Glenmark Pharmaceuticals Ltd.
May 6, 2013
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Pharmaceuticals Ltd. (Glenmark), the global integrated pharma
giant, has shown robust earnings growth in the past decade. The company has
strong presence in therapeutic segments Dermatology, Respiratory, Oral
Contraceptives (OC) and Oncology. It has also developed capabilities in New
Target ( )
Chemical Entity (NCE) and New Biological entity (NBE) research successfully
and has differentiated itself from the peers. It has presence across regulated
Potential Upside
markets including India, US, Latin America (LatAm) and other semi regulated
Investor's Rationale
Adj. all time High ( ) Decline from 52WH (%) Rise from 52WL (%) Over the last few years, with the implementation of a conscious strategy of emphasizing on power brands and key therapeutic areas viz, Dematology, Respiratory and Oncology, Glenmark's specialty business in the domestic Enterprise Value ( bn) territory has turned highly lucrative with high margins and low capital intensity. Fiscal Year Ended
We expect sales at its specialty business to grow at a CAGR of 21% in India in the next 2 years led by launch of new products and market share gains for its existing products. Glenmark has separated itself from other generic companies by launching products in high margin segments like Dermatology and OC. The company has one of the largest dermatology portfolio in US (22 drug filings), of which 20 are authorized to be distributed in US. It is also the first Indian company to enter OC space with 10 drugs launched till date. The company has a portfolio of 83 generic products and 46 Abbreviated New Drug Applications (ANDA) pending for approval, of which 18 are Para-IV filings One year Price Chart
Glenmark has established strong R&D capabilities with 7 NCE and NBE in its pipeline. The company has done 7 out-licensing deals since 2004, generating USD215 mn as upfront and milestone payments till date. It has out-licensed GRC 15300 and GBR 500 to Sanofi Aventis; both the drugs if successfully commercialized have the potential to generate revenues in excess of USD1 bn for the company.  With increasing shift towards regulated markets and newer geographies expansion, we have factored in a CAGR of 25.5% over FY12-14E for the API Shareholding Pattern
segment. API supplies for Crofelemer to Salix from FY14 would further boost the

revenues. During 9MFY13, API segment's revenue grew 35% YoY to 3,037.8 mn, which reflects 8.3% accountability towards the company's consolidated

A 135 bn Company, over 26 fold profitability growth in decade
Remarkably accelerated, Glenmark, incorporated in 1977 is a research-driven, fully integrated pharmaceutical company twenty-six fold growth in profit in a of India. With leadership in the discovery of new molecules NCEs and NBEs, Glenmark stands decade strengthens Glenmark's among the few Indian pharmaceutical players targeting new drug discovery research. With market position. presence in over 85 countries across the globe including India, US, Europe, Brazil, Russia/CIS, Africa and Asia, it focuses towards developing proprietary drugs as well as generic drugs across the categories of solid oral dose products, dermatological creams and ointments. Over the last decade, it has grown at a remarkable pace with fourteen fold growth in revenues and over twenty-six fold in profits, while strengthening its position as world class innovative company. Business model
The company has re-organized its business model into two separate business units - Specialty With two distinct business models for Business under the name of Glenmark Pharmaceuticals Ltd (GPL) and Generics Business under GPL and GGL, the company has the head of Glenmark Generics Limited (GGL). Both GPL and GGL are growing as independent entities with distinct business models where in GPL is moving up the value chain with focus on pharmaceutical value chain. branded generics and drug discovery activity while GGL is moving down the pharmaceutical value chain with focus on pure generics business and API. A leading contributor to the specialties business, Glenmark's domestic formulations is highly profitable and generates strong free cash flows. The company's domestic business holds an important part in its revenue profile and is also crucial for supporting investments in NCE research and growth in overseas markets, helping GPL to extend its market share with steady volume growth and new product introductions. Going ahead, Glenmark expect its domestic sales to grow at strong pace in the coming three years while building expertise around therapeutic areas like dermatology, respiratory and oncology, across all operating regions. Glenmark-Business Structure

Niche drug launches to drive the US business growth
Glenmark is the first Indian company Glenmark's US business is the largest revenue generator for the company (contributed 34% to enter oral contraceptive (OC) to the consolidated revenues in 9MFY13). The company has separated itself from other space and has commercialized all the generic companies in US by launching products in the niche and high-entry barrier segments 10 OCs till date. like dermatology, hormones, controlled substances and modified release categories. Dermatology remains the largest sales contributor for the company in US market. The company has one of the largest dermatology portfolio in US with indigenously developed 22 drug filings, of which 20 are authorized to be distributed in US. Dermatology space provides significant entry barriers as clinical trials are essential to get ANDA approvals and in which Glenmark has significant expertise and thus we expect the segment to drive US business. Glenmark is the first Indian company to enter OC space. It has commercialized all its approved OCs (10 OCs launched till date), with a gradual ramp-up expected in coming quarters. The company further intends to build an OC portfolio of 20-22 products. Niche launches in US
