Glenmark Pharmaceuticals is likely to maintain the strong growth momentum it has been displaying in recent quarters on the back of growing share in domestic formulations business, new product launches in the US generics segment and monetisation of its R&D pipeline.
Business: Glenmark develops, manufactures and markets pharmaceutical formulations and active pharmaceutical ingredients (API) in India and internationally.
Glenmark has several molecules at various stages of clinical development and is primarily focused on the areas of inflammation, metabolic disorders and pain. The company’s business is divided into specialty business that contributes nearly 58% to net revenues and generics that contributes the rest.
Its specialty business involves branded formulations focused on the therapeutic areas of dermatology, cardiac, respiratory, anti-infectives, gynaecology, pain/analgesic, oncology, etc.
The generic division includes US and Europe generics, oncology business in Latin America and API business. Glenmark has 13 manufacturing facilities in four countries and five R&D centres.
Investment rationale: The company has been growing faster by nearly 6-7% than the Indian pharmaceutical industry since the last five years and has in recent two quarters outpaced the industry growth by 15-16% to become the fastest growing company among the top 25 players. As a result, it continues to gain a steady market share in domestic market for its key therapeutic areas.
The generics business continues to grow at a healthy pace, driven by performance in the US market where it enjoys strong presence in niche segments like derma and oral contraceptives. The company currently has a robust pipeline of 81 approved generic products for distribution in US markets.
Glenmark has 43 abbreviated new drug applications pending for approval, of which 19 are para-IV applications with a potential market size of over $10 billion. It has launched five new OC products in the first quarter and expects to launch another 12 going ahead.
In its research & development pipeline, the company has 5 NCE and 5 NBE molecules in clinical trials. Meanwhile, Glenmark continues to file for regulatory approvals and prepare for launch in the HIV-related diarrhea product in 140 markets where it has exclusive marketing and distribution rights.
The company, with a track record of monetising its R&D pipeline, is expected to benefit from milestone related payments from its existing out-licensing deals and potential new deals.
Its balance sheet is likely to improve with free cash generation that would reduce the debt to equity ratio. Also, with the ramp-up in some overseas markets and fall in tax outgo for fiscal 2014, margins are likely to improve.
Concerns: The key sector-specific risks for the stock include potential litigation setbacks and expenses, regulatory changes in the domestic and US market, failure to launch products on time, inability to monetise the NCE pipeline, intensifying competition from multinational firms and unlisted players, and currency related issues.
Valuations: Glenmark reported better-than-estimated results in the September quarter led by strong growth in the US generics and domestic branded formulations that grew 43.55% and 35.5% year on year, respectively.
It is expected to maintain its strong growth momentum led by growing market share in domestic market, launch of new products in US generics business and monetisation of first-to-file (FTF) opportunities and NCE pipeline. Sales are expected to grow at a compounded annual growth rate of 16.5% over the next two fiscals. The net profits are expected to rise 21% over fiscal 2012-14, led by improvement in operating margins. At the current market price of Rs432..85, the stock trades at 20.59 times its expected earnings per share in fiscal 2013 and 17.33 times its expected fiscal 2014 earnings. Investors with one-year perspective can buy the stock on every decline.
Disclaimer: The writer does not hold any shares in the company