Gland Pharma Ltd.

With its particular acclaim for sterile injectables, oncology and ophthalmic products, the company has begun to reinforce its position on the international stage by venturing into markets like Saudi Arabia, Singapore, Israel and CIS regions. This will surely reap rich dividends.[EasyDNNnews:PaidContentStart]

Established in Hyderabad in 1978, Gland Pharma Limited has risen as a prominent global player in manufacturing generic injectables. Operating across 60 countries, including the US, Europe, Canada, Australia and India, the company follows a B2B model, offering comprehensive services such as contract development, technology transfer and manufacturing for various delivery systems. With a strong legacy of over four decades, Gland Pharma excels in research, development, manufacturing and marketing of generic injectables. Currently, it is expanding into complex injectables and biologic or biosimilar contract development and manufacturing

In terms of consolidated revenue segmentation by geography during Q1FY24, the company generated 50 per cent from theUS, 18 per cent from Europe, 5 per cent from India, 2 per cent from Canada, Australia and New Zealand, with the remaining 24 per cent originating from other parts of the world. These figures also include the revenue from the recently acquired company Cenexi. Gland Pharma is dedicated to enriching the healthcare ecosystem through value-added solutions. With involvement in numerous therapeutic segments, it provides diverse delivery systems to cater to customer needs.

The company holds particular acclaim for its sterile injectables, oncology and ophthalmic products. Its array of delivery systems includes liquid vials, lyophilised vials, pre-filled syringes, ampoules, bags and drops. In a bid to reinforce its position on the international stage, the company has recently ventured into markets like Saudi Arabia, Singapore, Israel and CIS regions. Notably, its products have garnered a positive reception in thesecountries. Capitalising on the esteemed reputation of its parent company, Fosun Pharma, the company is currently exploring more potential avenues in China as well.

Sector Overview

The worldwide formulation market, valued at around USD 1,090 billion in FY19, has experienced a consistent annual growth rate of 5.5 per cent. By FY23, it had increased to a market worth of USD 1,351 billion. Additionally, between FY19 and FY23, there has been a noticeable increase in the market share, in terms of value, for innovator molecules. While generics have historically seen a CAGR improvement of 2.5 per cent, innovators have notably outperformed with a growth rate of 7 per cent CAGR over the same period. Furthermore, the pharmaceutical market mainly consists of two key delivery methods: oral solids and injectables.

Among these, oral solids hold the largest value, estimated at USD 573 billion in FY23 and have demonstrated a CAGR of about 3.8 per cent from FY19 to FY23. However, the market share of oral solids, in terms of value, has diminished from 45 per cent in FY19 to 42 per cent in FY23. The global biologic medicines market, including biosimilars, where the company has a strong presence, was valued at USD 491 billion in FY23, accounting for about one-third of the pharmaceutical market. It has experienced strong growth with a five-year CAGR of 11.6 per cent. The US holds over 60 per cent of this market, Europe over 22 per cent. In the last five years, the US and Europe achieved CAGRs of 13 per cent and 10 per cent, respectively, while China’s market grew 16 per cent with a size of nearly USD 17 billion.

Within India the growth opportunity for pharmaceutical companies looks good. The Ministry of Health and Family Welfare has been granted ₹89,155 crore, marking a near 3.4 per cent rise from the previous year. Within this allocation, ₹86,175 crore has been designated for the Department of Health and Family Welfare, while the Department of Health Research has received ₹2,980 crore. For FY 2023-24, the budget for the National Health Mission has been slightly raised from ₹28,974.29 crore to ₹29,085.26 crore. This bodes well for the company in the coming days.

Financial Overview

The company’s financial year began on a positive trajectory, reflected in a promising first quarter performance. The total revenue for Q1FY24 amounted to ₹1,208.7 crore which was an increase of 41 per cent as compared to Q1FY23. At the group level, it achieved an EBITDA of ₹298.2 crore, surging by 10 percent as against Q1FY23. The net profit stood at ₹194.1 crore which declined by 15 per cent as compared to Q1FY23. This revenue growth comprised 37 per cent contribution from Cenexi’s revenue inclusion and 4 per cent growth from the base business.

