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| CMP = 438 |
Glenmark Life Sciences Ltd (GLS) operates in two business segment - APIs (generics and complex APIs) and Contract Development and Manufacturing Operations CDMO (including specialty). Glenmark Life is a R&D driven leading developer and manufacturer of high value non-commoditised active pharmaceutical ingredients (APIs) in chronic therapeutic areas, including cardiovascular disease (CVS), central nervous system disease (CNS), pain management and diabetes. The company also manufactures and sells APIs for gastro-intestinal (GI) disorders, anti-infective (AI) and other therapeutic areas. GLS has strong market share in specialised APIs such as Telmisartan (anti-hypertensive), Atovaquone (anti-parasitic), Perindopril (anti-hypertensive), Teneligliptin (diabetes), Zonisamide (CNS) and Adapalene (dermatology).
GLS had a portfolio of 120 molecules globally and sold their APIs to 16 of the top 20 generic companies in the world. GSL serves its customers in multiple regions in India, North America, Europe, Latin America, Japan and the rest of the world. The CDMO business currently comprises of applying for and procuring permission to market products in regulated markets as well as contract manufacturing of APIs for utilisation by pharmaceutical companies to make formulations.
The company currently operate four multi-purpose manufacturing facilities located at Ankleshwar and Dahej in the state of Gujarat and Mohol and Kurkumbh in the state of Maharashtra, India with an aggregate annual total installed capacity of 765 KL as of March 31, 2022.
https://www.youtube.com/watch?v=9KE3l4LYgm8
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All plants have regulated by USFDA, PMDA, COFEPRIS, Health Canada, MFDS (Korea), EDQM, other European regulatory agencies and CDSCO for various inspections and audits periodically and it doesn’t have any warning letters or import alerts from such regulatory authorities for its plants.
https://www.moneycontrol.com/news/opinion/is-glenmark-life-sciences-another-divis-in-the-making-7204741.html
Investment Rationale
Leadership in Select High Value, Non-Commoditised APIs in Chronic Therapeutic Areas
GLS is a leading developer, manufacturer of select high value, non-commoditised APIs in chronic therapeutic areas, including CVS, CNS & pain management, diabetes etc. API portfolio of Glenmark Lifesciences is having 120 specialised and profitable products, including niche and technically complex molecules, which reflects their ability to branch into other high value products. The company has gradually built scale and reach in its API offerings through economies of scale in its manufacturing operations and a portfolio build-up which has enabled it to service new markets and explore new product and service offerings to the customers. The business positioning is strengthened by the service offerings across markets, which enables the GLS to act as a one-stop shop for pharmaceutical product companies.
The company work towards developing 8 to 10 molecules each year, which include both high value and high volume APIs. The future growth of these products is expected to remain stable due to the increasing prevalence of non-communicable diseases (including heart disease, stroke, cancer, diabetes and chronic lung disease), growing demand from the regulated markets for drugs indicated for hypertension, diabetes and cancer, and an ageing population.
As of March 31, 2022, company has filed 433 DMFs and CEPs across various major markets (i.e. United States, Europe, Japan, Russia, Brazil, South Korea, Taiwan, Canada, China and Australia).
Strong Relationships with Leading Global Generic Companies
Over the years, GLS has established strong relationships with leading global generic pharmaceutical companies that have helped it to expand the product offerings and geographic reach. The company works with 16 of the 20 largest generic companies globally and the company enjoy a reputation of trust and reliability with such companies. The company has been able to build and strengthen its relationships with them on account of the strong brand equity, high quality products, R&D skills, knowledge of the regulatory environment in the markets where it supplies products and track record of manufacturing APIs at different scales at its facilities, which have been inspected/audited by Indian and key global regulatory bodies such as the USFDA, MHRA, Health Canada and PMDA Japan. As a result, the company has been able to maintain high customer loyalty with a high rate of repeat customers, approximately 70% of their customers are repeat customers. GLS have a long history with many of their key customers, including Glenmark Pharma, Teva Pharmaceutical Industries, Torrent Pharmaceuticals, Aurobindo Pharma, Krka and other companies which are global leader in generic pharmaceuticals and bio-similars.
