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Glenmark Pharmaceuticals: Attempt Out of Generic

We initiate our coverage on Glenmark Pharmaceuticals (GNP IN) (“Glenmark”)’s GNPIN 4.5% 8/21s (BB-/BB by S&P and Fitch, respectively) with a Neutral recommendation (See Valuation) as we believe the recent rally limits a further upside in the near term. In addition, the transformation away from a drug company poses headline risk down the road. That said, we also believe the downgrade risk is reduced since S&P has already downgraded the company’s rating in March.

We view Glenmark as a generic drug company in India with an ambition to stand out from its competitors through specialty and innovative drugs. This comes at the expense of a declining EBITDA in the near term, especially when new product approvals in the US slowed. In our view, Glenmark does have substantial product pipeline with 132 products authorized for distribution in the US market and 62 abbreviated new drug applications (ANDAs) pending for approval with the US FDA as of 31-March 2018. Management expects to 10+ launches in FY19 for the US market, which could help to improve the EBITDA margin to 18-20% by FY20.

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