Cipla, Lupin may gain from Perrigo's drug recall, says Macquarie

Mumbai: Perrigo Company's voluntary recall of albuterol sulfate or generic of ProAir in the US may prove to be an unexpected gain for Lupin and Cipla who are Perrigo's competitors in the $850 million - $900 million US albuterol sulfate market, said foreign brokerage Macquarie.

Perrigo announced the voluntary nationwide recall of albuterol sulfate following complaints that some units may not dispense due to clogging. A definitive timeline for reintroduction has not been determined.

"Perrigo’s competitors in the US$850-900 million (normalised) US Albuterol Sulfate market. While Cipla launched gProventil in Apr-20, Lupin’s gProAir launch is expected this month. Currently, we are building US$40 million and US$60 million sales in FY21 for Lupin and Cipla, respectively," said Macquarie. "If we assume US$20 million incremental Albuterol sales each for Lupin and Cipla from Sep-20 till Dec-20 due to Perrigo’s recall, there is a 4-6% upside risk to our FY21 EPS estimates for Lupin and Cipla," said Macquarie.

The foreign brokerage said that if Perrigo's relaunch is delayed further, the opportunity for Lupin and Cipla will increase further.

Macquarie has maintained an underperform rating on Lupin with a target price of Rs 750. The brokerage said the stock is trading at stretched valuations after the recent run up in stock price.

On Cipla, Macquarie has maintained an outperform rating with a target price of Rs 816. The brokerage expects Cipla to deliver a strong 19% EPS CAGR over FY20-FY23 led by strength across markets and cost efficiences.