Will Glenmark’s COVID-19 drug give it a new lease of life or just a short energy boost?

Every pharma company worth its salt or API is scrambling for a COVID-19 cure. Since the onset of the pandemic, within a few months, there have been several announcements on clinical trials to treat the virus. With any other illness, such activity would have been paced over years. While most Indian companies chose to ink licensing agreements to manufacture and distribute Gilead’s Remdesivir, Glenmark has taken a different path — of manufacturing a generic of Favipiravir under the brand name FabiFlu.

It was a big news day on June 22, as the headlines splashed across news mediums: ‘Glenmark launches first antiviral drug Favipiravir for the treatment of mild to moderate COVID-19 cases’. After all, it was the first Indian company to receive the manufacturing and marketing approval from the Drugs Controller General of India (DCGI). And even before the drug was launched, Glenmark’s stock rocketed to a 52-week high (See: Cause and effect).

But, is it as good as it looks or is this just a flash in the pan? Can it give the company — which is trying to shake off a pile of debt and improve its cash flow — a chance to change its fortune, dramatically?

The pill
Favipiravir is a drug developed by Fujifilm Toyama Chemical in 2014 and sold under the brand name Avigan. It has since been used for the treatment of novel or re-emerging influenza virus infections, and it went off patent last year. The Glenmark spokesperson said they began working with this drug because of its wide therapeutic safety margin (that measures the toxicity of a drug’s dosage against its efficacy) and because of ease of administering it, which is done orally. It has also been proven to act against SARS-CoV2, though in-vitro or outside of a living organism.

The DGCI has given approval for its restricted emergency use in India, which means every patient must have signed an informed consent before treatment initiation. The doctor has to explain to the patient that this is an experimental drug not a standard operating treatment. “If a patient has a bit of a snuffle, bit of a sore throat and a low grade temp of 99-100, I wouldn’t use this drug for them. But if the patient has a persistently high temperature of say 101-102, cough beyond 5-6 days, I would give Favipiravir for those patients after giving them the choice,” says Dr. Raja Dhar, director, department of Pulmonology, Fortis Hospital, Anandapur.

However, Dr. Shashank Joshi, endocrinologist and diabetologist at Lilavati Hospital, says that the drug is useful in early onset of the disease, particularly in home-based care. Dr. Joshi, who is also part of the seven-member COVID-19 task force in Mumbai, says that if Favipiravir is prescribed at the onset of COVID-19, the patient is likely to test negative by the fifth or sixth day. Even Dr. Urman Dhruv, director of department of internal medicine and diabetes at HCG Hospitals in Ahmedabad, says that the drug has to be administered within seven days of symptom onset and that most of the patients didn’t need clinical care after its administration because they became asymptomatic. His hospital was one of the 11 centres at which Glenmark had carried out phase-3 trials on a sample size of 150 patients.

Combating the virus at an early stage is in fact a very important aspect in treating COVID-19. “If you cut down the virus early, then the body would not respond aggressively, and then this Cytokine Storm (when your immune system responds hyperactively causing respiratory distress and other complications) which leads to mortality and ventilator would be reduced,” says Dr. Dhruv. That said, the pill burden is large and the pricing expensive. The recommended dosage is 1,800 mg twice daily on day 1, followed by 800 mg twice daily up to day 14. The cost of the 14-day treatment will be an estimated Rs.14,000, at Rs.103 per tab in India. Despite the large pill burden, the potential side effects are limited, point out doctors. Glenmark maintains that the current price factors in the significant investment in developing the drug and yet manages to keep it economical as compared to its price in other countries. To put it in context, the price of Favipiravir is at about Rs.600/tab in Russia, Rs.378/tab in Japan, Rs.350/tab in Bangadesh and Rs.215/tab in China.

Since FabiFlu’s launch, there have also been comparisons with the other antiviral drug, Remdesivir, developed by Gilead. But Favipiravir and Remdesivir cater to completely different needs in treating COVID-19. “Remdesivir is approved for emergency use in moderate to severe cases, and Favipiravir is for restricted use in mild to moderate cases. Both have a role in different stages and are effective and safe,” reiterates Dr. Joshi.

