GLENMARK

Hold Glenmark Pharma; target of Rs 364

Glenmark Pharma reported results below than expectations due to high forex loss and adverse change in sales mix Sales (excluding out-licensing income) grew by 7.5% qoq and 32.8% yoy at Rs 1007.5 cr. The company received out-licensing income of Rs 23.8 cr during the quarter as compared to 118.5 cr in Q2FY12. Core EBITDA margin (adjusted for forex loss and out-licensing income) has declined to 18.0% from 20.5% in Q2FY12 and 23.0% in Q3FY11.

During the quarter the company reported forex loss of Rs 102 cr (MTM on foreign currency loans) which negated the healthy sales growth of 32.8% yoy. EBITDA margin has declined due to lower contribution of high margin business like India (grew by 12.8% yoy in 9MFY12), US (42%) and higher contribution by low margin business like SRM (48%), LatAm (55%). High R&D cost also affected the EBITDA margins during the quarter. The company spent Rs 76 cr on R&D in Q3FY12 i.e. 7.5% of sales as compared to 6.9% in Q2FY12 and 4.6% in Q3FY11. Company has indicated of spending Rs 75 cr in Q4FY12 taking the full year figure to Rs 261 cr as against the earlier guidance of Rs 200 cr. Management has indicated that one of the reason for subdued performance of India business was inventory rationalization to reduce accounts receivable (which came down to 116 days from 125 days earlier). Management has indicated that going forward margins would improve from here onwards especially from FY13 onwards EBITDA margins are expected to improve substantially on year on year as the company is currently focusing on growth at the cost of margins.

We believe that major headwinds are factored in the price. With future triggers like improving margins, positive sales mix and better balance sheet position, we expect company to report better numbers. At CMP the stock trades at 20.8x FY12E and 13.3x FY13E. We believe the stock is available at attractive valuations. We are rolling our price target o FY13E. Based on our EPS of Rs 22 for FY13E target price comes to Rs 364 (earlier Rs 358). We maintain our HOLD rating on the stock. 

Accumulate Glenmark Pharmaceuticals; target Rs 345

Napo has announced that it has terminated collaboration agreement with Glenmark for development and commercialization of Crofelemer (anti-diarrhoeal agent) in emerging countries. As per Napo, the termination was based on Glenmark`s breaches of the agreement. Napo has alleged that 1) Glenmark has failed to develop, commercialize, and file for regulatory approval for Crofelemer for use in people living with HIV. 2) Glenmark has also failed to file even a single application to register the drug in any country in the world despite having the license for more than six years. Napo pharma had sent a notice of default to Glenmark on Sept. 9, 2011 which provided 60 days to Glenmark to remedy the default. Earlier in Aug 2011, Glenmark had filed arbitration claims against Napo in order to protect Glenmark`s exclusive rights of development and commercialization of Crofelemer in emerging countries and to prevent Napo to directly distribute in the emerging countries through relief agencies.

Further, Napo in Nov 2011 also terminated the collaboration agreement with Salix to commercially develop Crofelemer in US, Europe, Japan, Canada and Mexico. Napo has alleged that Salix failed to file an NDA even one year after the successful Phase III clinical trial. Salix has contested Napo`s right to terminate the collaboration agreement and claims.

Crofelemer launch was expected in FY13

Post the collaboration agreement in July 2005, Crofelemer had positive results from multicentre study in adult acute diarrhoea and successful completion of Phase III trials for HIVrelated diarrhoea in US. In July 2011, Glenmark had also received USD 15 million as upfront payment of the total USD 21.6million from Salix for upgrading Glenmark`s facility for Crofelemer API supply. Salix was expected to file Crofelemer NDA in US by next quarter and based on that Glenmark expected to launch Crofelemer in emerging markets by FY13. As a result, Crofelemer was estimated to contribute a one-time NPV of Rs 14/share from 1) Crofelemer (USD 60 million sales) supply to emerging markets 2) API supply to Salix for US and EU markets 3) Payment of USD 21.6million (USD 15 million received) from Salix.

Outlook and Recommendation

We remove Rs 14/share from our target price pending further clarity. Glenmark has stated that Napo does not have any right to terminate the agreement and requested the arbitration panel to issue an interim order directing Napo to comply with the collaboration agreement. The stock is trading at 18.2x FY12E and 14.9x FY13E recurring earnings. We recommend `Accumulate` on the stock with a revised target price of Rs 345 valuing the base business at Rs 323 (18x one year forward earnings); Rs 13 P IV FTF (Zetia and Malarone) and Rs 9 for R&D pipeline (GBR 500).

Buy Glenmark Pharma; target of Rs 401

Indian operations are cash cow for the company. Strong performance from key specialties, new product launches coupled with recent addition to the filed force would lead to 16-18%+ growth in the Indian business. Total MR Strength is 2400

In the US ANDA basket consists of 69 generic products authorized for distribution with 40 pending for approval with the USFDA including 13 Para IV filings till date

Malorene launched in Q3FY12 and Cutivate - expected launch in Q4FY12 are key upside triggers for the stock. In case of Malorene, exclusivity is expected to extend well beyond 180 days as there has no other ANDA filer till date neither an authorized generic. In case of Cutivate management has guided for potential sales of USD 25-30 million during 6 months of exclusivity. Post the exclusivity there will be 3 players in the market

Tarka - Glenmark has still not received any verdict from the appeals court

OCs - Management has guided for launch of 7 new products in the OCs, oral solids and semi solids space, as well as exclusive launches. It has already launched 6 OC products and 12 are pending for approval. The company is planning to file 6 more ANDAs in this space in coming years

Ortho Tri-Cyclen - MS USD 200 million. Glenmark launched the product in Q3FY12 and has been able to take 10% market share as one its competitor had to voluntarily recall the product from the market

Company has guided for USD 240 million sales from the US market in FY12E

Glenmark currently has a pipe-line of 5 NCE & NBE molecules which are under various stages of clinical development. This includes Crofelemer, which has been in-licensed by Glenmark from Napo Pharma

In Russia the company remains largely isolated from the reference drug pricing policy as it operates in those regions which are not affected by the government policy. It caters to niche therapies of Derma and Respiratory. Receivables in this market are in-line with industry at 140 days.

