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GlaxoSmithkline Pharmaceuticals (GLXO)
Pharmaceuticals
PAT falls short of estimates due to lower sales growth and margin. 2010 PAT was
4% lower than estimates due to lower sales growth at 12.8%—flat yoy versus our
estimate of 14%—and lower margin, down 300 bps yoy to 35.3% due to the sales
force expansion. We maintain our 2011E sales growth estimate at 15.6% as we expect
a pick-up in pharma sales growth to 16% in 2011E from 14% in 2010 and maintain
our 2011E EPS estimate at Rs79.5. We maintain our REDUCE rating with a price target
of Rs2,000 due to stretched valuations (stock ex cash/share trading at 28X 2011E) . We
value Glaxo at (1) business value/share of Rs1,720 (25X 2011E EPS ex interest income)
and (2) cash/share of Rs274.
2010 consolidated PAT missed our estimate by 4% due to lower sales growth and margin
2010 consolidated PAT at Rs5.6 bn was lower than our estimate of Rs5.8 bn due to (1) lower sales
growth at 12.8%, flat yoy and below our expectations of 14% and (2) lower EBITDA margin at
35.3%, down 300 bps yoy, lower than our estimate of 35.7%. While pharma sales grew at 14.3%
in 2010, higher than 12% in 2009, exports and Iodex reported muted growth with the former
reporting sales decline.
Although Glaxo missed its 2010 launch targets, the pace will pick-up in 2011E
At the February 2010 analyst meet, Glaxo had guided for launch of 5-6 new products besides the
14 dermatology products acquired from Stiefel. We believe Glaxo completed 2010 with four
launches apart from the Stiefel products, with the vaccines and patented cancer drug launches
pushed to 2011E. However, the pace of launches will pick up in 2011E, with Glaxo scheduled to
launch at least six new products besides derma products in 2011E.
We maintain 2011 net sales growth at 16%; EBITDA margin at 35% and EPS of Rs79.5
While 2010 pharma sales/net sales growth at 14/13% was below our estimate, we maintain our
2011E estimates of 16.8/16%. Glaxo increased its sales force by 300 in 2010 and intends to add a
further 600 in 2011E, taking the total strength to 3,600 by 2011E end. With this expansion, we
believe EBITDA margin will remain subdued, accordingly, we expect margin to stay at 35.5%, up
200 bps only.
We maintain REDUCE due to stretched valuations (stock ex cash/share trading at 28X 2011E)
We maintain our price target at Rs2,000— (1) business value/share of Rs1,720 (25X 2011E EPS ex
interest income). Due to higher adjusted (ex interest income) PAT growth of 16-17% in 2011-12E
compared to historical growth of 7-13%, we value core EPS at 25X, 10% premium to 5-year
historical average of 22.6X and (2) cash/share of Rs274. While the dividend payout increased to
40% of PAT in 2010 from 30% in 2009, plans for the use of surplus cash for brand acquisition
remain uncertain.
2010 net sales growth at 12.8%—flat yoy and below our expectations of 14%
Sales growth of 12.8% was the same as that seen in 2009 and below our expectation of
14%. While pharma sales grew at 14.3% in 2010, higher than the 12% seen in 2009,
exports and Iodex reported muted growth with former reporting sales decline.
We believe the lower vaccines sales growth in 2Q2009—due to vaccines supply
constraints at GSK Plc—which resulted in net sales growth of 9% in 2Q2009, was one of
the primary reasons for flat net sales growth. According to the company, due to this
disruption, net sales growth for 2010 was lower by around 2%. Vaccines account for
10% of sales and grew 24% in 2010 versus 36% in 2009.
While the 4Q2010 sales growth was also tepid at 10.4%, this was on account of (1)
seasonality; 4Q is seasonally the weakest quarter for Glaxo and (2) the high base in
4Q2009. In 4Q2009, sales growth catapulted to 21%. We believe this strong growth was
driven by all round performance from (1) vaccines (2) priority products and (3) pricecontrolled
products.
Products under DPCO control constitute 26% of sales, implying 11% sales growth in
2010.
Sales of new launches of Rotarix, Cervarix pick up in 2010. Rotarix was launched in
May/June 2008 while Cervarix was launched in 1Q2009. According to the company, sales
of these products have surpassed management expectations. Cervarix reported strong
growth driven by heavy promotion the company had undertaken in the private market
and post cut in prices of 15% in 2010.
