Glenmark Pharmaceuticals -Setting new Benchmarks.:Macquarie Research

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Glenmark Pharmaceuticals
Setting new Benchmarks
Event
 GNP signed an outlicensing agreement with Sanofi-Aventis (NYSE: SNY) for
the development and commercialization of GBR 500, a novel first-in-class
therapeutic monoclonal antibody for the treatment of inflammatory conditions.
GNP will receive an upfront payment of US$ 50m. GNP is on the Macquarie
MarQuee Buy Ideas (MMI) list showcasing Macquarie’s highest conviction,
most actionable and differentiated stock ideas. GNP remains our Top Pick.
Impact
 The deal: GNP outlicenses antagonist of the VLA2 (alpha2-beta1) integrin
GBR 500, a novel first-in-class therapeutic monoclonal antibody to treat
Crohn’s Disease and other anti-inflammatory conditions such as Multiple
Sclerosis. Upfront payment of US$ 50m comes in two tranches: (1) US$25m
paid upon closing of the transaction and (2) remaining US$25m upon SNY’s
positive assessment of certain data to be provided by GNP. Combined upfront
and potential development, regulatory and commercial milestone payments
could total US$613m in addition to tiered double-digit royalties on sales. SNY
has developed market rights and will co-market in Russia, Brazil, Australia
and New Zealand. GNP retains rights in India and few RoW markets.
 Its significance: Outlicensing of novel TRPV3 to SNY (in 2010) and GBR 500
(2011) reinforces our confidence in GNP’s ability to discover and outlicense
promising lead compounds. Because of a few setbacks in the past, we think the
market is not assigning any upside to GNP’s innovation franchise. This is
counterintuitive to us, as GNP has generated ~US$ 200m in out-licensing
income from six deals with large partners to date (vs. total spend of ~ US$
120m), which is unmatched by its peers. GBR 500 (read inside for details) is the
first novel biologic outlicensed by an Indian company. While peers are
struggling to establish a generic biologic infrastructure, third-party validation by
an international MNC (like SNY) through this deal of GNP’s “novel biologic
program” affirms the credibility in its innovative franchise, in our view.
Earnings and target price revision
 We value GBR 500 at Rs20/sh (assuming 10% probability of launch and peak
global sale estimate of US$ 1.5b). Thus our TP now is Rs 465 (vs Rs 445 prev.).
Price catalyst
 12-month price target: Rs465.00 based on a Sum of Parts methodology.
 Catalyst: 1) Malarone Launch 2) Crofelemer approval and launch
Action and recommendation
 We currently value the already-partnered innovative products at Rs60/sh (Rs
25/sh for Crofelemer, Rs 20/sh for GBR500 and Rs 15/sh for GRC15300) and
believe progress of these through clinics and out-licensing of other molecules
in the pipeline will unlock value going forward.
 Valuations look attractive in our view, with GNP trading at a PER of 12x
FY12E earnings, adjusted for exclusivity and NCE value.