Quality-Focused Compliant Manufacturing and R&D Infrastructure
Glenmark Lifesciences is maintaining highest standards of quality and process innovation in their R&D and manufacturing operations. It is critical to the brand image and maintenance of long-term relationships with the customers. GLS has consistently implementing GMPs across each of their manufacturing facilities, which are monitored by a comprehensive QMS encompassing all areas of business processes from R&D and raw material procurement to manufacturing to packaging and delivery. The Company focus on building quality into its products through compliance with global regulatory standards as well as compliance with local and state laws that encompass manufacturing regulations, environmental clearance norms and other statutory norms.
Glenmark Lifesciences currently operates through 4 facilities with an annual capacity of 765 KL. Since 2015, the company’s facilities have been subject to 38 inspections and audits by regulators including the USFDA, PMDA, COFEPRIS, Health Canada, MFDS (Korea), EDQM, other European regulatory agencies and CDSCO conducted on a periodic basis. Its facilities have also been subject to 432 inspections by customers during this period. It has maintained strong compliance and not received any warning letter or import alert till date. The manufacturing facilities at Ankleshwar and Dahej are certified ISO 14001:2015 and ISO 45001:2018 for environment management and occupational health and safety management systems.
Further, company focused on undertaking dedicated R&D in its existing products and in areas where there is significant growth potential. The R&D laboratories focus on new product development and the development of complex molecules, cost improvement programs, process improvements and oncology product development.
As of May 31, 2021 GLS owned or co-owned 39 granted patents and had 41 pending patent applications in several countries and six pending provisional applications in India. As of March 31, 2021, company employed 213 personnel at their R&D laboratories, which constituted 13.86% of their total permanent employee strength. Their strong process research, analytical research and process chemistry research capabilities provide them significant competitive advantages.
Strong Focus on Sustainability in Operations
The company has focused on sustainability in their operations through meaningful interventions in environment management, safety initiatives in their operations and occupational health of their workforce. They have undertaken various initiatives relating to energy efficiency, recovery and reuse of solvents and water conservation, recovery and reuse to reduce their carbon footprint and be a responsible corporate citizen in their endeavour to address global environment issues. All of their manufacturing facilities currently have zero liquid discharge (ZLD) capabilities. They have an internal framework and governance structure in place for adherence to compliance standards. Their manufacturing facilities at Ankleshwar and Dahej are certified ISO 14001:2015 and ISO 45001:2018 for environment management and occupational health and safety management systems, which reflects their commitment to enhancing the environmental performance.
Cost Leadership across Products through Careful Monitoring and Continuous Effort
The company continuously strive to implement cost saving initiatives include solvent recovery and recycling, increase in batch sizes, the utilisation of new downstream equipment for filtration or drying techniques and yield improvement. Their sourcing initiatives include on-going negotiations with vendors based on the prevailing market environment and alternate vendor qualification. Their R&D initiatives include productivity improvement of existing processes through constant optimisation, process cycle time reduction, qualifying lower-cost processes for regulated markets, better recovery and recycling and backward integration of key starting materials. GLS implement these measures to reduce costs, improve efficiencies and reallocate resources to support identified growth opportunities in diverse markets.
Glenmark Life has successfully achieved cost leadership across many of its products through careful application of operations initiatives, sourcing initiatives and R&D initiatives supported through continuous efforts by Quality and Regulatory Affairs teams. Their long-term relationships with global generic companies also helps in planning capital expenditure, enhancing ability to benefit from increasing economies of scale with strong purchasing power for raw materials and a lower overall cost base, thereby maintaining a competitive cost structure to achieve sustainable growth, margins and overall profitability.
Expand the Geographic Focus, API Portfolio and Scope of the Operations
Glenmark Life intends to expand the size and scope of their business by diversifying their customer base in existing markets and increasing the geographic market coverage. The company intend to expand its presence in countries/regions that are adopting a more stringent regulatory framework and are moving towards becoming well-regulated markets such as South Korea, Taiwan, Russia, Brazil, Mexico and Saudi Arabia. They also intend to create new opportunities in ROW markets by utilising manufacturing in the least developed countries through local partnerships.
