Glenmark Pharmaceuticals- Felodipine ER – lucrative opportunity: Macquarie

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Glenmark Pharmaceuticals
Felodipine ER – lucrative opportunity
Event
 Glenmark recently launched Felodipine ER (Plendil) in US post US FDA
approval. The opportunity is lucrative, given limited competition (3 players).

 Niche launches like these provide incremental comfort to our Glenmark’s US
sales estimate of ~ US$275m (YoY growth ~ 30%) in FY12. We believe longterm
earnings visibility exists for the products launched (or settled) in the US,
and we think this is currently underappreciated by the Street. Our estimates of
reported EPS for FY12/13 are Rs25/31 (20%/30% higher than Street). We
maintain GNP as our top conviction pick with a target price of Rs475.
 We have GNP in the Macquarie MarQuee Ideas (MMI) list recently published
by our regional team showcasing Macquarie’s highest-conviction, most
actionable and differentiated stock ideas.

Impact
 Felodipine ER launch: Felodopine is currently ~ US$ 100m market with just
two players present, Mutual Pharma and Mylan. Mutual Pharma launched its
product in 2004 with Mylan entering in Apr-08.GNP is the third generic to
enter the market in Dec-10. We believe GNP should be able to garner ~ 20%
market share, with this product alone contributing US$15m to FY12 sales.
 US – multi product specific upside: US generics (~30% of current top line)
remains a key growth business driven by a rich mix of oral contraceptive,
modified release and dermatology product filings, which, given the entry
barrier, should face limited competition.
 Visibility exists on niche products that are multi-year opportunities: (1)
Tarka (launched at risk, Court trial in Jan-11), (2) Dovonex (launched through
partner Taro ~ GNP receives > 30% royalty), (3) Oxycodone (NDA approved,
beginning 2HFY12 limited competition), (4) Malarone (litigation settled FTF
Sept-11 launch) and (5) Cutivate (Sole FTF, potential launch Apr-11). These
products alone have the potential to generate US$50-70m in FY12 sales.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs475.00 based on a Sum of Parts methodology.
 Catalyst: 1) Niche launches in the US, 2) Crofelemer approval by the FDA
Action and recommendation
 Valuations are attractive, in our view, with GNP trading at a PER of 15x
FY12E earnings, adjusted for exclusivity and NCE option value, despite a
31% earnings CAGR for FY11-13E.
 We value GNP‘s core business at Rs410, based on a PER of 20x FY12 EPS,
(10% discount to sector avg.). Exclusivity earnings and NCE franchise are
valued on a NPV basis at Rs25/share and Rs40/share, respectively.