Gland Pharma’s Cenexi acquisition, new launches to help but execution is key

“Unlike the previous management commentary in May 2023, when Gland had limited visibility on the client-specific challenges, the company has now alluded to having greater visibility on the demand front with the normalization of sales in two key clients where it had seen severe disruption in Q4FY23," said analysts from Kotak Institutional Equities in a report on 8 August. “While competition for Gland’s key products has escalated in the past few quarters, traction in new launches has been muted."

Gland Pharma has been grappling with several challenges over the past few quarters, including intense competition, supply chain disruptions, and production delays. While analysts remain circumspect about the company’s long-term growth trajectory, the near-term outlook seems promising. “Improving pricing environment in the US, momentum in new launches and roadmap for turnaround of recently acquired Cenexi CMO in EU indicate that worst is likely over," point out analysts from Jefferies India. CMO is a contract manufacturing organisation.

Q1 results revealed a 4% year-on-year (YoY) and a 13% sequential increase in Gland Pharma’s revenues to ₹887 crore, excluding its recently acquired Cenexi operations. Notably, a rejuvenating US market has greatly benefited the company with a 23% sequential growth in Q1, albeit a decline on an annual basis, driven primarily by new product launches and its existing portfolio.

Given favourable market conditions in the US, the company has planned for multiple launches in the coming quarters, including 60 launches, of which 23-24 are product relaunches in FY24, and with several applications for complex injectable approvals in the pipeline. In FY23, the US market represented a significant 66% share of the company’s total revenue.

Moreover, expected synergies from the Cenexi acquisition, manufacturer of niche oncology pre-filled syringes and sterile gel, are poised to bolster the overall revenue growth. The acquisition also allows Gland Pharma to focus on complex products with limited competition. The company is in talks with customers to diversify product offerings across various geographies.

Gland Pharma also experienced a considerable improvement in its Ebitda margin, excluding Cenexi, which increased to 30% in Q1 from 21% in Q4FY23. It anticipates the contribution from Cenexi to boost this margin over the next couple of quarters.

In addition to ongoing projects in markets such as China, Gland is planning new product launches globally to expand its reach. Following these developments, analysts have raised their earnings forecasts, with Motilal Oswal Financial Services boosting its estimates by 8.5% and 5% for FY24 and FY25, respectively. The future performance of Gland’s stock will primarily hinge on the successful execution of its launch strategies.