Lupin has acquired the US marketing rights and inventory for Antara, an anticholesterol drug, for $38.6 million at 0.6x its FY2008 revenues ($70 million) from bankrupt Oscient Pharmaceuticals Corp. (Oscient) by outbidding Akrimax (another bidder company) at a court-supervised auction.
With the recent buyout, Lupin has four products in its branded primary care market portfolio namely, Suprax, Aerochamber, Allernaze and Antara. We expect Lupin’s branded portfolio to show a compounded annual growth rate of 25.9% between FY2009-11E.
The Antara deal would help strengthen Lupin’s US branded portfolio (with sales of $75 million in FY2009), as the nearing genericisation of Suprax is an increasing risk to its sales in the USA.
Although Lupin has not disclosed any details regarding the deal, we believe Lupin could make a good payback (~2.5-3 years) on this acquisition, as it has been able to bag the deal at very attractive price. With Antara falling under cardiovascular category, Lupin will be more than doubling its sales force (from 60 currently) and increase its promotional activities in the USA to support Antara, as Oscient (the innovator) had stopped all promotional activity since June 2009 (filed for bankruptcy in July 2009).
Since Antara is a previously approved commercial product, we believe that Lupin would commence marketing and distribution of the drug immediately, garnering incremental earnings per share (EPS) of Rs3.4 for FY2010 (only for 4 months).
Lupin had previously filed an abbreviated new drug application (ANDA) for Oscient’s Antara and was involved in litigation challenging the patent. However, now with an outright buy, Lupin has settled and resolved the pending litigation.
Lupin has sold its ANDA for Antara to Dr Reddy’s Laboratories. Another company Paddock claims to be a Para IV filer for Antara. However we believe that Lupin will face limited competition, as it is unlikely for Paddock to receive an approval in the near term (ANDA for the same was filed in May 2009).
With sustained growth momentum in domestic market, strong visibility of earnings from US business owing to sizeable product opportunities and ramp-up of business in Europe, Japan, Australia and other markets, we expect Lupin to deliver strong performance over the next few years.
The company’s management also remains confident of resolving the US Food and Drug Administration (USFDA) issue in a matter of months. The company has already had one round of meeting with the USFDA and expects a re-inspection soon. A healthy balance sheet with high return ratios and low leverage clearly reflects Lupin’s derisked and well-diversified model and long-term growth potential.
We await Q2FY2010 results and thus maintain our estimates at the moment. However, taking into account the growth registered by the company, its diversified product portfolio, growing exports and growth plans, we increase our target multiple to 16.5x from 14x earlier.
At the current market price of Rs1,139.8, the stock trades at 16.4x FY2010E fully diluted earnings and at 14.0x FY2011E fully diluted earnings. We maintain our BUY recommendation on the stock with revised price target of Rs1,344.