Out-licensing novel molecules key to Glenmark's debt reduction plan

Sealing an out-licensing deal for its innovative molecule (GBR-830) for atopic dermatitis is crucial for Glenmark Pharmaceuticals to bring down its net debt of Rs 34.04 billion as the company’s research and development (R&D) spend is set to rise from an 8 per cent of turnover in the last financial year to 12 per cent this year.

“Our net debt came down by Rs 2.63 billion in FY18, which was in line with our guidance of reducing the debt by Rs 2.5-3 billon. We are generating free cash at the core operating level and are committed to further reducing debt. We believe free cash generation and potential out-licensing deals for our novel drugs will help bring down debt further,” a company spokesperson said.  “Bulk of our innovative R&D spend this year will be on GBR-830 but we hope to keep the overall R&D investment at about 12 per cent,” the spokesperson added.

Analysts feel cash flows will remain under pressure and a meaningful reduction in debt will be difficult. Licensing the innovative molecules like GBR- 830 (completed phase II) and GRC-27864 (in phase IIb trials), a pain management drug, is critical. Glenmark, however, claimed that in 2018-19, it expected to keep net working capital in number of days to be the same as 2017-18.

The company spokesperson admitted, “Licensing is clearly a priority for us this year. We have multiple discussions going on for our innovative assets. We are looking at regional as well as global deals. We will continue to focus on free cash generation, de-leveraging the balance sheet and monetising our innovative products pipeline.” The company’s efforts to out-license the GBR-830 novel product with a global partner has not met with any success so far, though six to eight companies were interested in the product. The drug is estimated to have a market size of $8-9 billion.

Sources indicated that the company was looking at working out a partnership deal with a pharma player which closely understood the auto-immune space to make sure that the timelines were met. 

The partner is likely to have the rights for the drug in the US, the EU and Japan markets and help with the approvals from the regulators in these countries. Typically, a royalty in the range of 10-15 per cent on sales is paid by the partner to the innovator. 

Glenmark is having active discussions for out-licesnsing of four molecules: GBR-830, GSP-301, GBR-1342, and GBR-310. It has a total of nine novel molecules under several phases of clinical trials. These molecules are in the oncology, respiratory, dermatology and pain treatment areas. 

Crisil said high R&D expenditure primarily towards new molecule entities (NMEs) and differentiated generics R&D expenditure has been higher than that of many peers because of focus on new molecules and differentiated generics. The company has signed out-licensing deals and has received cumulative revenue of more than $200 million since 2004 (calendar year).

“R&D expense has increased in recent years as a few molecules have progressed to an advanced clinical trials stage. However, the company’s strategy and focus on out-licensing molecules as it reaches advanced stages will help maintain R&D expenditure at 11 per cent of sales, over the medium term. Additionally, the company plans to monetise at least one molecule in the near term and utilise the proceeds towards debt reduction and R&D,” Crisil added.