Priority Products other than vaccines registered healthy growth driven by a pick-up in
sales of products launched in 2008-09, such as:
Ramp-up in sales of Tykerb launched in 2008 on account of (1) lower pricing and (2)
doubling of prescriptions due to approval of additional indication. Tykerb was earlier
approved only as second line treatment for patients who fail on Herceptin
Pick-up in sales of products such as Benitec A (line extension of Benitec), in which
GSK is now the #6 brand from # 17th and Meropenem, in which GSK ranks #4 from
#25 earlier
Vaccines/patented products launches delayed, branded generics launches pick
up in 2010
At the February’ 2010 analyst meet, Glaxo had guided for launch of 5-6 new
products besides the 14 dermatology products acquired from Stiefel. We believe
Glaxo completed 2010 with four launches apart from the Stiefel products, with the
two vaccines and patented cancer drug launches pushed to 2011E.
Glaxo strengthened its chronic portfolio by launching two statins in July 2010
It launched two in-licensed products – Mycamine, Rabeprazole as outlined in early 2010
Glaxo also launched a number of dermatology products from Stiefel acquisition in 2010.
Glaxo acquired the distribution rights of 14 products of Stiefel India from a third party for
Rs71 mn in 2009. These products reported sales of Rs110 mn in 2009 without active
sales promotion
According to the company, products launched since 2008 contributed around 25% of
sales growth reported in 2010 and accounted for around 7% of sales. Glaxo plans to
increase sales contribution from new products since 2008 to 15-20% of sales in about
three years by increasing the pace of new launches
At least six new product launches scheduled for 2011E
Glaxo entered the oncology segment in India with the launch of Tykerb. Glaxo will launch
Promacta, branded as Revolade in India from its parent portfolio in 1Q2011. Promacta is
indicated for chemotherapy reduced platelets. The company thinks that although
Promacta has a narrow indication, there is a big market for this drug in India as (1) there
is a huge unmet need and (2) there is only one competing drug.
Glaxo will also launch its second oncology product as per guidance in 1Q2011—Votrient
indicated for renal cancer, the market for which is around Rs350-500 mn per annum
Glaxo intends to consolidate its leadership position in the fast-growing vaccines segment
(20-30% per annum, higher than the pharma market growth) with two vaccine launches
in 2011-12E-Synflorix and Infarix Hexa. While Synflorix is a Strep-Pneumonia vaccine,
Infarix Hexa is a six-in-one combination vaccine that immunizes against six diseases
Glaxo intends to introduce a couple of branded generics (number unknown) in cardiovascular,
metabolic diseases and high-end antibiotic segments, which will drive growth in
2011E
Glaxo will also launch couple of dermatology products in 2011E. The addition of Stiefel
products in the area of cosmetic dermatology therapies like acne, sun protection has
strengthened its dermatology portfolio
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GlaxoSmithkline Pharmaceuticals (GLXO)
Pharmaceuticals
PAT falls short of estimates due to lower sales growth and margin. 2010 PAT was
4% lower than estimates due to lower sales growth at 12.8%—flat yoy versus our
estimate of 14%—and lower margin, down 300 bps yoy to 35.3% due to the sales
force expansion. We maintain our 2011E sales growth estimate at 15.6% as we expect
a pick-up in pharma sales growth to 16% in 2011E from 14% in 2010 and maintain
our 2011E EPS estimate at Rs79.5. We maintain our REDUCE rating with a price target
of Rs2,000 due to stretched valuations (stock ex cash/share trading at 28X 2011E) . We
value Glaxo at (1) business value/share of Rs1,720 (25X 2011E EPS ex interest income)
and (2) cash/share of Rs274.
2010 consolidated PAT missed our estimate by 4% due to lower sales growth and margin
2010 consolidated PAT at Rs5.6 bn was lower than our estimate of Rs5.8 bn due to (1) lower sales
growth at 12.8%, flat yoy and below our expectations of 14% and (2) lower EBITDA margin at
35.3%, down 300 bps yoy, lower than our estimate of 35.7%. While pharma sales grew at 14.3%
in 2010, higher than 12% in 2009, exports and Iodex reported muted growth with the former
reporting sales decline.
Although Glaxo missed its 2010 launch targets, the pace will pick-up in 2011E
At the February 2010 analyst meet, Glaxo had guided for launch of 5-6 new products besides the
14 dermatology products acquired from Stiefel. We believe Glaxo completed 2010 with four
launches apart from the Stiefel products, with the vaccines and patented cancer drug launches
pushed to 2011E. However, the pace of launches will pick up in 2011E, with Glaxo scheduled to
launch at least six new products besides derma products in 2011E.
We maintain 2011 net sales growth at 16%; EBITDA margin at 35% and EPS of Rs79.5
While 2010 pharma sales/net sales growth at 14/13% was below our estimate, we maintain our
2011E estimates of 16.8/16%. Glaxo increased its sales force by 300 in 2010 and intends to add a
further 600 in 2011E, taking the total strength to 3,600 by 2011E end. With this expansion, we
believe EBITDA margin will remain subdued, accordingly, we expect margin to stay at 35.5%, up
200 bps only.