GLS see the complex API business as a key growth opportunity and intend to leverage their expertise in the area of synthetic chemistry and analytical characterisation to expand their existing technology platforms to manufacture and grow their complex API portfolio in oncology, peptides and iron compounds, thereby expanding their existing portfolio of API products.
Growth of the CDMO Business
In the last 4 years, GLS has started working with innovator pharmaceutical companies in the area of CDMO, it currently operates in 2 segments (1) Lifecycle management (2) Specialty business. The current portfolio of 120 molecules globally, company believe that many molecules offer such opportunities to a new set of customers. Given their capabilities in process chemistry research, and their manufacturing and analytical research capabilities, they have the ability to attract innovator pharmaceutical companies to partner with them for providing unique solutions tailored to the needs of innovator and specialty pharmaceutical companies.
The company will leverage their process research, analytical research and chemistry capabilities to provide CDMO services for a range of multinational corporations and specialty companies. Greenfield capacity expansion of 40 acres with plan to manufacture both API and intermediates will have capacity of 800KL over the next 2-3 years. GLS' continuous focus on quality and on the sustainability of their operations makes them a serious contender to grow this business opportunity.
Expansion of Production Capacities
Glenmark Life has plan to expand its technology platform and manufacturing footprint at their Dahej and Ankleshwar facility to grow their oncology product portfolio, and implement the use of more automation in their processes to increase efficiency and improve compliance. GLS currently operates four multi-purpose manufacturing facilities with an aggregate annual total installed capacity of 765 KL as of March 31, 2022. The company intend to double its API manufacturing capabilities to 1405 KL by enhancing the existing production capacities and adding new facility at their Ankleshwar and Dahej plant during current FY 2023.
The new facility will provide a platform for the growth of their CDMO business and also add capacity for their generic API business. The company has further expansion plan with greenfield project built on a 40-acre footprint with a plan to manufacture both APIs and intermediates and will house several multi-purpose manufacturing blocks with mid to high-volume capacity. It will include a high degree of automation and comply with global regulatory standards, and will have an aggregate capacity of 800 KL and total capacity of 2205 KL by FY 2026.
Improving Financial Performance through Focus on Operational Efficiencies
The company continually aim to improve their financial performance by focusing on enhancing their operational efficiencies through initiatives such as solvent recovery and recycling, increase in batch sizes, the utilisation of new downstream equipment for filtration or drying techniques and yield improvement. The R&D initiatives include productivity improvement of existing processes through constant optimisation, process cycle time reduction, qualifying lower-cost processes for regulated markets, better recovery and recycling and backward integration of key starting materials. The company believe that these initiatives will allow it to de-risk the operations by continuing to diversify their procurement base, reduce the amount of materials that they import and procure more materials from Indian suppliers.
Experienced Management Team with Proven Track Record
Glenmark Life has a professional and experienced management team led by the Managing Director and Chief Executive Officer Dr. Yasir Rawjee, who has over 25 years of experience in global API industry. He leads the overall operations and is responsible for the overall business strategy. He holds a PhD from Texas A&M University, U.S.A. Prior to joining GLSL, he was the head of global API operations at Mylan Labs USA. He was also the senior VP at Matrix Laboratories Ltd and has worked in GlaxoSmithKline in the USA.The operations team is headed by Vinod Naik who has over 2 decades of industry experience, the R&D team is headed by Dr. Palle V R Acharyulu with several years of industry experience. The management team has demonstrated ability to successfully build a global API business across diverse markets supported by strong R&D, Operations, Quality & Regulatory functions and have integrated businesses with various operating activities through their cumulative years of work experience.
Proven Track Record of Strong Financial Performance
Glenmark Lifesciences has 34% compounded sales growth and 29% compounded profit growth in last 3 years with very strong EBITDA margins at ~30%. Glenmark Lifesciences is paying good dividend of Rs 21 for FY 22. Glenmark Lifesciences is cash rich, debt-free company and company is executing current on going expansion from internal accruals.