The company experienced improved gross margins, both year-on-year and sequentially, due to favourable geographic and product mix factors. The core business maintained a healthy EBITDA margin of 30 per cent and a PAT margin of 21 per cent during the quarter. Research and development expenses for Q1FY24 were ₹45.7 crore, accounting for 5 per cent of the revenue from operations. In Q1FY24, the company gained approval for nine ANDAs (abbreviated new drug applications). By June 30, 2023, the company had filed 337 ANDAs in the US, with 270 approved and 67 pending. Globally, the company has 1,620 product registrations.

Regarding the Cenexi business, the company acquired full ownership on April 27, 2023, influencing Q1FY24 consolidated financials over two months. In this period, Cenexi achieved ₹321.4 crore in revenue, a 76 per cent gross profit margin andEBITDA of ₹34.7 crore. In FY23, the company’s annual consolidated sales were reported at ₹3,624.6 crore, reflecting a decline of 18 per cent as compared to FY22. The company’s EBITDA also witnessed a decrease of 32 per cent, amounting to ₹1,024.8 crore compared to FY22. Similarly, the company’s net profit experienced a decline of 36 per cent, reaching ₹781 crore in comparison to FY22.

This was due to inventory rationalisation in the US that triggered pricing pressure, affecting revenue and margins. Last year’s elevated baseline due to pandemic-related sales also impacted the current figures. A Dundigal-based facility in Telangana for insulin line was upgraded and led to a temporary production line halt. Furthermore, new product launches had a comparatively smaller revenue impact throughout the year. Furthermore, when examining the essential metrics, the company displays a ROCE of 14.8 per cent and a ROE of 10.9 per cent. The EPS for FY23 stood at ₹47.42, accompanied by a PE ratio of 35.4 times and a price-to-book (PB) value of 3.3 times.

Risks and Concerns

A robust risk management framework has been established to detect, assess and counter both internal and external threats. This system aids in identifying potential risks to the business, enabling informed decisions that contribute to sustained growth and the achievement of organisational goals. Supply chain risks encompass threats that could impede raw material acquisition and final goods’ delivery. For this the company ensures a reliable supply chain through optimal inventory, timely order fulfilment and cost-efficiency. Supported by robust API production, it secures vital components, enhancing efficiency through consistent process improvements and suitable batch sizes along with exploration of alternate vendors and seeking streamlined production via additional manufacturing lines.

The company also encounters the challenge of competition risk as the market is saturated with various firms competing for market share and innovating new drugs. To stay ahead of this competition, the company is dedicating efforts to research and development to ensure a strong portfolio of products.

Collaborating with well-established international enterprises aids it in staying updated with crucial technological advancements in the field. Furthermore, the company’s widespread global presence enhances its position in the global markets, giving it a competitive edge.

Outlook

The company is strategically positioned for growth and expansion in the pharmaceutical sector. Its focus lies in broadening the contract development and manufacturing organisation (CDMO) offerings in the European market by acquiring Cenexi, providing access to valuable knowhow and development capabilities in sterile forms. This move aligns with their long-term growth objectives and bolsters their identity as a specialised injectable-focused CDMO entity. The company has emerged as a significant player in the generic small molecule injectables CDMO landscape and is prepared to integrate the acquired business for synergistic benefits.

It has also made strides in the bio-CDMO space with a successful contract signing and product launch, showcasing its capabilities. Its proactive approach involves strengthening customer relationships, exploring partnerships and expanding into new markets. Despite market uncertainties, the company remains confident in its growth trajectory with a strong focus on quality, compliance, innovation and strategic investments. Moreover, China continues to be a prominent geographical target, marked by the introduction of one product during the quarter.

The company’s presence in Europe has been bolstered through the acquisition of Cenexi, while efforts to expand into other global markets are underway. The company is actively pursuing a first-to-file (FTF) opportunity for a product in the US market valued at approximately USD 170 million, with a filing plan aligned for 3-4 complex products in FY24. Additionally, the plasma protein portfolio has been extended at the Shamirpet facility. In addition, the company is currently trading at a PE ratio of 35.4 times and has a PB value of 3.3 times. Upon comparing these valuations with both its competitors and its own historical data, the stock looks attractive. Hence, we recommend BUY.

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