Glenmark Pharmaceuticals Ltd

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Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the Q3 FY '23 Earnings Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Utkarsh Gandhi, General Manager, Investor Relations for Glenmark Pharmaceuticals. Thank you, and over to you, sir.

Thank you, moderator. Good morning, everyone, and a very warm welcome to the Q3 FY '23 results conference call of Glenmark Pharmaceuticals Limited. Before we start the call, a review of the operations for the company for quarter ended December 31, 2022. For the third quarter of FY '23, Glenmark's consolidated revenue from operations was at INR34,639 million as against INR31,734 million in the corresponding quarter last year, recording a growth of 9.2%. For 9 months of FY '23, Glenmark's consolidated revenue was at INR96,164 million as against INR92,858 million, recording a growth of 3.6% year-on-year.We start with the formulation business and we'll start off with India. Sales from the Formulation business in India for the third quarter of FY '23 was at INR10,745 million as against INR10,069 million in the previous corresponding quarter, recording growth of 6.7%. India business contribution to consolidated revenue was 31% in Q3 of FY '23 compared to 32% last year. As per IQVIA Q3 FY '23 data, Glenmark's India Formulation business continues to record strong growth of 11%. As per the IQVIA data, Glenmark's India business continues to be ranked 14th with a market share of 2.2%.During the quarter, Glenmark's India business significantly improved its share in the key therapeutic areas of cardiac and dermatology. As per the IQVIA data, cardiac market share for Glenmark increased to 5.37%, up from 4.85% last year, and the dermatology market share also went up to 8.15% from 8.05% last year. Glenmark's market share in other key therapy areas also remained strong. So, the company's share in the respiratory market was 5.34% and in the diabetes market was 2.38%.As per the IQVIA data for MAT December 2022, Glenmark is ranked 2nd in dermatology, 3rd in respiratory and was ranked actually 2nd in the third quarter in respiratory. Glenmark is ranked 5th in the Cardiac segment and 14th in the Diabetes segment. Company continues to have 9 brands in the IPM Top 300 brands in the country on the basis of IQVIA MAT December '22 data. The company launched multiple new products during the quarter and continued to gain share in some of its key launches across segments. In the third quarter, Glenmark launched the fixed dose combination of Teneligliptin, Pioglitazone and Metformin SR under the brand name Zita PioMet. This is a novel and affordable FDC to help improve glycemic control amongst adults with high HbA1c and high insulin resistance. And it also improves adherence through a single pill.Earlier in FY '23, Glenmark also launched Sitagliptin and its fixed-dose combination, followed by Lobeglitazone and FDCs of Teneligliptin, including combinations with Pioglitazone and Dapagliflozin emphasizing its focus on the Diabetes segment. In the Cardiac segment, Glenmark recently launched Sacubitril + Valsartan under the brand name, Sacu V for the treatment of heart failure. This combination belongs to the class Angiotensin receptor neprilysin inhibitor. This drug helps reduce the risk of cardiovascular-related deaths and hospitalizations. The company continues to have a healthy pipeline of differentiated products, which it will launch in the market going forward.For India, Consumer Care business, primary sales for the GCC business, the Consumer Care business was -- in Q3 was INR431 million with a growth of 16%, which was mirrored by a strong secondary growth of 13%. For the 9 months of FY '23, the GCC business revenue stands at INR1,634 million with a YTD growth of 34%. Our flagship brand, Candid Powder, delivered a revenue growth of 9% in Q3 and about 38% in the 9 months. Our La Shield portfolio delivered strong growth of 36% in the third quarter and about 80% in 9 months. We also expanded the La Shield product range through La Shield Moisturizer. Finally, Scalpe+ portfolio recorded 12% growth in Q3 and about 13% growth in 9 months of FY '23.Moving on to North America. The North America business registered a revenue of INR8,373 million, which was about $102.3 million for the third quarter of FY '23 as against INR7,533 million, which was about $94.8 million for the second quarter of FY '23, which essentially translates into a quarter-on-quarter