Gland Pharma Initiating Coverage Research Report By Axis Securities

Well-positioned to Capitalise Fast-growing Generic Injectibles Market

We initiate coverage on Gland Pharma Ltd with a “BUY” rating and a target price of Rs 2,900 (P/E of 32x for FY23E earnings), implying an upside potential of 15% from the current levels. In the US, Injectables Market is expected to grow at 15.3% CAGR primarily due to doubling of the value (~USD$ 67.7 bn) of molecules losing exclusivity over 2020-2025E. Gland Pharma has developed complex injectables such as lyophilized products, high-potent drugs, and long-acting suspensions having 282 ANDA filings in the United States, of which 226 were approved and 56 pending approval. The manufacturing facilities’ audit is conducted by Marketer companies partners ensures its compliance with the regulatory requirements all the time. This has resulted into zero USFDA warnings letters since the inception to any of the company’s facility. Gland has high EBIT margins of ~36% and Asset turns of 2x culminating into healthy RoIC of ~34% which stands best in the industry.

Huge growth opportunity in the US Injectable Market

The United States injectable market is estimated to reach US$ 489 bn valuation by 2025 and grow at ~15.3% CAGR from 2020 to 2025, faster than other segments. The value of injectables molecules which may lose patent protection during 2020-2025 stands ~US$67.7 bn, double the value of the last 5 years. In the US, the injectables market is fairly concentrated with a few therapies (including small molecules) forming approximately 80% of the market by value. Registering a growth of ~38% CAGR from 2014 to 2019, Gland Pharma Ltd. is the fastest growing small-molecule generic injectables company in the US market. We expect the US revenue to grow at 20.5% CAGR over the period FY22-FY23E.

Portfolio of complex products supported by R&D and regulatory capabilities

Gland has established internal capabilities in developing complex injectables such as lyophilized products, high-potent drugs, and long-acting suspensions. Extensive portfolio comprises major drugs like Huminsulin (USD$ 2.1 bn), Heparin Sodium (USD$ 2.0 bn), Daptomycin (USD$ 4.5 bn), Vanomycin (USD$ 3.1 bn), among others. Gland’s new launches add ~10%-12% growth for the company every year and outpace the revenue growth of peers. Gland along with partners had 282 ANDA filings in the United States, of which 226 were approved and 56 pending approval.

Integrated manufacturing capabilities with a consistent compliance track record

Gland has seven manufacturing facilities comprising two sterile injectables facilities, one dedicated Penems facility, one oncology facility, and three API facilities. The 3 API facilities provide in-house manufacturing capabilities for critical APIs enabling the company to control costs and quality while mitigating supply chain related risks around key products. Gland’s scalable manufacturing capacities, unequivocal focus on product quality, and ability to provide reliable product supply at competitive rates have helped it capture high market share in high volume products across different dosage/delivery systems. The facility audit is conducted by Marketer companies partners that has helped the company to handle compliance in a better way that results in no USFDA warnings letters since the inception of each facility.

Superior return ratios (ROIC) over the peers

Gland has high EBIT margins ~36% and Asset turns (2x) that reflects into health return ratios, RoIC ~34% which is best in the industry. The company generates Rs 600-800 crore of free cash flow per year despite high working capital requirements (172 days). Gland’s asset turn range of 2.0x-2.3x stands higher than the peers in the industry.