Glenmark readies growth strategy for next 10 years
Glenmark Pharmaceuticals, during its latest analyst meet, rolled out its ten year strategic roadmap for the company. This stresses innovation, complex generics and the specialty segment. Dermatology has been its core area of competence and it has named the oncology and respiratory segments as additional areas of focus. Glenmark believes about 30 per cent of its overall revenue by 2025 will be from the specialty and innovative segments.
GNP has narrowed its focus to three therapies for its specialty and novel pipeline – oncology, respiratory and dermatology. GNP currently has 9 NDA/BLA candidates in its novel drug pipeline and aims to use an out-licensing strategy to develop the pipeline over the next few years. The company aims to raise the share of complex filings (topicals, oncology, injectables, control substances and respiratory) from 39 per cent in FY16 to 70 per cent by FY21. Geographically, the US, Europe and India remain the driving force for the company. All these are steps in the right direction. Basic generics are already seeing competitive pressure in the US and companies are struggling to maintain their growth momentum. It is here that differentiated and complex products, as well as innovation, will prove helpful.
Glenmark expects its revenues to grow by 15-20% CAGR over the next five years. The lower end of the range is lower than the 19% CAGR it achieved in the past five years. On profitability, it expects EBITDA will increase from about 20% in FY16 to 23% by FY20 and 25% by FY25. In the near term, its profitability will jump from the launch of generic Zetia (a cholesterol drug) in the US market, with a 180-day exclusivity period. It is expected to add about $200-250 million in revenues during this six-month period. Profitability will be higher as a result, but should normalize subsequently.
All this will mean increased spending and costs in research and development (R&D). It expects R&D costs to be 11 per cent of sales (excluding licensing income). It also expects to strike out-licensing deals for its innovative products pipeline every 12-18 months, allowing it to generate additional cash, to be put into R&D. Thus, successful implementation of the R&D plans and the ability to monetize its innovative pipeline are needed to achieve the goals.
At CMP of Rs.924, GNP trades at 23x FY17E and 19x FY18E, a ~20% discount to sector average. Although there is clear strategy for company’s growth, it is a long term play and monetization remains the key. Due to the increase in R&D spend on specialty and novel pipeline, the possibility of debt reduction with internal cash flows could be limited. Free cash flows have been weak historically and the balance sheet is also heavily leveraged at 0.9x D/E.