Expect to launch Spiriva in 2HCY22 in the US – Lupin

Update on the Indian Equity Market:

On Monday, NIFTY50 ended in the red amid a broad-based sell-off, ahead of the RBI monetary policy meeting during the week. NIFTY50 ended at 17,214 (-1.7%), dragged by TATACONSUM (-3.9%), LT (-3.6%), and HDFCBANK (-3.5%). POWERGRID (+1.9%), ONGC (+1.3%), and TATASTEEL (+0.7%) led the gainers.

Among the sectoral indices, PSU BANK (+0.9%) was the only one to close in the green. FINANCIAL SERVICES (-2.6%), FINANCIAL SERVICES 25/50 (-2.5%), and PRIVATE BANK (-2.3%) led the laggards.

Lupin announced 3QFY22 results, which were lower than the street estimates. Ms. Vinita Gupta, the CEO, outlined the reasons for the lower revenue growth in Business Standard on 7^th February 2022:

• Respiratory products have become a major growth driver for Lupin in the US. Albuterol has ramped up well over the last few quarters and has a market share of over 20 percent. In Brovana, Lupin has about 45 percent market share. The rest of the business in the US has been stable.
• In 2HCY22 the company expects to launch a few products such as Spiriva in the US. It also expects to launch the first biosimilar, Pegfilgrastim in the US for which US FDA inspection of the Pune plant is required.
• The company has shifted production to India for some of its products such as nasal sprays. For some other first-to-file (FTF) products in the US, Lupin is transferring production to some contract manufacturers in India and the US.
• In 3QFY22, the India business was up 12% YoY due to significant growth in the respiratory products portfolio in 3QFY21. The company launched molnupiravir in the Covid products portfolio. Practicing physicians see molnupiravir as an important part of the regimen.
• The CEO foresees increasing contribution to the Indian business from the diagnostic business. Lupin has established a national laboratory and has seven centers (clinics) in place- four owned and three are partnered. In FY23, she expects a rapid expansion in both owned and partnered clinics. However, the diagnostic business will be small in the near term in terms of total India business.
• It has recently announced a partnership with Fancoo for CNS products in China. Lupin is looking forward to getting those products approved and launched in China. It is also working on the respiratory and inhalation pipeline (products developed for the US) which provides an opportunity in China.
• Apart from the US, Lupin is present in the UK, Canada, Australia. It has a presence in Japan through its partner and is working on more partnerships to have a pipeline of complex generics and biosimilars.
• In Europe, Lupin is focusing on Germany, the UK, and France and has a big respiratory pipeline in Europe.
• In Australia, it has acquired Southern Cross Pharma which will make Lupin among the top three generic players in the market.
• About 25% of the raw materials are imported. The company is self-sufficient in terms of APIs and other materials. The company is trying to reduce the dependence on China by increasing suppliers in India. The CEO believes the PLI scheme will help to develop a more self-reliant supply chain.

 Asset Multiplier comments:

• The entire pharmaceutical industry is impacted due to supply chain bottlenecks which are impacting margins. Reduced dependency on China, and building domestic capabilities are likely to aid margin recovery in the medium term.
• Lupin’s 3QFY22 performance was impacted by higher price erosion in the US and raw material cost. While this is expected to impact the performance in the near term, the early launch of key products such as Spiriva is likely to provide some relief to investors.

Consensus Estimate: (Source: Market Screener website)

• The closing price of LUPIN was ₹ 804/- as of 7-February-2022.  It traded at 21x/ 16x the consensus EPS estimate of ₹ 38.6/ 50.2/- for FY22E/FY23E/FY24E respectively.
• The consensus average target price is ₹ 977/- which implies a PE multiple of 19x on FY24E EPS of 50.2/-.

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