While Glenmark has launched a Favipiravir-based drug in India, trials have been on in several other countries to measure its efficacy in treating COVID-19. Wherever the tests were conducted, results are said to be promising. In Japan, where about 2,050 patients have been administered Favipiravir, high recovery rates were observed at seven and 14 days of therapy in both mild and moderate patients. It has also been approved by Italy and China, while Canada has initiated a 760 patient trial of Favipiravir. In Indonesia, Thailand, Turkey as well as the Middle East, the drug is at different stages of approvals. In May, Russia became the first country to approve the use of Avifavir, a derivative of Favipiravir, for treatment of COVID-19.

The skeptics
FabiFlu maybe creating waves since its launch, but analysts prefer to sit on the fence. “There are lots of substitutes coming in, including Dexamethasone, which is a much better drug,” says Surajit Pal, analyst, Prabhudas Lilladhar. Dexamethasone is a commonly used steroid with powerful anti-inflammatory properties and is found to reduce mortality for severe patients and those who require ventilation. Dr. Dhruv adds that in all probability, another pharma company may come up with trials to use FDA-backed Remdesivir in mild to moderate cases.

Pal also points out Favipiravir is a second line of treatment. “Globally, Favipiravir is used as an alternative medicine when flu patients develop resistance to the first line of medicines such as oseltamivir/Tamiflu. This has led to limited use of the medicine among flu patients. Given its limited application in treating flu patients, the innovator has not applied for patent in US,” he notes in his recent report.

And while Glenmark may be the first to the market, it is surely not the last. In May, the Council of Scientific and Industrial Research-Indian Institute of Chemical Technology (CSIR-IICT) developed a convenient and cost-effective synthetic process for Favipiravir. They then transferred the entire process and significant quantities of pharma grade API of Favipiravir to Cipla. Strides Pharma Science also obtained approval from the DCGI to conduct trials of antiviral drug Favipiravir.

“The Favipiravir opportunity for Glenmark in India could only be worth Rs.500 million with Ebitda margin of 15% assuming three players market,” notes Pal in his report. And until a vaccine for COVID-19 is launched, there are likely to be multiple such launches from pharma companies. Doctors state that a few competitors are coming up with Favipiravir drugs costing Rs.40 per tablet. “It is an off-patent drug, so prices will go down as more players come in. But even if it is used extensively in metros, it would be a huge boost for Glenmark from a business perspective,” says Dr. Dhruv.

Consider that currently, metro cities – Mumbai, Delhi, Chennai – are seeing rapid increase in cases. People are afraid of going to hospitals or even going for tests. So doctors or family physicians are likely to start prescribing this drug rapidly. “Cough, cold fever patients are also likely to be put on this medication which isn’t the right way of doing this. The right way is to first go for Covid-19 test and then start this. But we are sure that the drug will be used extensively anyway,” explains Dr. Dhruv. 

Until the competition arrives, Glenmark has the market to itself. But that again is not too much, says Jeena Scriptech's co-founder Gaurav Parikh. “All 600,000 will not be mild to moderate cases and not all mild to moderate cases will be treated with FabiFlu. The export market isn’t established yet. So is this a game changer for Glenmark? The numbers don't really add up,” says Parikh. The company maintains that Glenmark has never looked at this molecule with a focus on the bottomline or business impact, but as a response to a health crisis in the country. “As of now, we haven’t taken the sales potential of FabiFlu into consideration,” says the spokesperson.

Without guidance on investment and estimated production volume, analysts are finding it difficult to estimate profitability. “FabiFlu can do well in the long term as the company says there is no capacity constraint. But we don’t have revenue visibility and estimation on how much it can be profitable,” says Sriraam Rathi, analyst, ICICI Securities. However, he points out a silver lining: if they had licensed Remdesivir, they would have to share the profit with Gilead, but given that Glenmark has developed it on their own, there is no outgo.

Safety Conundrum
In all this though, one figure is troubling: 150. How can a sample size of merely 150 people be enough to pass a drug? In a pandemic situation, it is often the only choice, says Dr. Raja. “Drugs need to be licensed in a hurry and made available… I think we have reasonably good data that we can have in the middle of a pandemic,” he says, adding that as we go along and administer it, we will know how effective it is. The company, on its part is conducting another 1,000-patient trial for further evaluation of safety and efficacy of the drug.