growth of 11%. North American business contributed 24% to the consolidated sales in Q3 of FY '23. In the third quarter of FY '23, Glenmark received final approval for Nicardipine Hydrochloride Capsules. Glenmark also received final approval and launched Sodium Phenylbutyrate Tablets USP, 500 mg. In addition, Glenmark also launched Fingolimod Capsules, 0.5 mg and a new pack size for Olmesartan tablets.Glenmark filed 1 ANDA in the third quarter and plans to file 6 to 8 applications in the forthcoming quarter. Further in Q3,Glenmark also reached a settlement with Pfizer for Axitinib Tablets, 1 and 5 mg, the generic version of their Inlyta tablets. Glenmark had previously announced that it had received a tentative approval by the U.S. FDA for their Axitinib tablets on November 30, 2020. As per the IQVIA data for the 12-month period ending December 2022, the Inlyta tablets market achieved annual sales of approximately USD657.1 million. Glenmark's marketing portfolio consists of 178 generic products authorized for distribution. The company currently has 46 applications pending in various stages of the approval process, of which 21 are [ Paragraph V ].Moving on to Europe, Glenmark Europe operations revenue for the third quarter of FY '23 was INR4,932 million as against INR3,807 million, recording a growth of 29.5%. The Europe business contributed 14% to the total revenues in Q3 FY '23 compared to 12% in Q3 FY '22. The strong European business growth was driven by markets in both Western Europe and Central Eastern Europe. Key markets in Central Eastern Europe such as the Czech and Poland recorded strong secondary sales double-digit growth during the quarter. Growth was driven by uptick in base business as well as new product launches in the CEE markets in the third quarter.Western European business also clocked high double-digit growth for Q3 with markets like the UK, Netherlands, and Germany all growing significantly. In the UK, the overall pharma market witnessed some supply disruptions which helped Glenmark gain additional share through continued supply to key customers. Also 6 new products were launched in the Western European market. Growth was also led by our respiratory portfolio, which continues to do well in all the European markets. Key brands such as Ryaltris and Salmex have gained market share, both in volume as well as in value across the CEE, Central Eastern European market. And the product continues to do well in the Western European markets also through our partner. Tiogiva also continues to grow in the Western European market.Moving on to the ROW Region, which consists of Asia, Middle East, Africa, Latin America and RCIS region. For the third quarter of FY '23, revenue from the ROW region was INR6,541 million as against INR5,348 million for the previous corresponding quarter, recording a growth of 22.3%. ROW business contributed 19% to the total revenues in Q3 FY '23 compared to 17% in Q3 FY '22. Glenmark's Russia business recorded secondary sales growth of 26% in value and 3% in units in Q3 versus the same period last year. Strong growth has been driven by all the key brands in the market, including Ryaltris, Montlezir and Candiderm.Ryaltris continues to gain share and has now been included in the guidelines for Russian Rhinology Society as well. Dimetindene gel, Fenismart was launched in October 2022 and additional registration approval has been received for the oral drops of this product as well. These two launches will further boost the Dermatology segment. As per IQVIA MAT December '22 data, Glenmark's Russia business growth was about 15.9% in value terms, in line with the overall market. Volume growth was also in line and amongst the dermatology companies, Glenmark ranks 12th as per the MAT December 2022 data. And amongst the companies present in the Expectorants market in Russia, Glenmark continues to maintain a strong position, ranking 2nd as per the MAT December 2022 data.Moving on to Asia, amongst the key markets in the Asia region, Malaysia and the Philippines continued to record double-digit secondary growth. Certain macroeconomic headwinds are slowly easing out in other key markets like Sri Lanka. However, Myanmar continues to have challenges related to currency depreciation. In the Asia market, Dermatology and Respiratory are our key therapy areas contributing to majority of our sales. Ryaltris continues to do well in the overall market and we hold about 15% share in Australia. And our partner in South Korea, Yuhan