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Glenmark Pharmaceuticals (GLEN.BO)
Neutral Equity Research
First novel biologics outlicensed; enhances pipeline profile, Neutral
What's changed
Glenmark has announced that it entered into an agreement with Sanofi to outlicense development and commercialization of GBR 500, a novel antibody used
for the treatment of Crohn’s disease and other inflammatory disorders. As per
the deal, Glenmark would receive a US$50mn upfront payment on deal’s
closure (in 2-3 months). Further, it could potentially receive milestone payments
of up to US$613mn if it achieves certain development, regulatory, and
commercial targets. Additionally, upon commercialization of the product,
Glenmark would be entitled to receive double-digit royalty on product sales.
Sanofi would get exclusive marketing rights in America, Europe, and Japan,
while Glenmark would have co-marketing or exclusive rights in other countries
(including India). Management expects sales of the drug to begin in 2017.
Implications
Glenmark did not provide any visibility into the timelines and breakdown of
additional US$613mn payments. Given GBR 500 is a novel biologic, there are no
comparables to measure the probability of success of the drug in the various
trial phase. We believe that the development phase may take 5-7 years and the
peak sales of the drug post commercialization may be in 2020 and beyond.
Hence, we do not ascribe any value to the incremental payments from this deal,
except the US$50mn upfront payment. We raise our EPS by 48%/5% for FY12EFY13E to account for cash from the upfront payment. The company stated that
the cash from the deal would be used to repay debt, likely easing gearing
concerns, with net-debt to equity reducing to 38% in FY12E (from 43%).
Valuation
We remain Neutral on the stock. We lower our 12-m Director’s cut-based TP to
Rs312 (from Rs320) with a core business value of Rs285 (from Rs301, post
FY11 results), NPV of pipeline of Rs19 and cash/share from GBR 500 of Rs8.
Stock is at 18.5X on FY12E core EPS of Rs16.50 vs. the sector at 16.1X.
Key risks
Upside: Pipeline success; Downside: unfavorable litigation outcome.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Glenmark Pharmaceuticals (GLEN.BO)
Neutral Equity Research
First novel biologics outlicensed; enhances pipeline profile, Neutral
What's changed
Glenmark has announced that it entered into an agreement with Sanofi to outlicense development and commercialization of GBR 500, a novel antibody used
for the treatment of Crohn’s disease and other inflammatory disorders. As per
the deal, Glenmark would receive a US$50mn upfront payment on deal’s
closure (in 2-3 months). Further, it could potentially receive milestone payments
of up to US$613mn if it achieves certain development, regulatory, and
commercial targets. Additionally, upon commercialization of the product,
Glenmark would be entitled to receive double-digit royalty on product sales.
Sanofi would get exclusive marketing rights in America, Europe, and Japan,
while Glenmark would have co-marketing or exclusive rights in other countries
(including India). Management expects sales of the drug to begin in 2017.
Implications
Glenmark did not provide any visibility into the timelines and breakdown of
additional US$613mn payments. Given GBR 500 is a novel biologic, there are no
comparables to measure the probability of success of the drug in the various
trial phase. We believe that the development phase may take 5-7 years and the
peak sales of the drug post commercialization may be in 2020 and beyond.
Hence, we do not ascribe any value to the incremental payments from this deal,
except the US$50mn upfront payment. We raise our EPS by 48%/5% for FY12EFY13E to account for cash from the upfront payment. The company stated that
the cash from the deal would be used to repay debt, likely easing gearing
concerns, with net-debt to equity reducing to 38% in FY12E (from 43%).
Valuation
We remain Neutral on the stock. We lower our 12-m Director’s cut-based TP to
Rs312 (from Rs320) with a core business value of Rs285 (from Rs301, post
FY11 results), NPV of pipeline of Rs19 and cash/share from GBR 500 of Rs8.
Stock is at 18.5X on FY12E core EPS of Rs16.50 vs. the sector at 16.1X.
Key risks
Upside: Pipeline success; Downside: unfavorable litigation outcome.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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