Asthma molecule GRC 3886 has already placed Glenmark among global innovators, now its turn for the other R&D pipeline.
Glenmark Pharmaceuticals Limited (Glenmark), subsequent to its Q2FY2007 results, held an analyst meet. The takeaways from the meeting are discussed below.
* Glenmark believes that the creation and ownership of intellectual property (IP) are critical for differentiation and value creation; therefore it plans to focus on building IP assets and out-licencing these to drive its growth.
* The company expects to receive $30 million from Forest Laboratory in FY2008. As per the company, the said milestone payment is already due, but has been delayed. Currently, the company is scouting for a partner in Europe to out-licence the GRC 3886 molecule for the European market, which would also trigger a milestone payment.
* In October 2006, the company signed an out-licencing agreement with Germany's Merck KgaA for its prospective diabetes molecule GRC 8200 for a total of €190 million (approximately Rs1,110 crore), including an up-front payment of €25 million (approximately Rs146 crore).
* For the USA, the company believes that to maintain the growth momentum it must continuously expand its product basket either by its own product filings or by product development alliances or by licencing marketing rights or by acquiring registrations in the USA.
* For Europe, Glenmark plans to focus on select branded generic markets like Spain, Italy and Eastern European countries. It is looking to acquire a company in Europe (having sales of 8-12 million euros and a strong product pipeline) to establish a front end. It plans to conclude the acquisition by the end of FY2007.
* Glenmark has a target for a 100% growth in Latin America in FY2007.
* Glenmark currently has 6 new chemical entity (NCE) molecules in its pipeline; 2 in Phase II trials, 3 entering the Phase I trials shortly and one in the pre-clinical stages. Its target is to take one molecule into the clinical trials every year. The company plans to conclude one more out-licencing deal in the current financial year.
*The company is upbeat on its growth prospects for the next two years. It has raised its growth guidance and its profit guidance for FY2007 and FY2008. As per the company's projections, it is planning to grow at a compounded annual growth rate (CAGR) of 52% over FY2006-08E, with profits growing at a CAGR of over 137% over the same period. It has raised its earnings per share (EPS) guidance from Rs36 earlier to Rs42. But the projected EPS has been powered largely by the anticipated milestone payments of $31 million in FY2007 and $69 million in FY2008. Considering the uncertainty of the milestone receipts, if we remove them from the projected earnings of Glenmark, the revised EPS would reduce by 50%.
* At the current market price (CMP) of Rs437, the stock is trading at 18.9x its consensus FY2008 earnings.
Research and development--the prime focus
Glenmark believes that the creation and ownership of intellectual property are critical for differentiation and value creation. Accordingly it plans to focus on building IP assets and out-licencing these to drive its growth.
The company currently has 6 NCE molecules in its pipeline; 2 in Phase II trials, 3 entering the Phase I trials shortly and one in the pre-clinical stages. Its target is to take one molecule into the clinical trials every year. It also plans to conclude one more out-licencing deal in the current financial year (ie FY2007).
In line with its strategy to emerge as a global research-based company, Glenmark has set up a biologics research centre in Switzerland. It plans to start research on bio-improvics and has a target to start Phase I trials on the first lead molecule by 2009.
Update on molecule GRC 3886 (Oglemilast)
The anti-asthma molecule—GRC 3886 (Oglemilast), which has been out-licenced to Forest Laboratory for the US market and to Teijin for the Japanese market--is under Phase II trials in the USA. The Phase II (b) trials are likely to begin in early 2008. So far as the milestone payment for the molecule is concerned, Glenmark expects to receive $30 million from Forest Laboratory in FY2008. As per the company, the said milestone payment is already due but has been delayed.
A survey by research and development (R&D) Directions of the USA classified GRC 3886 as one of the great 100 investigational drugs in the world. Currently, the company is scouting for a partner in Europe to out-licence the GRC 3886 molecule for the European market, which would also trigger a milestone payment.
