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Nath Balakrishnan

FRESH exposure can be considered in the Lupin stock, which now trades at about Rs 725. Any decline in the stock price, linked to weakness in the broad market, can also be used to accumulate holdings.

Among a clutch of pharma stocks in the mid-cap space, Lupin's performance in the current calendar has been muted; the stock now trades at almost the same level as it did at the beginning of the year.

Lupin's financial performance in the first two quarters of the ongoing fiscal does not compare favourably with its performance in the corresponding previous periods.

Significant investments have been made on the R&D front this fiscal, aimed at building competencies to capitalise on emerging opportunities in developed markets over the medium term.

The tone of such spending — and the initiatives for the US market in terms of abbreviated new drug application (ANDA) filings — is likely to remain aggressive over the next two quarters as well; further, with no big-ticket launch lined up for FY-05, the movement of the stock could be confined to a range. As such, investments in Lupin should be made with a medium-term perspective.

A leading player in the anti-tuberculosis (TB) market, Lupin is gradually transitioning to cash in on the opportunities arising from the lucrative statins market in the US.

Given the company's strength in fermentation, statins (such as simvastatin and pravastatin, which go off patent in the US in 2006) would present a significant growth avenue for Lupin.

A novel molecule developed by Lupin to treat TB, which sharply reduces the duration of treatment, has entered Phase-I clinical trials after approval by the Drug Controller-General of India; it underscores Lupin's ability to create tangible intellectual property assets.

The likely launch of Ceftriaxone in the US market next July could provide a kicker to the stock. Ceftriaxone is the generic version of Rocephin of Roche, with an estimated annual market size of about $700 million.

Lupin has an alliance with Baxter, which has a strong franchise among the hospital community, for this product.

Additional traction in Suprax (branded form of Cefixime and launched by Lupin in April this year) and the launch of other products that Lupin has filed with the US Food and Drug Administration and likely to be approved in FY06, could aid the earnings profile from the US market in the next fiscal.

Any delay in the launch of Ceftriaxone in the US market; a strengthening rupee; soft trends in the prices of Penicillin G — a key input that in turn affects pricing of cephalosporins; and any price cuts mandated on Lupin's anti-TB portfolio would constitute the principal risks to our recommendation.

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