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UBS Investment Research
Glenmark Pharmaceuticals
Raise to Neutral, uncertainty remains
Upgrade to Neutral following sharp correction
We upgrade the stock, following the 16% correction in stock price since the
negative Jury verdict on Tarka (in mid-Jan’11). While, we believe Tarka downside
is already priced in, there is limited clarity on the Cutivate launch. Cutivate
accounts for 4% our EPS for both FY12 and FY13. We are 12%/8% below
consensus for our FY12/13 earnings. However, valuations at 16.5x FY12 earnings
are reasonable and inline with sector peers. We believe the risk-reward is more
balanced at current levels.
Weak US filing momentum and lack of large opportunities
While India and SRM growth is likely to remain strong, we remain less convinced
on the US growth outlook. Despite significant approvals, the US base business
momentum has been weak. While US revenue growth in FY12 is likely to be
robust due to Cutivate and Malarone exclusivity and price increases in Oxycodone,
we expect US growth to slow in FY13 and beyond given slow filing momentum
and lack of large product opportunities in US.
Cutting est. on Tarka and slower US growth
We reduce our EPS estimates for FY11/12/13 from Rs 18.21/20.45/23.57 to Rs
18.02/17.79/22.11 as we remove Tarka from our earnings estimates and factor
slower growth in US base business. Our estimates don’t factor in the damages
awarded by the Jury as we await final verdict.
Valuation: Upgrade to Neutral, Reduce PT to Rs 335 (from Rs 370)
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
Raising to Neutral
We upgrade the stock from Sell to Neutral as we believe risk-reward is more
balanced. However, we reduce our PT to Rs 335 from Rs 370 following the
cut in our earnings due to potential loss of Tarka and slower US business
growth.
Glenmark has corrected 16% since the negative jury verdict on Tarka on
January 14, 2011. The stock valuations are inline with the sector after
assuming potential loss of Tarka revenues from FY12. However, currently
there is limited clarity on the Cutivate launch. The 30-mth stay expires for
Glenmark in Jun-11. Cutivate accounts for 4% our EPS for both FY12 and
FY13.
While we expect growth in India and other branded generic markets to
remain strong, we are concerned about the weak product filing momentum
for US market. We believe Glenmark’s R&D spend at 4.6% of revenues is
significantly below peers. We would like to see a ramp up in US ANDA
filings for us to consider possibly becoming more constructive on the stock.
Further, despite strong approvals, the US base business continues to show
weak growth. We believe US growth might slow in FY13 and beyond as
Glenmark’s pending approval basket continues to shrink.
We believe key upside risk to the stock are 1) a favourable verdict on Tarka
2) Potential NCE R&D outlicensing deals 3) Stronger than expected growth
in India, Semi-regulated, and other branded generic markets.
US Business growth likely to remain modest
We expect US business growth momentum to remain modest beyond FY12
given limited visibility on any large product opportunities and modest filing rate.
The co. plans to file 13-15 ANDA’s in FY11.
The co. continues to receive approval at a rapid rate over the last couple of
years. However, the same has failed to translate in strong revenue or TRx
momentum.
We expect FY12 US sales growth to be robust at 20%YoY driven by the
launch of Cutivate and Malarone exclusivity and potential price increases in
Oxycodone. However, Cutivate launch remains contingent on potential legal
outcome and mgmt. may not choose to launch it at risk.
We expect growth to slow to 12%YoY in FY13. We would like to see a
sharp increase in co. filings to make us more optimistic on co. US growth
prospects.
Earnings Estimate Changes
We reduce our earnings estimate as we reduce our US growth forecast and
remove Tarka from our earnings estimates
We raise interest expense given rising interest rates and reduce our FY12/13
tax rate assumption more inline with FY11 estimates
Valuations
We upgrade the stock to Neutral from Sell with a PT of Rs 335 (from Rs 370).
We derive our 12-mth price target from a DCF-based methodology and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool with
WACC of 11%. Glenmark would trade at 15x FY13 earnings at our PT; the
stock is trading inline with peers on FY12 basis. We see the current risk-reward
as balanced at current levels. The stock is trading inline with sector peers.
