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Glenma
`
Initiati
Sector: P
rk Phar
ng Coverage
armaceutic
aceutic
als
ls
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Glenmark Pharmaceuticals
September 20, 2010 1
Contents Page No
Investment Summary 2
Background 3
Management 3
Infrastructure 4
Sector Overview 5
Business Overview 6
Novel Drugs 7
Branded Generics 8
Global Generics 9
Strategy to Consolidate Business 11
Valuation 12
Quarterly Consolidated 13
Financials 14
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Glenmark Pharmaceuticals
September 20, 2010 2
Investment Summary The Novel Drugs Segment has announced the discovery of a
novel molecule GRC 17536(Pain & Respiratory Disorders) and
an
out
licensing
deal
with
Sanofi
Aventis
for
GRC
15300
(Osteoarthritis Pain). ‘Crofelemer’ the anti‐diarrheal molecule in
licensed from Napo Pharmaceuticals has progressed to Phase III
trials in India & the US and is expected to be launched in FY 2012.
Glenmark has rights to market the same in 140 markets excluding
North America, Europe and Japan.
Glenmark is looking to expand its Novel Drug Pipeline thru In‐
licensing; Mergers & Acquisitions of late stage New Molecular Entities. Potential out licensing of its in‐house molecules & in
licensing of novel molecules will provide upside surprise to
projected earnings.
Having consolidated its position in the Domestic Formulations
business, Glenmark is now focusing on, taking its power brands
from the Formulations business as well as introducing new
products, across geographies in each one of its markets to focus on
attaining leadership in the select therapeutic areas of
Dermatology, Respiratory and Oncology.
The Generic Business with a portfolio of 61 products authorized
for distribution in US and 47 applications pending approval has
just launched three of the approved dosage strengths of ‘Tarka’
(FY 10 sales at US$ 58Mn per IMS Sales data), one
of
its
four
FTFs. ‘Cutivate’ & ‘Malarone’ (Two other FTF Para IV Filings with combined FY 10 sales at US$103 Mn, per IMS sales data) have
been settled and are expected to be launched in CY 2011.
Valuation: After continuous disappointments on its R &D out licensing
program, Glenmark is seeing signs of improvement in key segments
like Branded Generics (India) and niche therapy‐driven US business.
With the recovery in the base businesses, we expect the stock to achieve our target price of `375 (17x FY12), as visibility on Out licensing (Melogliptin, Tedalinab, Revamilast) ; newer In licensing
deals besides Crofelemer as well as US ANDA approvals and launches
improves .We initiate coverage, with a Buy rating.
Financial Matrix
Year to Sales PAT EPS Change P/E P/B ROCE RONW EV/EBIDTA YIELD
March (` Mn) (` Mn) (`) YOY (%) (x) (x) (%) (%) (x) (%)
2009 21457 1935 7.1 ‐69% 62.43* 6.99* 13.38 12.42 14.0* 0.09*
2010 25244 3310 12.2 71% 21.78* 3.05* 13.92 16.75 12.0* 0.14*
2011E 30654 4965 18.34 50% 15.33 2.70 16.74 19.19 11.5 0.14
2012E 36866 5886 21.74 19% 12.93 2.25 17.24 18.98 9.0 0.14
*Based on 365 day avg.adjtd.clsg.price for the fiscal
!
BUY
CMP (`) 281
Target price
( ` )
375
Potential upside 33%
Investment Period 12 ‐15mths
Stock Matrix
No. of shares 270mn
FV ( ` ) 1
B V ( ` ) 88
Market Cap (Mn ` ) 75,897
Beta 0.57
52 Wk high/low ( ` ) 304 / 210
Avg. daily vol. (Mn ` ) 44.15
BSE Code 532296
NSE Code GLENMARK
Shareholding
Pattern (%)
Mar
2010
Jun
2010
QoQ
Chg (%)
Promoters 48.37 48.35 0
DIIs 26.84 27.63 3%
FIIs 7.88 7.61 ‐3.4%
Corporate 4.27 3.91 ‐8.4%
Others 12.64 12.50 22%
Price Performance
:
91‐
22‐
3005
6400
‐10
‐3
4
11
18
25
32
Glenmark Sensex
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Glenmark Pharmaceuticals
September 20, 2010 3
Background Incorporated in 1977, by Gracias Saldanha, Glenmark was listed in 1999, with the
family holding 47.26% thru the Saldanha Family Trust. Today Glenmark is
represented
by
33
Subsidiaries
and
a
Joint
Venture,
incorporated
in
26
different
countries. Of the subsidiaries twelve are direct subsidiaries, seventeen are held thru
Glenmark Holding S A, Switzerland and five thru Glenmark Generics, India.
