Lupin Leads Selloff In Pharma Shares, Hits 52-Week Low

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Lupin sank over 7 per cent on Friday to hit its 52-week low following a downgrade to “underperform” by global brokerage CLSA. The stock was the top Nifty loser.

Lupin shares have been reeling under selling pressure following adverse observations about the company’s Goa plant by the US Food and Drug Administration earlier this week. The US regulator, which inspected Lupin’s Goa facility, citied nine observations related to inadequacy and adherence to operating norms, the company said.

Lupin’s Goa facility supplies over 100 products to various markets including the US and EU; an FDA ban could lead to huge losses for the company, traders said.

CLSA today said that Lupin shares are likely to remain in range till US concerns subside. It cut Lupin’s target to Rs. 1,800 from Rs. 2,162 earlier.

Domestic brokerage Kotak Institutional Equities also has a “reduce” rating on Lupin with a target price of 1,700.

“The Goa facility is Lupin’s flagship facility with key products, manufacturing several key products…and on our estimates, will account for 40-50 per cent of Lupin’s US sales in FY2016,” the brokerage said.

The sharp selloff in Lupin weighed on pharma stocks; the healthcare sub-index traded 1.8 per cent lower on the Bombay Stock Exchange as compared to 0.3 per cent gain in the Sensex.

According to a Reuters report, 42 drug-making factories in India have been banned by the FDA in recent years as it stepped up inspections of foreign suppliers. The increased scrutiny has hit growth at Indian companies the hardest, as the country supplies nearly 40 per cent of the generic medicines sold in the United States.

The government’s recent order, banning over 344 fixed dose combination drugs, also weighed on pharma stocks, traders said. The annual impact of the ban is estimated at around 4 per cent or nearly Rs. 4,000 crore of around Rs. 1 lakh crore Indian domestic pharma market. Pfizer and Abbott – two MNC firms that have been hit by the ban – extended losses today.

As of 12.30 p.m., Lupin shares traded 7.2 per cent lower at Rs.1,553.55, underperforming the broader Nifty, which was up 0.4 per cent.