On Tuesday, Glenmark Pharmaceuticals Ltd, a mid-sized Indian drug firm, got to know of a development it is preparing to get used to in the years ahead. That day Sanofi Aventis SA, France’s biggest drug maker, and Abbott Laboratories Inc. hauled Glenmark before a US court for alleged infringement of a patent on Tarka, a hypertension drug in the duo’s portfolio that earned $100 million (Rs395 crore) in revenues last year.
Unlike India’s other generic or off-patent drug firms, this is new territory for Glenmark. Tuesday’s case is just the second patent lawsuit the firm has been involved in recent years. But together with three other drug patent challenges that the Mumbai firm, which had a net profit of Rs311.15 crore on sales of Rs1,242 crore in 2006-07, has made, the stakes of such challenges, and consequent litigation, are high. The combined sales of the five drugs whose patents Glenmark is challenging was $3.7 billion in 2006, according to data from the companies involved.
“While it is tough to predict the outcome or timing of litigation, this improves the visibility on Glenmark’s patent challenge efforts,” wrote analysts Prashant Nair, Chirag Dagli and Akshay Rai at a local unit of Citigroup Global Markets Inc. in a report a day after the Aventis Sanofi-Abbot lawsuit. Glenmark has a price earnings multiple of nearly 50 (based on last year’s profits) compared with 30.8 for much bigger Ranbaxy Laboratories Ltd.
In March this year, Glenmark had challenged the patent on Schering Plough Corp.’s cholesterol drug Ezetimibe, sold under the brand Zetia. A successful verdict can give it six months of sales exclusivity for the drug, which had sales of $1.5 billion in 2006 in the US.
Sanguine grin: Glenmark managing director Glenn Saldanha. (Ramesh Pathania / Mint)
It is already two months into its first six-month exclusivity period for anti-seizures drug oxcarbazepine sold under the brand Trileptal, owned by Novartis AG. The Citigroup’s analysts say Glenmark, which has already secured 48% share of the market for the drug ($800 million revenues last year), will see its profits buoyed in the next two quarters. The company has two other so-called Para IV filings—under which a generic drug maker seeks approval from the US drug regulator to make copycat versions of a patented drug—on desloratidine, sold as Clarinex (sales $722 million) by Schering Plough for allergic rhinitis, and hyperactivity disorder drug atomoxetine hydrochloride, branded Strattera and returning $579 million revenues for Eli Lily & Co.
These recent developments on patent challenges—a tactic the company doesn’t adopt often as part of its drug launch strategy—are being seen by some analysts as an indication of Glenmark’s increasing aggression in generic drugs. Glenmark’s managing director Glenn Saldanha doesn’t think such aggression will be expensive. “We will spend only $5 million in litigation costs; no more, and that’s largely on Tarka and Zetia,” he said, adding that all these patent lawsuits will shift to a recently hived off drugs subsidiary, Glenmark Generics Ltd. This unit will be listed by the first quarter of 2008-09 after raising money—Saldanha isn’t saying how much—through an initial public offer and offloading up to a 30% stake. The unit will make two-three Para IV filings a year in future.
Glenmark, which Saldhana admits has been a contrarian play—the company has come to size by hitting paydirt through research rather than generics as most other Indian drug makers—is looking for new markets for drugs it has developed itself. “We have never acquired for size or scale. We have always made foot-in-the-door kind of acquisitions,” said Saldanha, who is eyeing a spate of smaller targets in central and eastern Europe till 2011, by when Glenmark’s first patented asthma drug, ogilemast, could be launched, followed potentially by two others. The company has already licensed out sales rights on these in regulated markets of North America, Europe and Japan to its partners, but expects bulk of the growth from the rest of the world—a fact that explains its interest in front-end acquisitions.
Glenmark decided to outlicense molecules coming out of its new chemical research and when most of its peers were incurring heavy in-house R&D spend. Since late 2004, when it decided to do this, Glenmark has earned $100 million from the strategy. At a time when most of the drug makers are chasing biosimilars or off-patent biotechnology drugs, Glenmark’s Switzerland facility for patentable ‘novel’ biological drugs is already a year old. In July, the company went ahead and acquired commercial rights on two molecules—one for acute multiple sclerosis and the other to treat strokes—from Chromos Molecular Systems Inc. and got it “dirt cheap” as the bankrupt Canadian company was struggling to pay its secured debtors, said Saldhana.
An analyst at a Mumbai-based brokerage estimates the addressable market for Glenmark’s new biological entities to be $10 billion and for its partnered new molecule pipeline more than $12 billion. It has licensed an under-development asthma drug Oglemilast to US’ Forrest Laboratories Inc. and Japanese drug maker Teijin Pharma Ltd, a type II diabetes drug to US-based Merck & Co. and another new pain management drug to Eli Lilly.
Still, the company faces more dangers than several of its peers. Primary among the risks before Glenmark, wrote Awadhesh Garg, drugs analyst at Kotak Securities Ltd, in a recent report, is how human trials for three new molecules for treating asthma, diabetes and pain management (the ones it has licensed out) progress in the coming quarters. In spite of a buy rating, the Citigroup analysts added: “Glenmark’s efforts to build its own front-end in regulated markets could prove to be a drag on earnings if it is unable to effectively execute its plans.”
Citigroup predicts Glenmark will report net profits of Rs588 crore in 2007-08, up 90% over fiscal 2007, and could touch Rs794 crore by 2009-10. The firm’s own profit guidance is an ambitious Rs609 crore this year.
Investors shrugged off Tuesday’s legal challenge; shares of the firm have risen 16.4% in the week. They closed up 4.45% at Rs587.85 each on Friday on the Bombay Stock Exchange.