Global API Market
The key factors boosting growth of world API market are rising drug R&D activities for drug manufacturing, rising importance of generics, and increasing uptake of biopharmaceuticals. The future growth of these products is expected to remain strong and stable driven due to the rising prevalence of non-communicable diseases, growing demand from the regulated markets for drugs indicated for hypertension, diabetes and cancer, and ageing population. Any increasing prevalence of chronic diseases is expected to increase drugs demand, which is expected to fuel active pharmaceutical ingredients market growth in the near future. The global API market is estimated to be around USD181.3 billion in 2020 and is expected to grow at a CAGR of 6.2% to reach to about USD259.3 billion by 2026. The market is likely to exhibit a positive outlook with growing trend towards development of innovative therapeutic drugs by various pharmaceutical and biotechnology companies.
Indian API Market
Globally, India is one of the top suppliers of bulk drugs and formulations. The country has the highest number of USFDA approved plants outside the US as well as 44% of global ANDA. The Indian generics industry can benefit substantially from the patent cliff as patents for branded molecules with cumulative global sales of ~US$ 251b are expected to expire between 2018 and 2024, opening new opportunities for the industry.
Indian pharmaceutical industry is one of the major contributors to Indian economy and it is the world’s third-largest industry by volume. The Indian bulk drug industry has grown at a CAGR of around 9% over 2016-2020. It is further expected to expand and grow at a CAGR of around 9.6% during 2021-2026.
India has a strong API domestic market and Indian API firms have several competitive advantages. India is on par with other countries in terms of technological capabilities and process efficiency. The costs are very low in India and because of the low production and labor costs companies can operate on considerably lower margins.
The major key competitors of Glenmark Lifesciences in the API market include Divis Labs, Laurus Labs, Shilpa Medicare, Aarti Drugs and Solara Active Pharma Sciences.
Conclusion
In 2020-21, around 40% of all factories in China have shut down and resulting in supply disruptions and higher costs. It has caused several major pharmaceutical countries to reconsider and reshuffle their API import sources. As the emerging markets and developing countries are pushing for local manufacturing of generics and formulations, India has a great opportunity to become one of the largest API suppliers in the world due to its fairly competitive labor market.
Currently, India imports ~68% of its API consumption from China and is highly reliant on China for fermentation-based APIs (antibiotics), feedstock and many key starting materials (KSMs). Now "China-Plus-One" factor is providing huge scope for Indian API industry.
Indian Pharma sector is now trying to reinvent itself and move forward from its long standing dependence on export of generics towards enabling the industry to become an end-to-end drug manufacturer. This includes a parallel thrust on localising API and bulk drug manufacturing. The Indian government has set up a production linked incentive (PLI) package focusing on APIs and the API Parks scheme to boost competitiveness of India’s manufacturing and promote domestic manufacturing of critical intermediates and APIs.
India has huge population of 1.35 billion, which provide one of the biggest consumer base for pharmaceutical products in the world.
Glenmark Lifesciences has 120 products globally and the total market size in terms of sales for these products was estimated to be around US$142 billion in 2020 and is expected to grow by about 6.8% over the next five years to reach to about US$211 billion by 2026. These 120 molecules comprise of 84% of the US$142 billion end-market size for the GLS portfolio, which is expected to become 91% by 2026. The future growth of these products is expected to remain very strong and stable driven by the rising prevalence of non-communicable diseases, growing demand from the regulated markets for drugs indicated for hypertension, diabetes, cancer and ageing population.
Glenmark Lifesciences work towards developing 8 to 10 molecules each year, which include both high value and high volume APIs. As of May 31, 2022, company had filed 433 Drug Master Files (DMFs) and Certificates of suitability to the monographs of the European Pharmacopoeia (CEPs) across various major markets. 16 Out of 20 largest generic companies in the world are customers of Glenmark Lifesciences.
Glenmark Lifesciences is well prepared to expand the product portfolio and production capacity to capture the rising demand in API segment. GSL is going to double its production capacity within year and triple it in next 2-3 years.
Recent market correction has given one of the best investment opportunity to invest in fast growing, evergreen API segment of Pharma sector. Glenmark Lifesciences stock at cmp Rs 438 is excellent investment option for both short term and long term ( 1 year to 5 years ). It can be bought + / - 15% from cmp with 10-20 % allocation.
