Gland Pharma’s R&D cost impacted profitability during Q3

Analysts said EBITDA margin declined 200 basis points sequentially due to higher filing charges. One basis point is equal to one hundredth of a percent. Ebitda means earnings before interest tax, depreciation and amortization.

Analysts at Jefferies India Pvt Ltd said that “Gland’s EBITDA margin declined by 479 bps to 33% from FY2011 margin. This is largely on account of increase in R&D cost which as a percentage of sales is 310bps higher than FY2011.”

R&D expenses increased in the quarter due to higher filing costs. According to the brokerage, the company met its FY22 target of filing four complex injectables in Q3. They expect it to normalize by 4QFY22, with margins improving.

Gland injects four complexes – three hormonal products and one complex peptide. According to analysts, the opportunity provided is huge considering the total addressable market size which is $980 million.

The 24% year-on-year growth in revenue was driven by strength in India and rest of the world trade. The company’s India sales grew 31% year-on-year due to increase in volume of existing products along with ramp-up of products launched for export markets. Rest of the world sales also increased by 88% year-on-year. The US, Europe, Canada and Australia, Gland Pharma’s key markets, reported softer comparisons, though grew a good 10% year-on-year.

The company has a strong pipeline of products and because it is in the niche business of complex injection and contract manufacturing, Gland commands high investor confidence and valuation. Earnings growth prospects also remain strong. The company also plans to enter the biosimilar contract manufacturing sector.

“We expect its injection prowess to continue to scale successfully in non-US markets, albeit at the expense of margins,” said analysts at Kotak Institutional Equities. The brokerage likes the company’s entry into the biosimilar CDMO space, although they believe the market is ignoring the higher gestation period.

Gland is also expected to benefit from the supply of COVID-19 vaccines, for which orders have already been placed. Meanwhile, there has been some delay in the supply of vaccines which has hurt investor sentiment and is also causing some fall in earnings. Analysts at Motilal Oswal Financial Services Ltd have lowered their earnings estimates for Gland Pharma by 5% for FY22/FY23, mainly due to further delay in realization of Sputnik exports and supply disruptions related to COVID .