New launches, market share gains to sustain Gland Pharma's sales trajectory

Earnings are expected to grow over 25 per cent over the next two years

The Gland Pharma stock has gained over 13 per cent since the beginning of February on strong December quarter (Q3) results and robust growth expectations. The company, which registered 27 per cent compound annual growth rate over FY18-20, is banking on existing products, new launches, and acquisitions to sustain growth momentum.

The management, according to analysts at IIFL Resear­ch, expects volume growth of 10-12 per cent in the base portfolio, driven by market share gains as the company gets incremental business from new players that enter the US generic injectables market. 

Almost all of its revenues come from the business-to-business segment, with a majority coming through intellectual property from supply contracts or share of revenues/profits. 

While the base business could account for half of the growth, the other half could come from new launches. The company is looking at bringing 30-35 abbreviated new drug applications (ANDAs) to the market. Shortage of products in the US market, with more than half in the injectables space, could add to incremental gains. 

Analysts at Motilal Oswal Research believe there are at least 12 products in Gland’s existing, filed, and tentative product portfolios in shortage in the US, with an addressable market size of over $450 million, which presents opportunities to boost sales.

The overall opportunity can be gauged from the fact that it has 60 pending ANDAs, with a market size of $6-7 billion and tentative approvals for 20 ANDAs, with a size of $4-5 billion. The US accounted for 67 per cent of its global revenues in FY20. 

What should help the company maintain its US growth is the successful track record of compliance across facilities in a category (injectables) where the entry barriers are higher and clients a steady supply source. 

Brokerages expect the bottom line to grow by 25 per cent over the next few years, on account of steady top line (20-25 per cent growth) and margin expansion. Higher volumes, cost optimisation, and backward integration with in-house manufacturing of active pharmaceutical ingredients are expected to boost profitability. This should help increase margins to 38 per cent, up 200 basis points by FY23, from an estimated 36 per cent in FY21.  At the current price, the stock is trading at 32 times its FY22 earnings estimates. Investors can look at the stock on dips.