Glenmark awaiting fresh triggers

Large product approvals, deals can drive growth, help pare debt

Pharma firm Glenmark’s share price hit a three-year low at Rs 567.95 on Tuesday, before closing 1.8 per cent higher at Rs 581.65 on the BSE. The scrip is down 40 per cent in the past four months.

While pricing pressure in the US, the world’s largest health care market, weighs on domestic pharmaceutical firms, for Glenmark, high debt is adding to its worries.

“The higher-than-expected net debt in its annual report has surprised and a further increase in debt in the September quarter remains a near-term overhang,” said an analyst at Credit Suisse.

Expectation of a reduction in debt had remained high after it launched a generic of Zetia, the cholesterol drug, last November. But, this did not materialise much in FY17, given the consolidated net debt at around Rs 3,655 crore as of March 31, 2017, against Rs 3,115 crore at the end of FY16, an increase of 17 per cent.

Analysts say a sharp rise in inventory (up 36 per cent year-on-year), accounting for a 70 per cent increase in working capital, was primarily responsible for the higher debt.

The management had said net debt in the June quarter declined to Rs 3,360 crore. It might go up in the September quarter to about Rs 3,600 crore (due to high research and development and other investments), but again come down to Rs 3,350 crore by the end of FY18.

While the September

quarter performance may benefit from the launch of attention-deficit hyperactivity disorder drug Strattera and a few other launches, competition in remaining products could offset these gains.

Several analysts feel after a correction in the recent months, concerns are priced in the stock. They say if any approval for a large product launch or an out-licensing deal goes through, it can buoy the sentiment. One of these is expected in the second half of FY18. It can lead to a higher growth and allow the company to cut debt.

The company has laid a product pipeline for the US and the management is anticipating some large approvals in the second half. There are other products and niche launches like lipid control drug Welchol, renal treatment drug Renagel and dermatology drug Finacea, approvals for which can drive US sales.

On the out-licensing front, Glenmark is in active discussions for four molecules and at least one deal is expected to close by the year-end. Positive data in its Phase 2a study of GBR 830, a molecule for the treatment of atopic dermatitis (already reported by the company), is something to cheer about.

Analysts at Motilal Oswal Securities had said positive data would mean high probability for an out-licensing deal.

Glenmark’s domestic sales have remained ahead of the pharma market growth, helped by its niche specialty focus. Good growth in other geographies, too, bodes well.