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Glenmark buckles as Eli Lilly halts drug trials

Glenmark buckles as Eli Lilly halts drug trials
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First Published: Fri, Oct 24 2008. 10 29 PM IST

Bitter pill: Glenmark managing director and CEO Glenn Saldanha. Eli Lilly’s decision to suspend clinical trials of the pain drug comes after Merck ended a licensing deal with Glenmark for its diabetes
Bitter pill: Glenmark managing director and CEO Glenn Saldanha. Eli Lilly’s decision to suspend clinical trials of the pain drug comes after Merck ended a licensing deal with Glenmark for its diabetes
Updated: Fri, Oct 24 2008. 10 29 PM IST
Mumbai: Mumbai-based drug formulations maker Glenmark Pharmaceuticals Ltd said on Friday its US outlicensing partner Eli Lilly and Co. has suspended clinical trials of its pain drug molecule. The company’s share price shaved about a fifth of its value after the announcement.
Bitter pill: Glenmark managing director and CEO Glenn Saldanha. Eli Lilly’s decision to suspend clinical trials of the pain drug comes after Merck ended a licensing deal with Glenmark for its diabetes drug last year. Ramesh Pathania / Mint
The potential treatment for arthritis-related pain was Glenmark’s lead molecule covered in a $260 million (about Rs1,290 crore) licensing deal signed in October 2007.
Eli Lilly said it has decided to stop further development of the drug molecule, GRC 6211, after certain adverse findings in early October, a Glenmark executive said. This person, who didn’t want to be named as the firm enters its so-called silent period ahead of announcing quarterly results on 27 October, did not specify the nature of the adverse findings.
“(But) the suspension... doesn’t exactly mean the deal is terminated at this point of time,” he said. “The companies will now discuss the ways to take the deal forward for the same candidate, perhaps after our scientific board reviews the findings, or certainly for the other indications.”
“But our EPS (earnings per share) guidance will remain the same and this doesn’t change our profits. In the last four-five years we have collected Rs500 crore in cash through such deals,” said another Glenmark executive.
Analysts, who valued the molecule at Rs65-104 a share, see a setback for Glenmark.
“Eli Lilly’s decision to suspend clinical trials of GRC 6211 in osteoarthritis pain is a setback for Glenmark’s R&D (research and development) efforts and would affect the option value on this front,” Prashant Nair, an analyst with Citigroup Global Markets, wrote in a note to clients.
Nair, who has a “buy/medium risk” rating on Glenmark, said the brokerage had built in a value of Rs89 per share for the molecule in its Rs770 per share target price, which would now be impacted.
Sure enough, Glenmark shares fell nearly 20% to end at Rs324.05 on the Bombay Stock Exchange following the announcement, while its benchmark Sensex index lost 11%, or 1,070.63 points, to 8,701.07. Glenmark’s shares have declined about 45% this year.
Eli Lilly’s decision comes a year after it entered into a $350 million licensing deal with Glenmark to take the molecule and a portfolio of other pain drugs through the final stages of clinical trials, in return for marketing rights in the US, Europe and Japan. The GRC 6211 molecule was then in mid-stage trials.
The company had earlier estimated the global market for the targeted diseases at about $40 billion.
“With the suspension of this one molecule, the risk premium will be significantly high. So, one has to cut the entire value assigned to the molecule and the balance pipeline will also be affected,” said Surya Narayan Patra, an analyst at Reliance Money Ltd, who had a Rs65 per share value for the GRC 6211 molecule. “Glenmark has got three-four more molecules in various stages of drug development and all of them together are valued at Rs210 per share. Now the valuation would drop to about Rs120 per share,” Patra said.
Glenmark, which was to be the co-promoter of the drug in the US, had received an initial payment of $45 million at the time of the deal and the remaining sum was to be paid at different stages of drug development. It was entitled to additional milestone payments of up to $90 million for other uses of the molecule.
This is the second setback for Glenmark, which has licensed three experimental drugs to multinational companies since 2004. Last year, German drug company Merck KGaA ended a licensing deal with Glenmark for its diabetes drug after it decided to withdraw diabetes projects from its research portfolio.
“It will impact the company in (the) long term as the product has gone out of its portfolio both in terms of milestone revenue as well as royalty and launch pipeline,” said Kirit Gogri, a sector analyst at research firm Quant Capital.
Currently, Glenmark has 11 drug compounds at various stages of research development for treatment of diseases such as inflammation, heart ailments, metabolic disorders and cancer. The company has so far received $105 million as upfront payment in the deals for licensing out molecules.
ch.unni@livemint.com
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First Published: Fri, Oct 24 2008. 10 29 PM IST