Macquarie Research:: Glenmark Pharmaceuticals: top pick with a TP of Rs470

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Glenmark Pharmaceuticals
3Q US sales low: FY12 thesis intact
Event
 GNP (Asia Macquarie MarQuee Idea) reported 3Q FY11 revenue of Rs7.6bn (up
17% YoY, Macq estimate Rs7.8bn) below our estimate and in-line with consensus.
Sales were below our estimate due to subdued US sales. PAT of Rs1.1bn (up 16%
YoY) was in line with estimates helped by Rs170m of forex gains.

Impact
 US sales impacted by product withdrawal: 3QFY11 US sales came in at
US$45m versus our estimate of US$50m as the product nitroglycerin was
withdrawn from the market (product sales ~ US$3.5m/quarter). We continue
to believe niche opportunities in the US will be a key driver going forward.
 Strong FY12 outlook for US despite Tarka setback: While the loss of
Tarka could be a setback (US$5m/Qtr), visibility exists on other niche
products that are multi-year opportunities and could drive significant sales
growth in FY12. If we take US sales ex-Tarka this quarter of US$40m as a
base, just a few key product-specific opportunities could help drive it to
~US$58m avg/qtr in FY12: (1) Felodipine (launched, US$4m/Qtr) (2)
Oxycodone (launched, US$4m/Qtr) (3) Malarone (Sept-11 launch, US$4m
/Qtr) (4) Dovonex (launched, US$2.5m/qtr) and (5) Cutivate (FY12 launch
US$2.5m/Qtr). The ramp-up of US sales will be the key data point to watch.
 Strong domestic sales: India’s formulation business contributed ~32% to the top
line and grew by 30% YoY. For 9MFY11, it grew by an impressive 23%.
Secondary sales growth for GNP, according to ORG-IMS for 9M FY11, is at ~25%
vs 16% for the industry. GNP continues to gain market share in key therapies.
 Robust growth in Semi Regulated Markets (SRM): Business grew 27%
YoY and contributed 15% to sales, on the back of high growth in virtually all
markets: Russia (up 26%), Africa/Middle East (up 36%) & Asia (up 40%) YoY.
 LATAM business grew 88% YoY and contributed 7% to sales, mainly on the
back of a strong Brazil operation. GNP continues to consolidate its presence
in the region and given the restructuring of operations carried out over the
past few quarters, we expect sequential growth going forward.

Earnings and target price revision
 We have adjusted our reported EPS for FY11/FY12/13E to Rs18.3/23/29 from
Rs18.9/25/31 due to Tarka setback. Our target price is revised to Rs470, from
Rs475 as we had valued Tarka on an NPV basis of Rs5/share.
Price catalyst
 12-month price target: Rs470.00 based on a Sum of Parts methodology.
 Catalyst: 1) Ramp-up in US sales 2) Crofelemer approval by the FDA
Action and recommendation
 Valuations are attractive, in our view, with GNP trading at a PER of 12x
FY12E earnings, adjusted for exclusivity and NCE value, despite 31% EPS
CAGR for FY11E–13E. We reiterate GNP as our top pick with a TP of Rs470.