ICICI is bullish on Glenmark Pharma and has maintianed buy rating on the stock with upside potential target of Rs 913 implied as 33% with 12-month prospective. 

ICICI Research report on Glenmark Pharma

Reaching Vision 2015.

Glenmark is taking strides towards achieving Vision 2015 – to emerge as a leading research-based integrated global pharma company with two proprietary products reaching the world market and earn greater than 70% of revenues from the proprietary business with specialty front-ends in all key markets (the US, EU and ROW). We believe Glenmark has all the qualities to be a world-class, mid-sized specialty pharma company and launch at least one NCE in regulated markets. However, earning greater than 70% of revenues from proprietary products will be a challenge. 

Firing on both cylinders 

Drug discovery & generics. Glenmark is in advanced negotiations for GRC6211 and the licensing deal will likely close by end-’07. Glenmark’s licensee, Forest Labs conducted additional studies on Oglemilast, and submitted briefing book to the US FDA recently. GRC4039 and GRC10801 are likely to enter phase I by end-’07. In generics, the company has sustained aggressive growth powered by the US, LatAm and RoW markets with international revenues surging over 4x to USD 265 million in FY09E from USD 65 million in FY06. Glenmark is confident of achieving its FY08E & FY09E PAT guidance of USD 65 million & USD 90 million respectively from the base generics business. 

Remains one of our top BUYs.

Applying a P/E of 14x (15% discount to Sun Pharma and Cipla’s average) to Glenmark’s base generics business’ FY09E PAT, the residual value for NCE pipeline is approx USD 750 million, significantly lower than i-SEC estimate of USD 1.4 billion. Re-rating is likely once Glenmark bags GRC6211 deal, potentially the biggest ever deal.

Attractive valuations

Our fair value for Glenmark is based on sum-of-the-parts value of its generics business (average of DCF value and P/E-based value) and DCF-based NCE pipeline  Since the company’s generics business is established and can be valued accurately, we believe the residual value of the NCE pipeline is a better way of cross checking the extent of undervaluation. It would be appropriate to benchmark Glenmark’s generics business with that of Sun Pharma (a pure generics business after the Sun Pharma Advanced Research Centre de-merger) and Cipla, which has always been a pure generics business. Currently, Sun Pharma and Cipla trade at consensus FY09E P/E of 17.2x and 15.7x respectively. Given that these two are larger in size than Glenmark, we apply a 15% discount to the valuations of Sun Pharma and Cipla (i.e.14x) and derive USD 1.26 billion value for Glenmark’s generics business, implying USD 758 million as residual value for the NCE pipeline – however, given the superior growth and margins, both generics and NCE businesses should be valued at more than this. We value generics business at FY09E P/E of 16x and its impressive NCE pipeline at USD 1.4 billion.