Gland Pharma’s R&D costs hit profitability during Q3

Ebitda margins declined by 200 basis points sequentially due to higher filing fees, analysts said. One basis point is equal to one-hundredth of a percent. Ebitda stands for earnings before interest tax depreciation and amortisation.

Analysts at Jefferies India Pvt Ltd said that “Gland’s Ebitda margins came in at 33%, below FY21 margins by 479 bps. This is largely due to increase in R&D cost which came in at 310bps higher than FY21 as a percentage of sales.”

R&D expenses rose in the quarter due to higher filing costs. The company completed its FY22 target of filing four complex injectables in Q3, as per the brokerage. They expect this to normalise from 4QFY22, with margins rebounding.

Gland filed four complex injectables – three hormonal products and one complex peptide. The opportunity provided is large, looking at the overall addressable market size which is $980 million, as per analysts.

The 24% year-on-year rise in revenue was driven by strength in India and the rest of the world business. The company’s India sales grew by 31% year-on-year on account of volume growth of existing products along with ramp-up of launched products for the export markets. The rest of the world sales also grew 88% year-on-year. US, Europe, Canada and Australia, the core markets for Gland Pharma, reported comparatively softer though decent growth of 10% year-on-year.

The company has a strong pipeline of products and because it is into the niche business of complex injectables and contract manufacturing, Gland commands high investor confidence and valuations. The prospects on earnings growth also remain strong The company plans to enter into biosimilar contract manufacturing space too.

“We expect its injectables prowess to continue to lead to a successful scale up across non-US markets, albeit at the cost of margins,” said analysts at Kotak Institutional Equities. The brokerage likes the company’s entry into the biosimilar CDMO space, though they believe the market is ignoring the high gestation period.

Gland is also expected to gain from the supply of covid-19 vaccines, having already bagged orders for the same. Meanwhile, there is some delay in the supply of vaccines that has hurt investor sentiment and is also leading to some downward revisions in earnings. Analysts at Motilal Oswal Financial Services Ltd have lowered their earnings estimates for Gland Pharma by 5% for FY22/FY23, largely to factor in further delays in the export realization of Sputnik and supply disruption related to covid.