Lupin set to gain market share in US flu season; shares up 6% in 2 sessions

The stock has underperformed peers and the benchmark over the past year

The stock of Lupin is up over 6 per cent in the last couple of trading sessions on expectations that the demand surge in anti-viral drugs in the US market and market share gains could reflect in robust sales growth in the near term.

Mitesh Shah and Bhavya Sanghavi of Nirmal Bang Research highlight that the onset of a strong flu season in the US has led to a uptick in volumes -- in both the capsule as we as oral suspensions of oseltamivir (generic version of Tamiflu) -- used in treating influenza.

While capsules, which account for 70 per cent of sales saw a growth of 1.9 times, oral suspensions were up 16 times on a sequential basis. Lupin has an 11.5 per cent share in capsule and 13 per cent in oral suspension.

In addition to Lupin, there are multiple players, including Ajanta Pharma, Zydus Lifesciences, Alembic Pharma, Strides Pharma Sciences and Natco Pharma which will benefit from the demand uptick.

Nomura Research believes that Lupin is likely to be a key beneficiary of potentially higher demand. Say Saion Mukherjee and Aneesh Deora of Nomura Research, “The US anti-virals product market, where most Indian companies participate, could see a potential sequential rise of $200-$250 million in sales in the December quarter (Q3 of 2022-23 financial year or Q3FY23). The relatively high value drugs include the generic version of Tamiflu, albuterol (treating bronchospasm) and antibiotics azithromycin and amoxicillin. With presence in Tamiflu, albuterol and azithromycin, Lupin is likely to benefit the most from potentially higher demand.” The brokerage expects the increased demand for flu products to result in a $20 million rise in Lupin’s US sales for Q3FY23.

Increased market share in some drugs is expected to add incremental revenues in the current quarter. The company, according to Systematix Institutional Equities, captured 36.9 per cent market share in generic version of Suprep (laxative) and also posted decent growth in albuterol sulphate. Additionally, the company acquired brands, Brovana and Xopenex HFA, used in treating chronic obstructive pulmonary disease, which should provide incremental revenue to the company’s US business in Q3FY23, says the brokerage.

The December quarter is expected to be a strong one for the company and should reflect in the stock prices which have sharply underperformed its peers and benchmarks over the past year, given price erosion pressures and a decline in margins. While the Lupin stock is down 15 per cent year to date, the BSE Healthcare index is down 5 per cent; the Sensex is up 7 per cent over this period.

While Nomura Research is positive on the stock, Prabhudas Lilladher Research, in a report last month, indicated that Lupin’s recovery in US sales will be gradual and may hinge on timely niche launches. Margins, according to Param Desai of the brokerage, will only improve from Q4FY23, with likely savings and niche launches, which may see a delay.

At the current price of Rs 768, the stock is trading at 23 times its FY24 earnings estimates and most brokerages have a ‘hold’/’reduce’ rating. Investors should await improvement in sales/margin trajectory before considering the stock.