The standalone entity has a significant presence in the Branded Generics markets
across emerging economies including India. The India business contributes 30 % to
the overall sales of the group and operates through 12 divisions with a focus on
Dermatology, Gynaecology, Diabetology, Cardiology, Internal medicine, ENT &
Paediatrics. Its subsidiary, Glenmark Generics Limited has a fast growing business
which includes the North American Generics business, Argentina’s Oncology
business and APIs. Headquartered in Mumbai, India, the Glenmark Group employs
nearly 7000 people including a 3000 strong field‐force.
Management Glenn Saldanha, with a Bachelor’s degree in Pharmacy and an MBA from Leonard
Stern School of Business, NYU joined Glenmark in 1998 as Director, taking over as
Managing Director and CEO in 2001. He has been instrumental in transforming
Glenmark from an India formulations business in 1999 to a global firm with
interests spanning Discovery Research, Branded & Generic Formulations and APIs.
Terrance Coughlin, the President of the API and the US Generics business prior to
the restructuring exercise is now the CEO of Glenmark Generics. He has over 20
years of experience in the Generic pharmaceutical segment and has been with
Glenmark since 2004.
Over the decade Glenmark has successfully adopted the acquisition route for
expanding its Manufacturing & Marketing facilities in India and Overseas and is well
positioned to leverage the opportunities emerging across the global pharmaceutical
space.
Glenmark’s Aquisition Track
Seller Country Type Year
Lyka Labs India 3 Brands 2000
GlaxoSmithKline
India Manufacturing (API)
2002Klinger Labs Brazil Manufacturing 2004
Bouwer Bartlett South Africa Marketing 2005
Servycal S.A Argentina Marketing 2005
Medicamenta Czech Republic Marketing & Manufacturing 2007
Actavis Poland Marketing & 7 Brands 2008
Source : Company & Greshma ResearchOnce again the company has expressed its intent to explore In‐licensing, Mergers &
Acquisitions of late stage New Molecular Entities to expand its Branded Generic
Portfolio as well as its Novel Drug Pipeline.
Glenmark markets over
300 products in India of
which 40 were
launched in the last
three years.
It is
a leading
player
in
the dermatology
segment.
It is No. 1 in the market
in 22 brands &
amongst the top three
in 15 brands.
Candid (1979)
Candid B
Scaboma
Ascoril (1987)
Relcer
Eptex
Nebinex
Perigard
Razel
Telma
Prasugrel
Paxib
D’acne
Wunder Eye
Onabet
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Glenmark Pharmaceuticals
September 20, 2010 4
Infrastructure Glenmark commissioned its first manufacturing facility in 1983 and its first R & D facility in
1999 at Nasik in Maharashtra. Today its operations span 80 countries with thirteen
Manufacturing
and
six
R&D
facilities.
Over
the
last
decade
Glenmark
has
established
an
extensive world class Manufacturing & Research Infrastructure thru Greenfield & Brownfield
projects besides acquisitions. Its facilities are approved by Regulatory authorities for
different markets in which it operates.
Location Year Production Lines
Formulations
Nasik, Maharashtra, India 1983 200 Formulations
Rudge Ramos, Paolo, Brazil 2004 Klinger Plant
Jardim, Sao Paolo, Brazil 2004 Klinger Plant
Kishanpura, Baddi,
Himachal
Pradesh,
India 2005 300
Formulations
(Semi
‐solids)
Vysoke Myto, Czechoslovakia (1952) 2007 Medicamenta Plant
SEZ, Indore, M P ,India 2010 Oral Solid Dosage
Nalagarh, Himachal Pradesh, India 2009 Liquids, Creams & Lotions
Colvale, Bardez, Goa, India 2004 Oral solids, Semi‐solids for Regulated markets
Kundaim, Goa, India 2004 Hormones for Regulated markets & Oncology Oral solids
Buenos Aires, Argentina, India 2006 Oncology
Active Pharmaceutical Ingredients (APIs)
Ankleshwar,Gujarat (GSK), India 2002 Blocks for Regulated markets
Kurkumbh, Pune,
Maharashtra,
India 2001 Inte rmediates
&
APIs
for
India
and
SRMs
Mohol, Solapur, Maharashtra, India 2004 Inte rmediates & APIs for India and SRMs
R&D
Location Year Research Focus
Sinnar, Nasik, Maharashtra, India 1999 Formulations Development
Novel Drug Delivery Systems (NDDS)
MIDC, Mahape, Navi Mumbai, India 2000 Discovery of New Chemical Entities (NCEs)
MIDC, Turbhe, Navi Mumbai, India 2000 Clinical Research
Neuchatel, Switzerland 2006 Discovery of New Biological Entities (NBE)
OBP, Oxford, United Kingdom 2008 Clinical Development of NCEs and NBEs
MIDC,Taloja, Panvel,
India
2009 Formulation
Development
The company has guided for a capex of ` 2.4 Bn in FY 11 and continues to invest in infrastructure and
research. Glenmark has announced the following expansion plans:
New API facility at Dahej SEZ
New Semi‐solid plant at Brazil
New Formulations plant at Sikkim
New API plant at Aurangabad
Expansion of the Inhalers manufacturing facility at Baddi.
