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Glenmark - How deep are Crofelemer woes? - Views on News from Equitymaster
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Glenmark - How deep are Crofelemer woes?
Dec 19, 2011

Glenmark was taken by surprise when Napo Pharma terminated its contract with the company, which had exclusive marketing rights in emerging markets for the drug 'Crofelemer'. Let us examine the possible impact of this adverse event on Glenmark's fundamentals.

About the company

Glenmark Pharma is a mid-sized Indian pharma company with focus on manufacturing and marketing of active pharmaceutical ingredients (API) and pharmaceutical formulations. It further focuses on niche therapeutic areas of dermatology, gynecology, pediatrics and diabetics. The company categorizes its business in two broad categories

  • Glenmark Pharmaceuticals includes the branded formulations business for emerging economies of India, Latin America, Central Eastern Europe and other semi regulated markets.
  • Glenmark Generics includes the US generics, European generics and the API business.
The domestic formulations business contributed about 30% to the company's revenues in FY11. On the international front, while exports to the semi-regulated markets have been growing at a strong pace, the company is also strengthening its presence in the US and European generics market on its own and through the partnership route. The company is also focusing on R&D and has been successful in clinching out-licensing deals in the past.

Crofelemer History

In FY06, Glenmark entered into a strategic tie-up with Napo Pharmaceuticals of the US to develop and commercialize Napo's anti-diahorreal compound for HIV patients named 'Crofelemer'. Over the years Glenmark and Napo worked together and were successful in developing and commercializing the product.

According to the terms with Napo, Glenmark secured an exclusive marketing right for Crofelemer in 140 emerging countries. This meant an exclusive license to develop and commercialize Crofelemer for India and other markets for treating diarrhea associated with HIV/AIDS. The rights for developed markets of US, Japan and Europe were awarded to Salix Pharmaceuticals. Apart from the marketing in emerging markets, Glenmark was supposed to supply APIs related to Crofelemer to Salix Pharmaceuticals.

Napo terminates agreement with Glenmark

Napo recently issued a notice terminating its development and commercializing agreement with Glenmark for Crofelemer. According to Napo, this is due to delays in registration and launch of the drug in emerging markets. It also said that the termination of collaboration is due to failure to file application for regulatory approval. Napo also terminated its agreement with Salix Pharma in November on similar lines for North America, Europe and Japan markets.

Impact on Glenmark

The peak sales for Crofelemer within the emerging markets were estimated to be in the tune of US$ 80 m which would taken at least 3 years to achieve. Glenmark has legally contested the termination of the agreement by Napo and believes that Napo's claims of breach of agreement are not valid.

We had not factored in the launch of Crofelemer in our numbers, and hence these recent developments will not really have an impact on our estimates. Though, the termination news will add to the negative sentiment, we maintain our positive view on the stock.

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