Lupin slides 5% as global brokerages maintain ‘underperform’, slash target price

Company’s subsidiary Novel has received a letter from the USFDA for its Somerset (New Jersey) facility

Global brokerage firms such as Macquarie, Credit Suisse, and Jefferies maintain their underperform rating on Lupin, while CLSA has a sell rating on the stock and has slashed its target price to Rs 730 from Rs 760 earlier.

Reacting to the news, Lupin plunged 5 percent in morning trade on the BSE. At 10 am, the stock was down nearly 4 percent at Rs 755 on the BSE.

Drug major Lupin over the weekend said that it has been cautioned by the US health regulator that its Somerset (New Jersey) facility may be subject to regulatory or administrative action and that it may withhold approval of any pending applications or supplements in which this facility is listed.

The company’s subsidiary Novel Laboratories Inc has received a letter from the US Food and Drug Administration (USFDA) classifying the inspection conducted at its Somerset (New Jersey) facility in December 2018, as Official Action Indicated (OAI), Lupin said in a regulatory filing.

The USFDA has stated that this facility may be subject to regulatory or administrative action and that it may withhold approval of any pending applications or supplements in which this facility is listed, the company added.

Here’s what global brokerage firms reacted to the news:

Macquarie: Underperform | Target: Rs 716

Macquarie maintained its underperform rating on Lupin with a target price of Rs 716. Similar to Mandideep plant, the company may get a warning letter for Somerset unit in 2 months.

The existing USA sales from Somerset would be $100 mn (12-15% of the company’s total USA sales). The global investment bank estimates that almost 20 percent of Lupin’s pending ANDAs are from this facility.

Credit Suisse: Underperform | Target: Rs 800

Credit Suisse maintained its underperform rating on Lupin with a target price of Rs 800. It is a negative surprise as official action initiated (OAI) flagged at its New Jersey facility.

Chances of escalation have increased due to the OAI flag. The plant accounts for 2 percent of Credit Suisse FY20 estimates.

In a severe case of potential import alert, the impact could be up to 20 percent of earnings. Credit Suisse expects a re-inspection at least at the Indore facility and expects a resolution in H2FY20.

Jefferies: Underperform | Target: Rs 680

Jefferies marinated its underperform rating on Jefferies with a target price of Rs 680. Somerset is the second plant to receive an OAI in the past five days.

Somerset has pending approvals which now will get delayed. However, management expects no supply disruption. OAI status highlights that the FDA requires more remediation and upgrades.

CLSA: Sell | Target cut to Rs 730 from Rs 760 earlier

CLSA marinated its sell rating on Lupin but cut its target price of Rs 730 from Rs 760 earlier. Somerset plant follows similar regulatory action as Mandideep.

The future approvals will be kept on hold until the issues have been resolved. The development increases the probability of a warning letter, said the CLSA note.

The global investment bank has factored in small launches worth $30-40m for FY20-21 from Somerset; hence, it slashed EPS estimate by 6-7 percent for FY20-21.

Disclaimer:-The views and investment tips expressed by investment experts are their own. Ripples Advisory advises users to check with certified experts before taking any investment decisions.

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