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Glenmark Pharmaceuticals
September 20, 2010 5
Sector Overview Over the years, the growth in India & the Emerging Markets has been driven by
increased expenditure on healthcare, rising disposable income, increasing
penetration
of
health
insurance,
changing
disease
profile
and
regulatory
reforms.
The strong growth registered by the Indian economy over the last few years has been
instrumental in augmenting the growth of the domestic pharma market.
Future growth will be driven by increase in healthcare spending on the back of better
healthcare awareness, rising disposable incomes, better diagnosis, improved
healthcare infrastructure and a rise in the penetration of patented products. Semi‐
urban and rural markets are emerging as the new growth drivers in the domestic
market. With high per capita income and increasing access to modern medicine, this
segment is expected to continue its strong growth momentum.
With the introduction of the product patent law in 2005, increasing competition in
the
generics
space,
opportunities
in
lifestyle
therapeutic
areas
and
the
drying
research pipeline of Big Pharma, the Indian market has emerged as an attractive
option for research and drug delivery system based products. In‐licensing provides an
attractive option for companies with a strong distribution brand recognition.
Given that R&D is a high risk, costly and time consuming affair, domestic pharma
companies have resorted to Out‐licensing molecules in return for milestone
payments and collaborating with global innovators to conduct research.
The domestic pharma industry is expected to grow at a CAGR of 16% over the next
five years driven by growth in the Chronic therapy and Specialty segments. The
industry is fragmented and highly competitive with the top player enjoying around
6% market share. As far as the global generics industry is concerned, while the
fundamental factors driving the industry remain strong, the same is bogged down by
intense competition and severe price erosion.
Glenmark has one of the best R&D pipelines among domestic peers and has made
rapid strides in the Generics market in the US within a short span of time. As far as
the domestic formulations business is concerned Glenmark has outgrown the industry
according to IMS
Company Sales Growth EBIDTA OPM PAT NPM EPS RONW ROCE Debt to EV to P/E
` Mn (%) ` Mn (%) ` Mn (%) ` (x) (x) Equity EBIDTA (x)
Aurobindo Pharma
36513
15.3
7882
21.6 5630 15.4 96.71 36.68 21.51
1.18
10.26 10.64
Biocon Ltd. 24327 46.6 4371 18.0 3028 12.5 15.14 18.54 17.03 0.3 16.53 22.49
Cadila Healthcare 36685 23.8 7332 20.0 5298 14.4 25.88 37 25.69 0.67 18.69 24.20
Cipla Ltd. 56786 7.0 13346 23.5 10826 19.1 13.48 21.14 24.08 0 18.34 22.66
Dr. Reddy's Labs 73597 1.7 9748 13.3 3515 4.8 20.77 9.63 12.05 0.39 26.20 70.40
Glenmark Pharma 25244 17.7 6441 25.5 3310 13.1 12.26 16.75 13.92 0.79 14.53 22.93
Lupin Ltd. 48591 24.6 9310 19.2 6997 14.4 15.70 35.05 27.51 0.44 18.45 23.17
Ranbaxy Labs 74677 0.5 4357 5.8 3107 4.2 7.38 7.52 17.24 0.91 54.68 68.24
Source: CMIE & Greshma Research
!
In the
dermatology
segment Glenmark
is the second
largest player in
the domestic
market after GSK
Pharma and is
leveraging on this
therapeutic area
to build a niche
product portfolio
in the
international
markets.
