>Glenmark Pharmaceuticals(CITI)

 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% of US revenues). Besides, given
that Glenmark sources these products from LVT (which has also received a
similar warning letter), the profitability on these sales is likely to be lower than
the US average. As such, we do not expect a meaningful impact on the biz.
 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.

To read full report Glenmark Pharmaceuticals(CITI)