Weak sequential show from Glenmark Pharma drags down stock

Net profit on a sequential basis declined 61 per cent

The shares of Glenmark Pharma plummeted sharply about 16 per cent on Friday on the back of disappointing fourth quarter earnings, which was released after market hours on Thursday.

The March 2017 quarter numbers were much below the market expectations. While the drug maker registered a growth of 23.5 per cent year-on-year (y-o-y) in its consolidated net profit to ₹183.76 crore for the fourth quarter, on a sequential basis, the net profit declined 61 per cent from the Rs 476 crore recorded in the December 2016 quarter .The fall in the profit was mainly attributable to decline in sales across Europe, Latin America, and rest of markets as well as higher expenses. A Bloomberg poll of analysts had estimated that the consolidated net profit to be around Rs 592 crore.

It is to be noted that the company’s December 2016 quarter performance was commendable as its consolidated net profit more than doubled compared to the corresponding quarter in the previous year.

On the topline, the company’s consolidated revenue for the fourth quarter rose to ₹2,457 crore, up 6.5 per cent y-o-y from ₹2,307 crore in the corresponding period last year. On sequential basis, it registered a 4 percent fall.

The US formulation business, the key growth driver of the company and comprising around 40 per cent of its overall reveunes, grew (y-o-y) by 53.5 per cent during fourth quarter to Rs. 1,000 crore. Glenmark’s Ezetimibe, the only generic version of ZETIA (Merck) for high cholesterol having 180 days marketing exclusivity, contributed to the good show in the US business during the quarter. However, the company has guided that the revenue from Ezetimibe sales in the US is likely to be slightly lower than $200 million as against the earlier guidance $200-250 million for this exclusive period. Further, the price erosion in the US base business was also visible.

In the fourth quarter, the revenue from Africa, Asia and CIS region fell by 3 per cent y-o-y to Rs 289 crore. Its European operations revenue decreased by 15 per cent y-o-y to Rs. 229.8 crore, impacted due to depreciation of the pound. The Latin American and Caribbean business continued to slide in the fourth quarter due to poor show from its Venezuela subsidiary. The business from the region fell sharply by 45 per cent in the fourth quarter. The API business recorded a decrease of 10.4 per cent during fourth quarter.

On the domestic front, impacted by price control, the formulation business recorded a moderate y-o-y growth of 7 per cent in the fourth quarter to Rs. 577 crore. However, the company is strengthening its share in the key therapeutic segments including cardiac, respiratory and derma, thorugh various initiatives.

The pipeline

During the year, Glenmark filed 20 ANDA applications with the U.S. FDA, of which majority were complex or niche products. The company received approval for 17 ANDA filings during last fiscal. As on March 31, 2017, the company’s portfolio consists of 113 generic products authorized for distribution in the U.S. market. Out of 65 pending applications, 25 are Paragraph IV applications.

The company has a pipeline of 7 new molecular entities (NMEs) in various stages of clinical development focused in the therapeutic areas of oncology, respiratory and dermatology. The company also has 3 specialty products in clinical development targeting key indications in the respiratory therapy area. These molecules have strong potential to address large market opportunities which are expected to be commercialized from FY18.

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