Glenmark Pharma - Reliance Securities

Napo Pharma has terminated its collaboration agreement with Glenmark (entered in July 2005) to develop and commercialize Crofelemer. According to Napo, the termination was a result of Glenmark's alleged breach of the collaboration. Napo has claimed that Glenmark failed to file an application for regulatory approval with DGCI in India as well as to other regulatory authorities, despite the drug having completed the Phase III trials. Further, it has also failed to develop the drug for the treatment of pediatric diarrhea. The termination was preceded by a notice of default sent to Glenmark in Sep 2011, giving it a period of 60 days to take the required action. Besides, Napo has also terminated the agreement with its partner Salix pharma, which earlier had the rights to market the drug in developed markets of US, Canada, Mexico, Europe and Japan.

Outlook and Valuation

Termination of Crofelemer agreement is a negative blow for Glenmark's R&D pipeline as the launch was expected to be the first one from Glenmark s R&D pipeline in 2012. Though, Glenmark has filed a statement of claim against Napo stating the termination as baseless, we believe this could lead to long legal tussle. We believe that the licensing fees and other payments received by Glenmark need not be paid back despite termination.

Reliance Securities maintains its buy recommendation on the stock with a revised price target of Rs400. At the CMP of Rs295, the stock trades at 12.7 times its FY2013E earnings.

Source : Equity Bulls

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