Market size (USD mn)
Desogestrel and Ethinyl Ethinyl Estradiol Mupirocin Calcium The company also has first-to-file (FTF) opportunities in US that would contribute to one-time significant revenues. It has sole FTF rights in generics for 4 products namely Malarone, Cutivate, Locoid Lipocream and Zetia. Atovaquone/Proguanil, the generic of Malarone has already been launched in the US market in September 2011. The exclusivity for the drug continues throughout FY13 as patent for Malarone is going to expire in May 2014. Fluticasone Propionate lotion, the generic of Nycomed's Cutivate was also launched in March 2012 with 180-day exclusivity period. Current portfolio of 83 generic Hydrocotisone Butyrate Cream, the generic of Locoid Lipocream to be launched in Dec 2013. products authorized for distribution The company is entitled to 180 days exclusivity while it will pay royalty to Triax and Astellas in US market and has 46 ANDAs with respect to its cream. Ezetimibe, the generic of Merck-Schering Plough's Zetia will be pending approval of which 18 are launched in December 2016. This will be a huge opportunity for the company as Zetia's market Para-IV filings. size is USD1.3 bn (MAT April 2012). It has entered into an agreement with Par Pharmaceuticals, where the latter would market the drug in the US on a profit-sharing basis. We believe US market would continue to drive growth for Glenmark (CAGR of 32% over the period FY12-FY14E) led by growing niche generic portfolio, FTF opportunities and increasing sales from recently launched products. The company's base business is also gaining momentum as now it has attained a sizeable scale which is self-sustainable. It currently has a portfolio of 83 generic products authorized for distribution in US market and has 46 ANDAs pending approval, of which 18 are Para-IV filings.

Para IV opportunities with sole exclusivity
Sales (MAT Apr 2012)
Launch Time
Locoid Lipocream Fluticasone Lotion Launched in Mar 2012 Launched Sep 2011 New product launches to augment growth for Specialty business
The company has implemented a Specialty business contributes over 58% to the total revenues of the Glenmark's consolidated conscious strategy of leveraging its business with major thrust from the domestic formulations segment (accounts for around 43% of its specialties business). The business is growing remarkably in India spurt by the new therapeutic areas viz, Dematology, product launches in the key therapeutic areas and the market share gain in the existing ones. Respiratory and Oncology. Over the last few years, the company has implemented a conscious strategy of leveraging its strong brands in the key therapeutic areas viz, Dematology, Respiratory and Oncology. It has further strengthened its position by entering into a 10-year agreement with Immanence IDC in April 2011. The tie-up is for distributing the company's high-end dermatology products in 8 countries including India, Brazil, Mexico, South Africa, Egypt, Vietnam, Malaysia and Thailand. This resulted into a considerable increase in market share in the respective segments. We expect revenue from the specialty business to grow at a CAGR of 21% in India in the next 2 years. Glenmark's com
petitive advantage in specialty business across carried geographies
The com pany's Russian subsidiary is The LatAm and ROW businesses together contribute 38% to the specialty segment revenues. among the Its main focus areas in the region are dermatology, oncology and respiratory. Glenmark's LatAm operations in Russia. In the other operation's performance was driven by strong growth from its Brazil and Venezuela CIS markets, Ukraine, Kazakhstan subsidiaries. Brazilian subsidiary contributes over 70% to LatAm sales and grew by over 17% in and Uzbekistan are continuing to 9MFY13. The company has built a strong product pipeline and continued to emphasis on show positive trends in secondary enhancing field force productivity. It has also increased its presence in Mexican and Venezuelan sales, driven primarily by the focus markets and entered new markets like Peru and Ecuador. Glenmark's ROW business delivered a stellar performance across markets clocking growth of over 44% YoY in 9MFY13. The company's Russian subsidiary is among the fastest growing operations in Russia. In the other CIS markets, Ukraine, Kazakhstan and Uzbekistan are continuing to show positive trends in secondary sales, driven primarily by the focus brands. The Africa/Middle East region and Asia region continued the growth trajectory backed by strong product portfolio. We expect the momentum to continue in LatAm and ROW markets on back of new product launches (CAGR of 25.7% over the period FY12-14E). Success of NBEs and NCEs to bolster the company's revenues
The company has struck 7 out- Glenmark has focused aggressively on drug discovery and research, which has resulted in a licensing strong pipeline of novel molecules. The company has 2 NBEs and 5 NCEs molecules in clinical generating USD215 mn as upfront trials including the in-licensed molecule Crofelemer. It has actively followed the strategy of out- and milestone payments till date. licensing its molecules in clinical development to large multinational pharmaceutical organizations. The strategy has been successful so far with 7 out-licensing deals struck by the company since 2004, generating USD215 mn as upfront and milestone payments till date. The company is also working with other pharma players in partnership to expand US presence. Its partner firm, Salix Pharmaceuticals (Salix) has been granted approval for Crofelemer by USFDA. This also enables Glenmark to proceed with filings in other markets, where it has got marketing rights. The company will benefit from API supplies to Salix, which may resume in FY14 and thereafter from commercialization of Crofelemer. Glenmark's novel drugs in pipeline
