Lupin’s Symbiomix acquisition looks like a step in the right direction

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Lupin Ltd’s acquisition of Symbiomix Therapeutics LLC has provided a glimmer of hope for investors, who have been worried about sliding sales and shrinking profitability. The company’s shares gained 1.8% last week after it announced the acquisition, although, of course, that’s not much when compared with the 28% decline in the past one year.

The acquisition gives Lupin access to a women’s healthcare drug brand, Solosec, which has received the US regulator’s approval. It is expected to be launched in mid-2018 and achieve peak sales in three years or so. With lower dosage and higher efficacy, the management expects Solosec to gain a 15-20% market share in the US. The management expects the acquisition to have a payback period of six years.

However, as Prabhudas Lilladher Pvt. Ltd points out, the prevalence of generic products makes it difficult to gauge the financial benefits as yet. “Though Lupin expects a larger acceptance of Solosec and premium pricing due to better efficacy of single-dose treatment, we believe there will be a glass ceiling on its pricing power due to a) prevalence of many generics of Flagyl and Cleocin; b) recurrence is common among a major part of bacterial vaginosis patients, which may not motivate (them) to spend much on premium drugs, and c) insurance formularies may allow limited access to the product due to the expected premium pricing of Solosec,” the broker said in a note.

That said, the peak annual revenue potential of Solosec franchise could be $100 million in the US in 3-5 years, Prabhudas Lilladher says.

Jefferies India Pvt. Ltd also forecasts peak sales of around $100 million. Given that the management expects the deal to have a payback period of six years, Jefferies says the deal is fairly valued even though the broking firm does not see “significant” value accretion from the purchase yet.

Besides the financial benefits from the deal, it must be also appreciated that Lupin is attempting to build a portfolio which is relatively less prone to pricing pressures.

After all, like all generic drug makers, it is facing pricing erosion and heightened competition in the core business. The key now is to follow up the latest acquisition with more product additions in these segments. That will act as a hedge against the troubled core generics business and give investors the confidence that the company is not in a structural downtrend. “The management indicated that they are looking for more acquisitions of similar nature,” Jefferies said in a note. “Lupin, in our view, is trailing peers in building a complex generic pipeline. Further, its R&D (research and development) execution has been weak which raises concerns on medium-term growth. Given this, we expect merger and acquisitions to be a major driver for Lupin.”