We maintain REDUCE due to stretched valuations (stock ex cash/share trading at 28X 2011E)
We maintain our price target at Rs2,000— (1) business value/share of Rs1,720 (25X 2011E EPS ex
interest income). Due to higher adjusted (ex interest income) PAT growth of 16-17% in 2011-12E
compared to historical growth of 7-13%, we value core EPS at 25X, 10% premium to 5-year
historical average of 22.6X and (2) cash/share of Rs274. While the dividend payout increased to
40% of PAT in 2010 from 30% in 2009, plans for the use of surplus cash for brand acquisition
remain uncertain.
2010 net sales growth at 12.8%—flat yoy and below our expectations of 14%
Sales growth of 12.8% was the same as that seen in 2009 and below our expectation of
14%. While pharma sales grew at 14.3% in 2010, higher than the 12% seen in 2009,
exports and Iodex reported muted growth with former reporting sales decline.
We believe the lower vaccines sales growth in 2Q2009—due to vaccines supply
constraints at GSK Plc—which resulted in net sales growth of 9% in 2Q2009, was one of
the primary reasons for flat net sales growth. According to the company, due to this
disruption, net sales growth for 2010 was lower by around 2%. Vaccines account for
10% of sales and grew 24% in 2010 versus 36% in 2009.
While the 4Q2010 sales growth was also tepid at 10.4%, this was on account of (1)
seasonality; 4Q is seasonally the weakest quarter for Glaxo and (2) the high base in
4Q2009. In 4Q2009, sales growth catapulted to 21%. We believe this strong growth was
driven by all round performance from (1) vaccines (2) priority products and (3) pricecontrolled
products.
Products under DPCO control constitute 26% of sales, implying 11% sales growth in
2010.
Sales of new launches of Rotarix, Cervarix pick up in 2010. Rotarix was launched in
May/June 2008 while Cervarix was launched in 1Q2009. According to the company, sales
of these products have surpassed management expectations. Cervarix reported strong
growth driven by heavy promotion the company had undertaken in the private market
and post cut in prices of 15% in 2010.
Priority Products other than vaccines registered healthy growth driven by a pick-up in
sales of products launched in 2008-09, such as:
Ramp-up in sales of Tykerb launched in 2008 on account of (1) lower pricing and (2)
doubling of prescriptions due to approval of additional indication. Tykerb was earlier
approved only as second line treatment for patients who fail on Herceptin
Pick-up in sales of products such as Benitec A (line extension of Benitec), in which
GSK is now the #6 brand from # 17th and Meropenem, in which GSK ranks #4 from
#25 earlier
Vaccines/patented products launches delayed, branded generics launches pick
up in 2010
At the February’ 2010 analyst meet, Glaxo had guided for launch of 5-6 new
products besides the 14 dermatology products acquired from Stiefel. We believe
Glaxo completed 2010 with four launches apart from the Stiefel products, with the
two vaccines and patented cancer drug launches pushed to 2011E.
Glaxo strengthened its chronic portfolio by launching two statins in July 2010
It launched two in-licensed products – Mycamine, Rabeprazole as outlined in early 2010
Glaxo also launched a number of dermatology products from Stiefel acquisition in 2010.
Glaxo acquired the distribution rights of 14 products of Stiefel India from a third party for
Rs71 mn in 2009. These products reported sales of Rs110 mn in 2009 without active
sales promotion
According to the company, products launched since 2008 contributed around 25% of
sales growth reported in 2010 and accounted for around 7% of sales. Glaxo plans to
increase sales contribution from new products since 2008 to 15-20% of sales in about
three years by increasing the pace of new launches
At least six new product launches scheduled for 2011E
Glaxo entered the oncology segment in India with the launch of Tykerb. Glaxo will launch
Promacta, branded as Revolade in India from its parent portfolio in 1Q2011. Promacta is
indicated for chemotherapy reduced platelets. The company thinks that although
Promacta has a narrow indication, there is a big market for this drug in India as (1) there
is a huge unmet need and (2) there is only one competing drug.
Glaxo will also launch its second oncology product as per guidance in 1Q2011—Votrient
indicated for renal cancer, the market for which is around Rs350-500 mn per annum
Glaxo intends to consolidate its leadership position in the fast-growing vaccines segment
(20-30% per annum, higher than the pharma market growth) with two vaccine launches
in 2011-12E-Synflorix and Infarix Hexa. While Synflorix is a Strep-Pneumonia vaccine,
Infarix Hexa is a six-in-one combination vaccine that immunizes against six diseases
Glaxo intends to introduce a couple of branded generics (number unknown) in cardiovascular,
metabolic diseases and high-end antibiotic segments, which will drive growth in
2011E
Glaxo will also launch couple of dermatology products in 2011E. The addition of Stiefel
products in the area of cosmetic dermatology therapies like acne, sun protection has
strengthened its dermatology portfolio
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