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Stock pick of the week: Why analysts are bullish on Glenmark Pharma despite recent price dip

Out-licensing of its anti-allergic drug Ryaltris will help Glenmark save costs related to rectification, sales force and promotional activities related to the medicine.

, ET Bureau|
Jul 08, 2019, 06.30 AM IST
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Price crash due to FDA trouble over Ryaltris provides a good entry point to this counter.
The stock market has reacted negatively to the US FDA’s recent complete response letter (CRL) to Glenmark on its new drug application (NDA) for Ryaltris, which is used to treat allergic rhinitis. Its price has crashed by 11% since Glenmark received the CRL on 22 June 22. This was because of fears that the launch of Ryaltris may get delayed by 12-18 months due to this CRL.

However, analysts believe that the concern about CRL is overdone and therefore, they are getting bullish on the counter now. While CRL cites deficiencies in the drug master file (DMF) pertaining to one of the active pharmaceutical ingredients (APIs) and in the manufacturing facilities, CRL does not specify any deficiencies with the clinical data supporting the NDA for Ryaltris. So Glenmark could speed up its launch by out-licensing Ryaltris instead of own production. Though this is a small setback in the long term, out-licensing of Ryaltris will help Glenmark save costs related to rectification, sales force and promotional activities related to Ryaltris.

Analysts’ views
Sell 5
Buy 12
Hold 15

Glenmark wants to become an innovation-driven pharma company and is one of the first Indian companies where research and development (R&D) expenses on innovative pipeline is equal to that of generic drugs. Glenmark’s new drug research pipeline is also better than that of other Indian pharma counterparts. However, valuation in this counter is low compared to its peers because Glenmark is still facing teething troubles with its innovative launches (the CRL incident with Ryaltris is one example) and therefore, the performance on its speciality business is below the market expectations.

Due to high R&D spend and new product launch expenditures, Glenmark is not able to bring down its net debt of Rs 3,425 crore and this is another concern that is keeping valuation low in this counter. Glenmark plans to bring its debt down by selling certain assets and also minority stake its innovation company. Any announcement on this front will be a trigger for this counter.

Domestic formulation business, which contributes around 30% of its total sales, did well in 2018-19 and reported 10% y-o-y sales growth. Good growth is expected in 2019-20 also because its recently launched anti-diabetic product Remo is getting good response. In addition to US and Europe, Glenmark is also scaling up its operations in emerging markets like Brazil, Mexico, Russia and eastern European countries.

25-1

Selection Methodology
We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.
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