Management has guided for top-line growth of 25% for FY12 with US business clocking 20% growth. Capex guidance stands at Rs 2 billion for the next 2-3 years

Valuation

We expect Glenmark Pharma to report 24% revenue growth in FY12E and 8% growth in FY13E. We expect EBIDTA margins to move from 20.1% in FY11 to 26.1% in FY12 and 23.8% in FY13. Earnings will grow by 19% CAGR over FY11-13E. We maintain Buy rating on the stock with a target of Rs 401 (18x FY12 base business earnings + adjusted NPV of Rs 45). At CMP, the stock is trading at 13.0x FY12E and 13.1x FY13E earnings.

Hold Glenmark Pharmaceuticals; target Rs 358

Glenmark Pharmaceuticals reported better than expected total income with 42% yoy growth at Rs 1055.7 crs including outlicensing income of Rs 118.5 crs. Excluding that, also the sales growth was impressive 29.4% at Rs 937 crs. However, due to onetime royalty payment to Paul Capital of Rs 131.7 crs net profit showed a decline of 50% yoy at Rs 55.9 crs.

• EBITDA includes forex loss of Rs 85 crs, which affected the margins. For Q2FY12 EBITDA margins were 21.4% as compared to 25.2% in Q2FY11.

• Interest has decline on sequential basis form Rs 41 cr in Q1FY12 to Rs 29 cr in Q2FY12 as the company has shifted local debt to foreign. Interest is expected to remain in similar range in coming quarters

• The company launched Malarone (the company has FTF exclusivity on the product) during the quarter which also supported the strong sales

growth

• Specialty business (excluding out-licensing income) grew by 29% led by semi regulated markets (67.6%) and India formulations business (13%)

• Generics business grew by 22% led by strong growth in US (34%) and Europe (22.5%)

• Company has guided for 200-250 crs of capex for FY12

• Management maintained its 25% growth guidance for F12 with 21-22% EBITDA margins

At the current price of Rs. 310, Glenmark is trading at a PE of 15.6x FY12E & 13.4x FY13E earnings. The valuations look attractive at current levels given improved revenue outlook, strong R&D pipeline and improving balance sheet status. Based on our EPS of Rs 19.9 and price multiple of 18x FY12E, we arrive at a price target of Rs 358. We recommend HOLD on the stock with a long-term view,”

Buy Glenmark Pharma; target Rs 401

Glenmark is gaining market share in the domestic market driven by steady volume growth and new product introductions. Focused approach on key specialty segments like dermatology, cardiology, respiratory, analgesics and gynecology has led to improvement in overall margins.

Indian operations are cash cow for the company. Strong performance from key specialties, new product launches coupled with recent addition to the filed force would lead to 16-18%+ growth in the Indian business. Total MR strength is 2400

US Generics - Strong portfolio with limited competition opportunities:

ANDA basket consists of 69 generic products authorized for distribution with 40 pending for approval with the USFDA including 13 Para IV filings till date

Malorene - expected launch in Q3FY12 and Cutivate expected launch in 4FY12 are key upside triggers for the stock

Management has guided for launch of 7 new products in the OCs, oral solids and semi solids space, as well as exclusive launches. It has already launched 5 OC products. We expect US business to clock 15% revenue CAGR over FY11-13E Glenmark`s NCE pipeline lends credibility to its research capabilities

Glenmark currently has a pipe-line of 5 NCE & NBE molecules which are under various stages of clinical development. This includes Crofelemer, which has been in-licensed by Glenmark from Napo Pharma

Glenmark has been successful in monetizing part of its NCE pipeline. While it has suffered a few setbacks in the past, we believe that overall, Glenmark`s ability to derive value from the NCE pipeline has been credible.

Valuation

We expect Glenmark Pharma to report 24% revenue growth in FY12E and 8% growth in FY13E. We expect EBIDTA margins to move from 20.1% in FY11 to 26.1% in FY12 and 23.8% in FY13. Earnings will grow by 19% CAGR over FY11-13E. We maintain Buy rating on the stock with a target of Rs401 (18x FY12 base business earnings + adjusted NPV of Rs45). At CMP, the stock is trading at 13.9x FY12E and 14.1x FY13E earnings.

Buy Glenmark Pharma; target Rs 396

OCs and exclusive products drive growth in US market:

The US formulation business grew 34% YoY to Rs 3.00 billion on the back of recent product launches. It launched four products in the US market during the quarter including one exclusive product. In oral contraceptives (OCs), five products were launched; of which four products have a market share of more than 25%. The company expects the market share to improve even further in these drugs.

Domestic formulation grew 19.6% YoY:

The domestic formulation business grew 19.6% YoY to Rs 2.53 billion on the back of strong growth driven across therapies. The company has launched four products during the quarter. As per AIOCD secondary data, the key therapies derma, cardiac and anti-infective posted growth of 14.1%, 35.3% and 11.2%, respectively.

Valuation:

Focus on niche therapies and limited competition opportunities augur well for the company. With strong traction in both specialities and the generic space and rekindling of the R&D business, Glenmark is well poised to improve on the leverage position and sustain the growth trajectory. We have arrived at a value of Rs 396, based on 17x FY13E EPS of Rs 23.3 with a Buy rating.

Buy Glenmark Pharmaceuticals; target Rs 360

Glenmark reported strong sales growth for the quarter which was higher than our and street estimates driven by US, India and RoW formulation segments. The company continues to witness strong traction in US business on back of improving market share in existing products and new product launches. However, margins were under pressure on back of increase in raw-material prices and unfavorable product mix (higher RoW segment sales). The company expects recurring EBITDA margins to be in range of 21-22% for FY12.



We continue to maintain `BUY` on the stock with a target price of Rs 360 valuing the base business at Rs 322 (18x one year forward earnings); Rs 13 P IV FTF (Zetia and Malarone) and Rs 25 for R&D pipeline (Crofelemer and GBR 500).

