Stock Review: Glenmark Pharma

GLENMARK Pharma's stock slid by 11% in the past two trading sessions due to an unfavourable jury verdict in a patent litigation. The company's share price has dropped 20% in the past five weeks. Given the growth prospects of the company's base business, the stock is trading at an attractive price-to-earnings multiple of 18.

   Tarka is an anti-hypertension drug owned by Abbott and marketed by Sanofi Aventis with an annual sales of $58 million.

   Having the first to file opportunity for the drug's generic version, Glenmark Pharma launched the generic, at risk, in August 2010. The company had estimated to earn $5-6 million (22 crore to . 27 crore) in revenues from the sale of the drug per quarter.

A federal jury has now ruled against Glenmark's generic launch and has ordered the company to pay damages of $16 million (around . 70 crore) to the innovators for infringing the patent, which is scheduled to expire in February 2015. The initial verdict was based on some parts of the case. The final verdict on the case is still 4-6 weeks away. In case of an adverse ruling, the company is likely to go in appeal.

   Meanwhile, if the company, on a conservative basis, withholds the sale of the drug, its fourth quarter revenues and earnings would be impacted accordingly. The damages, if awarded, would also reduce the company's earnings for FY11.

   However, these are likely to have negligible impact on the company's total performance. The revenue loss stands at less than 4% of the company's annual revenues of . 2,757 crore (on a trailing four quarter basis).

   The latest fall in the company's stock price has more than discounted the negative impact of the litigation on the company's earnings.

   The stock is trading at a significant discount to its other frontline peers. Given that the growth of the company's core generics business remains promising, the current weakness in the stock offers a buying opportunity for investors scouting the mid-cap space.