Lupin Confident Of Meeting U.S. Sales Forecast For This Year
Lupin Ltd. is confident of meeting its $800-850 million U.S. sales forecast for the ongoing financial year on the back of new launches.
The key drugs—Levothyroxine (for thyroid), ProAir (to make breathing easier) and Ranexa (for chest pain)—are expected to drive the drugmaker’s top line, Chief Financial Officer S Ramesh told BloombergQuint in an interaction. “Lupin expects to launch 20-25 products annually for the next three years.”
The company reported a lower-than-expected profit in the quarter ended June on a decline in sales in the U.S. and Japan. Sales in North America, Lupin’s largest market, fell 26 percent, according to a press release.
Yet, Ramesh said the second half of the ongoing financial year to be better compared to the first half.
Lupin also expects the U.S. Food and Drug Administration issues related to its Goa and Indore plants to be resolved by the end of this year. “The Indore and Goa plants are in the state of readiness and is in a position where the U.S. drug regulator can inspect the plant anytime,” Ramesh said.
The regulator in November had issued a combined warning letter for Lupin’s Goa and Indore-Unit II plants.
Both the plants together contribute more than half of the drugmaker’s U.S. sales and about 20 percent of its total sales, Surajit Pal, pharma analyst at Prabhudas Lilladher, had said.
Watch the full conversation here:
Here are the edited excerpts from the conversation:
Have the last three months been different from what has been three years ago? The market seems to believe that there is some bit of recovery in the business and sentiment in the offering.
You’re right. It’s not just the last three months. I think the last few quarters have been pretty lacklustre for the pharma sector,particularly for Lupin. But things are certainly turning around. Our problems are exceptional because we had lost exclusivity of big molecules and that is impacting on our performance in the U.S. Besides, we didn’t have many approvals coming through due to a warning letter.
But we are expecting a couple of new launches during this year,including Levothyroxine and Ranexa.
We do expect a ramp up in the third and fourth quarters, but not to the levels that will peak out at possibly in about two-three years’ time. We believe that the second half of the financial year would be better than the first half.
You mentioned that the pricing pressures have been contained for now. How will the pricing shape up in the next four quarters?
I think the price erosion is going to be contained at current levels. However, things could be better because there is a consolidation happening in the industry. A lot of pricing pressure is due to the channel consolidation that has almost come to an end.
There are a lot of companies which are also saying the same thing. They are saying that they are going to shed their portfolios and are also not seeing too much of pricing pressures coming in. They are also going to partner the companies who have a track record of supply chain matrix and quality.
The other thing, which in my perspective, is that the cost of doing business in America is going up because there is a lot of capital expenditure that is required for new companies to set up and start supplying to that market. This means, the bigger players are going to consolidate and grow in that game.
What is the scenario with the U.S. market at present based on Gavis performance? How much benefit will the rupee get to you and how much is the core growth that will come in? Also,what is the current scenario excluding the rupee factor?
The rupee is a big tailwind for us. Regarding Gavis, we are aware that it has taken an impairment. Therefore, it is certain that we have taken the losses already. There is more upside coming from Gavis and that has not been factored in at all.
A lot of our complex products are yet to kick in. For example,next year, we have ProAir coming in. We have biosimilar products that are going to blossom for us. All of these will certainly start contributing.
You said the$800-850 million will be the sales guidance in the U.S. market for the current financial year. You have done close to $177 million in the first quarter, which is almost the same expectation by the street in the second quarter. How are you planning to meet the guidance? The street feels that the company might not meet the forecast. What are your internal estimates and how is it going to be executed?
As I said, Levothyroxine is going to be a decent product for us. We have Ranexa, which is going to face limited competition.
We also expect regulatory issues to be resolved by the end of2018 and new approvals to come in from there. We have been submitting frequentupdates to the authorities. It is a question of time that they come and inspectit again.
Levothyroxine is something that the street is very keen on. The street anticipated that it would be approved in the first half. Many believed that the company will receive approval by September.
What is the peak sales do you see from this drug? With the competition coming in, how are your internal estimates for this drug?
We expect that it is never going to be another Glumetza and expect about $30-40 million in sales.
When do you expect the launch?
Towards the end of the second half of the current financial year.