Sales growth driven by US, RoW and India segments

Glenmark reported strong sales growth of 29.5% YoY which was ahead of our and street estimates driven by US, RoW and India formulation segments. US sales grew by 34.1% YoY on of back increasing market share in existing products and new product launches. Glenmark also launched generic Malarone in September and has 180-days exclusivity. The company also witnessed solid growth in India which was up by 19.7% YoY while RoW market for Glenmark grew by 82.4% YoY on back of Russia/CIS and Africa region.

Rising material cost put pressure on margins

Glenmark reported EBITDA margins (ex R&D income and Forex loss) of 20.5%, below our estimates of 21.8% on back of increasing raw-material cost. The raw-material cost increased by 34.2% YoY on back of change in product mix, increase in raw-material prices and higher sample cost. As a result the gross margins contracted by 124bps. The employee cost was up by 18.3% YoY, while SG&A cost (ex forex loss) increased by 27.9% YoY. Further the company`s net profit was marred by onetime payment of USD 29 million to Paul Capital and MTM forex loss of Rs 850 million.

Valuations and Recommendation

We have revised our sales estimates upwards for FY12 and FY13 by 1-2% to factor in strong sales growth across segments but cut our earnings estimates for FY12 and FY13 by 3-7% on back of higher material and SG&A cost. The stock is trading at 18.9x FY12E and 15.5x FY13E recurring earnings. We continue to maintain `BUY` on the stock with a target price of Rs 360 valuing the base business at Rs 322 (18x one year forward earnings); Rs 13 P IV FTF (Zetia and Malarone) and Rs 25 for R&D pipeline (Crofelemer and GBR 500).

Buy Glenmark Pharma; target Rs 401

US business (contributed 28%) grew by 34% YoY due to ramp-up in 19 ANDAs launched last year which includes 4 OC and 1 hormone product. Company also launched para IV settled product i.e. Malarone in US. However it was only for 17 days and full quarter impact will come in Q3FY12

India revenues (contributed 24%) grew 20% YoY to Rs. 2.6 billion led by market share gains in key therapies of Cardiac, Respiratory, Diabetes and Dermatology

Company repaid USD 28.8 million to Paul Capital and as a result Glenmark will not share royalty (approx. 30%) with Paul Capital on its Derma Portfolio which is expected to be USD30million by the end of FY12

Base EBITDA margins (ex-licensing income) increased by 45bps to 20% and adjusted PAT stood at Rs 1.25 billion (grew by 60%)

Multiple growth drivers ensure sustained revenue momentum

Malarone launched in September 2011 and Cutivate expected launch in Q4FY12 are key upside triggers for the stock

Company has not hedged its exports and as a result it will see 10% increase in realization on exports (contributes 70%) from Q3'12 onwards on back of Rupee depreciation

Glenmark has strong product pipeline in the US and in the forthcoming quarters the management has guided for launch of six new products in the oral contraceptives, oral solids and semi solids space

Strong performance from key specialties like the derma, respiratory, CVS and pain, new product launches coupled with recent addition to the filed force would lead to 16-18%+ growth in the Indian business. The total MR strength is 2400

Valuation:

We expect Glenmark Pharma to report 24% revenue growth in FY12E and 8% growth in FY13E. We expect EBIDTA margins to move from 20.1% in FY11 to 26.1% in FY12 and 23.8% in FY13. Earnings will grow by 19% CAGR over FY11-13E. We maintain Buy rating on the stock with a target of Rs401 (18x FY12 base business earnings + adjusted NPV of Rs 45). At CMP, the stock is trading at 13x FY12E and 14x FY13E earnings.

Reduce GlaxoSmithKline Pharma; target Rs 1,714

Decline in profitability led by higher material cost and other expenses:

EBIDTA margins contracted by 687bps YoY to 30% on account of- > Higher raw material cost (up 12% YoY, 266bps expansion) and> Other expenses (up 24% YoY, 316bps expansion).PAT de-grew 8% to Rs 1.5 billion

Impact of proposed drug price control policy:

The government's new proposed drug price control policy will bring 60% of the domestic market under direct price control. Among the pharma companies GSK will be the most affected with ~67% of its portfolio falling under the price control regime which will have Rs 1.5 billion impact on the top-line. The major brands which will be impacted are Augmentin, Zentel, Banocide, Betnovate, Neosporin, Zinetac, Zovirax, Eltroxin, Betnesol and Calpol. However, we have not factored-in any downsides from price control policy in our estimates.

Valuation:

We expect GSK to report 7% revenue growth in CY11 and 12% growth in CY12. We expect EBIDTA margins to contract from 35.31% in CY10 to 31.6% in CY11 and 32.9% in CY12. Earnings will grow at a CAGR of 7% to Rs 6.7 billion. We revised our target on the stock to Rs 1,714 and downgrade the stock one notch to Reduce. At CMP, the stock is trading at 31x/27x CY11E/CY12E earnings respectively.

Buy Glenmark Pharma; target of Rs 380

Glenmark’s core business is geared up to enter into a high growth trajectory. We believe strong emerging market presence (50% of sales) will strengthen branded business portfolio while niche product launches will grow the US business significantly. The key geographies which will drive growth include India, Russia, Africa and Latin America and US. Glenmark’s derives ~28% overall revenue from the US. Diversified focus and prudent product selection strategy has helped Glenmark post strong performance in recent quarters. We believe monetization of key approvals holds the key for future growth. As on March 2011, Glenmark has 69 ANDA approved and 40 pending approvals which includes 14 PIV filings where the company is sole FTF (first-to-file) filer for 4 products. We expect the US business to remain buoyant in future led by imminent patent cliff when drugs worth US$78bn will go off patent.

Glenmark has received around Rs7.4bn as licensing income from innovative R&D. We believe the value attributed to R&D can potentially increase on clinical success of products and frequency of deals. Company has consistently received licensing income between FY05 and FY11 except in FY09. R&D pipeline being tricky and hard to value, we ascertain Rs39/share by probability valuation. Glenmark is confident of continued improvement in its working capital and expects improved free cash flow. We expect a curtailment in debt levels with the company ending FY13 with net debt of Rs16.5bn. The write down of Rs4.5bn of intangibles in 4Q FY11 on adoption of IFRS was a significant step towards improving balance sheet.

