Glenmark stock plunges 15% as trial in US fails

Glenmark stock plunges 15% as trial in US fails

New Delhi: Shares of the Mumbai-based Glenmark Pharmaceuticals Ltd India plunged 15% on the Bombay Stock Exchange after the company’s US-based outlicensing partner Forest Laboratories Inc. announced that the company’s lead respiratory disease molecule oglemilast had failed in the second phase of clinical trials.

The failure, and its impact on Glenmark’s shares highlights the risks involved in the so-called outlicensing model where a company licenses out its drug molecule for testing, trials, and development to another company. The company licensing out the molecule is paid money in tranches— milestone payments—as the drug passes through each stage of testing and development.

Oglemilast was expected to replenish Glenmark’s shrinking coffers and fund the firm’s research and development activities. The company’s last milestone payment for the molecule was in February 2008.

Oglemilast, being tested as a drug for chronic obstructive pulmonary disease (COPD) was outlicensed by Glenmark to Forest in 2004 for developing and marketing it in North America in a deal worth $190 million (Rs925.3 crore). The same year the company also signed a deal worth $53 million with Teijin Pharma for developing and marketing the molecule in Japan.

“We are, of course, disappointed that oglemilast has not been successful in this study," said Howard Solomon, chairman and chief executive officer of Forest Laboratories in a press release.

“Oglemilast is still being studied for the treatment of asthma, with results expected during the first calendar quarter of 2010. We are considering together with Glenmark what further action would be useful or appropriate," he added.

“There are lots of drugs already in the market for asthma, so it has to be seen how the molecule (Oglemilast) performs and if it has better efficacy. There may not be any essential upside only for (an) asthma (drug)," said Ranjit Kapadia, vice president, institutional research, HDFC Securities Ltd.

Glenmark, meanwhile, is unsure of the fate of the Teijin deal. “As of now that (deal) is still on. We need to discuss and see how things will go forward," said a Glenmark executive who did not want to be named.

Glenmark’s CEO said the company’s discovery programme was still on.

“When we outlicensed oglemilast in 2004, we had only one molecule in clinical trials. Today we still have six molecules in human trials. We have received over $115 million in upfront and milestone payments and have ploughed back these funds back into the discovery programme," said Glenn Saldanha, managing director and CEO, Glenmark in an email. He also added that the company would continue with its outlicensing strategy. “Our strategy will be to continue to look for partners to outlicense our other candidates in clinical trials."

The HDFC analyst, however, added that it may be difficult for Glenmark to strike any new outlicensing deals given that Big Pharma has largely curtailed R&D budgets.

Glenmark recently announced that its lead diabetes molecule Melogliptin had entered phase 3 of clinical trials — the last stage a molecule needs to clear before the company can apply for marketing approval. However, phase 3 trials require extensive investment and the company will need to outlicense it before the end of the year, when the trial is slated to begin.

This is the third major setback for Glenmark. Last year, its outlicensing partner Eli Lilly and Co. had suspended clinical trials of a painkiller drug molecule after certain adverse findings. In 2007, German drug company Merck KGaA ended a licensing deal for Glenmark’s diabetes drug after it decided to drop diabetes projects from its research portfolio.

The Glenmark executive said Lilly has returned the painkiller portfolio and that Glenmark is in talks with other companies for a partnership. Last year Glenmark had received $15 million as milestone payments from Forest Labs for Oglemilast.

On Wednesday, shares of Glenmark closed at Rs223.20 each, down 15% on the Bombay Stock Exchange on a day when the exchange’s benchmark index Sensex closed 1.50% down at 14809.64. Glenmark shares have touched a high of Rs683.90 each and a low of Rs119.15 each in the past year. The company ended the three months to June with a revenue of Rs550 crore, up 18% from revenue for the corresponding period last year and a net profit of Rs53.45 crore, down almost 50%. Glenmark ended the year to 31 March with a revenue of Rs2121.5 crore and a net profit of Rs1934.7 crore.