains optimistic on its domestic business despite demonetisation, which shaved off about 2-3 percent of the India business growth in the October-December quarter. The company is confidence of getting back to the 15 percent plus growth trajectory from the next financial year, as it expects the impact of demonetisation to ease in the next 2-3 months.
Q3 Earnings Meet Expectations
Lupin reported a strong 21 percent growth year-on-year in net profit for the third quarter of the current financial year, in line with analyst estimates. However, operating margins surprised positively, expanding 300 basis points sequentially to 27.1 percent, aided by higher gross margins, cost control and a foreign exchange gain of Rs 27 crore in the quarter. The management expects the operating margins to continue to hover in the 26-28 percent band going forward.
However, a higher tax rate during the quarter restricted the net profit growth despite a robust operational performance. The management attributed the higher tax rate to unwinding of deferred tax, but expects a lower effective tax rate of 28 percent for FY17.
Continued Traction In U.S. Business
While the company saw secular growth across geographies in the third quarter, its U.S. revenues grew 8 percent sequentially to $316 million, surpassing analysts’ estimates. A ramp-up in sales of anti-diabetic drug Glumetza and Gavis’ methergine, launch of four new products and benefit from seasonality factor aided the 57 percent year-on-year growth.
Among the key products in its U.S. portfolio, diabetes drug Fortamet witnessed additional competition from antacid Mylan in the quarter,. Lupin was able to garner higher market share in another oral diabetes drug Glumetza. Given the recent launch of an authorised generic by Valeant Pharmaceuticals, Gupta expects the generic market for the drug to expand. Two other companies—Sun Pharmaceuticals Industries Ltd. and Teva Pharmaceuticals Industries Ltd.—which have an approval from the U.S. Food and Drug Administration (FDA), are expected to enter the market in the second half of calendar year 2017.
With respect to Lupin’s launch calendar in next 12 months, Gupta said the company could potentially launch 25 products in FY18. The company expects significant launches of controlled substances from the Gavis Pharmaceuticals LLC and Novel Laboratories portfolio in FY18, which it acquired in FY16.
Lupin remains on track for a FY18 filing for generic inhaler Advair even as it continues to look at inorganic options (acquisitions) for specialty products.
On the regulatory front, the company said the U.S. FDA had inspected all of Lupin’s meaningful facilities but there could be some inspections in FY18.