Glenmark: Strong pipeline in FY16 to boost sales

Company likely to be re-rated if it gets approvals for generics products in coming months

Pharmaceutical stocks continue to be in focus, as FY16 might not see any major uptick in the earnings trajectory of other sectors. While the risk of cross-currency movement might mar the performance of companies with a strong presence in regions other than the US, Glenmark is likely to be in focus in the current financial year. Its revenues could see a strong pick-up this year, on the back of US market revival.

Glenmark is expected to exit FY15 with net sales growth of 10 per cent. The Street believes Glenmark is a prime candidate for a re-rating as its US revenues could pick up on the back of new product launches. After growing at 20 per cent last year, Glenmark’s US sales growth dropped to single-digits in FY15, as there were only five product approvals. As the US accounts for 34 per cent of turnover, such a slowdown is not good news.

However, a lot of this slowdown is slated to be reversed in FY16. Glenmark has a rich pipeline of limited competition drugs and branded generics. While there are some first-to-file and limited competition opportunities, Prabhudas Lilladher says: “The company is set to receive approvals in 25-30 generics in the US, along with sole exclusivity in Zetia in 12-24 months. Launch of Seretide generics and oncology drugs in key markets such as Brazil, Mexico and Russia will expand operating margin of ROW (rest of the world) sales.”

Analysts expect Zetia to provide the best opportunity and the drug has potential to generate $240 million in revenues in FY17. Other key drugs are Welchol, Finacea, DDAVP, Zyvox, Ortho Tri-cyclen Lo and Nitroglycerin. Prabhudas Lilladher expects a compounded annual growth rate (CAGR) of 36 per cent in revenues over FY14-17. Thanks to robust revenue growth estimates, analysts are busy revising earnings growth, too. Motilal Oswal estimates a CAGR of 21 per cent in revenues, driving 25 per cent core earnings per share CAGR over FY15-17.

Glenmark spends 3.5 per cent of revenues towards a novel pipeline. Seven molecules are either in clinical trials or are likely to enter the trials stage. While the firm has recovered what it has spent on research and development, analysts do not rule out further possible out-licensing deals. Currently, analysts only factor in the core base business while arriving at valuations. So, any upside from the novel pipeline would be a bonus.