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Glenmark Pharmaceuticals
September 20, 2010 6
Business Overview Glenmark is a research driven integrated pharmaceutical company with the Standalone
entity’s operations comprising Novel drugs (Research Driven) & Branded Generics
(addressing health care needs of emerging markets like India, Latin America & Africa) . The
Pure Generic business focused on marketing of Generic Formulations, API and Oncology
products in the regulated markets of US, Europe etc, is run under its wholly owned subsidiary
Glenmark Generics Ltd.
Business OverviewBusiness Segment Therapeutic Area Key Market
Novel Chemical Entities Inflammation
Metabolic Disorders
Pain
Gastro Intestinal
Global Markets Via Out licensing
Novel Biological Entities Multiple Sclerosis
Anti‐Platelet
Global Markets Via Out licensing
Branded Formulations Dermatology
Respiratory
Oncology
Cardio Metabolic
CNS
India
Latin America
Semi Regulated Markets
Central & Eastern Europe
Pure Generics & APIs Dermatology
Controlled Substances
Modified Release
Hormones
Immediate Release
US
Argentina, Oncology
EU Markets
Source : Company & Greshma Research
Glenmark Consolidated Revenue Mix
Source : Company & Greshma Research
42905454 6372
760618842046
2355
3864
1155
19181580
1361
0
369996
1363
1318
1959
1972
2708
2208
5640
7338
7230
1395
2403
0
232
2000
5000
8000
11000
14000
17000
20000
23000
26000
FY 07 FY 08 FY 09 FY 10
India Branded Generics SRM Branded Generics Latin America Branded Generics
Europe Branded Generics Global API U S Generics
Global Generics Oncology Licensing
R s . M
n
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Glenmark Pharmaceuticals
September 20, 2010 7
Novel Drugs Business Glenmark has adopted the strategy of out licensing its molecules to large MNCs and
collecting upfront & milestone payments to subsidise the huge costs of Clinical Trials &
Commercialisation. In the last six years Glenmark has struck deals with global pharma majors
like Sanofi Aventis, Eli Lily, Forest Labs, Tejin Pharma, etc. to the tune of US$ 1200 Mn, so far
collecting in excess of US $ 140Mn.
Focus Therapeutic Areas for Discovery
Source : Company & Greshma Research
Over the decade Glenmark has built up a Novel Drugs pipeline of 13 molecules with seven
NCEs (New Chemical Entity) & two NBEs (New Biological Entity) in Clinical Trials and one NCE
& three NBEs in pre‐clinical Development. Over 500 Scientists and extensive R&D facilities
across the globe combine to form the hub of Glenmark’s R&D activity.
Nine molecules have so far made it thru Discovery to Clinical trials. Two of these molecules
(Oglemilast & GRC 6211) have been dropped after generating licensing revenues of US $ 86
Mn ( ` 3.87 Bn). Its Osteoarthritis Pain molecule out licensed to Sanofi Aventis if successful will also generate royalties for Glenmark. The balance six novel molecules are available
for
out
licensing
opportunities.
The
company
also
has
an
in‐licensed
novel
molecule
‘Crofelemer’, in Phase III of clinical trials (in India & the US), with marketing rights to 140
countries excluding, North America, Europe & Japan.
Novel Molecule Global Partner Trial Phase Total Fees
US$ Mn
Received
US$ Mn
Status Peak Sales
US $ Mn
Launch
Year
New Biological Entities
GBR 500 ‐ Phase 1 ‐ ‐ Live ‐ 2015
GBR 600 ‐ Pre Clinicals ‐ ‐ Live 1000 2015
New Chemical Entities
GRC 15300 Sanofi Aventis, France Pre Clinicals 350 20 Live 2000 2015
GRC 17536
‐Pre
Clinicals Live
2000
GRC 4039/Revamilast ‐ Phase 1 Live 2000 2015
GRC 10693/Tedalinab Phase 1 Live 2000 2015
GRC 8200/Melogliptin Merck KGaA (Returned) Phase 2 250 31 Live 1000 2015
In licensed
Crofelemer Napo Pharma, USA Phase 3 ‐ ‐ Live ‐ 2012
Source : Company & Greshma Research
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eptember 20, 2010
Bran
Glenmar
America;
Europe,
of reven
and 30%
Sou
The mar
strategic
The com
licensing
segment
metaboli
Glenmar
Brazil in
market
Russia,
Formula
Glenmar
operatin
establis
acquired
the For
growth
ed Gek’s Branded
Semi regul
ith
front
ee for the o
of the Cons
rce : Company
keting strat
Divisions f
pany has b
efforts to
besides st
c diseases s
k entered t
004. 10% o
nd is expec
IS, Asia, A
ions revenu
k entered
g in the br
ed sales a
7 pharma
ulations r
river for Gl
erics B Generics
ated market
nds
establisrganization
lidated Rev
Brand
Greshma Resea
egy for the
r better foc
en launchi
augment it
rengthenin
egments.
