Lupin’s Problems Mount As U.S. Plant Classified As ‘Official Action Indicated’
The company said its plant in Somerset, New Jersey was classified as “official action indicated” after an inspection by U.S. FDA.
Lupin Ltd. said that its plant in Somerset, New Jersey was classified as “official action indicated” after an inspection by the U.S. Food and Drug Administration.
The Mumbai-based company said in a statement that it’s sending updates of corrective action to the drug regulator and is hopeful of a positive outcome.
Yet, the drugmaker can continue to export from the plant as official action indicated means the observations are serious and unless addressed, future approvals will be kept on hold though current supplies can continue. The company’s Mandideep (Unit 1) facility in Madhya Pradesh received a similar notice a few days ago.
CLSA believes that the observation increases the probability of the facility receiving a warning letter. With the Somerset and Mandideep units facing regulatory headwinds, Lupin faces significant regulatory challenges, it said in a note.
Lupin’s facilities in Indore (Unit-2) and Goa are currently under warning letter and were re-inspected with six and two observations, respectively.
The Somerset plant, according to CLSA, accounts for 16-19 percent of Lupin’s U.S. sales and 25 percent of its abbreviated new drug applications, pending approvals. Although no big launches are lined up from Somerset, the brokerage estimated launches worth $30-40 million (Rs 207-276 crore) from the plant in the next two financial years.
Kotak Securities believes that the development is a clear negative, with two facilities under warning letter and two more receiving official action indicated status. It also said that the impact of fresh official action indicated will be limited on FY20 launches.
Brokerage Take
Kotak Securities
- Maintain ‘Reduce’; cut target price from Rs 850 to Rs 820.
- Lupin now approaching reasonable valuation. Any sharp correction to present an attractive entry point
CLSA
- Maintain ‘Sell’; cut target price from Rs 760 to Rs 730.
- Lupin faces significant regulatory challenges.
- Removing Somerset launches from estimates leads to 6-7 percent cut in earnings per share for FY20-21.