Weak US sales drags Lupin's Q1 show, revival hinges on key launches

The company reported a sharp 21 per cent decline in revenues in the US, much higher than its peers

The Lupin stock was down 6 per cent on Friday after the company reported a weak performance in the June quarter (Q1). Revenues fell by over 9 per cent, compared with the year-ago quarter, because of underperformance in the US. 

The company saw a 21 per cent decline in revenues in the US, which accounted for 35 per cent of consolidated revenues. This was higher than its peers, and its own run rate of $180-190 million over the last few quarters. Among the factors that impacted its US performance, were the recall of anti-diabetic Metformin, contraction in demand because of Covid-19, and drop in seasonal product sales. 

The company said about half of the sales miss in Q1 was because of seasonal products, such as the generic version of the antiviral drug Tamiflu, cephalosporins and antibiotic Azithromycin. Pre-buying in March also dented sales in the first half of the quarter. The company launched two products in the quarter taking its tally in the US to 175. 

Lupin expects to get back to its quarterly sales run rate in the US by the December quarter as it re-launches Metformin. Analysts at Credit Suisse, however, say the value of the Metformin franchise might not revert to earlier levels after the re-launch. The other triggers for the US business would be market share gains in Levothyroxine, used to treat thyroid hormone deficiency, and uptick in seasonal product sales. Also, the launch of the asthma drug Albuterol in September is expected to add to revenue growth. 

 

 

Sales in the domestic market, too, were down 2 per cent over the year-ago quarter. However, the company was able to outperform the Indian pharma market, which posted a 6 per cent decline in the quarter. Sales on a sequential basis were up 8 per cent. The reason for the outperformance is the higher share of chronic therapies for Lupin, which at 76 per cent, is the highest among generic peers.

Its top brands accounted for nearly half its revenues with robust growth in cardiac, anti-diabetic, and respiratory segments. The segment that posted robust growth of 24.5 per cent was active pharmaceutical ingredients. This growth was led by both higher demand and pricing. And, the double-digit momentum is expected to continue. 

Due to the weak top line, operating profit margins fell by 530 basis points year-on-year (YoY) to 14.7 per cent. However, lower other expenses helped limit the damage. On a sequential basis, the company posted a 90 bps improvement in margins.

The company’s Managing Director Nilesh Gupta said the margin improvement was led by tight expense control, despite challenges on the revenue front. The company expects market share gains in the US, new product launches, higher base business, and cost control efforts to take margins to 17 per cent levels for FY21, as compared to the pre-Covid guided levels of 19-20 per cent.

The impact of the operational performance was high with profit before tax falling 43 per cent. Net profit fell 59 per cent YoY because of weak margins and higher taxes.
 

Though there are multiple growth triggers for the company given its pipeline of complex generics, biosimilars and specialty drugs, near-term sales momentum depends on recovery in the US and India, which together account for over 70 per cent of consolidated sales.