Glenn Saldanha’s all-or-nothing game
Failures and doubting investors have not dissuaded Glenmark CEO and MD, Glenn Saldanha, from pursuing his ultimate goal: a novel blockbuster drug
Glenn Saldanha does not play poker. “I just don’t have a poker face. The passion I have for what I do just shows on my face,” says the CEO and managing director of Glenmark Pharma. The thrice-a-week badminton player is more of a jazz man, who listens to the golden oldies—Ella Fitzgerald, Louis Armstrong—to unwind at his house in Bandra in suburban Mumbai, after a stressful day at work.
Saldanha has had several of those days in the past few years, thanks to a few highrisk bets he took in the last decade or so. “In 2008-09, you cannot imagine the kind of abuse we took from everyone,” says Saldanha. “There were people in the investor community who were asking us to shut down our research, hive it off and shore up our profits,” he recalls. Some of those voices have turned a lot less shrill, if not piped down, during the past week.
The reason: last Monday, Glenmark announced that it had out-licensed (allowing a partner to develop a drug and sell it in select markets) a molecule—GBR 500—to French pharmaceutical company Sanofi for $613 million. Glenmark will be paid $50 million upfront–the only guaranteed payment in the $613-million deal for now. The rest will be paid if and only when the molecule crosses other research targets successfully.
For now, the $50 million will peg back Glenmark’s debt levels from about 1,900 crore to about 1,650 crore. Surely, that would be a relief for a company that clocked revenues of 3,089 crore in 2010-11. More importantly, it marks the company’s foray into the cutting-edge, fast-growing biologics space, which is valued at $149 billion and expected to reach $239 billion by 2015. GBR 500 is a novel ‘monoclonal antibody’ to treat Crohn’s disease (a form of inflammatory bowel ailment), multiple sclerosis and other inflammatory conditions. Monoclonal antibodies are the fastest-growing segment in the biologics market. By 2015, these are expected to rake in $86 billion. With the Sanofi deal, Glenmark became the first Indian company to outlicence a biologic treatment.
The deal is the end of a chapter of a story that was scripted when Saldanha, 41, met Michael Buschle, co-founder of Swiss vaccine maker Intercell in 2006. After a visit to Glenmark’s novel chemical entity lab, Buschle decided to join the company. Glenmark also decided that its facilities in Switzerland would focus only in biologics. “What’s most exciting for us is not the money—the $50 million or the $ 613 million,” says Saldanha. “What excites me is the validation of our investment in the biologics space and our R&D facilities in Switzerland almost five years ago, without knowing if anything would come out of it.”
Calls like these make Saldanha more like an all-in poker player than a man who sweats about his backhand smashes. Bets like these have also seen Glenmark’s market cap rise from $40 million at the time of its IPO in 1999 to $4 billion in 2007, to $1.7 billion today.
After cutting his teeth at Eli Lilly and consulting firm PricewaterhouseCoopers in the US, Saldanha returned to India in 1998 to take over Glenmark, a company his father Gracias Saldanha founded in 1977. At that time, the company was clocking revenues of just 70 crore. An IPO in 2000 was oversubscribed 65 times. The first set of eyebrows were raised when Glenmark decided to use its IPO proceeds to fund drug discovery. Even pioneers like Dr Reddy’s had not been able crack that space.
In 2004, after five years of investing in R&D, Glenmark had a breakthrough when it signed an out-licensing agreement with US-based Forest Labs for its Oglemilast molecule for $190 million.
Industry watchers believe that by out-licensing molecules to larger multinational players, companies like Glenmark were mitigating the risks involved with the process of drug discovery and enhancing their market reach. “If a molecule is successful in trials, one still needs large distribution networks across the world to make it a success,” says Hitesh Sharma, partner and national leader, life sciences practice, Ernst & Young. “Also, the success rate in drug research is very low, making it a costly, highrisk proposition.”
According to the Tufts Center for the Study of Drug Development, discovering a new drug takes on an average 8-10 years and costs around $802 million—funds that Indian companies cannot afford to throw after a single drug. “The good thing about out-licensing, especially if you do it consistently like Glenmark has, is that it can give you a steady cash flow in milestone payments to fund new research,” says a Mumbai-based analyst with a foreign brokerage. Other Indian companies like Dr Reddy’s, Ranbaxy outlicensed their molecules in the past, but Glenmark has been the most successful, inking six such deals in since 2004.
Counting the recent Sanofi deal, Glenmark has netted over $200 million in milestone and upfront payments while it has spent about $120-130 million in cash. “For us, research is a cash positive business,” says Saldanha.
But that’s just one half of the story. In 2008, Glenmark’s out-licensing deal pipeline ran dry. It was followed by a twoyear phase when most of its out-licensing deals came unstuck. In 2008, Eli Lily suspended work on the molecule it had in-licensed from Glenmark and Merck returned Glenmark’s Melogliptin molecule, as it recast its drug portfolio. A year later, Forest Labs trials on Oglemilast failed and Glenmark’s magic with investors faded as the company lost nearly half its market cap.
Around the same period, several of Glenmark’s peers like Sun Pharma, Ranbaxy Laboratories and the Piramals spun off their R&D into separate entities to derisk their core generics businesses. But Glenmark has refused to hive off its R&D business, much to the chagrin of investors.
“We believe in an integrated research model,” says Saldanha. “If you look at our internal funding cycles, between 2000 and 2004, generics funded our research programme. Between 2004 and 2008, research generated extra cash, which was used to build our US generics business. In 2008 and 2009, generics again funded research when we had the failures,” he says.
Saldanha believes nothing—not trial failures, not volatile stock movements or investor ire—will stop the company from investing in R&D. “The idea is that if we have 5-6 of the molecules partnered out…the likelihood of one of these going to market is very high. The end game is to get a couple of these to the market. Then, that’s it…you have hit the home run,” says Saldanha. “These are all multibillion dollar opportunities…just one drug could potentially give you $2-3 billion.” he adds.
But achieving that is easier said than done. Glenmark does not have single drug in its pipeline that has been proven in the crucial phase-II trials and some analysts are sceptical about the value of its discovery pipeline. Pointing to this lacuna, a recent India Infoline report says, “… we believe that S$300 million is the best value one could ascribe to Glenmark’s novel discovery pipeline at this stage.”
Saldanha is unperturbed. “It took us six years of solid work in Switzerland before we could out-license our GBR 500. You need to have sustenance to play this game,” he says. “Since we have built up a reputation as a world-class research company with six out-licensing deals, doing number seven, eight and nine in the next three years should be easy. One drug makes it to the market and our transformation from being a generic or branded generics player to becoming a truly innovative company will be complete.”
It’s a dream Saldanha is working on, one molecule at a time.
Glenn’s Gambits Research Ploy: He’s clear that the generics business is a means to an end: “a novel drug.” For this, he is taking big, long-term bets in research Licence to Till: He says he will continue to out-license, which allows him to conduct costly research with partners’ money Biz Model: He firmly believes in an integrated generics and research model. Cash flows from either source can support the other business Practical Love: Saldanha sees himself as a bridge between investor interests and those of the scientists who ‘get attached to their molecules’