Glenmark gets DCGI approval for phase III clinical trials of Crofelemer

Glenmark Pharmaceuticals has received approval from the Drug Controller General of India (DCGI) to start Phase III clinical trials for its anti-diarrhoeal drug ‘Crofelemer‘. The process for clinical trials has been initiated, and is expected to be completed by the last quarter of the next calendar year, as per the company's announcement. This research involves a study of the efficacy and safety of Crofelemer tablets in 2 dosage forms, to be used for the treatment of acute diarrhoea.

The clinical trials will take place on over 700 patients in various medical centers in India and Bangladesh.

Glenmark Pharma holds an exclusive license from Napo Pharmaceuticals to distribute and commercialise Crofelemer in 140 emerging countries including India for HIV indications and acute adult and pediatric diarrhea. The market for HIV-related diarrhoea alone is about USD 80 million (about Rs 424 cr.) in emerging countries.

According to the World Health Organization (WHO), diarrhoea is a common disease in all countries. It is mainly caused by gastrointestinal tract infection. Each year, the disease causes around 22 lakh deaths globally, which mostly includes children in the developing countries. Pediatric diarrhoeal illness causes around 2-3 million deaths among children. We believe that once this product gets through the clinical trials, it will have a robust demand in emerging markets.

Crofelemer is Napo Pharmaceutical’s novel first-in-class drug. The company has authorised Salix Pharma and Glenmark Pharma for the distribution and sales of the drug. Salix will sell this product in regulated markets, which would earn revenues of nearly USD 300 million (about Rs 1600 cr) in USA alone. Salix and Glenmark have an agreement according to which Salix would pay Glenmark USD 21.6 million (about Rs 115 cr) as a commitment to cover the risks related with upgradation of the manufacturing facilities by Glenmark for Crofelemer. In the last quarter, Glenmark received an advance payment of USD 15 million from Salix Pharma for the same, and the remaining fee of about USD 6.6 million will be paid in 5 equal annual installments.

The major issue with respect to this drug is an ongoing dispute between Napo Pharmaceuticals and Glenmark Pharma. Napo claims to have terminated this agreement with Glenmark Pharma. Glenmark, however, has filed a statement of claim with the American Arbitration Association seeking a declaration over its exclusive rights to develop, commercialise and distribute Crofelemer in the emerging markets.

Beside Crofelemer, Glenmark is also performing clinical/preclinical trials on a few other drugs, due to which we see good long-term potential in the stock. In the recent half yearly results, its topline grew by 37% to Rs 1924 cr YoY, while the bottomline grew by 4% to Rs 265 cr. The EBITDA margins decreased from 30.71% in H1 FY11 to 27.31% in H1 FY12. The stock is currently trading at the PE of 33x, which seems quite expensive compared to those of Aventis Pharma or Piramal Healthcare, which are trading at PE of 20x and 14x respectively. Investors interested in this stock should wait for clarification on the agreement with Napo and should buy the stock on lows.