Buy rating on Glenmark Pharma shares: Nomura

Updated: Aug 23 2014, 14:11pm hrs
Glenmark announced discovery of its first bi-specific antibody, GBR 1302. This bispecific molecule has been developed using Glenmarks proprietary antibody engineering platform named BEAT. Bi-specific antibodies are newgeneration biologics, which attach to two targets simultaneously. This could present significant clinical benefits compared with monoclonal antibodies targeting one specific target. GBR 1302 is being developed for breast cancer. GBR 1302 achieves dual functions: a) reduce proliferation of cancerous cell by inhibiting HER2; and b) destroy cancer cells through action of T cells.

Therefore, Glenmark expects GBR 1302 is likely to be more effective than HER2 antagonists like Herceptin (worldwide sales: USD6bn). Further, the drug can potentially be used in patients with low HER2 expression, thereby, enhancing the market potential by 2x.

There are significant challenges in the development and scaling up of bi-specific antibody molecules. Lower stability of the molecule, lower yield in manufacturing, lower half life and immunogenicity are key issues. Glenmark has successfully overcome these challenges, hence the development is a significant technological achievement. We believe the BEAT platform and GBR 1302 are licensable assets.

We value the base business (ex licensing income and exclusivities) at 18x June 2016 EPS of Rs 39.3 to arrive at a value of R707 a share. We add R48/share for the value of exclusivities Zetia and Finacea. We assign Rs 35/share for R&D. We assume $20 million in average annual licensing fees, in line with the past record. We attach a buy rating on the scrip.

- Nomura