also launched Ryaltris in the third quarter of FY '23. The product has already shown a very strong pickup in the market with 30-plus percent share in the combination market in a very short time span.The Middle East and Africa region recorded close to 30% growth in secondary sales during the third quarter. While the Kenya market continued to be impacted by some instability, Glenmark achieved strong secondary sales in South Africa and Saudi Arabia. On the back of key launches, Glenmark continues to gain scale in other markets of the region, such as the UAE, Uganda and Tanzania. The company also signed multiple business development deals to further augment the business growth. Latin America witnessed strong growth for the 9 months of FY '23.Respiratory, again remains a key therapeutic area and a key contributor for Glenmark and its growth in the Latin American markets. Glenmark has high single-digit market share across the chronic respiratory products in Brazil, is actually ranked 5th as per IQVIA MAT data in the covered market for the chronic Respiratory segment. And Glenmark is growing faster than covered market across all segments in Brazil. And in Mexico as well, this is another key market. Secondary sales growth has remained strong, growing at about 15% for Glenmark compared to market growth of 8% in terms of value. This is as per the IQVIA MAT December '22 data.This gives a brief overview of our respiratory -- key respiratory products, starting with Ryaltris. At the end of third quarter, marketing applications for Ryaltris have been submitted in 58 countries across the world, while it is commercialized in 23 markets, including major markets like U.S., Europe, where we have marketing approval and commercialization in the U.K. and at 10 different markets across Europe, Australia, Russia, South Korea and South Africa. Glenmark's partner in the EU, Menarini, initiated the commercial launch in the Nordic countries Denmark, Finland, Sweden, and Norway and Germany in the third quarter, and intends to launch the product in additional European markets in Q4.Our partner in the U.S., Hikma has launched the product. Ryaltris is now stocked at all major wholesalers. Discussions are also ongoing with insurance companies to increase coverage for Ryaltris. During the third quarter, Glenmark submitted marketing authorization applications for Ryaltris in Hong Kong and Morocco. Glenmark received Marketing Authorization grant for Ryaltris in Tanzania and is awaiting approval in other key markets like Brazil, Mexico, Vietnam, et cetera. Glenmark's partner in Mainland China, Grand Pharmaceuticals aims to complete enrollment of the on-going Phase 3 study in China for Ryaltris and submit the marketing authorization by the end of 2023. And Glenmark's partner Bausch Health intends to soon launch Ryaltris in Canada as well.In terms of other key products, the clinical trial continues for our generic Flovent pMDI product and we expect to file the NDA in calendar year '23. And we also plan to file at least 1 more generic respiratory pMDI in the U.S. in calendar year '23 and continue filing momentum beyond that. In terms of our innovative R&D pipeline, we'll cover GRC 54276, which is our HPK1 Inhibitor, it is being developed as an orally administered IO-adjuvant treatment for patients with solid tumors. So for GRC 54276, it's a novel orally active HPK1 inhibitor that demonstrates excellent stand-alone efficacy and enhances current immunotherapy efficacy.A Phase 1 dose escalation study is ongoing in India. Successful recruitment of patients in Cohort 3 was completed in third quarter of FY '23. No dose limiting toxicities were observed or had been observed till date. IND submission and DCGI submission is planned in the fourth quarter of FY '23 to initiate a Part 2 combination study of GRC 54276 with pembrolizumab and atezolizumab in the U.S. and India. GRC 39815 is ROR-gamma t inhibitor and using the company's respiratory pipeline asset which is being developed as an inhaled therapy for mild to moderate COPD and currently undergoing Phase 1 development in the US.Moving on to our API business, Glenmark Life Sciences. So, revenue from operations, including captive sales for GLS was INR5,407 million as against INR5,225 million, recording a year-on-year growth of 3.5%. Generic API revenues increased by 5.9% Q-on-Q and increased 1.8% Y-o-Y. Regulated market business continued strong growth momentum for the contributions of about 76.5%. CDMO business decreased by 