While gains from abuterol were better than expected, sustenance of the same remains crucial
New drug launches, including that of posaconazole, augur well for Lupin’s prospects in the US
The Lupin Ltd stock has done well to catch up with the Nifty Pharma index in terms of one-year returns, after lagging behind considerably until November. Lupin’s domestic performance remains strong and analysts expect more gains. Growth in the US market was decent as well, though sustainability is a key question here.
Lupin’s North America revenues grew 4% year-on-year during Q3, on the back of the launch of albuterol respiratory inhaler generics in the US. While the gains from this product were better than expected, sustenance of the same and a further ramp-up remain crucial.
The latest is on the launch of anti-fungal drug posaconazole in the US. Since the product addresses a slightly bigger market size, and given the limited competition opportunity, it can contribute meaningfully to US sales. Assuming a three-player market, analysts expect the drug to be a $30-50 million per annum opportunity for Lupin.
On the flip side, growth may be hit owing to a high base effect. The March 2020 quarter represented a high base aided by gains in the flu treatment segment.
“The Lupin stock performance will depend on a ramp-up in albuterol market share and launch timelines for generic Spiriva (another respiratory product)," analysts at Credit Suisse said in a note.
The company also needs to resolve regulatory issues at some of its Indian facilities and one in US that remains important for US sales growth.
“We believe the major launches would be in late FY22 and FY23. Also, complex injectables and biosimilars filings including a higher expected number of filings in FY22E would push the R&D (research and development) costs higher," said analysts at Centrum Stock Broking Ltd.
Meanwhile, Lupins’s prospects in the domestic market continued to improve and will support the company’s performance. Contributing more than a third of overall revenues, domestic sales were up 5.4% year-on-year mainly led by strong chronic segment sales growth. The acute segment is now recovering and may lead to better growth prospects.
At current levels, the stock is trading at 26.6 times FY22 earnings estimates, and sustained growth momentum remains crucial to sustaining these valuations.