Stock Review: GLENMARK PHARMA
THE phase-III trials for Crofelemer for cure of HIV-associated diarrhoea have been completed successfully. And that is good news for Glenmark Pharma, since the drug's development and commercialisation rights in select markets have been in-licensed by the company. The drug, whose launch in India and the rest of the world is subject to regulatory approvals, is touted to become the first novel drug launched by the company.
The company's announcement came at a time when its stock is trading at almost a two-year high, riding on the wave of a stellar financial performance during the second quarter ended September 2010. Glenmark's stock gained 4.4% during the day and closed 3.6% up for the day.
Crofelemer is a first-in-class anti-diarrhoeal drug. Glenmark's partners — US-based Napo Pharmaceuticals and Salix Pharmaceuticals — have announced the completion of phase-III trials for the drug in the US. Glenmark has in-licensed the developing and marketing rights to the drug in 140 emerging markets, including India, for multiple diarrhoea indications. The company also has the exclusive rights to supply the active pharmaceutical ingredient for the drug globally, except China.
Using the clinical studies conducted in the US, Glenmark is looking at seeking approval for the drug in India by 2012. It, typically, takes about two years post approval to achieve peak sales of the drug. Glenmark is looking at a peak sales opportunity of about Rs 400 crore across all the 140 markets by 2014-2015. The company, depending on how attractive the research findings are, can extend the launch of the drug for treating other kinds of diarrhoea indications like adult diarrhoea, paediatric diarrhoea, etc.
This is good news for the company, but investors should be cautioned against bearing too much enthusiasm too early in the day. The monetary gains of this development will start trickling in only after two years from now. Moreover, achieving the peak sales opportunity is two years away. Investors must keep in mind that benefits from innovative R&D are not low-hanging fruits. It involves long gestation and execution risks, too. Though after a series of setbacks and out-licensing deals, Glenmark has finally got a novel drug at the final stage, it is still not advisable to discount all the estimated peak sales from its launch into the present valuations of the company – especially when it is the first-ofits-kind launch for the company.
Ranbaxy Labs -Turning around; Buy: Anand Rathi
Turning around; maintain Buy
Q3CY10 results. Ranbaxy reported 2.1% yoy revenue growth in
line with our estimates. Though the 9% EBITDA margin declined
290bp yoy, it has been improving qoq for the past three quarters.
On lower EBITDA margin and higher depreciation charge,
adjusted net profit slid 14.8% yoy. However, at `308m, reported
net profit was higher on forex gain of `2.6bn.
US and India: key drivers. The US business grew 85% yoy
mainly on account of ~36% market share in Valacyclovir, postexpiry.
US revenue (excl. para IV) is stabilising at >US$80m per
quarter. Indian formulations grew 18% yoy led by industry growth
and start of contribution from the Viraat project.
Highlights. EBITDA margin of 9% without any para IV upside
indicates benefits accruing from cost-reduction measures taken.
The margin is expected to further improve on rising contribution
from the Viraat project and the stabilising US business.
Outlook. We are bullish on the growth outlook and margin
expansion (15.3% in CY12e). Management is confident of
monetising all the para IV opportunities despite ongoing USFDA
issues. Commercial supply of Nexium API has started in Q4CY10;
this would be the key growth driver in future.
Valuation and risks. At CMP, Ranbaxy trades at 17.8x CY10e
and 16.9x CY11e earnings. We retain our target price of `658 and
re-iterate Buy. Risks: Failure in monetising para IV opportunities.
Dishman Pharma-BUY
Q2FY11 results. As per our expectations, Dishman registered weak Q2FY11 results; we estimate recovery from Q3FY11. Revenue slid 2.1% yoy; however, adjusted net profit fell a sharp 32.3% yoy due to a 570-bp fall in EBITDA margin owing to absence of contract-research business. n Highlights. Revenue drop was driven by 6.8% fall in the marketable molecules (MM) and 0.5% decrease in the CRAMS businesses. CRAMS fell due to postponement of a few contract-research projects that would be executed in the coming quarters. This also resulted in lower margins, which would recover in the coming quarters. n Outlook. We believe that the worst is now over and recovery should occur from Q3FY11 on the back of: i) the stabilising base CRAMS business, ii) commercialisation of the high potential (HIPO) facility and iii) beginning of API supply (patented product) to an EU major in Q4FY11. n Lower estimates. We lower our FY11-13e revenue 3-6% owing to postponement of a few contract research deals and less revenue from the MM business. We lower PAT 13.7%, 6.3% and 7.7% for FY11e, FY12e and FY13e respectively. n Valuation and risks. We maintain Buy, given recovery in business from Q3FY11 and attractive valuations. However, we lower our target price to `246 from `258 due to our revision in estimates. Risk: Delay in execution of CRAMS contracts. |
