Lupin’s shares tumble 4.35% on US warning

Lupin’s shares tumble 4.35% on US warning
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First Published: Fri, May 15 2009. 01 15 AM IST
Updated: Fri, May 15 2009. 11 13 AM IST
New Delhi: A day after Mumbai-based drug maker Lupin Ltd reported a 64% rise in its fourth quarter net profit, its shares dropped 4.35% on the Bombay Stock Exchange (BSE) on Thursday, as investors were spooked by a disclosure that it received a warning letter from the US Food and Drug Administration, or FDA, last week.
Lupin’s shares closed at Rs749.55 at the close of trading on a day when BSE’s benchmark Sensex index dropped 1.22% to 11,872.91 points. For the quarter ended March, Lupin had a net profit of Rs157 crore on a 39% jump in revenue to Rs1,043 crore.
Lupin disclosed that it received a warning letter from FDA in a statement announcing its fourth quarter results on Wednesday.
“The USFDA issued a warning letter for the cephalosporin (antibiotic compounds) facility of the Mandideep plant (in Madhya Pradesh). The facility was inspected in November 2008 for a routine GMP (good manufacturing practices) inspection. As a result, Lupin had received 15 procedural observations,” the statement said. Lupin sells 10 products and has one pending ANDA (abbreviated new drug application) from this facility.
ANDAs are applications for marketing generic drugs in the US. The statement added that Lupin had responded to FDA’s observations in December and provided corrective action for each of the responses.
“The warning letter was issued to provide Lupin with an opportunity to submit additional documentation and explanation to a few selected observations where the FDA felt that the initial responses were inadequate and could be strengthened by further evidence of compliance with enhanced documentation practices,” the announcement said.
However, analysts are unsure of the eventual implications of FDA letter for the company, given that FDA is yet to make an announcement on it.
“The point is that the FDA has said it needs further observation and is not happy with Lupin’s response. The warning letter will impact future approvals even as existing products continue to be sold,” said Chirag Dagli, pharma analyst at PINC Research. He adds that “most of the large cephalosporin-based products for Lupin are already in the market and hence this development should not significantly impact growth”.
Lupin’s larger rival Ranbaxy reported a loss for the March quarter.
In a note to investors, Citi Investment Research pharma analyst Prashant Nair wrote that the warning letter for the Mandideep facility came as a negative surprise and is an added risk factor.
“This came as a total surprise to us and we expect this to weigh on stock valuations in the near-term although management remains confident of an early resolution to the issue... We expect the stock to trade weak on this news flow, which would provide enhanced opportunity to buy into one of India’s best generics businesses,” the note said.
Lupin said in its statement that it was confident the issues with FDA will be sorted out soon.
“All products maintain their approved status. Lupin manufacturing will not be disrupted and it will continue to provide quality products to customers without interruption,” it said, adding it “is confident of being able to satisfy the USFDA’s observations expeditiously”. Lupin’s generic and branded businesses in the US soared 74% to Rs1,256 crore in 2008-09.
Reuters contributed to this story.
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First Published: Fri, May 15 2009. 01 15 AM IST
More Topics: Lupin | Shares | BSE | USFDA | Investors |