We estimate revenue CAGR of 20% over FY11-13 with the jump in margin in FY12 due to higher licensing income (Rs2.3bn). We expect core margin expansion along with improvement in return ratios. We initiate coverage on Glenmark with a BUY rating and a 9-month target price of Rs380. Our SOTP price target values core business at Rs330/share, FTF/PIV opportunities at Rs13 and NCE at Rs37.

Hold Glenmark Pharma; target of Rs 386

Glenmark Pharmaceuticals Limited reported sales of Rs 868 cr for Q1FY12, a growth of 27% yoy. The company reported broad based growth spread across geographies. Domestic (20%), Emerging markets (43%) and US (37%) were key growth contributors. Launched two products in domestic market. Filed three ANDAs with U.S. FDA. It is expected to file 15-20 products with USFDA as compared to 13 ANDAs filed in FY11. Which will boost the US revenues in coming period. Argentina facility is expected to start filing oncology products for US markets from this year. Malarone is expected to be launched in Sept’11. Going forward the company plans to file four new products and launch of seven new products. Management has guided for continuance of strong domestic growth of 18-20%. However it has not revised its EBITDA margin guidance of 22-25% for FY12 despite higher margins reported in Q1FY12, because it expects R&D cost to inch up in coming quarters, which would bring down the margins. The company continues to improve its working capital position. It has achieved 125 Debtors days from 141 in FY11 and expect it to stabilize at these levels.

At the current price of Rs. 331, Glenmark is trading at a PE of 15.4x FY12E & 13.1 FY13E earnings. The valuations look attractive at current levels given improved revenue outlook, strong R&D pipeline and stable margins. Our earlier target of Rs 336 has been achieved. We are revising the numbers and target price upwards on back of robust growth shown by the company in the current quarter and healthy outlook for future. Based on our EPS of Rs 21.4 and price multiple of 18x FY12E, we arrive at a price target of Rs 386.

Buy Glenmark Pharmaceuticals; target Rs 426

Glenmark Pharmaceuticals (Glenmark) reported a strong growth (of 23.1% year on year [YoY]) in its net profit on a consolidated basis and stood at Rs 2.1 billion, which is ahead of the Street`s estimate. The higher than expected earnings growth was largely driven by a better than expected revenue growth in some key geographies and margin expansion.

The revenue of the company (excluding out-licencing fees) grew by 27.8% to Rs 7.57 billion. The specialty business division, which accounts for 55% of the total revenue, reported a 29% growth. Geographically, the Indian market witnessed a 20% growth due to the launch of two new products, named Vorth TP and Doriglen. The Latin American market registered a 62% growth, which was supported by the launch of nine new products across the region.

On the other hand, the generic business, which forms 45% of the total revenue, also supported the overall revenue growth. Geographically, the US market rebounded with a revenue growth of 37% whereas from the European market the company booked revenue of Rs 175 million (a growth of 118% YoY). In addition the company has also booked out-licencing fees to the tune of Rs 1,112 million as compared to Rs 895 million in the corresponding quarter of the previous year.

The operating profit margin (OPM) of the company increased by 53 basis points YoY to 34.2% on account of a decrease in the material cost as a percentage of sales and increase in the out-licencing fees by 24%. However, adjusting for the out-licencing fees, the OPM for the quarter stood at 24.5%, which is ahead of the management guidance of 22-23%. However, the management has maintained its earlier OPM guidance of 22-23%.

During the quarter the company received the final abbreviated new drug application (ANDA) approval for four products and filed three ANDAs with the US Food and Drug Administration (USFDA). In the forthcoming quarter the company plans to file four new products and anticipates the launch of seven new products. At the end of Q1FY2012, the company had a portfolio of 69 generic products authorised for distribution in the US market as well as 40 ANDAs in various stages of approval process with the USFDA.

Glenmark has received USD 15 million from Salix Pharmaceuticals, Inc, USA (Salix). This is as per an agreement for advance against the commitment fee, which is to cover the risks associated with the upgradation of its manufacturing facilities to meet the anticipated increased requirements of Salix for Crofelemer, which is for multiple diarrhoeal conditions. Through an agreement between the two companies, Salix agreed to pay Glenmark (Q,N,C,F)* a USD 21.6-million commitment fee in five equal annual installments, with the first annual installment in July 2012. The commitment fee is in addition to the compound purchase price payable by Salix to Glenmark.

We are upgrading our earnings estimates for FY2012 and FY2013 mainly to incorporate the higher than expected revenue growth particularly from the geographies like the USA, India and Latin America. We believe new product launches and ability to maintain the market share of the existing products will help sustain the momentum in the revenue growth. The revised earnings per share (EPS) estimates for FY2012 and FY2013 now stand at Rs 24.1 and Rs 22.6 respectively.

Maintain `Buy` with revised price target of Rs 426:

Given the expectation of a healthy performance by the core business and a favourable risk-reward ratio, we maintain our `Buy` recommendation on the stock with a revised price target of Rs 426 (15x FY2012E core earnings for the base business and Rs 64 for research and development [R&D]). At the current market price, the stock trades at 13.8x FY2012E earnings and 14.7x FY2013E earnings.

Buy Glenmark Pharmaceuticals;\ target Rs 376

Earnings growth ahead of street estimates: Glenmark Pharmaceutical (Glenmark) reported a strong growth (23.1% year on year [YoY]) in its net profit on a consolidated basis at Rs210 crore which is ahead of Street estimates. A higher than expected earnings growth has been largely driven by better than expected revenue growth in some key geographies and margin expansion.

