Glenmark: Strong pipeline in FY16 to boost sales

Pharmaceutical stocks continue to be in focus, as the new fiscal is unlikely to see any major uptick in the earnings trajectory of other sectors. 

While the risk of cross-currency movement is expected to mar the performance of companies with a strong presence in geographies other than the US, Glenmark is likely to be in focus this fiscal. 

The company's revenues are expected to see a strong pick-up this year on the back of a revival in the US market.

The company's expected to exit FY15 with a net sales growth of 10%, thanks to a contraction in sales in the US and Europe. The Street believes that Glenmark is a prime candidate for a re-rating as its US revenues are expected to pick up on the back new product launches.

After growing at 20% last year, Glenmark Pharma's US sales growth has fallen to single-digits in FY15, as there were only five product approvals. Given that US accounts for 34% of the company's turnover, such a slowdown is not good news.

But a lot of this slowdown is slated to be reversed from this fiscal. Glenmark has a rich pipeline of limited competition drugs and branded generics, which would boost sales growth in FY16.

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 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 sales."

Analysts expect Zetia to provide the best opportunity and the drug has the potential to generate $240 million in revenues in FY17. Other key drugs are Welchol, Finacea, DDAVP, Zyvox, Ortho Tri-cyclen Lo and Nitroglycerin. There are also few approvals expected in older generics with sizeable market size like Telmisartan HCTZ and Clarinex.

Prabhudas Lilladher expects a CAGR of 36% in revenues over FY14-17. As a result of robust revenue growth estimates, analysts are busy revising earnings growth too. Motilal Oswal estimates a CAGR of 21% in revenues, driving 25% core EPS CAGR (over FY15-17).

The company spends nearly 3.5% of its revenues towards novel pipeline. And seven molecules are either in clinical trials or are likely to enter trials stage. While the company has recovered what it has spent on research and development, analysts do not rule out any further possible out-licensing deal.

Currently, analysts only factor in the core base business while arriving at valuations so any upside from the novel pipeline would be a bonus.