UBS-- Glenmark Jury rules against co. on Tarka

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UBS Investment Research
First Read: Glenmark
Jury rules against co. on Tarka
􀂄 Jury rules again co. on Tarka, awards US$16mn of damages
District court Jury trial on Tarka ruled against Glenmark’s generic version of Tarka
(Trandolapril/Verapamil) asking it to halt shipments of the product. The Jury held
the drug patent as valid and awarded US$16mn of damages to innovators – Sanofi
and Abbott for lost profits. Glenmark had launched this drug ‘at-risk’ in late Jun-10
(Source: Moneycontrol).

􀂄 Final verdict expected by mid to end Feb’11
According to the co. they have challenged the patent on two accounts:
‘Obviousness’ and ‘Double patenting’. While the Jury has ruled against the co. on
‘obviousness’, the judge will rule on the ‘double patenting’ as well as the potential
damages that co. may need to pay, if any. The co. expects the final verdict to come
out by mid to end Feb’11.
􀂄 See potential earnings cut by ~7% for FY12/13
Given, Glenmark was the only Para IV filer for this drug, we had assumed
revenues of US$16mn from this product in FY12 & FY13. Incase, Glenmark, loses
the case our earnings for FY12/13 will decline by ~7%. Damages of US$16mn
could reduce our FY11 earnings by 15%.
􀂄 Valuation: Maintain Sell, PT Rs 370
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.2%. We do not ascribe any value to the novel chemical entity pipeline.


􀁑 Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark), incorporated in 1977, is focused on the
manufacture and global marketing of finished dosages and API. Glenmark is
among few Indian companies investing in new drug discovery research.
Melogliptin, a DPP IV inhibitor has completed Phase IIb trials. Glenmark's
revenue in FY10 was Rs23.9bn. The global API business contributed 11% of
sales. It main markets are in India, the US and Latin America. The company is
increasing its presence in EU and semi-regulated markets.
􀁑 Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing risk from generics competition.
Pricing pressure in the US market because of increased competition may
continue in 2007. Glenmark is increasing its focus on the US business. Risks
relating to the generic pharma sector in US become increasingly applicable now.
Continued rupee appreciation is likely to put further pressure on operating
margins going forward. Glenmark has outlicensed 3 NCE molecules on which it
will get milestone payments as well as royalties in case of a successful launch.
Failure of one or more of these molecules represents a potential risk.