Three observations in Aurangabad facility of Lupin – will it impact its business seriously?

Lupin limited, one of the top 5 pharmaceutical companies in India, is in a whirpool of USFDA inspections in its several facilities. The latest in news are the three observations in the Aurangabad (Maharashtra) facility of Lupin which may affect the stock price of Lupin adversely. Exact details of the observations are awaited. In the month of January, the Food and Drug Administration (FDA) an agency within the U.S.Department of Health and Human Services reposnsible for protecting the publiuc health by assuring the safety , effectiveness, quality  and security of Human drugs and vaccines , inspected Lupin’s three plants viz., Pithampur, Aurangabad and Tarapur. It was reported in media that the three plants were inspected and cleared without any observation.

The stock has corrected substantially and investors and traders are watching the development in the stock closely. The stock has corrected almost 29% from its 52 week high which it touched in the month of Oct 2015. The stock has been marred with several USFDA regulatory issues creating lot of uncertainty in the minds of investors. Due to large number of pending approvals in the US market, new product launches remain a concern for the stock. In its filing on BSE India’s fastest stock exchange, the management hinted that the observations by USFDA on Mandideep and Goa facilities are not of serious nature and will not materially impact the business.  However the 483 observation on Goa and now 3 observations on Aurangabad facility can only delay the launches of new products and impact the earnings in coming quarters.

Risk averse investors looking to invest in pharma sector are well advised to look at Lupin with an extreme caution and may start looking afresh at the stock when the US FDA regulatory issues uncertainty is over. Lupin is down by ~19% on YTD basis and down by ~29% on 1 year basis thus under-performing both the BSE Sensex and BSE Healthcare Index (Benchmark Index).