Lupin Pharma Ltd Companyn Update ; Building branded portfolio in the US ; BUY ; Target : Rs980

Lupin acquired the worldwide marketing rights for the intra-nasal steroid (INS), AllerNase Nasal Spray (triamcinolone acetonide) from Collegium Pharmaceutical, Inc. Lupin expects to launch this molecule in the US by Q3FY10E and later on, in the other parts of the world. While we have not built in any upside in our numbers and will wait for more clarity from the management, we are very positive on the development. We believe that this tie-up will enable Lupin to further strengthen their franchise in the branded generic segment. This will also put to rest the concerns of Suprax going generic and sustainability of its pediatric franchise. Moreover, it indicates that the company is committed towards building a front end in the US market.

With more visibility on its US business, we upgrade our rating on the stock from Accumulate to Buy with a target price of Rs980. (13x rolling one year forward EPS of Rs75.4). We have assigned a 20% discount to Lupin from comparable peers to arrive at our target price because of the ongoing FDA issue at Mandideep (contributes 8% to revenues and 12% to profits). While we remain confident of Lupin's ability to stride through the US FDA issue, the warning letter could weigh negatively on the stock valuations until the issue is resolved. Negative outcome of ongoing FDA issue remains a key risk to our call.