Revenue grew by 27.8% supported by rebound in the US generic business & formulation business in the domestic market: The revenue of the company (excluding out-licensing fees) grew by 27.8% to Rs757 crore with the specialty business division which forms 55% of the total revenue reporting a 29% growth. In terms of geographies, the Indian market witnessed a 20% growth on the back of launch of two new products-Vorth TP and Doriglen while Latin America registered a 62% growth supported by 9 new product launches across the region. The generic business which forms 45% of the total revenue also supported the overall revenue growth. The US market rebounded with a revenue growth of 37% whereas the company booked a revenue of Rs 175 million (grew by 118% YoY) from the European market. In addition the company has also booked out-licensing fees to the tune of Rs 1,112 million as compared to Rs 895 million in the corresponding quarter previous year.

Operating profit margin expanded due to decrease in material cost & increase in out-licensing fees: The operating profit margin of the company increased by 53bps YoY to 34.2% on account of a decrease in the material cost as a percentage of sales and increase in the out-licensing fees by 24%. However, adjusting for the out-licensing fees, the operating profit margin (OPM) for the quarter stood at 24.5% which is ahead of management guidance of 22-23%. However, the management has maintained its earlier guidance of 22-23% on the OPM.

ANDA approval received for 4 new products: During the quarter the company has received final abbreviated new drug application (ANDA) approval for 4 products and filed 3 ANDAs with the US Food and Drug Administration (USFDA). In the forthcoming quarter the company plans to file 4 new products and anticipates launch of 7 new products. At the end of Q1FY2012, the company has a portfolio of 69 generic products authorised for distribution in the US market as well as 40 ANDAs in various stages of approval with the USFDA.

The company received USD 15 million from Salix Pharmaceuticals Inc, USA. This is as per an agreement for advance against commitment fee which is to cover Glenmark`s  risks associated with upgrading its manufacturing facilities to meet Salix`s anticipated increased requirements in demand for Crofelemer which is for multiple diarrhoeal conditions. Through an agreement between the two companies, Salix agreed to pay Glenmark a $21.6 million commitment fee in five equal annual installments, with the first annual installment in July 2012. The commitment fee is in addition to the compound purchase price payable by Salix to Glenmark.

Given the healthy performance expectation on the core business and a favorable risk-reward ratio, we maintain our Buy recommendation on the stock with a price target of Rs 376. We will shortly come out with a detailed note with likely upgrades in the earnings estimates for FY2012 and FY2013. At the current market price, the stock trades at 21.6x FY2012E earnings and 16x FY2013E earnings.

Buy Glenmark Pharmaceuticals; target Rs 401

US business (contributed 29%) grew by 37% YoY due to ramp-up in 19 ANDAs launched last year which includes 4 OC and 1 hormone product. Glenmark was granted four ANDA approvals in Q112, and now the company has a portfolio of 69 ANDAs with 18 final and 4 tentative approvals.

India revenues (contributed 26%) grew 20% YoY to Rs 2.6 billion led by market share gains in key therapies of anti-infectives, cardiac, respiratory, diabetes and dermatology. During Q112, the company launched 2 new products i.e. Doriglen and Vorth, which was in orthopedic segment.

Base EBITDA margins (ex-licensing income) increased by 45 bps to 24.4% led by 150 bps decline in raw material cost. Adjusted PAT stood at Rs 1.1 billion (grew by 30%).

Malorene expected launch in Q3FY12 and Cutivate expected launch in Q4FY12 are key upside triggers for the stock.

Glenmark has strong product pipeline in the US and in the forthcoming quarters the management has guided for launch of seven new products in the oral contraceptives, oral solids and semi solids space, as well as exclusive launches

Strong performance from key specialties like the derma, respiratory, CVS and pain management, new product launches coupled with recent addition to the filed force would lead to 16-18%+ growth in the Indian business. The total MR strength is Rs 2,400.

Valuation:

We expect Glenmark Pharma to report 24% revenue growth in FY12E and 8% growth in FY13E. We expect EBIDTA margins to move from 20.1% in FY11 to 26.1% in FY12 and 23.8% in FY13. Earnings will grow by 19% CAGR over FY11-13E. We revise our target price on the stock to Rs 401 (18x FY12 base business earnings + adjusted NPV of Rs 45) and upgrade the stock to `Buy`. At the current market price (CMP) of Rs 338, the stock is trading at 14.1x FY12E and 14.2x FY13E earnings.

Buy Glenmark Pharmaceuticals with a price target of Rs 376

Glenmark Pharmaceuticals (Glenmark)`s deal with Sanofi grants the latter a license to develop and commercialize novel agents for crohn`s disease and other anti-inflammatory conditions such as multiple sclerosis.

GBR 500, a monoclonal antibody, is an antagonist of the VLA-2 (Alpha2 ßeta1) integrin, having anti-inflammatory properties. Glenmark also intends to develop GBR 500 for multiple sclerosis. The market for multiple sclerosis is around USD 10 billion. Glenmark has completed the phase I dosing of GBR 500 in the US with encouraging data points.

Glenmark would receive an upfront payment of USD 50 million (in Q1FY2012) of which USD 25 million will be paid on the closing of the transaction and another USD 25 million is contingent of a positive assessment of certain data provided by Glenmark. It is entitled to receive milestone payments upto USD 613 million (cumulative) and royalties (in mid-teens) on sales.

Sanofi will have the exclusive marketing rights for North America, Europe, Japan, Argentina, Chile and Uruguay. It will have co-marketing rights in Russia, Brazil, Australia, and New Zealand. Glenmark has the sole rights to market the product in India and other emerging markets.

Besides boosting confidence in Glenmark`s R&D effort, it will also ease some of the pressure on its R&D. The cash flows from the deal would allow Glenmark to fund its proprietary R&D without depending too much on its generics cash flows.

The market size for multiple sclerosis is USD 10 billion and is approximately USD 2-3 billion for chron`s disease, growing at the rate of 5-6% per annum globally. We use this as a starting point for our valuation. We assume that the milestones are spread and back ended over eight years and adjust these by declining probability rates, with a 10% probability of launch. We assume royalties of 15% on sales. We estimate a one-time cash value of Rs 7.5 a share from the deal in our discounted cash flows assumption.

