Lupin Optimistic On Albuterol Given COVID-19 Demand
Metformin Batch Likely To Be Recalled
Executive Summary
Lupin hopes a surge in demand for albuterol sulphate due to increased off-label use in COVID-19 patients will help its generic version, which is likely to be launched in the first half of FY21. But the Indian firm may recall a batch of metformin after the US FDA recently asked a few companies to retract extended-release versions due to NDMA concerns.
Lupin Ltd. expects a shortage of albuterol sulphate in the US, caused by the drug's off-label use in COVID-19 patients, to aid sales of its generic to Teva Pharmaceutical Industries Ltd.’s Proair on launch.
But while the Indian company might reap benefits from albuterol, a snowballing of concerns over nitrosamine impurities in metformin, coupled with COVID-19 uncertainties, could cast a shadow over Lupin’s US growth in fiscal year 2021.
On a post-earnings call, company officials sounded optimistic about prospects for generic Proair, which could now be launched in the first half of the current fiscal year against expectation of a second half launch.
Though Perrigo Co. PLC’s introduction of generic Proair and regulatory approval for Cipla Ltd.’s generic of Merck Sharp & Dohme Ltd.’s (MSD)’s Proventil HFA might have dented prospects for Lupin, a surge in demand led by COVID-19 means the size of the opportunity itself has expanded.
Normally used to treat asthma and chronic obstructive pulmonary disease, albuterol is lending itself to use to treat respiratory symptoms/complications caused by the coronavirus. (Also see "Perrigo Wary Of ‘Destroying’ Value Through Premature Sale" - Generics Bulletin, 4 May, 2020.) (Also see "Cipla Propels Lung Leadership Plans, Reimagines Operating Models" - Scrip, 19 May, 2020.)
During the fourth quarter, the company reported nearly flat total consolidated revenues of INR38.46bn ($508.8m), compared to INR38.87bn in the previous fiscal year. US formulation sales saw a 9% drop compared to the previous year’s fourth quarter while sales in the domestic market rose 13%.
US prescriptions of key product Solosec (secnidazole), used to treat bacterial vaginal infections, dropped to 45% of pre-COVID-19 levels, as patient footfalls fell sharply during Q4. However, levothyroxine, improved market share to 14% from 5% in Q3.
Analysts had a mixed opinion on future growth prospects, with a report from Dolat Capital Market Pvt Ltd indicating that the presence of six-seven players in albuterol generics, along with a slow ramp up in Solosec and continued investments in specialty products imply that risks to earnings remain high.
On the other hand, Nirmal Bang Equities Pvt. Ltd. (NBEPL) termed albuterol, along with levothyroxine, secnidazole and a few yet to be launched products, as key earnings and stock price catalysts. NBEPL noted that the market opportunity for albuterol stands at $900m and Lupin is expected to garner about a 10% market share, with the ramp up being gradual and peak market share seen in 12-18 months post launch.
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LUPIN Q4 FY2020 PERFORMANCE |
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|
Geography |
Revenues (INRbn) |
% change |
Contribution |
|
|
|
Q4 FY20 |
Q4 FY19 |
||
|
North America |
15.79 |
17.41 |
-9.3 |
42 |
|
India |
11.92 |
10.52 |
13.3 |
31 |
|
EMEA |
3.65 |
3.39 |
7.4 |
10 |
|
Latin America |
1.35 |
1.38 |
-2.3 |
4 |
|
Asia Pacific |
1.44 |
1.71 |
-15.5 |
4 |
|
Rest of World |
0.46 |
0.73 |
-36.8 |
1 |
|
Total formulation sales |
34.62 |
35.16 |
-1.5 |
|
|
API sales |
3.29 |
2.91 |
12.8 |
9 |
|
Total sales |
37.91 |
38.07 |
-0.4 |
|
|
Total revenue from operations was INR38.46bn in Q4 compared to INR38.87bn in FY19 Q4 |
||||
Will Metformin Go The Ranitidine Way?
On 28 May, the US Food and Drug Administration (FDA) requested five companies, including Lupin, to recall certain batches of extended-release metformin after it found levels of N-nitrosodimethylamine (NDMA), a carcinogenic contaminant, were above the agency’s acceptable intake limit.
Developments around the recall requested by FDA will need to be watched. Sartans and ranitidine have suffered from large-scale recalls and eventual exits by several manufacturers after the nitrosamine impurity issue led to stricter regulatory action. (Also see "Ranitidine Blow Sees Indian Firms Take Different Paths" - Scrip, 12 May, 2020.)
Lupin itself benefited from a shift in the US from ranitidine to famotidine. However, if the metformin issue snowballs, it might find itself on the wrong side of changes this time.
During the post-earnings call, Lupin managing director Nilesh Gupta said a discussion with the FDA was planned regarding one batch of metformin “which we would likely end up recalling” adding that currently the agency has not asked for an across-the-board recall of metformin.
Apart from Lupin, other major Indian manufacturers that make metformin are [Granules India Ltd.], Sun Pharmaceutical Industries Ltd. and Aurobindo Pharma Ltd.. However, their names did not feature in the list which had Lupin, apart from Apotex Inc.,
Amneal Pharmaceuticals LLC, Actavis Generics and Marksans Pharma Ltd.
The report by Dolat Capital estimated that the metformin recall could impact gross margin and EBITDA by around 50 basis points.
COVID-19 Repurposing Opportunities
While the winds might not be very favorable for metformin, Lupin is exploring the possibility of repurposing existing products for use against SARS-CoV-2, the coronavirus that causes COVID-19.
Replying to an analyst query on possible repurposing, CEO Vinita Gupta replied that the company has multiple drugs that could be relevant in this context. Apart from albuterol, she referred to azithromycin, where Lupin has ramped up its share in the US market to 40% while catering to the COVID-19 demand.
“Beyond that, we have, of course, antimicrobials and a pilot pipeline of anti-infective, antiviral products that are still being explored to see if there are any that work for COVID,” she added.
US Field Force Downsized
Meanwhile, post a slowdown in Solosec sales, Lupin has downsized its field force in the US and will now rely more on digital interactions with healthcare professionals. “Through COVID, we just saw a strong reception to telehealth and taking virtual calls as opposed to the face-to-face interaction,” said Vinita Gupta.
The company intends to file a supplementary abbreviated new drug application in the second half of the calendar year 2020 for using Solosec to treat trichomoniasis. (Also see "String Of Positives For Lupin Lifts Outlook" - Scrip, 6 May, 2020.)
CEO Gupta said a restructuring of the marketing model to focus more on digital communication has resulted in a drop in operating costs. Additionally, prescriptions for Solosec, which came down to almost 45% pre-COVID levels at the lowest, have begun to see a ramp-up from April.
FDA Inspections
Though most new products from Lupin are to be manufactured at other facilities, analysts continue to be concerned about the fate of the Goa, Somerset and Pithampur plants. Company officials once again outlined plans to put these plants up for US FDA inspection over the new few months.
Lupin plans to invite the US agency for inspection at Somerset, Goa and Pithampur in that order, with remediation efforts almost complete at Somerset and Goa, while more work needs to be done at Pithampur, said Nilesh Gupta.
Analysts have inferred that remediation expenditure will now come down, with capital being available for other uses.