Analysts Say Lupin, Cipla May Benefit From Perrigo’s Asthma Drug Recall

Both Lupin and Cipla had earlier this year received U.S. FDA approval for marketing ashthma drugs in the United States.

Capsules are laid out for inspection on a production line (Photographer: Tomohiro Ohsumi/Bloomberg)
Capsules are laid out for inspection on a production line (Photographer: Tomohiro Ohsumi/Bloomberg)

Analysts expect Perrigo Co.’s voluntary recall of a key asthma drug to provide an opportunity for Lupin Ltd. and Cipla Ltd.—the two Indian pharmaceutical companies that received the U.S. health regulator’s approval for the product this year amid the novel coronavirus outbreak.

The Dublin-based company announced a voluntary recall of albuterol sulphate inhalation aerosol—developed in partnership with and manufactured by Catalent Pharma Solutions—in the U.S., according to a statement on its website. These actions, the company said, were being taken out of an abundance of caution as a result of complaints that some units may not dispense due to clogging.

This setback for Perrigo comes as an unexpected positive for Lupin and Cipla—the rivals in the $850-900 million U.S. albuterol sulfate market, according to Macquire.

“Currently, we are building $40 million sales for Lupin and $60 million for Cipla for FY21,” the research firm said in a report. “If we assume $20 million incremental albuterol sales each for Lupin and Cipla from September till December 2020 due to Perrigo’s recall, there is a 4-6% upside risk to FY21 earnings per share estimates for Lupin and Cipla.” The opportunity, Macquarie said, will increase further for Lupin and Cipla if Perrigo’s relaunch is delayed fur

That corroborates with Emkay Global’s views. Currently, there are three brands in the albuterol market—Proair, Proventil and Ventolin—and six players. Perrigo’s market share can shift to other generics, it said.

Although Perrigo’s product is directly competing with Lupin’s, Emkay said given the product’s interchangeability, both Lupin and Cipla will benefit, depending on their ability to scale up. Perrigo has 11-12% market share in the albuterol market.

“Assuming Perrigo remains out of the market for the next six months and a shift of incremental $30 million sales to each Cipla and Lupin, our rough calculation indicates an 8-9% upgrade for Cipla and 13-14% for Lupin in FY21 earnings,” Praful Bohra, research analyst at Emkay Global, said.

Perrigo, which follows the January-December fiscal, has reported sales of $44 million and $73 million in the first and second quarters, respectively, from albuterol, said the brokerage.

The provider of quality, affordable self-care products and over-the-counter health and wellness solutions, according to the release, expects to take a charge of $18-22 million in the third quarter for this market action (drug recall) and has not recorded any sales of the product since late August 2020.

Investec has a slightly cautious stance.

Though Lupin and Cipla are likely beneficiaries, benefits to other existing albuterol sulphate players could limit their gains, the brokerage said. With peak capacity utilisation, Lupin and Cipla can achieve $100-120 million sales in FY22, provided no further challenges to pricing or competition. This would add 5% to Cipla and 8% to Lupin’s FY22 Ebitda. For FY21 as well, Cipla and Lupin will add 3-5% to Ebitda, it said in a note.

Also Read: Cipla Gets U.S. FDA Nod For Generic Inhaler Amid The Pandemic

Also Read: Lupin Gets Long-Pending U.S. FDA Approval For Key Asthma Drug

Reacting to the development, shares of Lupin and Cipla were trading 7% and 6%, higher than previous close on Friday. That compares with the Nifty 50’s 0.53% gain.