Lupin reports net loss of Rs. 783.5 cr; US business faces multiple challenges

Excerpt: Lupin has reported an unexpected net loss of Rs. 783.5 crore in the fourth quarter of 2017-18 against the net profit of Rs. 380.2 crore seen in the same quarter last year

The country’s second largest drug company Lupin has reported an unexpected net loss of Rs. 783.5 crore in the fourth quarter of 2017-18 against the net profit of Rs. 380.2 crore seen in the same quarter last year. The loss was mainly attributable to an impairment provision of Rs. 1,464.4 crore that the company incurred on certain intangible assets acquired as part of Gavis group acquisition.

However, the consolidated net profit before the exceptional item was Rs. 358.6 crore, a milder decline of 6 per cent. The consolidated total revenue fell 5.2 per cent in the quarter to Rs. 4,033.8 crore from the year-ago period.

US business under pressure

Lupin’s sales in North America fell by 21 per cent year-on-year (YoY) in the fourth quarter to Rs. 1,499 crore. The company’s business in the US has witnessed significant pressure for more than a year due to regulatory tightening. Price erosion due to selling channel consolidation and increasing competition from higher ANDA approvals also affected the business in this region. The revenue from US was 29 per cent lower in FY18 compared to FY17. The US market accounts for 38 per cent of the company’s total revenues.

Lupin’s US business is likely to remain under pressure in the near term due to continued tough pricing environment in most products in the US generics market, lack of meaningful high-value launches and slow ramp-up of GAVIS, its US subsidiary. The extended time-frame for resolution of warning letters issued to Goa and Indore unit II facilities have also been a cause of concern impacting the timely approval of key products.

Other factors including higher R&D spend on the Advair trial and on biosimilars, higher employee costs related to the specialty business and increasing selling and administration cost for the upcoming Solosec launch are likely to create a tough environment in the near term.

Despite continued double-digit price erosion in key products such as Glumetza and Fortamet in the US market, the company registered a sequential positive growth over the last two quarters due to pick-up in some meaningful launches. The company is focusing on building a pipeline of niche products with limited competition and high barriers, such as inhalation, biosimilars and complex injectables. This should help the company prop up its US business significantly.

Other markets

The formulation business in India that accounts for 24 per cent of Lupin’s global sales increased by 10 per cent YoY in the fourth quarter to Rs. 965 crore, helped by recovery in the domestic business post GST. Given its domestic portfolio, which is skewed towards the high-margin chronic segment, the overall revenue is well supported.

Lupin’s business in Japan reported growth of 7 per cent YoY in the quarter, while sales from Latin America increased by 17 per cent YoY.

Operating profit for the quarter stood at Rs. 854 crore. Operating margin was 21.5 per cent, up 330 bps from the same quarter last year due to decrease in the manufacturing expenses.