Spiriva approval gives earnings visibility to Lupin; valuations expensive

Lupin’s shares declined 4.5 per cent in Thursday’s intra-day trade as analysts believe the stock's expensive valuations may cap gains arising from the approval for inhalation drug Spiriva (Tiotropium Bromide) by the US Food and Drug Administration. The stock settled 2.6 per cent lower at Rs 852, as against a 0.45-per cent dip in the benchmark BSE Sensex.

"While the Spiriva approval is an important milestone for Lupin, we believe the upside from Spiriva is priced-in at current levels," said Alankar Garude of Kotak Institutional Equities, in a co-authored report with Samitinjoy Basak and Aniket Singh.

Boehringer Ingelheim's Spiriva (Tiotropium Bromide) is used for the treatment of chronic obstructive pulmonary disease (COPD), which affects nearly 10 per cent of individuals above the age of 40 years. Currently, gross, and net sales of the brand in the US are approximately $1 billion and $500 million, respectively, with no generic players.

Analysts at Axis Securities expect Lupin to generate sales worth $100 million and $114 million in FY24 and FY25, respectively, while those at KIE build in $60/80/81 million US sales over FY24-26E.

The latter brokerage also expects Spiriva’s contribution to Lupin’s FY2024-26E overall earnings per share (EPS) to be at 17-21 per cent, which could increase further if there is no authorized generic launch by Innovator, a US-based pharmaceutical company.

“We marginally lower our assumptions for other US products and EU, leading to a 0-2 per cent EPS cut over FY2024-26 estimates. Even as we build in further improvement hereon, we stay guarded given the company’s weak execution track record, slim medium-term US pipeline beyond Spiriva, and subpar margin profile. We retain REDUCE,” said Garude of Kotak Institutional Equities.

Lupin received approval for Darunavir (in June, 2023), and awaits one for Nascobal and Diazepam gel (expected in July, 2023). These launches, Abdulkader Puranwala of ICICI Securities said, could potentially drive 21.7 per cent growth in Lupin's US revenue to $769 million in FY24E.

The management has previously guided for over 500bps expansion in Ebitda margin to 15-16 per cent for FY24E with exit margin to be higher at 18 per cent.

Given this, Puranwala has raised his revenue/Ebitda/net profit estimate by 2 per cent/13 per cent/20 per cent, respectively, for FY25E.

“Share of new products in US sales (35 per cent by FY24E) is expected to rise rapidly for Lupin. However, given the nature of US generic business, an early entry of a competitor or regulatory issues at plants may dampen earnings significantly. We maintain SELL as the stock trades pricey at 27.9x FY25E EPS,” he said.

Threat from competitors

Lupin filed 29 ANDAs in FY23, and received approval for 16 ANDAs. In addition to gSpiriva, Lupin is strengthening a niche pipeline in injectables and inhaler space. It has filed four injectables in FY23 and is on track for g-Respimat/g-Ellipta in FY25.

Analysts, however, note that while the market size of Spiriva remains encouraging, the prescription trend indicates a downtick due to a shift to alternate products.

For instance, Innovator already has Respimat at the commercial level, which is more advantageous than Spiriva. Further, the genericization of Albuterol, Fluticasone/Salmeterol has provided other options for the same indication as that for Spiriva.

"Given this, though we raise our FY24/FY25 earnings estimates by 6 per cent/8 per cent to factor in the earnings upside from Spiriva, returns ratios remain in high single digits over FY23-25. The valuation at 36x/26.5x FY24/FY25 PAT adequately factors in the earnings upside. We maintain SELL," said Motilal Oswal Financial Services.

So far this calendar year, shares of Lupin have surged around 17 per cent on the BSE as against 3.4 per cent rise in the benchmark S&P BSE Sensex. The S&P BSE Healthcare index, meanwhile, has advanced 8.3 per cent during the period.