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Pharmaceuticals

Lupin seeks to pare new drug costs with string of licensing deals

Indian pharmaceutical firm seeks to control expenses amid slow US business

MUMBAI (NewsRise) -- Lupin is tying up a string of licensing deals with global pharmaceutical companies as the Indian drugmaker seeks to boost revenue and pare costs amid regulatory issues and a slow pace of pick up in new launches in the U.S.

On Wednesday, Lupin signed a deal with Germany's Boehringer Ingelheim to license, develop, and sell a new drug for patients suffering from difficult-to-treat cancers such as those affecting pancreas, colon, lungs, and skin. As part of the deal, Lupin will get an upfront payment of $20 million and an additional $700 million based on successfully achieving certain milestones, it said in a statement.

The company had in December signed a similar licensing deal worth $947 million with AbbVie to develop its inhibitors for treating hematological cancer. As part of the deal, the company got an upfront payment of $30 million.

The deals come as Lupin presses the pedal on cost controls in a bid to expand its profit margins, amid sagging revenue growth. Such partnerships allow drugmakers to share the risk of developing complex molecules, as well as the expenses, say analysts.

Lupin's out-licensing strategy will help the company clamp down on future development costs for the molecule, said an analyst at a Mumbai-based brokerage, who declined to be identified. Last fiscal year, Lupin's spending on research and development declined 15%. At the end of March, its spending on R&D came down to nearly 10% of sales from 14% in the fiscal year 2017.

Like its peers, Lupin too has been grappling with falling drug prices in the U.S., where the Food and Drug Administration has hastened its approval rate for generics, paving the way for increased competition. A rising number of retail pharmacies in the U.S. are also joining hands to gain leverage in buying generic drugs in bulk, pushing prices further down.

The tough business conditions in the U.S., the largest drug market in the world, has pushed many drugmakers to resort to cost control measures to preserve margins.

In a conference call with analysts last month, Lupin Managing Director Nilesh Gupta said he expects good cost savings to start coming in between the third and fourth quarters of this fiscal year.

Nomura expects the company to eke out cost savings worth four billion rupees ($55 million) in the fiscal year 2021 and five billion rupees by the fiscal year 2022.

Cost savings are critical for Lupin's profit expansion in the near term as the company struggles to get approvals for new drugs amid regulatory challenges. Four of Lupin's manufacturing plants, from which nearly 100 new drug applications are pending, are under regulatory scanner. The regulators have slapped warning letters on its plants in the western Indian state of Goa and in the central state of Madhya Pradesh.

On Thursday, Nomura cut its earnings estimate for Lupin for this fiscal year and the next by 19% and 22%, respectively, to factor in a likely slowdown in its revenue from the U.S. business.

Nomura cites the slow pace of pick up in the women's health care drug brand Solosec, which it launched last year, as well as delay in the launch of generic asthma drug ProAir, for which Lupin is still awaiting feedback from the FDA. It also expects the resolution of regulatory issues to get pushed to the next fiscal year.

--Dhanya Ann Thoppil

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