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. Continued
rupee appreciation is likely to put further pressure on operating margins going
forward. Glenmark has outlicensed 1 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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Glenmark Pharmaceuticals
Raise to Neutral, uncertainty remains
Upgrade to Neutral following sharp correction
We upgrade the stock, following the 16% correction in stock price since the
negative Jury verdict on Tarka (in mid-Jan’11). While, we believe Tarka downside
is already priced in, there is limited clarity on the Cutivate launch. Cutivate
accounts for 4% our EPS for both FY12 and FY13. We are 12%/8% below
consensus for our FY12/13 earnings. However, valuations at 16.5x FY12 earnings
are reasonable and inline with sector peers. We believe the risk-reward is more
balanced at current levels.
Weak US filing momentum and lack of large opportunities
While India and SRM growth is likely to remain strong, we remain less convinced
on the US growth outlook. Despite significant approvals, the US base business
momentum has been weak. While US revenue growth in FY12 is likely to be
robust due to Cutivate and Malarone exclusivity and price increases in Oxycodone,
we expect US growth to slow in FY13 and beyond given slow filing momentum
and lack of large product opportunities in US.
Cutting est. on Tarka and slower US growth
We reduce our EPS estimates for FY11/12/13 from Rs 18.21/20.45/23.57 to Rs
18.02/17.79/22.11 as we remove Tarka from our earnings estimates and factor
slower growth in US base business. Our estimates don’t factor in the damages
awarded by the Jury as we await final verdict.
Valuation: Upgrade to Neutral, Reduce PT to Rs 335 (from Rs 370)
We derive our 12mth price target using DCF-based methodology and explicitly
forecast long term valuation drivers using UBS’s VCAM tool with WACC of 11%.
Raising to Neutral
We upgrade the stock from Sell to Neutral as we believe risk-reward is more
balanced. However, we reduce our PT to Rs 335 from Rs 370 following the
cut in our earnings due to potential loss of Tarka and slower US business
growth.
Glenmark has corrected 16% since the negative jury verdict on Tarka on
January 14, 2011. The stock valuations are inline with the sector after
assuming potential loss of Tarka revenues from FY12. However, currently
there is limited clarity on the Cutivate launch. The 30-mth stay expires for
Glenmark in Jun-11. Cutivate accounts for 4% our EPS for both FY12 and
FY13.
While we expect growth in India and other branded generic markets to
remain strong, we are concerned about the weak product filing momentum
for US market. We believe Glenmark’s R&D spend at 4.6% of revenues is
significantly below peers. We would like to see a ramp up in US ANDA
filings for us to consider possibly becoming more constructive on the stock.
Further, despite strong approvals, the US base business continues to show
weak growth. We believe US growth might slow in FY13 and beyond as
Glenmark’s pending approval basket continues to shrink.
We believe key upside risk to the stock are 1) a favourable verdict on Tarka
2) Potential NCE R&D outlicensing deals 3) Stronger than expected growth
in India, Semi-regulated, and other branded generic markets.
US Business growth likely to remain modest
We expect US business growth momentum to remain modest beyond FY12
given limited visibility on any large product opportunities and modest filing rate.
The co. plans to file 13-15 ANDA’s in FY11.
The co. continues to receive approval at a rapid rate over the last couple of
years. However, the same has failed to translate in strong revenue or TRx
momentum.
We expect FY12 US sales growth to be robust at 20%YoY driven by the
launch of Cutivate and Malarone exclusivity and potential price increases in
Oxycodone. However, Cutivate launch remains contingent on potential legal
outcome and mgmt. may not choose to launch it at risk.
We expect growth to slow to 12%YoY in FY13. We would like to see a
sharp increase in co. filings to make us more optimistic on co. US growth
prospects.
Earnings Estimate Changes
We reduce our earnings estimate as we reduce our US growth forecast and
remove Tarka from our earnings estimates
We raise interest expense given rising interest rates and reduce our FY12/13
tax rate assumption more inline with FY11 estimates
Valuations
We upgrade the stock to Neutral from Sell with a PT of Rs 335 (from Rs 370).
We derive our 12-mth price target from a DCF-based methodology and
explicitly forecast long-term valuation drivers using UBS’s VCAM tool with
WACC of 11%. Glenmark would trade at 15x FY13 earnings at our PT; the
stock is trading inline with peers on FY12 basis. We see the current risk-reward
as balanced at current levels. The stock is trading inline with sector peers.
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. Continued
rupee appreciation is likely to put further pressure on operating margins going
forward. Glenmark has outlicensed 1 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.
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