Glenmark boosted by second Sanofi deal

A chunky licensing deal with Sanofi over an anti-inflammatory antibody is great news for Glenmark Pharmaceuticals, one of the biggest investors in proprietary drug research in India.

As well as showing that the company’s pre-clinical research is throwing out viable candidates the agreement also underlines that Glenmark is capable of striking top dollar deals; it has certainly been among the most successful of its Indian peers at getting global pharmaceutical companies to sign on the dotted line. However, with any novel product still some way from the market, the ultimate validation of its research has yet to come.

Good value

The second deal struck with Sanofi in as many years, this pact is also significant because it is the first proprietary biologic out-licensed by an Indian company. While its previous deals have not always ended in success, Glenmark is still capable of getting big pharma to the table.

“The fact that Sanofi came back shows they have confidence in the way in which Glenmark conducts its early stage studies,” says Chirag Talati, health care analyst for Espirito Santo Securities in Mumbai.

“They have struggled with deals in the past, for example with Lilly, but they are still managing to get pretty good value.”

A deal struck with Eli Lilly in 2007 over pain drug GRC 6211 was suspended the following year following unsuccessful phase II studies, while when one of the company’s first out-license successes, PDE4 inhibitor oglemilast, failed in phase II in 2009; it was out-licensed to Forest Labs at the time.

First in class

Sanofi has paid $50m upfront for GBR 500, a first-in-class VLA-2 integrin antagonist, in phase I that has shown promise in autoimmune disorders. Glenmark, which retains rights in India, will receive half the upfront money now, and the remainder on receipt of certain data in June – in total $613m in milestones could be paid out.

According to Glenmark, VLA-2 (alpha2 beta1) integrin is a receptor that plays a role in lymphocyte adhesion at inflammation sites and in the release of inflammatory cytokines - Crohn’s disease is the lead indication.

The deal comes almost exactly 12 months after the first deal between the two companies, over a small molecule pain drug, GRC 15300. Sanofi bought rights to the novel TRPV3 antagonist for $20m upfront.

Race to market

Despite a significant investment in proprietary R&D, Glenmark has yet to get a novel chemical entity to the market. The company is not alone in this quest, and many Indian firms better known for their generics are striving for this accolade (Vantage Point - Indian scientists on quest for country's first novel molecule, November 2, 2010).

Glenmark claims that crofelemer may take this title; it is a diarrhoea treatment licensed to Salix Pharmaceuticals in the US and which should be filed for approval later this year. However, the drug was actually in-licensed from California-based Napo Pharmaceuticals in 2005, when it was in phase I.

Crofelemer could launch in 2013 or 2014, analyst believe. With the right to market the drug in 140 countries and as the sole manufacturer, the drug could well become a significant product for Glenmark. Goldman Sachs analysts covering Glenmark estimate peak sales of $70m-$80m; US analysts following Salix have pencilled in sales of $38m by 2016.

Torrid time

Glenmark shares still have not recovered from a torrid period at the end of 2008, not helped by stock market collapses around the world. Declines were exacerbated by the failure of the Eli Lilly-partnered drug, GRC 6211, and concern about the firm's mounting debts and slowing growth.

The company borrowed heavily to expand in emerging markets, a strategy that failed to deliver sufficient growth to justify the investment, and for which it is still paying. The upfront from the Sanofi deal will be used to pay down debt, Glenmark said today, which stood at Rs19bn ($421m) at the end of March.

“They still have a significant amount of debt on the balance sheet. I don’t think they will have trouble paying it down, but it does suppress free cash flow and their ability to invest,” Mr Talati says.

Slow growth in the US has also been a long time criticism of Glenmark’s generics business, which analysts still believe lacks any major exclusive opportunities, compared to some of its peers.

Meanwhile a couple of long promised out-licensing deals, and the associated income, have failed to materialise, in particular for melogliptin, a DPP-IV inhibitor for type 2 diabetes. Despite the company’s “best-in-class” claims, the product arrived too late to the party for partners.

Glenmark shares jumped 12% on today’s news, to Rs306, a four month high, valuing the company at $1.65bn. The stock breached Rs700 at their peak in mid-2008.

The deal is important validation for Glenmark’s novel research. For the recovery to continue, however, stronger signs of growth need to be seen at its US business, as well as evidence that emerging market expansion is finally paying off.

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