Post GRC 15300, this is the second out licensing deal with Sanofi which proves the testimony of strong biologics platform that Glenmark has established in a relatively shorter frame of time. We view the out licensing deal as a big positive for Glenmark. The company has a pipeline of 5 NCE and NBE molecules in clinical trials. More out licensing deals would reaffirm its strength in the R&D pipeline and could thus spring a positive surprise. Given the out licensing deals and the favourable risk-reward ratio, we maintain our `Buy` recommendation on the stock with a revised price target of Rs 376 (20x FY2012E earnings for the base business plus Rs 64 a share for the R&D pipeline). At the current market price of Rs 306, the stock remains attractively valued at a price/earnings of 14.5x FY2013E earnings.

Buy Glenmark Pharma; target Rs 352

Glenmark Pharmaceuticals (Glenmark) has changed its accounting standard from I-GAAP to IFRS resulting which the FY2011 numbers have been impacted both at the profit and loss (P&L) and the balance sheet levels. Thereby the profit before tax (PBT) has been lower by Rs65 crore in the P&L and fair valuations of all assets and reserves have impacted the balance sheet by Rs 4.5 billion in FY2011.

Glenmark reported a 16.2% growth on its base business (ex-licensing income). The growth was driven by the US (up 15.5%) and the domestic market (up 12%). The active pharmaceutical ingredient (API) segment (up 27%) also contributed to the growth. The base operating margins stood lower at 17.6% on account of one time charges related to foreign currency convertible bonds (FCCB) provisioning, employee stock options (ESOPs) and other bank charges` re-classification. The higher interest costs, lower depreciation charges and utilisation of tax credit for payments boosted the profits. Glenmark incurred a foreign exchange (forex) gain of Rs 650 million in FY2011, which is included in the other income. Adjusting for the same, the bottom line grew by 18.7%.

We have revised our numbers, incorporating the changes in the accounting standards. Our earning per share (EPS) estimates stand lower at Rs15.6 (earlier Rs17.6) and Rs 21.1 (earlier Rs 24.1) for FY2012 and FY2013 respectively.

The management has guided for a 25% revenue growth with 22-23% at the operating level for FY2012. We forecast a 17% compounded annual growth rate (CAGR) in base revenues over FY2011-13E with margins normalising at 20-22%.

Maintain Buy, revised price target to Rs 352: With a slew of product launches in the US market and penetration in semi-regulated markets, we remain upbeat about the future growth prospects of the generic business. Further the strong growth in specialty formulations continues to be a growth driver for the company. More out licensing deals and milestone payments could thus spring a positive surprise to our estimates. At the current market price of Rs 284, the stock trades at 18.2x FY2012E earnings and 13.5x FY2013E earnings. We maintain our `Buy` recommendation on the stock with a revised price target of Rs 352.

Buy Glenmark Pharma; target of Rs 332

Glenmark’s Q3 numbers disappointed on US sales growth front and lower margins. US generic sales grew by mere 8.2% YoY and de-grew 8.8 % QoQ on back of product withdrawal during the quarter and slow pick-up in recently launched products. We expect the company’s US sales to pick-up from Q4 onwards on back of gradual improvement in market share.

Glenmark reported Net Sales of Rs 7,508 million, up 21.4% YoY, driven by speciality formulation segment (India, Latin America, and RoW). The prime disappointment was the meager 8.2% YoY growth on US generic business in spite of 6 product launches during the quarter. The company reported improvement in gross margins by 37bps QoQ to 66.9% in spite of low contribution from US generic business. However the expansion on the gross margin was impeded by higher salary and other expenses.

The stock is currently trading at 21.2x FY11E and 15.8x FY12E earnings. We recommend BUY on the stock with a target price of Rs 332 valuing the base business at Rs 310 (18x FY2012E earnings), Rs11 FTF (primarily Zetia and Malarone) and Rs 11 for NCE (Crofelemer). We have not factored in Tarka in our estimates on back of uncertainty over outcome of litigation.

Buy Glenmark Pharma; target of Rs 400

Glenmark Pharmaceuticals, together with its subsidiaries, engages in the manufacture and marketing of pharmaceutical formulations and active pharmaceutical ingredients in India and internationally. The company has a significant presence in branded generics markets across emerging economies including India. Its subsidiary, Glenmark Generics Limited has a fast growing and robust US generics business. The company’s net sales and net profit are expected to grow at a CAGR of 15% and 44% over FY09 to FY12E. It is the most successful Indian company in novel drug discovery research and has earned USD 137 million. The company out-licensed GRC 15300 to Sanofi-Aventis with a total deal value of USD 325 million. Glenmark received USD 20 million as upfront payment.

For the Second quarter, the top line of the company increased 23%YoY and stood at Rs 7413.83 million against Rs 6025.01 million of the same period of the last year. The bottom line of the company for the quarter stood at Rs 1116.25 million from Rs 808.65 million of the corresponding period of the previous year i.e. an increase of 38%YoY.

At the market price of Rs 356.05, the stock is trading at 18.94 x and 16.49 x for FY11E and FY12E respectively. On the basis of EV/EBDITA, the stock trades at 11.26 x for FY11E and 10.09 x for FY12E. Price to book value of the company is expected to be at 3.36 x for FY11E and 2.79 x for FY12E respectively. EPS of the company is expected to be at Rs 18.80 and Rs 21.59 for the earnings of FY11E and FY12E respectively. The company’s net sales and net profit are expected to grow at a CAGR of 15% and 44% over FY09 to FY12E. We recommend ‘BUY’ in this particular scrip with a target price of Rs 400 for medium to long term investment.

Buy Glenmark Pharma; tgt of Rs 373

Glenmark reported good Q2FY11 figures, with yoy growths of 22.7% in revenue and 38% in adjusted net profit. EBITDA margin declined 300bp yoy; qoq however, it improved 150bp to 23.5%. Receivable days have slid to 119 (155 in Sep ’09).

