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“Shingrix” launch soon; WPI to mitigate the impact of price cut under NLEM We attended the analyst meet of Glaxosmithkline Pharma (GLXO) to understand the company’s business outlook over the next two to three years.

* GLXO plans to launch the ‘Shingrix’ vaccine in the domestic formulation market in the near term.

* The adverse impact of inclusion of certain brands under the national list of essential medicines (NLEM) is expected to be mitigated by higher volume offtake, increased reach, Shingrix launch, and cost optimization measures.

* We cut our EPS estimate by 3% for FY24/FY25 to factor in a) lower prices of certain brands (Ceftum/T-Bact) and b) gradual improvement in inflation-linked overall prices. We value GLXO at 33x 12M forward earnings to arrive at a price target of INR1,300. We reiterate our Neutral stance on the stock.

Key highlights of Analyst Meet

* GLXO guided for high single-digit revenue growth over FY23-25, driven considerably by volume.

* While there would be an adverse impact of price reduction due to the inclusion of ‘Ceftum’ and ‘T-Bact’ under the National list of essential medicines (NLEM), GLXO is expected to mitigate the impact through higher volume sale.

* Further, the company is focussed on launching its ‘Shingrix’ vaccine. The company’s ongoing cost optimization measures would also aid in driving up its profitability.

* Unlike peers in the domestic formulation industry, GLXO is expected to have fewer new launches in the market. It plans to focus on market share gain in its existing products through life cycle management and increasing their reach.

* The WPI-led price increase is expected from Apr’23, which would also partially offset the adverse impact of price reduction under NLEM. The portfolio under NLEM is now 42% (FY23) compared to 33% (FY22).

* The overall strategy is to focus on anti-infectives, pain, and dermatology in terms of therapies. The favorable demand for these therapies at the industry level, supported by effective marketing, is expected to drive better than industry growth for GLXO.

* GLXO has allocated MR force (~200) for marketing its soon-to-be launched ‘Shingrix’ vaccine. While this product is priced at USD200 per dose, GLXO indicated to price it competitively in India.

* GLXO witnessed a 10% YoY growth in general medicine category (80% of total sales), while vaccines witnessed 34% YoY decline, adversely affecting the overall performance of GLXO. Having said this, the paediatric vaccine industry is exhibiting revival, compared to a sharp decline during the COVID period. This is improving the growth prospects for GLXO as well.

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