Retain ‘buy’ on Glenmark, target Rs 790: Nomura

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Published: March 25, 2015 12:10:05 AM

We retain ‘buy’ on Glenmark Pharmaceuticals and value the stock on a sum-of-the-parts basis to reach our target...

We retain ‘buy’ on Glenmark Pharmaceuticals and value the stock on a sum-of-the-parts basis to reach our target price of R790. We arrive at core business one-year-forward fair value of R707 per share, based on 18x one-year forward EPS of R39.3 (blended FY16/17f).

We value innovation R&D assuming average licensing income of $20 million each year and value the income stream at 9x, which gives an R&D value of R35 per share. We estimate one-off value at R48 per share, which includes Zetia and Finacea exclusivity.

The Delhi High Court has restrained Glenmark from manufacturing and marketing its anti-diabetic drugs Zita and Zita-Met. Merck Sharp and Dohme’s (MSD) has filed an appeal with the Delhi High Court, challenging the single bench order refusing to grant interim relief to it on a patent row against GNP. The Delhi HC noted Glenmark has prima facie infringed on MSD’s patent for the anti-diabetes drug. We expect a negative stock reaction for Glenmark.

We view the development to impact ~4% on Glenmark’s FY16f EPS. The company launched Zita (molecule: Sitagliptin) and Zitamed (molecule: Sitagliptin + Metformin) in March 2013.

Zita and Zita-Met recorded combined sales of R93 crore (MAT February 2015) and R10.5 crore (February 2015). These two products contribute ~5% to GNP’s domestic sales (MAT February 2015). On our estimates, loss of sales from these two brands would impact our FY16F EPS estimate for GNP by ~4%.

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