The generics segment grew at a robust 27.2% yoy and specialty pharma grew 19.2% yoy. US generics grew 26.4% yoy fuelled by more products and the launch of ‘Tarka’ at risk (USD 4m-5m revenue in Q2FY11). Indian branded formulations also grew strongly, at 21.5% yoy, led by greater market share in cardiac, respiratory and anti-infectives.

Glenmark shows clear signs of a recovery owing to its strong growth in the US and India, the turnaround in Latin America (Latam) and a significant decline in receivable days. EBITDA margin has started picking up, to 23.5% (22% in Q1).

We expect the growth momentum to continue, driven by higher-than-industry growth in domestic formulations, the launch of niche products in the US and continuous recovery in Latam. We estimate CAGRs of 17.1% in revenue and 25.5% in net profit over FY10-13. At the CMP, the stock trades at 18.5x FY11e and 16.7x FY12e earnings. We retain our target price of Rs 373 and reiterate Buy.

 

Motilal Oswal neutral on Glenmark Pharma

Glenmark is one of the second-tier integrated pharmaceutical companies that have differentiated itself through its success in NCE research. The company has a pipeline of nine novel drugs in various phases of clinical studies. It is also one of the leading Indian generic companies in the US with a focus on niche generic segments. Glenmark has a large presence in semi-regulated markets.

Glenmark has adopted a differentiated generic strategy for US business, which focuses on niche segments like hormones, dermatology and controlled release, which has limited competition and better profitability. It is the most successful Indian company in novel drug discovery research and has earned USD 137 million. The company out-licensed GRC 15300 to Sanofi- Aventis with a total deal value of USD 325 million. Glenmark received USD 20 million as upfront payment.

Glenmark's FY10 performance will be adversely impacted by delays in receiving approvals for its US business and delayed ramp-up in Latam and Europe. The stock trades at 22.3x FY11E and 17.6x FY12E earnings with about 14-16% RoE. Maintain Neutral with a target price of Rs 295 (16x FY12E EPS).

 

Buy Glenmark Pharma; target of Rs 324

Glenmark’s Q2FY11 results were better than our expectation. Strong 23% sales growth was based on the growth in US (+26%), Europe (+33%) and India (+22%). Lower realisation couple with the change in the product & customer mix dragged the gross margins by 200bps. EBITDA grew by slower rate of 11%. However, lower interest and depreciation translated in 15% growth in PAT. We continue to be positive on the US business recovery driven by launches in the niche generics category. We raise our TP to Rs 369 from Rs 353 as we roll forward to Dec’11 earnings.

Continuous product launches in the developed market and aggressive marketing efforts in domestic formulation have resulted in 23% sales growth. US exhibited strong growth after 5-6 quarters while we continue to believe 20% growth in FY11e and FY12e. Strong momentum continued in India and EU.

EBITDA margins declined by 271bps YoY while improved 140bps QoQ (excluding one time milestone income). We expect margins to be in the range of 25-26% for FY11e and FY12e. Glenmark receivables have come down to 119days from 155days in Q4FY10. It has also reduced the net debt level to Rs 15.6 billion from Rs 17.6 billion at the end of FY10. It has reduced the interest burden to ~Rs300mn in Q2FY11 compared to ~Rs 450 million in Q2FY10.

We are more sanguine about Glenmark's return to high growth in the US (more niche product launches vs. an existing plain vanilla generic product portfolio) and RoW markets (volume growth). Given near-term uncertainty over the NCE R&D pipeline and related milestones, we believe cost basis is more appropriate for valuing the NCE R&D effort. We value the base business at 18x Dec'11E earnings after adding back NCE R&D (net of tax shield). We also add Rs 15 per share as NPV for 'at risk' launch of Tarka in the US. This yields a TP of Rs 369. We maintain 'BUY'.

Buy Glenmark Pharma; target of Rs 353

Glenmark Pharma has underperformed the BSE Healthcare Index on a disappointing NCE R&D pipeline and slowing growth in the generic business. Thus, the stock is now available at cheaper valuations. We believe that as growth comes back, Glenmark offers potential for a re-rating. 1) Growth in the US on approvals for niche products (dermatology, controlled substances, modified releases, hormones); 2) Improved profitability in RoW markets, strong volume growth, and stable currencies; 3) News flow on the innovative research programme; and 4) Balance sheet improvement with reducing leverage and working capital requirements. Our estimates are among the highest on the Street because we are more sanguine about Glenmark's return to high growth in the US (more niche product launches vs. an existing plain vanilla generic product portfolio) and RoW markets (volume growth and stabilizing currencies). Given near-term uncertainty over the NCE R&D pipeline and related milestones, we believe cost basis is more appropriate for valuing the NCE R&D effort. We value the base business at 18x Sept'11E earnings after adding back NCE R&D (net of tax shield). We also add Rs 15 per share as NPV for 'at risk' launch of Tarka in the US. This yields a TP of Rs 353. Maintain 'BUY'.

Buy Glenmark Pharma; target of Rs 400

Glenmark Pharma has indefinitely postponed its initial public offering for its subsidiary, Glenmark Generics. With the company's cashflow improving, it did not require the funds, and decided to put the IPO plan on hold. The company has registered whooping numbers for the quarter ending June 2010. Consolidated revenues jumped about 27% from a year ago quarter to stay at Rs 6963.33 including out licensing revenue of Rs 895.10 million. Net profit of the company skyrocketed from Rs 534.54 million clocked in Q1FY10 to Rs 1555.43 million in Q1FY11. EPS stood at Rs 5.76 climbing sharply from Rs 2.13 in Q1FY10. Revenues from the generics business was at Rs 2635.95 million (USD 57.65 million), as against Rs 2387.00 million (USD 48.43 million), a growth of 10%. The Speciality formulation business revenue was at Rs 4182.65 million (USD 91.48 million) as against Rs 3049.88 million (USD 61.88 million) for the corresponding quarter of the previous year, registering a growth of 37%. The major growth driver of revenues was out-licensing revenue of Rs 895.10 million (USD 19.58 million). During the quarter, Glenmark filed 4 ANDAs with the USFDA. In the second quarter, Glenmark plans to launch the following products: Norethindrone tablets 0.35mg (AB2), Norethindrone Acetate 5mg tablets, Theophylline extended-release tablets, Adapalene Gel 0.1%, Ciclopirox Olamine gel and a dermatology proprietary product.