e Latin Am
f its Brande
ted to be a
rica & Mid
es has grow
urope thr
anded gen
d marketi
from Actav
venues in
enmark.
3864
1
Ind
siness
usiness is
s of Russia,
ed
in
over
and contrib
enues for F
d Generi
rch
Domestic
us. Glenma
g new pro
s product
its prese
erican mark
d formulati
growth driv
dle East, w
at a CAGR
its 2007 a
rics marke
g fronts in
is, an Icela
Y10 and g
61
136
ia SRM
: targeted at
CIS, Africa
20
countrieted over 5
10.
s Reven
randed Ge
rk is ranked
ucts and go
ipeline an
ce in the
et thru its
ns revenue
er going for
hich contri
of 27% bet
cquisition
t of the Cz
Romania
d based co
ing forwar
Latin Ameri
lenmark
Healthcare
Middle Ea
.
India
is
th% of the B
e Mix (`.
nerics segm
second in t
ing forward
enter the
respiratory,
cquisition
s for FY 10
ard. The S
uted almo
een FY07 &
f Medicam
ch Republ
nd Bulgari
mpany. Eur
is expecte
7
ca Europ
Pharmac
markets o
st; and Cent
e
largest
maanded Gen
Mn)
ent involve
e dermatol
, intends t
fast growi
pain man
f Klinger La
ere genera
emi‐regulat
t 30% of F
FY10.
enta, a Cz
ic and Slov
a. In Polan
ope contrib
d to emerg
606
euticals
India; Lati
ral & Easter
rket
in
termrics busine
s developi
ogy segmen
increase i
ng Oncolog
gement an
boratories
ted from th
d markets
Y10 Brande
ch compan
akia. It the
d, Glenmar
uted 10%
e as a maj
8
n
n
s
s
g
t.
‐
y
d
f
is
f
d
y
n
k
f
r
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eptember 20, 2010
Glob
The busi
Generic
Argenti
of 49%,
Sou
The U S
(ANDAs)
age prof
expiries
contribu
Business
being fo
Modifie
competi
operatin
launche
l Geneness run u
sales in t
ean opera
espite the
rce : Company
Generic B
authorize
ile of filing
expected t
tor to grow
is expecte
cussed on
release a
tion (abou
g margins.
capturing
299
343
Focus Therapy
Immediate Rel
Dermatology
Hormones
Para IV (4 Sole
Modified Relea
Controlled Sub
Total
Source : Comp
ics Busder its full
he U S an
ions. Betw
slowdown i
Glenm
Greshma Resea
usiness ha
for distri
s points to
o peak by
th over the
d to pick u
he niche a
nd Oncolo
t 2 to 3
All of the
between 2
270
ease
FTF)
se
stances
ny & Greshma R
iness owned su
d Europe,
en FY07
a
n FY09.
ark Gene
rch
s a portfol
ution in U
a pick‐up i
FY 14 the
next five y
pace goin
reas of Der
y with sig
players in
pproved p
to
25%
m
8
GlenmarFiled
51
22
1211
7
5
108
esearch
bsidiary Gl
API Sales
d FY09,
th
ics Reve
io of 61 A
S and 47 a
approvals
Generics
ars.
g forward
matology,
nificant ba
each field
roducts (in
arket share
k’s U S AAutho
33
18
40
3
3
61
lenmark
nmark Gen
and Oncol
US
busine
ue Mix (`
breviated
pplications
between F
usiness is
ith its app
Controlled
riers to e
), ensurin
luding par
s.
