Lupin sighs in relief over FDA nod to Spiriva, brokerages also cheer

Several brokerages have raised their price targets for Lupin after gSpiriva's approval.

Indian pharmaceutical company Lupin on June 21 received the much-awaited final approval for its generic version of Boehringer Ingelheim's Spiriva Handihaler (Spiriva) from the US Food and Drug Administration, bringing relief to the company struggling with declining margins.

Lupin's generic version of the drug, a bronchial asthma inhaler, will be the first to hit the market and is likely to enjoy high margins and low competition, say analysts.

Over the past few years, the Mumbai-headquartered firm's margins have been declining, impacting its financial performance. Analysts and stakeholders were closely tracking the launch of Spiriva, which is expected to ease the margin pressure for Lupin in the medium term. The stock jumped over 5 percent on June 21 on the news of FDA approval.

However, on June 22, Lupin was trading 4.26 percent down at noon at Rs 837.80 on the National Stock Exchange as investors booked partial profits following the previous day's surge.

Here's what brokerages have to say 

Kotak Institutional Equities, which expects Spiriva to be launched shortly, said the approval will increase visibility on Lupin's US sales trajectory while aiding margin recovery over the medium term.

The brokerage raised its price target for the drugmaker by around 14 percent to Rs 815.

Also Read: Lupin's much-awaited approval for gSpiriva is here; will it change the drug maker’s fortunes?

Axis Securities also highlighted Lupin's recent launch of the generic of Darunavir in the US market, where it enjoys a 180-day exclusivity period. "We believe both these products (generics of Spiriva and Darunavir) could increase the gross margins of Lupin by 100 basis points in the next two years," the firm said in its report.

Darunavir is an antiretroviral used to treat and prevent HIV/AIDS.

Axis Securities, too, increased its price target for Lupin by over 15 percent to Rs 950.

Elara Capital also raised the target price by nearly 18 percent to Rs 992. In addition, the firm also lifted its FY24E core earnings estimate by 14 percent, saying Spiriva came in a quarter earlier than expected.

"This was the most-awaited approval and adds significant visibility to the margin uptick," analysts at Elara Capital said. The broking firm expects the upside from Spiriva to last at least two-three years given the lack of other generic filers for the drug.

But is it enough?

Nithya Balasubramanian, pharma and healthcare analyst at Sanford Bernstein, also sees Spiriva as a substantial opportunity for Lupin, as the drug has a market size of $500-600 million.

"Even after assuming a 35 percent price erosion and 35 percent market share, gSpiriva still offers a $140 million $140 million annual opportunity for Lupin," Balasubramanian told CNBC-TV18.

Global research and broking firm Jefferies does see Spiriva as a meaningful contributor to Lupin's medium-term profitability but doesn't see it allaying concerns of weakness in the drug maker's core business.

Bernstein also seconded the view, saying Spiriva's upside potential is already captured in Lupin's valuation and it does not see it bringing any meaningful earnings upgrades. "However, the approval does improve confidence in Lupin's ability to improve its margins," Bernstein said in its report.

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