How are you planning to compete?
There is competition for every product. There is going to be competition for this product as well. We also believe that this is a complex product and will be difficult to receive approvals quickly.
You already spoke about a couple drugs so far. Which are the key drugs that will be out that will probably drive Lupin’s revenue?
The key drugs like Levothyroxine, ProAir, Ranexa will drive the top line. We are looking to launch 20-25 products annually for the next three years.
What kind of peak sales are you anticipating from ProAir?
ProAir will be a potentially large product and could go about $100 million. There is going to be a limited competition for that.
There are some concerns that the market has. One of them is Solosec. It’s been a while since the drug has been launched but the market share is relatively low for the company.
It’s not true. We launched it at the end of June. The prescriptions are a lot more than we anticipated. There are a lot of reasons to believe that it will actually do very well for us. Based on the reviews from doctors and gynaecologist prescribing it, the drug is doing very well.
Based on the brokerage reports, the market share for Solosec is 1 percent in three months. It is a concern that the ramp-up has not happened. Are you approachin gnew doctors or are you expecting its growth from the existing doctors? What is your strategy?
Its acceptance rate is very high. We need to approach more doctors, which we are trying to do.
According to an annual report’s analysis, the acquisitions have boosted revenues in the previous financial year. Will the uptick in revenue be via the same strategy in the next about five years?
Yes. In the last 10-12 years, we have made about 15 acquisitions. I think the first year is an acquisition and after that, it is about how organically you grow it. We bought most of the companies when they were very small and have grown it to a large number over time.
About 85 percent of our incremental growth has come fromorganic play. One large acquisition that has not paid off is Gavis. Apart fromthat, others have done extremely well.
The estimates suggest that the revenue contribution of recent acquisitions has been relatively strong. However, the profitability remains a bit muted. Would you agree? If yes, what would you do to change that?
I have a different view. Except for Gavis, others have grown in profitability. When we acquired a company in Japan, it was a turnaround situation. We turned a loss-making unit to profitability. Nearly every other company of ours has break-even or are slightly profitable and we have only increased that.
Another company is in Brazil. It is a difficult market and it has been less than three years since we bought the company. Parts of that business are doing very well, and we are expanding, including over-the-counter segment. We are focused on making all our acquisitions work and most of it has made value for us.
What went wrong with Gavis? What is your expectation from Gavis now?
Gavis is integrated into our American operations. Calling out Gavis separately is a siloed approach. I don’t think it’s fair enough. The control-substances market has its ups and downs in American market and it has an impact on Gavis. Going forward, we see it as a good manufacturing facility,we have a good R&D team there.
What about the U.S. FDA updates on Indore and Goa facilities?
We are in the state of readiness. We are in a position to receive them anytime.These facilities will certainly see better times by the end of this calendar year.
What is the market share for Glumetza and Fortamet and what is the future for these drugs?
We never get into product price revenues. Those are marginal products in our scheme of things. It has seen a lot of competition and price erosion.
What kind of sales can we anticipate for Ranexa?
It is a fairly good product. It will do well to us in this calendar year.
How much are you spending on Solosec and how much returns it’s going to get you?
We bought it at a good value and we believe the payback is five to six years at the worst. Usual spending in terms of promotions could be $45-50 million on an annual basis.
How confident are you on Tamiflu?
One of the reasons I’m bullish on the second of half of the year is because of Tamiflu. It is certainly going to ramp up because of the flu season.
Why is the R&D productivity much lower than peers?
We are conscious of that. Some of the approvals we should have got escaped us. We are working with big consultants to get our act right when it comes to our cost base. Our R&D spend is very high at 12-13 percent. We want to cap it at 10 percent. We are focusing on R&D productivity itself. We also got into financing arrangements whereby the risks are passed onto the financial investor and upsides we would be sharing.
How confident are you in meeting the $800-850 million sales in the U.S. market for the current financial year?
At this stage, we are confident, and we are not revising it.
The U.S. pricing pressure seems to have bottomed out and you hope to get some approvals. Would calendar year 2019 be better than 2018?
The current and the next financial year will be far ahead of the previous two financial years. FY18-19 is going to be one of those lacklustre years but next year, I’m confident and that’s true for the industry as well.