But, since the drug controller has approved FabiFlu without completing ongoing trials, there are chances of the drug being discontinued if its efficacy cannot be proven on the larger sample size, according to Pal of Prabhudas Lilladher.

Parikh points to the danger of ‘happy hypoxia syndrome’. This means that COVID-19 patients with extremely low oxygen levels in their blood (hypoxia) appear normal and not in any kind of distress, even though such low levels can cause unconsciousness or even death. “When general medical practitioners prescribe FabiFlu, the patient will feel happy and not go to the hospital at all. In some cases, the saturation level of oxygen may be going down and they don’t feel it at all. Now that’s the big fear,” says Parikh. Dr. Dhruv says that while the initials results are promising, it is too early to decide on the drug. “Once it is utilised across India, we will have more concrete data. Maybe in a month’s time,” he says.

While how Fabiflu plays out is important, Glenmark has created a well-diversified business with a focus on high growth areas: dermatology, respiratory, oncology and cardiology. From branded generics to specialty and over-the-counter, the company has a presence across categories. To establish this niche, the company has invested around 12% to 13% of sales in R&D, which is the highest in the industry which has an average of around 7%.

This acts as a double-edged sword. While it gives the company a higher chance of leading innovation, it has led to high debt and shrinking cash flows, and therefore a highly leveraged balance sheet. Over FY10-20, Glenmark expanded its R&D investment at 33% CAGR, which depressed earnings performance and free cash flows. Over this same period, net profit growth (9% CAGR) lagged revenue growth (15% CAGR).

“Glenmark has relatively higher debt due to higher R&D cost and capex. That is a key valuation risk and hence it trades cheaper. Innovative R&D also keeps their Ebitda and profit margin lower,” points out Rathi. A report by Praful Bohra, analyst, Emkay Global notes that net debt remains high at Rs 37.6 billion in FY20, up almost Rs.3 billion compared with FY19. This is a long way off from the management’s guidance of Rs.7 billion-8 billion reduction in FY20. Of the total debt, disproportionate investment in high risk NCE (new chemical entity) R&D has also been a cause of concern. “About 15 years of investment in NCE development without a meaningful commercial success is testing investors’ patience,” notes a Nirmal Bang report. The company also hasn’t been able to get any big out-licensing deals like the one they struck with Sanofi about five years ago. Lack of strong partners and investments to take trials to Phase 3 could also be a challenge for Glenmark, states Pal.

The company has begun taking measures to deleverage the balance sheet. One of the steps in this direction was divesting its VWash brand, and Pal says that this has helped them gain better control over overheads. From this sale, Glenmark will receive an upfront payment and a certain percentage of sales for three years. As per ICICI Direct estimates, the brand had FY19 sales of Rs.500 million-600 million and at sales multiple of 4-5x is likely to fetch Rs.2 billion–2.5 billion (pre-tax).

In addition, the company is looking to lower R&D costs, seeking partners for further development of its other specialty assets like biosimilar Xolair and considering reduction in manpower cost in FY21, says the spokesperson. During its FY20 post-result conference call, the company has guided FY21 capex at Rs.8 billion. A stake sale in its NCE business, (hived off as Ichnos Sciences) is also on the cards.

Despite the high debt and capex, the company has continued to deliver strong performance in the domestic business (See: Due Reward). But like most of its peers, its international business has faced headwind. The Emkay Global report states, the US business de-grew because of pricing pressure in the derma segment, declining sales in key products and impurity issues in Ranitidine. With a thin pipeline (44 pending approvals) and low filings (8 in FY20), Bohra expects US growth to remain moderate for the next few years.

As for FabiFlu, it might not seem like a ‘game changer’, but ‘half-time’ is a long way off. In the meantime, the company is also carrying out trials to test the combined efficacy of Favipiravir and Umifenovir as combining antiviral drugs could result in greater clinical effectiveness. Dr. Joshi says that this combination would help in reducing the dosage from 14 days to just seven days. According to the management, Umifenovir impedes the viral attachment to cells and acts as a viral entry inhibitor and is licensed for prevention and treatment of influenza A and B infections in Russia and China. Those trials on moderately severe patients will run for another two-three months and depending on the efficacy, the antiviral combination will be launched. It will be a while before we see a clear winner.