FREE

Event update: Lupin (Underperformer) - gLevothyroxine approval comes through; much awaited

Event

Lupin has received approval for Levothyroxine Sodium Tablets (thyroid disorders; market size of $0.8bn), generic version of AbbVie’s Synthroid.

Key highlights

• Currently, we estimate gLevothyroxine market is worth ~$1.5bn at innovator prices and is broadly split across 3 innovator products  (RLDs) and 2 generics (Mylan / Sandoz); Lupin will be the 3rd generic approval
• Notably, gLevothyroxine is one of the most prescribed drugs in the US and requires dedicated capacities to churn out high volumes of the drug
• As per industry dynamics, Lupin will need to secure approval against the other 2 RLDs also before it can start gaining market share in Levothyroxine; Other 2 generics have approvals against all 3 RLDs
• We anticipate that Lupin should be able to secure these approvals over the next 6 months
• Therefore, gLevothyroxine sales pick-up should start from Q2 / Q3FY19 onwards; given the strongly entrenched competition, we anticipate market share gains will be gradual
• We currently estimate $30-35m revenues in FY20 and $60-70m in FY21; these revenues should be reasonably sticky over the medium term
• Along with gRanexa (Q4FY19 launch) and potential gProair launch in H2FY20, gLevothyroxine is one of the key generic drivers for Lupin over FY19-21; the same is already built in our estimates

Valuations & view

Collapse in H1FY19 US sales and overall profitability, following a sharp drop in FY18 US sales (-21% yoy) underline Lupin’s near-term growth challenges. Limited visibility on meaningful new generic launches (barring gLevothyroxine and gRanexa) in the US over the next 3-4 quarters compounds these challenges. While Lupin has begun to increase R&D focus on high-value segments like complex generics, biosimilars and speciality to counter these challenges, it will take time to play out. Given these issues, successful scale-up of Solosec, combined with approval for gProair and biosimilar Enbrel remain key to any meaningful earnings revival even in FY20-21. Given the near-term earnings challenges combined with significant FY20-21 earnings sensitivity to a successful Solosec launch, along with timely gProair approval/launch, we see limited margin of safety at current valuations (19x FY21E). Maintain Underperformer rating with a target price of Rs865.