>Glenmark Pharmaceuticals (CITI)

FDA Warning Letter: Storm in a Tea-Cup

■ Conclusion — We believe the knee-jerk reaction in the Glenmark stock to the US FDA warning letter requiring the company to stop selling three products (all morphine based) is overdone. The impact on financials will be minimal, in our view, and the issue is not reflective of any quality or manufacturing problems.

■ FDA clamps down on unapproved drugs — The FDA has issued warning letters to 9 firms (incl. Glenmark), asking them to stop marketing certain unapproved narcotic pain medicines. The letter to Glenmark relates to formulations of morphine sulphate (15 & 30 mg tablets, 20mg/ml & 20mg/5ml solutions). The FDA allows 60 days to stop manufacturing & 90 days to stop all shipments.

■ Not company specific — This is part of the FDA’s attempt to clamp down on drugs that have not gone through the proper approval process. These drugs are usually ones launched prior to 1938 (categorized as “grandfather drugs”) before the establishment of the current approval process. In June '06, the FDA issued guidance on its stand on the unapproved drugs & the steps it intended to take in regard to this matter. These warning letters are a part of that process.

■ Small products, marginal impact — As per management, the products in the warning letter have revenues of cUS$1m (<1%>

■ Could there be more? — This is an ongoing process & there may be other products that could be affected in future. It is, however, difficult to determine the exact impact although it is unlikely to be material.

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