Will Glenmark surprise with licensing income in FY16?

Firm expects 10-12 approvals in FY16; analysts believe licensing income could boost earnings

The growth rates of domestic pharmaceutical players in the current year would largely depend on the approvals they manage to get for abbreviated new drug applications, or ANDAs. The financial year gone by was highly forgettable for India’s pharmaceutical sector, as approvals slowed down sharply.

Glenmark is among the few companies that are relatively better placed this year from this point of view. The firm has 76 ANDAs pending for approval in the US with total sales of $30 billion. What analysts like about Glenmark is the complexity of these filings. Of the 76 ANDAs pending approval, 37 per cent belong to the complex injectibles and dermatology. So far, there have been no regulatory headwinds for the company, unlike many of its larger peers.

The company expects revenues to grow by 18-20 per cent in constant currency in FY16. Operating margins could average at 22 per cent, if the firm manages to get approvals for at least 10-12 products.

  Edelweiss Securities believes 20 per cent plus growth over the next two years would depend on ANDA approvals and share gains in the US, where some disappointment is likely. Over and above the risk to revenue growth, the company also faces some risk from volatility in emerging market currencies and exposure to Venezuela, which accounts for nine per cent of sales. If Venezuela’s currency depreciates, as is expected, Glenmark’s revenues would take a hit because of that as well.

Analysts are also expecting Glenmark to benefit from licensing income from its innovation research programme. Nomura says every fourth year (FY08 and FY12), Glenmark has got significant licensing income from its innovation research programme and FY16 may not be an exception to this trend, as there are four potential assets that can be licensed out. Analysts believe Glenmark’s Phase II study of GBR 500 for multiple sclerosis is a potential candidate for outlicensing.

Edelweiss Securities values the stock at 18 times its FY17 earnings and believes the stock currently prices in most of the positives. Nomura values the company at 17 times its FY17 earnings, a 25 per cent discount to peers on account of headwinds. However, the valuation does not factor in one-time income from out-licensing its products.