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Glenmark: Analyst meet extracts
Nov 13, 2007

Glenmark held an analyst meet last Wednesday to discuss the company’s restructuring initiatives and growth prospects for the future. Here are the key takeaways. Current business overview: Glenmark, at present, is focused on four wide business areas – NCE development, generics (North America, EU and Argentina), branded generic formulations (India and ROW) and APIs. These businesses individually have grown to a significant scale in the past few years. For instance, during the period FY08, the company expects revenues to touch US$ 479 m, a four year CAGR of 49% starting from FY04. While in FY04, Glenmark was present only in the branded formulations and API segments, the company since then has come a long way, having a presence in the above-mentioned four business areas.

Restructuring plan: Going forward, the company intends to reorganize these four businesses under two key segments – Specialty/Proprietory and Generics. The aim behind this move is to bring in more focus and enable the generics business to avail of funding. The following table gives an overview of the new structure:

Glenmark: Restructured segments
Groups Specialty/Proprietory Generic
Business categorised - Branded generics (mainly RoW and India) - North America/EU Generics
in segment - New drug development (NCE/Biologics) - Global API
    - Argentina oncology business
Characteristics of - Building brands - Launch drugs going off patent: API and formulations
business - Generate prescriptions - Substitution at pharmacy
  - Long term target: market novel drugs - Price sensitive/cost conscious

Generics to become a subsidiary: Glenmark plans to segregate the generics business into a 100% owned subsidiary by April 2008, which will be called Glenmark Generics Limited. The assets and operations of the two companies will be as follows:

Glenmark: What goes where
Assets Operations
Glenmark Pharma Limited  
- Baddi and Nasik formulations - India, SRM, Medicamenta branded sales,
- Sinnar formulation development Russia and Latin America excl Argentina
- Mahape NCE & Swiss Biologics - New drug licensing
- Investment in branded markets - Clinical development of novel drugs
- All innovation IP (NCEs/NBEs)  
Glenmark Generics Limited  
- Goa formulations, Ankleshwar, - US and EU generic sales
Mohol & Kurkumbh API - Argentina oncology sales
- Formulation/API development, - Global API sales
Bio-analytical and clinical R&D  
- New research center at Taloja  
- Investment in generic sales entities  

Glenmark has planned an IPO for Glenmark Generics Limited (GGL) in 1QFY09. However, the financial structure of the same has yet to be finalised. Thus, while Glenmark’s domestic peers are hiving off their innovative R&D divisions into separate companies, Glenmark is doing the reverse by forming a separate company for its generics business.

The objectives of the IPO would be to use the capital to either acquire or build specialty front end in the US with late stage pipeline and marketing, further expand GGL’s generic footprint globally through acquisitions, expand capacity for the generics business and focus on expanding into other niche segments.

Growth plans for the two businesses (FY09-FY15): The company has envisaged the following plans for the two companies over the next few years:

  • Glenmark Pharma Limited: The overall vision is to become a global end-to-end specialty company. Plans on the anvil include having 2 proprietary drugs on the market and having a late stage novel pipeline. This includes developing and licensing NCEs and biologics and bringing 2 novel drugs into clinics annually. The focus would also be on acquiring marketing presence in the markets of the US, the EU and the ROW markets in the branded generics space.

  • Glenmark Generics Limited: The overall vision is to become a global integrated generic and API leader. Plans on the anvil include launching more than 170 generic products in the US market and more than 70 generic dossiers for the EU markets. This includes annually developing and launching more than 25 ANDAs in the US, more than 10 EU marketing authorisations and dossiers for more than 20 APIs. This company also intends to build a presence in Japan, South Africa and other generic markets, acquire companies to build scale and derive large percentage of revenue from niche product areas such as dermatology, controlled substances and the like. In addition to North America, the focus will be on building front ends in Japan and key EU markets as well. The company plans to file around 2 to 3 Para IV ANDAs every year.

Growth plans in terms of markets

As mentioned earlier, while US, EU and Argentina will come under Glenmark Generics Ltd, the branded markets of India and ROW will come under Glenmark Pharma Ltd. For North America, Glenmark envisages increasing the ANDA filings from 39 in FY07 to 133 by FY10 and the focus will be on first-to-file products, dermatology, controlled substances and other niche generics. In Europe, the company plans to file around 26-28 marketing authorisations over the next three years. The strategy also involves partnering and creating alliances with European companies and has currently signed 5 supply deals with EU companies. In Argentina, the focus will be on oncology and the company will use this region as a hub for spreading its oncology business in other markets as well.

Revenues from Argentina, US, EU and APIs totaled to US$ 90 m in FY07 and the company expects the same to increase to US$ 365 m in FY10 implying a CAGR of 59%. Similarly, profits from these businesses are also expected to log in a healthy CAGR of 65%.

NCE update: As compared to its domestic peers, Glenmark has been successful in building a strong research pipeline, which has been further reinforced by the fact that the company has been able to secure out-licensing deals for 3 of its lead molecules. To provide a quick recap, its first molecule ‘Oglemilast’ for asthma and COPD has been out-licensed to Forest Laboratories of the US and GRC 8200 for diabetes has been out-licensed to Merck KGaA of Germany. The most recent development has been the company’s ability to ink another deal with Eli Lilly for the former’s drug GRC 6211 for osteoarthritis and dental pain. The deal size of the same is around US$ 350 m. The company has also taken a step forward by bagging co-commercialisation rights for the US market. Besides this, the company has 3 more molecules and 2 biologics in the pre-clinical stage all of which will be entering Phase I shortly.

Revenues from branded generics (India, semi-regulated markets, Medicamenta in Europe, Latin America excluding Argentina) and NCE out-licensing totaled to US$ 197 m in FY07 and the company expects the same to increase to US$ 421 m in FY10 implying a CAGR of 28%. Profits from these businesses are expected to log in a much higher CAGR of 42%.

What to expect?
At the current price of Rs 479, the stock is trading at a multiple of 25.6 times our estimated FY10 earnings (excluding the in-licensing deals). Investors should note that we have not yet factored the restructuring initiatives in our estimates. While we are positive about the growth prospects of the company, we believe that the risk-reward ratio is skewed to towards the former and hence we maintain our negative view on the stock.

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