Brief on diabetes molecule GRC 8200
In October 2006, the company signed an out-licencing agreement with Germany's Merck KgaA for its prospective diabetes molecule GRC 8200 for a total of €190 million (approximately Rs1,110 crore), including an up-front payment of €25 million (approximately Rs146 crore), besides the milestone payments upon the successful development and launch of mono-therapy and combination products based on GRC 8200. Merck KGaA will bear the cost of the ongoing studies on GRC 8200 and will be responsible for planning, managing and sponsoring all development activities in the future.
Merck KGaA will develop, register and retain commercial marketing rights for GRC 8200 in North America, Europe and Japan while Glenmark will retain the commercialisation rights for India for the molecule.
Expects consistency in milestone payments
Driven by its focus to create intellectual property, the company anticipates a series of milestone payments at regular intervals going forward. In FY2007, it would get the up-front milestone payment worth €25 million (approximately Rs146 crore) from Merck KgaA, and a milestone payment worth $69 million (including $30 million from Forest Laboratory) is expected in FY2008. Beyond FY2008, the company anticipates more milestone payments from the progress of its out-licenced molecules and from the out-licencing of new leads.
US branded generics on steady growth path
With the focused branded generics in the US market, Glenmark reported an outstanding 594% jump in its US formulation sales to Rs56.89 crore in H1FY2007. The company believes that to maintain the growth momentum it must continuously expand its product basket either by its own product filings or product development alliances or by licencing marketing rights or by acquiring registrations in the USA.
For its US branded generics from its own development, Glenmark plans to focus on products with greater margins/sustainability like dermatology, and modified release and controlled substances. In order to counter the pricing pressures in the US market and to enhance its profitability, Glenmark plans to integrate its formulations with its own DMFs and commercialise its field force.
As of now, Glenmark markets 10 abbreviated new drug applications (ANDAs), while 25 are under approval, leading to a total of 35 ANDAs (including partner filings of 14 ANDAs).
Europe--the new source of earnings
For Europe, Glenmark plans to focus on select branded generic markets like Spain, Italy and Eastern European countries. It is looking to acquire a company in Europe (having sales of 8-12 million euros and a strong product pipeline) to establish a front end. It plans to conclude the acquisition by the end of FY2007.
Also, it has plans to file and launch branded generics through its own front-ends and to provide dossiers to partners for non-core markets.
Targets 100% growth from Latin America in FY2007
In Latin Amarica, the company has integrated activities of its recently acquired company, Servycal with Glenmark operations, and has launched multiple Servycal products into Brazil. It has expanded its field force and has also commenced commercial operations in 8 additional countries including Brazil and Argentina in Latin America. With all its initiatives, the H1FY2007 revenues witnessed an 89.4% growth to Rs45.27 crore.
In order to achieve its target of a 100% growth in Latin America, Glenmark plans to expand its presence in the oncology segment to the other Latin American markets apart from Argentina and Brazil, and expects to file additional 10 dossiers in the markets across Latin America in H2FY2007. The company also plans to launch 10 new products in Brazil.
Guidance for domestic formulation sales increased from 10% to 15% in FY2007
The company has enhanced its guidance for the domestic formulations growth from 10% to 15%. In line with its plan to expand the domestic business, the company plans to strengthen its presence in respiratory, pain management and metabolic diseases segments. Also, it has plans for new launches from its own product pipeline, raising the in-licencing efforts for novel products and to improve cost-efficiencies and cash-cycle management.
View and valuation
Glenmark is upbeat about its growth prospects for the next two years. It has raised its growth guidance and its profit guidance for FY2007 and FY2008. As per the company's projections, it is planning to grow at a CAGR of 52% over FY2006-08E, with the profits growing at a CAGR of over 137% over the same period. It has raised its EPS guidance from Rs36 earlier to Rs42. But the projected EPS has been powered largely by the anticipated milestone payments of $31 million in FY2007 and $69 million in FY2008. Considering the uncertainty of the milestone receipts, if we remove them from the projected earnings of Glenmark, the revised EPS would reduce by 50%.
At the CMP of Rs437, the stock is trading at 18.9x its consensus FY2008 earnings.