7230
DA Filinised P
Pharmac
erics Limit
ogy Busin
ss has
gro
`.Mn)
New Drug
pending a
Y11‐12 and
expected
roved prod
Substances
try and th
higher r
tner ANDA
s
nding Ma
18
4
8
11
4
2
47
euticals
d compris
ss from i
n at
a CAG
Application
proval. Th
with pate
to be a ke
uct portfoli
, Hormone
ereby less
venues an
) have bee
US
Europe
Oncology
API
rket Size US$ M
8022
672
7826835
252
139
16702
9
s
s
R
s
e
t
y
o
s,
r
d
n
n
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Glenmark Pharmaceuticals
September 20, 2010 10
Glenmark's Para‐IV Litigation Status
Product Brand Plaintiff Sales ($) Litigation Approval Launch
Ezetimibe Zetia* Schering Plough 1.4 Bn Settled Tentative 2016
Trandolapril
+Verapamil
Tarka* Abbott/Sanofi‐
Aventis
58
Mn Trial
Jan,
2011
Final
(3
of
4 dosages)
Launched
Fluticasone Lotion 0.005% Cutivate* Nycomed 45 Mn Case to be
Scheduled
Awaited 2011
Atovaquone +Proguanil HCL Malarone* GlaxoSmithkline 58 Mn Case Settled Awaited 2011
*IMS Sales for FY ending March 2010 Expected Launch in calendar Year
The current fiscal has seen several favourable developments on Glenmark’s Para IV Portfolio
Settlement of litigation pending between Glenmark and GlaxoSmithKline LLC (GSK)
over patent actions concerning Atovaquone and Proguanil HCL ( prevention and treatment of malaria),
allowing
Glenmark
to
market
and
its
tablets
under
a royalty
‐bearing license from GSK in the 3rd quarter of calendar year 2011, or earlier under
certain circumstances. Glenmark believes that it is entitled to 180 days of exclusivity
as the first generic to file an ANDA for the product.
Entered an exclusive licensing agreement with Par Pharmaceutical, to market
Ezetimibe a cholesterol modifying agent. Under the terms of the licensing and supply
agreement, Par has made a payment to Glenmark for exclusive rights to market, sell
and distribute ezetimibe in the U.S. The companies will share in profits from the sales
of the product.
An agreement to settle their patent litigation involving Glenmark's challenge to
Merck's patent
exclusivity
for
ZETIA.
Glenmark
will
be
able
to
launch
their
product
on
December 12, 2016 or earlier under certain circumstances, ahead of the April 25,
2017 expiration of Merck's effectively ending the lawsuit to launch a generic version
of ZETIA before the April 2017 expiration of the patent exclusivity covering ZETIA.
With final FDA approval received in May 2010, for 3 out of 4 dosages of Tarka,
Glenmark has gone ahead and launched all three dosages of the $58 million
Abbott/Sanofi anti‐hypertensive brand, though litigation continues and trial is
scheduled for January 2011. Glenmark expects to capture Rs.1,000 Mn of the
Rs.2,668 Mn of the market during the exclusivity period.
API
&
Oncology:
The
API
business
which
started
with
a
focus
on
the
semi
regulated
markets
is
now focussed on the regulated markets of US & EU. It will aim to increase vertical integration
levels, taking it from the current 20% to 40% by 2015, assuring Glenmark the low cost
advantage essential for success in the Generic business. The foundation for the Oncology
business out of Argentina was laid with the acquisition Servycal in 2005. Going forward it is
expected to emerge as a key growth driver with the Argentinian subsidiary acting as a global
supply hub of oncology products for both Glenmark Pharma & Glenmark Generics.
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Glenmark Pharmaceuticals
September 20, 2010 11
Strategy to Consolidate Global Presence As far as Glenmark Pharmaceuticals Standalone Business is concerned, starting as a
branded Generics player with a Focus on the Therapeutic Segments of Dermatology,
Respiratory and Oncology, to move ahead and emerge as a Global Leader with an
innovative drugs portfolio. For Glenmark Generics the plan is to emerge a lead player
in Finished Dosage Formulation & API Supplier for the regulated markets of US & EU
and a strong Global Oncology Business. Glenmarks way ahead is highlighted in the
following two charts
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Glenmark Pharmaceuticals
September 20, 2010 12
Valuation Near Term Growth Drivers
Strong growth in domestic Formulations market. Potential out licensing of six novels currently in Clinical Trials.
Clinical Progress of In licensed drug ‘Crofelemer’
Near Term Risks.
