Glenmark might be selling its API business. Why?

Sekhmet Pharmaventures and the Nirma group are reportedly competing to buy the subsidiary. Glenmark owns 82.85 percent of GLS; Image: Shutterstock

According to recent news reports, Glenmark Pharmaceuticals might be selling Glenmark Life Sciences (GLS), which manufactures active pharmaceutical ingredients (APIs). Sekhmet Pharmaventures and the Nirma group are reportedly competing to buy the subsidiary. Glenmark owns 82.85 percent of GLS. In FY23, GLS’s total operating revenue stood at Rs 2,161 crore. Experts reckon that Glenmark has been one of the better performers in the API market. Forbes India breaks down this development:

Why is Glenmark planning to sell the business?

Glenmark has an immediate need to repay a debt that has been on their balance sheet for a long time now. Though the company is profitable, it is being used as capital expenditure every year. “Glenmark Pharma has a net debt of around Rs 2,900 crore, and their immediate priority is to settle this. Additionally, the company is building more of an innovation-led business now, and hence the API business doesn’t fit this strategy. Also, only 11 to 12 percent of Glenmark's sales come from the API business,” explains Vishal Manchanda, senior vice president, Institutional Research, Systematix Group. With debts cleared up, the investments that are currently being made into the API business, could be used in research and development of innovator drugs.

Additionally, experts suggest that the company’s US business, like that of many other pharma companies, has been seeing mid-single-digit growth. “With innovation as its focus, Glenmark probably doesn’t want to put too much effort into its generics business either,” adds Manchanda.

There are two kinds of innovator drugs: One, completely novel innovative drugs and the second, where existing molecules are tweaked to offer a better value proposition for customers. After an initial investment in R&D, a company can sell the drug as a brand and charge a premium for it. Focussing on innovator drugs in developed markets helps pharma companies achieve scale, which is limited with the generics business. “I think once their debts are cleared, it will give them capabilities and more bandwidth to invest and focus on such opportunities. It will also help the company improve its existing valuation,” says Manchanda.

What are some of the challenges in India's API market?

Glenmark has been doing quite well with its API business. But experts believe it is also a very competitive space and one never knows if the return ratios will persist in the long run. Also, the competition from Chinese API imports continues to be high. According to news reports, nearly 70 percent of India’s APIs are imported from China; this dependence is around 90 percent for certain life-saving antibiotics such as cephalosporins, azithromycin and penicillin.