Primary Indications
Phase III
Crofelemer (in-licensed from Napo Pharma) GRC 4039 (Revamilast) Asthma, COPD, RA Osteoarthritic pain, Neuropathic pain licensed to Sanofi) Neuropathic pain and respiratory GBR 500 (out-licensed sclerosis, Inflammatory disorders mPGES-1 inhibitor Inflammation (chronic pain) Glenmark's R&D pipe line is progressing as per the schedule. The company is likely to start reporting the clinical data for various NCEs commencing with Asthma trial data for Revamilast in Q1FY14 and 3 other NCEs in H1FY14. This would be a key catalyst in FY14 as any favourable data can facilitate potential out-licensing deals. The company will discontinue development of Revamilast (GRC 4039) for Rheumatoid Arthritis (RA), since the data from Phase-IIb trials failed to meet the primary end-point. Increasing its API focus towards regulated markets
Glenmark is one of the most vertically integrated global generic majors; a market leader on both Enhanced focus on the regulated fronts of the pharmaceutical business, APIs and Formulations. We expect the company to markets which accounts for 65% of remain competitive in the generic business with focus on API development as few can be API revenues and expansion in new sourced at very low cost instead of manufacturing the same. geographies would help to post a CAGR of 25.5% over FY12-14E for Currently, the company's 20% formulations use its own APIs. Its revenue from its API business the segment. during 9MFY13 recorded robust 35.3% YoY growth at 3,037.8 mn, which reflects 8.3% accountability towards the company's consolidated revenues. API supplies for Crofelemer to Salix from FY14 will also boost the revenues. The strategy to shift its API business focus from semi-regulated to the regulated markets which fetch better margins is paying off. Enhanced focus on the regulated markets which accounts for 65% of API revenues and expansion in new geographies would help to post a CAGR of 25.5% over FY12-14E for the segment. The company has maintained its leadership position in Amiodarone for supplying to large generic companies in US and Europe and has further developed a sizable API pipeline for the future. Favourable industry dynamics
IMS Health forecasts the global Global pharmaceutical market which stood at USD 880 bn (according to data from IMS Health) pharma market to grow at a 5% has grown at a 7% CAGR over the past six years. The generics market has been the key driver of CAGR over the next four years to growth (13.8% CAGR over the same period) on account of large-scale patent expiries and global reach a size of over USD 1 tn by demand for low-cost drugs. IMS Health forecasts the global pharma market to grow at a 5% CAGR over the next four years to reach a size of over USD 1 tn by 2015. Generics segment is expected to grow at 12%-15% CAGR in the same period to be driven by continuing patent expiries in US and the faster growth in the emerging markets (including Brazil, Russia, India, Mexico and Turkey) and economy like Japan. The Indian pharmaceutical market has grown at a 14% CAGR over the past 18 years and is expected to register double-digit growth in the near future owing to a rise in pharmaceutical outsourcing and rising investments by multinational companies. New product launches and improving effectiveness of field force additions would support the growth. The sustained performance of the chronic therapies dominates the market and outperformed acute therapies in terms of growth. Significant opportunities in terms of cost competitiveness relating to the product development and manufacturing along with a large skilled talent pool has helped India emerge as a dominant player in the global generics space. Drug consumption per capita in India is still among the lowest globally. Even adjusting for India having the lowest prices in the world, the per capita consumption volumes are estimated to be 8-12x lower than in the US and Japan. Hence, there is tremendous room for growth for the Indian industry. Balance Sheet (Consolidated)
Profit & Loss Account (Consolidated)
Net Revenue
Reserve and surplus Net Worth
Minority Interest EBITDA margin Current liabilities Other liabilities Total liabilities
Profit Before
Profit After
Loans & Advances(LT) Tax before MI
Adj Net Profit
Deferred Tax Assets Reported Net
Total assets
Key Ratios (Consolidated)
Valuation and view
EBITDA Margin (%) Glenmark has differentiated itself among Indian drug companies through its significant success in NCE research. Its partner firm, Salix Pharmaceuticals (Salix has been granted approval for Crofelemer by USFDA. The new product launches in India, ROW and LatAm markets would further provide impetus to the sales. Launch of Crofelemer by Salix, positive data on its NCE pipeline and any out-licensing deal would act as potential triggers, further. At a current market price (CMP) of 500, the stock trades at 22.3x FY13E and of 17.2x FY14E, earnings. We recommend ‘BUY' with a target price of 595, arrived at 20.5x FY14E EPS which implies potential upside of 19.0% to the CMP from long EV/Operating Income (x) term (1 year) perspective. Indbank Merchant Banking Services Ltd. I Floor, Khiviraj Complex I, No.480, Anna Salai, Nandanam, Chennai 600035 Telephone No: 044 – 24313094 - 97 Fax No: 044 – 24313093 Disclaimer
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