For Glenmark, worries in the short term

Negative judgment on sale of two diabetes drugs to have limited impact , as an alternative is ready

The Glenmark Pharmaceuticals stock shed four per cent in trade on Thursday, after the Delhi high court restrained it from selling two diabetes drugs for patent infringement. US-based drug major Merck Sharp and Dohme had sought an order against the sale of the two drugs, Zita and Zita-Met, used in treating type-2 diabetes, saying they contained salts similar to Sitagliptin, its patented drug. The drug is estimated to have a market size of about Rs 400 crore. Zita and Zita-Met are among the top 10 brands of Glenmark and among the fastest-growing, with annual sales of Rs 44 crore and Rs 64 crore, respectively.

The impact of the decision on the company could be minimal, believe analysts. For, Glenmark has already launched an alternative in July called Teneligliptin (branded as Ziten, Ziten Plus) which belongs to the same class of molecules and have similar benefits of Sitagliptin.

According to Surajit Pal of Prabhudas Lilladher, the launch of Ziten has met with success (going by the current run-rate) with the drug expected to generate annual sales of Rs 40 crore over one year. Analysts expect the overall sales to improve to about Rs 80 crore in FY17, after the launch of Ziten Plus in December. But for FY16, Pal expects a revenue impact of about Rs 20 crore, while the launch of alternative medicines will minimise any loss in FY17. Currently, anti-diabetic drugs account for about eight per cent of Glenmark's domestic sales.

 

For the quarter ended  September, analysts expect revenues to improve by nine per cent, on the back of US approvals for drugs. The US geography is the largest revenue generator for Glenmark and accounted for 31 per cent of its sales in FY15.

Growth is also expected to be strong in India, at about 17 per cent. On the back of higher volumes, new launches, and price increases, the company’s sales in India is ahead of the pharma sector — growth in April to August ranged 18 to 24 per cent, versus 14 per cent for the sector.

However, currency issues are likely to hurt growth in Latin America and Russia, despite new launches. Any gains on the dollar-rupee front are likely to be offset by the depreciation of currencies in emerging markets. Rest-of-the-world and Latin American markets make up about 24 per cent of the company’s revenues.

At the current price of Rs 993, the stock is trading at a reasonable 18 times its FY17 consensus earnings estimates. Investors can look at corrections to accumulate the stock.