Slowdown in U S, Europe & Semi Regulated markets
Negative developments on Novel Pipeline
Long Term Growth Drivers
Ramp up in R &D, Manufacturing and Marketing Infra over the last five years
Global alliances for co‐development & commercialisation of Novel Pipeline
Strong R & D Pipeline
Strong growth projections for the Indian & Emerging Branded Formulations markets
Long Term Risks
Successful Clinical trials and Commercialisation of Research Pipeline
Regulatory nods for product launches in Regulated & Semi Regulated Markets
Regulatory changes in global markets
Intensifying competition
in
the
U
S Generics
space
After continuous disappointments on its R &D out licensing program, Glenmark is seeing signs
of improvement in key segments like Branded Generics (India) and niche therapy‐driven US
Generics Business. With the recovery in the base businesses, we expect the stock to achieve our target price of ` 375 (17x FY12), as visibility on Out licensing (Melogliptin,
Tedalinab, Revamilast); newer In licensing deals besides Crofelemer as well as US ANDA
approvals and launches improves. While the base business of the company has been valued
on a price to earnings basis, we have not factored in any revenues that are likely to accrue
from its R&D pipeline. We initiate coverage, with a Buy rating.
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Glenmark Pharmaceuticals
September 20, 2010 13
Quarterly Consolidated Performance
Profit & Loss (` Mn) Sep‐08 Dec‐08 Mar‐09 Jun‐09 Sep‐09 Dec‐09 Mar‐10 Jun‐10
Sales 5609.2 5827.4 5157.7 5487.4 6025.0 6483.4 7125.0 6963.3
% Change QoQ 21 4 ‐11 6 10 8 10 ‐2
% Change YoY 49 ‐14 ‐10 19 7 11 38 27
Operating Expenses 3915.1 3923.3 5343.4 4223.4 4340.3 4780.9 5308.2 4623.1
PBDITA 1694.1 1904.1 ‐185.7 1264.0 1684.7 1702.5 1816.8 2340.2
OPM 30% 33% ‐4% 23% 28% 26% 25% 34%
Interest 187.1 343.1 719.5 438.4 456.1 367.7 378.0 277.4
Depreciation 225.3 290.7 295.5 311.5 362.5 363.3 168.8 327.3
Other
Income
432.9
78.8
1163.2
25.5
140.6
13.1
38.1
115.7
PBT 1714.6 1349.1 ‐37.5 539.6 1006.7 984.6 1308.1 1851.2
Tax 541.0 534.8 0.0 5.1 197.8 43.9 281.9 295.8
PAT 1173.6 814.3 ‐37.5 534.5 808.9 940.7 1026.2 1555.4
NPM 21% 14% ‐1% 10% 13% 15% 14% 22%
EPS ` (Diluted) 4.59 3.19 ‐4.72 2.07 3.14 3.42 3.70 5.68
Consolidated Revenues grew by 27% YoY during the June quarter due to the Sanofi Aventis
out-licensing income. Revenues from the Generics Business grew by 10% while the Branded
Formulations Business grew by 8% YoY during the quarter. According to the ORG-IMS data for
the quarter Glenmark registered value growth of 27.23% vis-a-vis the industry average of21.26% for the India Formulations Business.
Glenmark’s FYQ1 Consolidated Revenue
Source : Company & Greshma Research
13%
28%
20%
30%
9%
Outlicensing India Formulations RoW Formulations Generics API
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Glenmark Pharmaceuticals
September 20, 2010 14
Financials Consolidated Fiscal Year (Consolidated) 2080 2009 2010 2011E 2012E
Valuation Ratios
P/E 17.8 62.4 21.8 15.3 12.9
EV/PBDITA 13.7 35.3 13.7 11.5 9.0
P/BV 6.8 7.0 3.1 2.7 2.3
Dividend Yield (%) 0.17 0.09 0.14 0.14 0.14
Per Share Data (`)
O/S Shares (Mn) 248.7 250.5 269.8 270.4 270.8
