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Spark Capital: Glenmark Pharmaceuticals - 3QFY13 results reviews




Spark Capital Advisors(India) Private Limited


05 Feb 2013





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Strong quarter; Revamilast disappoints Driven by impressive growths in key geographies – India (30% yoy), US (37% yoy) and semi-regulated markets (67% yoy) – Glenmark posted a strong 32% topline growth (ex outlicensing income) in Q3FY13. EBITDA margin (ex outlicensing income and MTM impact) improved 210bps yoy. Failure of revamilast in phase IIb trials for Rheumatoid Arthritis was the only disappointment from the quarter. Despite the likely tapering off of the high growth in the domestic market (9MFY13 growth of 30% yoy), we expect overall growth to remain robust in FY14 driven by continuing strong performances in the US and semi-regulated markets. We upgrade our rating to ‘Buy’ with a target price of Rs. 596 (20x FY14E EPS of Rs. 27.9 plus Rs. 37 per share for the NCE portfolio) Takeaways from post-results conference call: Glenmark’s PDE4 inhibitor NCE candidate, revamilast, failed to achieve its primary end-point in a phase IIb clinical trial in Rheumatoid Arthritis patients. The company will not continue development of revamilast in RA. Data from phase IIb trial for revamilast in asthma is expected in April 2013 Domestic formulations sales grew 30% yoy. Glenmark’s new initiatives in OTC and unbranded generics aided the growth. Despite the strong performance, management remains cautious on the growth prospects in the segment US sales for the quarter was $82mn (growth of 32% yoy). Glenmark recently launched mupirocin 2% cream (generic of GSK’s Bactroban, LTM Sep-12 branded sales of $57mn) ‘at-risk’ in the US. The only Orange Book listed patent expires in Oct 2014. Glenmark has initiated ANDA filings for oncology injectable products and expects to file 3-4 more in FY14 RoW sales (includes Africa, Asia and CIS regions) grew 67% yoy and contributed 20% of the company’s sales in the quarter. Management expects strong growth from the segment to continue going forward The outlicensing income of Rs. 493mn booked in the quarter is the $9mn from Forest Labs for the mPEGS-1 NCE deal. The cash will be received in Q4FY13 YTD capex was Rs. 3.4bn (of which Rs. 1bn was spent on the crofelemer facility). Capex for FY14 was guided at Rs. 2.5-3bn. R&D expenditure for the quarter was Rs. 1,070mn (Rs. 2,950mn YTD). Guidance at 8% of sales going forward Net debt stands at Rs. 21.9bn (vs. Rs. 20.6bn as of Sep-12). Working capital cycle is at 116 days (vs. 112 days at the end of Sep-12)

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