Stock Review: Glenmark

INDIAN pharmaceutical companies have been making news of late, thanks to the eye-popping valuations some companies have got. But, Indian pharma companies are not just attractive acquisition targets for mutlinationals. On Monday, Glenmark Pharma's subsidiary entering into a licensing agreement with Sanofi to develop and commercialise its molecule GBR500, a monoclonal antibody to treat Crohn's disease and other auto-immune disorders like multiple sclerosis. The total deal size would add up to $600 million, if Sanofi manages to successfully develop the molecule. Glenmark would also have exclusive marketing rights in certain geographies if the drug is commercialised a few years down the line.

There is an upfront benefit of $50 million ( `225 crore) for the company, which adds to `8-10 a share. The size of the entire deal is $613 mn, but it depends on the success of molecules. The company will use this money to repay a part of its

`1,900 crore debt. However, what analysts like is the potential pipeline of such molecules the company could have.

While many Indian pharma companies have been investing in research and development of new biological entities, Glenmark has become the first such company to take amolecule up to a stage where it can be licensed out to a foreign company for a price. So, Sanofi making an upfront payment is not only being viewed as an endorsement of sorts for Glenmark, it also means the company has reduced its R&D risks, says Sapna Jhawar, research analyst at Sharekhan.

The fact that the company is trading 12-13 times its FY13 earnings makes it even more attractive from an investment point of view. Apart from this, the analysts like the longterm prospects of this company despite some short-term pain emanating from change in accounting policy. For FY10, the company reported 12 per cent growth in its domestic formulations business. This growth number looks muted mainly due to the accounting policy change. According to Religare Institutional Research, "On a like-to-like basis, growth in domestic formulations would have been at 17-18 per cent. This momentum is expected to continue driven by new drug launches in the domestic market." Glenmark reported 16 per cent top line growth for the US generics business (sales of $182mn). Analysts say base business sales, at $40mn a quarter earlier, have now moved towards $50 mn a quarter. The company also received 18 final approvals from the US market during the year, which would augment top line growth from this segment.