Presently, the stock is trading at Rs 309 which is at a consolidated PE of 18.37x and 15.28x to its FY11E and FY12E EPS of Rs 16.82 and Rs 20.22, respectively. Since the stock offers good investment opportunity, we initiate a BUY signal on the stock with a target price of Rs 400 expecting an appreciation of about 29% from the current level of Rs 309 with the medium term investment horizon..

 

Buy Glenmark Pharma; target of Rs 353

Glenmark Pharma has underperformed the BSE Healthcare Index on disappointment in the NCE R&D pipeline and slowing growth in the generic business. Thus, the stock is now available at cheaper valuations. We believe that as growth comes back, Glenmark offers potential for re-rating. Our estimates are among the highest on the Street because we are more sanguine about Glenmark/'s return to high growth in the US market (more niche product launches versus an existing plain vanilla generic product portfolio) and the RoW markets (volume growth and stabilizing currencies). Near-term uncertainty over the NCE R&D pipeline and related milestones, we believe cost basis is a more appropriate method for valuing the NCE R&D effort. We value the base business at 18x Sept/'11 earnings after adding back NCE R&D (net of tax shield). We also add Rs 15 per share as NPV for the at risklaunch of Tarka in the US. This gives us a target price of Rs 353. Maintain BUY.

Buy Glenmark Pharma

Glenmark reported strong Q4FY10 results with sales and EBITDA (ex Milestones) growth of 44% and 63% respectively; 12% and 9% ahead of our estimates. Sales growth was driven mainly by US ( 19 %) and Semi regulated markets ( 224%). India, Europe and Latin America grew by 35%, 22% and 24% respectively. Valuations are reasonable at 17x FY11e FD EPS and are at a discount to the sector. We believe US business recovery is round the corner. However, given the near term uncertainty over the NCE R&D pipeline and milestones thereon a cost basis method is more appropriate way to value the NCE R&D effort. We add back the NCE R&D expense to arrive at an EPS of Rs18.9 and Rs21.8 for FY11E and FY12E respectively. At 18x June11 earnings (15% discount to the sector) our target price stands at Rs353. We re-iterate buy recommendation,

Buy Glenmark Pharma; target of Rs 314

We believe the revenues of the company will grow at a CAGR of 17.2% over a period of two years from 2010 to 2012E whereas net profit will grow at a higher CAGR of 30.7% during the same period, on account of balance sheet restructuring exercises, cost containment program and management of working capital cycle. We expect the company to earn an EPS of Rs. 17.4 in FY11E and Rs.21.1 in FY12E. At the CMP of Rs 252 per share, GPL is currently trading at a PE of 14.5x FY11E and 11.9x FY12E EPS estimates, which looks quite attractive when compared to its peers. At Rs 252 per share the stock is trading at a discount of 24% from our intrinsic price of Rs. 314 per share which is 18x FY11E earnings. With growth triggers like first-to-file opportunities, listing of its subsidiary (not factored in our financials), out-licensing deal for its NCE (not factored in our projections) the stock looks undervalued. We recommend a BUY rating on the stock with a price target of Rs 314 with a long term view.

Buy Glenmark Pharma, target Rs 319

Glenmark has dropped 12% in the year till date (the stock has seen an upside of 21% since we had upgraded our recommendation to Buy from Hold in our report dated October 29, 2009) as compared to the BSE HC Index, which is up 66.5%, and the Sensex, which is up 71.1%. However, with the revival signs gaining visibility in the emerging markets and the domestic markets, where we have seen a staggering growth of 44.6% and 18.4% respectively in H1FY2010. We expect the cash flow to improve, as the capital expenditure eases and the management attempts to rein in the working capital. This would allow the management to address its high leverage and return to free cash flow territory in FY2010. We believe that the risk-reward ratio is favourable for the stock at the current levels, given an improving macro outlook, which may see the growth rebound in the emerging markets, improving the working capital cycle. Given the healthy business performance expectations and favourable risk-reward ratio, we maintain our Buy recommendation on the stock with a revised price target of Rs 319 (16x FY2011E core earnings for the base business plus Rs 43 per share for the RD pipeline). At the current market price of Rs 261, the stock trades at 15.1x FY2011E earnings.

Hold Glenmark Pharma, target of Rs 251

Based on inherent risk on its research and development (RD) pipeline and no near-term catalyst in sight, we feel, the stock is likely to be under pressure for the next twothree quarters, diminishing the possibility of any near term re-rating. Hence we maintain our Hold recommendation on the stock with the price target of Rs 251 (12x FY2011E core earnings for base business plus Rs 43 per share for RD pipeline).

Hold Glenmark Pharma, target of Rs 251

Glenmark Pharmaceuticals (Glenmark) has reported that the experimental treatment for chronic obstructive pulmonary disease (COPD) has proved ineffective (ie failed to show significant benefits) in mid-stage clinical trial, as Oglemilast (Phase II b, lead molecule) did not show statistically meaningful increase from baseline compared to placebo in the primary endpoint. We downgrade our recommendation on the stock to 'Hold' with the revised price target of Rs 251.

Buy Glenmark Pharma, target of Rs 270

Glenmark has borne the brunt of the ongoing economic and financial crises that have resulted in a slowdown in its business across international geographies. The company has been hit by several negative developments right from the failure of GRC 6211, concerns over its ability to meet guidance, uncertainty over outlicensing income and the policy to refrain from providing guidance. Despite the recent disappointments, we continue to like Glenmarks business model, which is focused on differentiated niche products. We remain confident about Glenmarks future prospects, both in relation to the scaled-up potential of its core generic and branded formulation businesses and its ability to monetise and extract value out of its RD assets. We upgrade our recommendation on the stock to a Buy with a price target of Rs 270 (12x FY2010 core earnings for base business plus Rs 60 per share for the RD pipeline).