The pharmaceutical industry is currently in a state of flux amid structural changes in international as well as the domestic markets. In the US, the largest pharmaceutical market in the world, pricing pressures owing to increasing competition and consolidation of the distribution channels have significantly dented the profitability of players. Closer to home, the push to increase the use of generics, increased price controls and the impact of GST took some sheen away from the lucrative Indian market. Lupin, which gets 70% of its revenue from India and the US, has been bearing the brunt of it over the past couple of quarters.
Lupin is the sixth-largest pharmaceutical company in India with a market share of 3.3% and is among the top five companies in terms of prescriptions in the US. While the exclusivity around the launch of its generic diabetic drugs, Glumetza and Fortamet, helped Lupin’s US revenue increase significantly in FY17, the loss of exclusivity leading to steeper price erosion saw the US sales dip by 27% over the past two quarters. Revenue from India in Q1FY18 declined by around 2% for the first time in 12 quarters, thanks to the GST impact. Over the past one year, the stock lost more than one-third of its value compared with a 22% gain by the benchmark Sensex owing to the muted performance. Lupin believes that the worst is over as far as both its key markets are involved. It is betting on the US markets to start recovering in the second half of FY18 and the Indian business to grow by 15%, on an average, over the next three quarters. Can Lupin walk the talk and turnaround its performance in the coming quarters?
The US brings in almost half of Lupin’s revenue and, over the past five years, it has grown from $693 million to $1,207 million (See: Booster dose). But the generics portfolio has been bearing the brunt of falling prices. “FY18 is a very challenging year for the US pharma industry. Multiple pressures of channel consolidation, hyper-competition and strict price scrutiny are all coming together. In FY17, we had a record 37% growth in the US. We have a very stable base business in the US but it is very hard to continue to grow on last year’s base,” says Nilesh Gupta, managing director, Lupin.