Adjtd Avg Clsg Price/CMP 416.0 446.1 266.3 281.1 281.1
EPS (Diluted) 23.3 7.1 12.2 18.3 21.7
CEPS (Diluted) 26.0 11.0 16.7 24.2 28.2
DPS 0.7 0.4 0.4 0.4 0.4
BVPS 61.0 63.8 87.3 104.3 124.9
Profit & Loss (` Mn)
Sales 20134.9 21457.4 25244.1 30654.0 36866.2
YoY Growth 61% 7% 18% 21% 20%
Change in Stock 1007.1 2111.8 291.5 882.7 1615.2
Operating Expenses 13086.0 19888.1 19094.8 23450.3 28387.0
PBDITA 8056.0 3681.1 6440.8 8086.4 10094.4
OPM 40% 17% 26% 26% 27%
Interest Expenses 710.4 1462.6 1662.6 1305.6 1312.5
Depreciation
&
Amortisation
724.7
1034.2
1206.1
1599.5
1747.6
Other Income 841.5 1495.3 269.5 910.1 15.0
PBT 7462.4 2679.6 3841.6 6091.4 7049.3
Tax 1141.3 744.9 531.3 1126.9 1163.1
Tax Incidence 15% 28% 14% 19% 17%
PAT 6321.1 1934.7 3310.3 4964.5 5886.2
NPM 31% 9% 13% 16% 16%
Dividend 172 100 100 108 108
Payout Ratio 3% 5% 3% 2% 2%
Cash Flow (` Mn)
Operating Cash
Flow
3688.7
157.7
3540.0
4404.5
5019.2
Net Profit 7115.0 2688.8 3839.0 6091.4 7049.3
Depreciation 716.8 1026.8 1206.1 1599.5 1747.6
Net Working Capital ‐3845.6 ‐3876.7 ‐2093.5 ‐3432.9 ‐3894.7
Investing Cashflow ‐5096.2 ‐9501.7 ‐3869.1 ‐2667.9 ‐1323.1
Fixed Assets ‐3977.4 ‐7479.2 ‐3330.4 ‐2190.6 ‐2039.0
Capital WIP ‐1196.6 ‐2081.8 ‐553.6 ‐492.3 700.9
Financing Cash Flow 1915.0 8493.7 684.5 ‐2071.1 ‐2438.1
Borrowings 692 9839 ‐1710 ‐640 ‐1000
Interest paid ‐710 ‐1441 ‐1664 ‐1306 ‐1313
Dividend paid
‐172
0
‐101
‐125
‐126
Change in Cash 507.5 ‐850.3 355.4 ‐334.6 1258.0
Opening Cash Balance 1057.6 1565.1 714.8 1070.2 735.6
Closing Cash Balance 1565.1 714.8 1070.2 735.6 1993.6
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Glenmark Pharmaceuticals
September 20, 2010 15
Fiscal Year (Consolidated) 2008 2009 2010 2011E 2012E
Balance Sheet (` Mn)
Total Shareholders Fund 15179 15982 23552 28199 33822
Borrowings
9879
20898
18640
18000
17000
Deferred Tax Liability 946 569 710 865 950
Minority Interest 15 32 130 224 253
Total Capital Employed 26018 37480 43033 47288 52025
Net Block 3966 6481 7246 7814 8055
Capital WIP 3372 5454 6008 6450 5799
Intangible Assets 5219 9182 10628 10650 10700
Investments 188 181 181 181 181
Net Current Assets 13272 16182 18971 22192 27289
Total Assets 26018 37480 43033 47288 52025
Return Ratios
RONW (%) 57.4 12.4 16.7 19.2 19.0
ROCE (%) 39.6 13.4 13.9 16.7 17.2
Asset Utilisation Ratios
Sales/Avg. Total Assets 0.93 0.67 0.62 0.67 0.73
Sales/Avg. Gross Fixed Assets 1.69 1.12 0.98 1.05 1.18
Working Capital Cycle (Days)
Inventory 132 141 186 163 158
Debtors 158 200 202 196 196
Creditors 79 72 94 87 83
Net Working
Capital
Cycle
212
269
294
273
271
Liquidity / Leverage Ratios
Current ratio (x) 5.10 4.51 4.62 4.77 4.85
Debt equity ratio (x) 0.65 1.31 0.79 0.64 0.50
Interest cover (x) 11.5 2.8 3.3 5.7 6.4
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Glenmark Pharmaceuticals
Shares & Stocks Ltd.Member: NSE (Capital‐ SEBI Reg. INB231352635 and F&0 SEBI Reg. INF231352635)BSE (Capital ‐
SEBI Reg. INB011352631)
124, Viraj, 41/42, 4th Floor, S.V.Road, Khar (W), Mumbai – 400 052.
B dli 91 22 3005 6400 F 91 22 3005 6444 E il h@ h
Greshma Investment Recommendation Interpretation
Expected absolute returns over 12 to 15 months
BUY: > 20%
ACCUMULATE: 10 ‐20%
REDUCE: 0‐ 10%
SELL: <0%