MOSL: LUPIN (Buy)- Goa and Indore plant receives Warning Letter; ~1/3rd of pending ANDAs from these two facilities

​Lupin: Goa and Indore plant receives Warning Letter; ~1/3rd of pending ANDAs from these two facilities

(LPC IN, Mkt Cap USD5.8b, CMP INR861, TP INR1000, 16% Upside, Buy)

• No data integrity issue was highlighted in the warning letter. Two key things highlighted by US FDA in the Warning Letter was – 1) investigation of OOS studies was not proper; 2) hold time study procedure requires changes
  
• LPC is required to do retrospective OOS and hold time studies to come out of WL status
  
• ~40-50 pending ANDA approvals are from these two facilities. LPC is planning to initiate site transfer for ~12 pending ANDAs.
  
• Amongst future launches Levothryroxine and Tamiflu are not from these plants.
  

• Warning Letter is a negative surprise: Lupin announced that Goa and Pithampur (Unit-2) based formulations plant received import alert. This is a negative surprise as the company in its 2QFY18 earnings call (few days back) said that they are expecting full resolution in next two months. Given that existing business in US is coming under pressure due to new competition in Glumetza and Fortamet and channel consolidation, new approvals are key to drive growth and sustain current business.
• No data integrity issue but needs to do retrospective studies: LPC management mentioned that no data integrity issue was highlighted by US FDA in WL. LPC is required to do retrospective OOS and hold time studies to come out of WL status. LPC believes that retrospective studies will have to be done from Jan 2014. However, LPC will get more clarity regarding this in its meeting with US FDA. LPC has done retrospective studies for OOS at Goa plant in 2015 and 2016 and can use that data also. LPC believes that the company will be ready for re-inspection in 6 months. Currently we assume resolution of WL at these two plants by 2H FY19E (typically WL resolution takes 12-18 months.