COVID has created both opportunities and challenges for Pharma companies- LupinMrunmayee Jogalekar
Update on the Indian Equity Market:
On Tuesday, Nifty closed flattish with just 0.1% gains at 11,559. Within NIFTY50, INDUSINDBK (+6.5%), M&M (+4.2%), and TATAMOTORS (+4.1%) were the top gainers, while ONGC (-1.4%), RELIANCE (-1.4%) and BAJAJAUTO (-1.3%) were the top losers. Among the sectoral indices, REALTY (+6.4%), PSU BANK (+1.1%), and AUTO (+1.0%) gained the most. FMCG (-0.3%) and IT (-0.1%) ended with losses.
COVID has created both opportunities and challenges for Pharma companies- Lupin
Excerpts of an interview with Mr. Ramesh Swaminathan, Executive Director- CFO and Head- Corporate Affairs, Lupin, published on Economic times website dated 26th August 2020:
• Lupin has the approval to manufacture generic version of ProAir- albuterol sulphate. This is a very important market for LUPIN in the inhalation space. The overall market for Ventolin, Proventil and ProAir combined is $ 1.1 bn with volume share of 44%, 9% and 47% respectively.
• The Albuterol Sulphate is a complex product and the competition expected is less. The price erosion could also be potentially lower due to lower competition.
• Lupin has been working on 12 to 15 products in the respiratory segment for the past several quarters. A large chunk of Lupin’s R&D spends is for complex generics including the inhalations portfolio, biosimilars, and complex injectables. The drugs device combination in the inhalation space makes it particularly interesting and challenging, though the mechanical trials associated with it are daunting and expensive.
• Generic ProAir is a very profitable product and Lupin will try to maximize on that considering their market share record. Even though the device itself and API will be imported, given the price stickiness, the gross margins are expected to be good.
• Apart from ProAir, Lupin has plans for several other products in the Respiratory space. Some known products include Fostair in the EU market, first to file in terms of Spiriva which could be in FY23, Dulera in FY22 and a host of other products.
• Generic market in the US has been witnessing a decline. What was potentially a $67 bn market 3-4 years ago has come down to $ 57-58 bn levels. Companies which were at the top have come down in terms of market share whereas Indian companies have been ramping up. But there is a lot of potential in other emerging markets. The good thing about any generic portfolio is that it can be levered across various markets.
• Lupin’s US revenue of $ 155-158 mn in 1QFY21 was an aberration and they expect to bounce back from those levels 2QFY21E onward. Lupin had a stroke of bad luck with metformin and that would also be back by the end of 2QFY21. Products like Albuterol lined up will help Lupinto be back into the revenue levels seen over the last several quarters.
• Covid has brought in opportunities for Pharma companies but also posed a lot of challenges to the supply chain. One of the opportunities is the Albuterol market itself which is growing at 13%. But in general, the topline has been impacted across markets.
• In case of India, after virtually no growth in 1QFY21, July was okay, and in August Lupin reached the same levels as last year and expect things to pick up September onwards.
• Both acute and chronic in the US have declined and markets like Philippines or Latin America, Mexico in particular, have been significantly impacted.
• Sales promotion and travel expenses have certainly come down. Lupin is also exploring newer ways of promoting their products with doctors in India as well as overseas.
Consensus Estimate (Source: market screenerwebsite)
• The closing price of LUPIN was ₹ 983/- as of 27-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 25.7/ 37.6/ 47.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 882/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 47.1/-.
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