MUMBAI: As investors chased Glenmark shares on Monday after it announced regulatory approval to launch an oral antiviral to treat mild to moderate covid-19 patients, analysts feel that the euphoria is misplaced and will fizzle out soon. Following Glenmark’s announcement of launching antiviral drug favipiravir, under the brand name FabiFlu, shares jumped 40% during the day on Monday.
The domestic drug maker will sell FabiFlu at a price of about ₹103 per tablet and will be available as a 200 mg tablet at a maximum retail price of Rs3,500 for a strip of 34 tablets, Glenmark Pharmaceuticals said. FabiFlu is the first oral favipiravir approved medication in India for the treatment of covid-19.
However, analysts are not convinced that the drug will turnaround Glenmark’s business prospects and feel that the drug launch is unlikely to support the robust rally in shares. “It is merely a flu medicine and meant to cure mild to moderate covid-19 patients so may not necessarily be a game changer for treating the disease completely. They could be probably treated by other flu medicines too, so FabiFlu does not hold any edge," said an analyst.
In this year so far, Glenmark shares have risen over 50% beating benchmark Nifty Pharma which gained around 26%. Currently, Glenmark has 21 buy ratings, eight hold and two sell ratings by analysts on Bloomberg.
According to Surajit Pal, analyst at Prabhudas Lilladher Glenmark shares are rising without any fundamental support. He believes
the rally in Glenmark shares is likely to fizzle out soon most likely after its March quarter result announcement this week.
“Steep valuations do not justify the massive increase in stock price of Glenmark. Investors may be disappointed after it releases its Q4 numbers," Pal said. He expects the company's US business to earn revenue of $100 million-$105 million in March quarter while business, especially in Latin America, is likely to be hurt due to covid-led disruptions.
Analysts point out that Glenmark may face competition risk as Cipla will launch another covid-19 treatment drug remdesivir while companies such as Hikal, Strides, SMS Pharma are also expected to launch similar drugs soon.
Analysts said that it is very difficult to estimate financial impact at this stage considering uncertainty over potential civid-19 patients and its longevity. According to analysts at ICICI Securities, the dosage translates into maximum treatment cost of Rs12,566 per patient.
“We maintain our estimates and raise target price to earnings (PE) to 15 times from 12 times to factor in potential upside from Favipiravir and strong research and development (R&D) capability," ICICI Securities said. It added that regulatory hurdles and competitive pressures in the US could be downside risks.
The stock currently trades at valuations of 14.4 times on FY21 and 12.6 times FY22 earnings and enterprise value EV/EBITDA multiple of 7.9 times FY21 times and 7.1 times FY22. According to ICICI Securities, US revenues of Glenmark would gradually scale up with new launches.
“This would aid margin expansion in tandem with cost control measures that have been implemented. Company would also be able to strengthen its balance sheet by reducing debt with cash infusion from the strategic partner in Ichnos Sciences (innovative wing) and sale of non-core assets," the brokerage said.