Glenmark Pharmaceuticals Limited - Review

Glenmark Pharma - This is more like a portfolio of pharma businesses, but an interesting company. Capability wise one of the better pharma players. But the focus appears diluted due to the number of segments.

India formulations (31%), US generics (30%), RoW (12%), Europe (10%), Latin America (4.5%), & API business (10%) are the broad segments.

Author - Ravi Sundaram

India formulations - 14th largest in terms of market share. They focus on - cardio, respiratory & derma. They have been executing very well here over the last decade. With domestic pharma as a sector growing well, they are expected to grow in mid teens here. They had a very interesting launch here in mid of FY20- Remogliflozin - first in world for type 2 diabetes. AstraZeneca, J&J, & Boehringer are the peers for this molecule and they have priced Remo half vs peers. This is a 600-700cr growing market and they are growing very nicely here. Over 2-3 years they could potentially have a sizable share in this molecule. They have had other launches as well in domestic market. They should grow a little better than domestic mkt growth rate. In the near term it could be in mid teens.

US generics: 14th largest player by prescription volume. 162 approved ANDAs & 44 pending approval. -> Of this they have 24 para4 applications. They have had quite some challenges off-late here due to price erosion in a few molecules notably Mupirocin - this was trending at sales runrate of $70mn and over the last 2-3 years this has become sub $25mn product. There were a couple of other molecules as well and in the recent qtr, Ranitidine withdrawl which contributed about 2.5mn had some impact. All this meant, US business had subdued growth. Now, mgmt feels they are near bottom in terms of price erosion and they should start seeing growth from here. They had significantly invested (~$100mn) in Monroe facility over the last few years and they expect to commercialize this from 1st qtr. This facility is focused on injectibles, & other specialities. Then they spoke about Ryaltris where they have partnered with Hikma. So there are some triggers for growth in US, but we should wait & watch here. US is a very dynamic market. Their compliance track record has been decent. Baddi facility received some warning letter and they derive about $30mn revenue from here.

Latin America - Here they have been growing interestingly thanks to the tie-up with Novartis and some own launches. The company has guided for decent growth here.

RoW - Russia occupies a major portion of this segment and the market itself is growing in low single digits. Growth here should be muted.

Europe - Compared to the initial high growth, the last few years' growth has tapered. They are coming off a higher base and even here too growth maybe in low single digits.

APIs - Here the inference was, they have guided for decent growth (~10%?) due to various reasons. This area wasn't looked in depth.

Innovation business - They have a innovation business (NCE) which has been guzzling a lot of cash over the last few years. 60% of their R&D expenses goes towards this. They have created a subsidiary in US - Ichonos -> Where they have shelved some of the molecules -> ISB 830 seems to be the flagship product currently close to completing phase 2b by Q1 FY21. They are looking to raise capital in US and if they manage to, R&D expenses should come down and help P&L. But in the current environment, not sure how successful will they be in raising cash? The existing listed business still retains a couple of molecules and wasn't sure here about the reason.

To summarize :

1. ~75-76% of the business (India, US, LatAm, & API) has some growth visibility. It remains to be seen how much how US growth plays out - as there are quite some moving parts.

2. Possibly at peak Debt levels - They are focusing on reducing debt, recently divested VWash to HUL (small contribution) and this does not appear it would happen soon. Should be FY22 before we see something meaningful. But for a business of this size, debt (~4600 gross) doesn't look like a worry.

3. R&D impacting p&l - How quickly they raise capital through Ichonos will have answers to this, but this should come down starting next year.

4. Business trading at 10-12x fwd partially explains the complexities and moving parts - Most of this was due to their focus on innovation business which wasn't looked at well.

Should wait & watch how each of these triggers play out over the next 2-3 years.

Shares of GLENMARK PHARMACEUTICALS LTD. was last trading in BSE at Rs.337.2 as compared to the previous close of Rs. 329.7. The total number of shares traded during the day was 568112 in over 12251 trades.

The stock hit an intraday high of Rs. 359 and intraday low of 334.5. The net turnover during the day was Rs. 196634918.

Source : Equity Bulls

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