Lupin (LPC) received a combined warning letter for its Goa and Pithampur unit 2 facility, which would restrict the ANDA approvals from these facilities until resolution. The said facilities are important growth drivers as 50 of the 152 pending ANDAs for Lupin are filed from Goa/Pithampur Unit 2 facility. Of these, 25-30 pending ANDAs were expected to be monetised in the medium term. Lupin expects to complete remediation activities in six months and invite USFDA for re-inspection; it also stated that a typical warning letter resolution takes about 12-18 months. We build in muted growth in US revenues in FY19E, and build in 25% growth in US revenues in FY20E with resolution of the warning letter. We cut our FY18/19 EPS by 4%/18% given uncertain resolution timelines, delay in approvals and remediation costs; revise TP to Rs 820 (18x September ’19E EPS). Hold.
Warning letter is largely based on 483 observations (Goa Apr’17, Pithampur Unit 2 – May’17) and mentions of repeat observations from previous inspections (Goa – April ’16, Pithampur Unit 2 – January’15). USFDA has laid out a comprehensive remediation plan which includes Lupin to povide a CAPA to improve quality of OOS investigations in all Lupin facilities and perform a retrospective review of all batches shipped to the US with an intermediate held for more than the specified time on the stability programme. Timeline for remediation action is awaited, as issuance of warning letter was a disappointment for the management, and against earlier commentary of near-term resolution of form 483’s. As per the management, Lupin is seeking clarification from USFDA with respect to retrospective studies for batches that were distributed in the US, but don’t exist currently. Lupin has already identified 12 key ANDAs for which it initiate site transfer from Goa/Pithampur – Unit 2 facility.