9.6% Q-on-Q, but demand is expected to pick up from Q4 onwards. And multiple projects are either completed or ongoing for capacity expansion across the manufacturing sites, Ankleshwar and Dahej. External sales for GLS in Q3, FY '23 were at INR3,756 million as against INR3,032 million in Q3 FY '22, recording a growth of 23.9% Y-o-Y. For further updates on GLS, you can log on to the website of glenmarklifesciences.com.Covering Ichnos Sciences, Glenmark has invested INR1,518 million, which is about USD18.5 million in the third quarter of FY '23 compared to INR1,510 million, which is roughly USD20.5 million in the corresponding quarter last year. For the first 9 months of FY '23, Glenmark has invested INR4,880 million compared to INR4,987 million, which was as invested in the corresponding period in the previous financial year. For further updates on the pipeline and the organization, please log on to the website ichnossciences.com. The pipeline update for the third quarter of FY '23 has already been published on the website.Just want to cover our key objectives for FY '23. So, revenue growth of 6% to 8% during the year, sustaining EBITDA margins at similar levels or as they were in FY '22, a CapEx of INR700 crores to INR800 crores. Strategic priority is to enhance our free cash generation and further debt reduction and we continue discussions with protection partners for out-licensing of our innovative assets. Some notes to the results before we begin the Q&A. Forex gain for the quarter was at INR47.6 crores, which is recorded in other income. Total R&D expenditure in the third quarter was around INR276 crores, which is 8% of total net sales. For the full year, we expect R&D expense to remain around 10%. Investment in Ichnos, as noted earlier, was USD18.5 million in Q3 compared to USD20.5 million last year. And for 9 months, the investments were USD61.3 million in FY '23 compared to USD67.5 million in 9 months FY '22.The exceptional item in consolidated results is a net gain of INR33.9 crores arising from sale of Cardiac brand, Razel for the India Nepal business. Net of expenses, trade receivables, inventory write-off and some other reinvestable expenses as well as remediation costs related to the Monroe manufacturing site. Inventory for the period ended December 31, 2022, was at INR3,010 crores as against INR2,865 crores as of September 30, 2022. Receivables was at INR3,359 crores as against INR3,228 crores as of September. And payables as of December was INR2,367 crores compared to [ INR2,348 crores ]. Thus, there was a net working capital increase of about INR168 crores as of December 2022 when compared to September 2022.Total asset addition in the quarter was INR139 crores, of which tangible asset addition was about INR107 crores and intangible asset addition was about INR32 crores. Gross debt for the period ended December 31, 2022, was at INR4,210 crores as against INR3,954 crores as of September 30, 2022. Net debt for the period ended December 31, 2022, was at INR2,615 crores as against INR2,715 crores as of September 30, 2022. Hence, the net debt has been reduced by INR100 crores as of December when compared to September 2022.Before we open the floor for Q&A, I would just like to induce the management of Glenmark Pharmaceuticals on the call today. We have with us Mr. Glenn Saldanha, Chairman and Managing Director; Mr. V.S. Mani, Executive Director and Global Chief Financial Officer; and Mr. Brendan O'Grady, Chief Executive Officer, Global Formulation business.With that, we would like to open the floor for Q&A. I'll open to you, moderator.

Thank you. Ladies and gentlemen, we will now begin with question-and-answer session. [Operator Instructions] The first question is from the line of Nikhil Mathur from HDFC Mutual Fund.

My first question is on the recent divestments of brands in the Indian market. I have 2 questions tied to this. The first question is that what's the logic behind divesting brands in India? When -- if I understand correctly, Ichnos is where you are looking to make -- the capital allocation to Ichnos is going down. The U.S. itself is actually challenged. So, why is this pressing need to divest brands, especially in areas like cardiac and derma? And the question tied to this another point would be that the company, which are acquiring these brands, they are the ones which are the challenges to the larger companies in Indian market in the next 5, 6, 7 years. Why hand them over such brands? And so that they might get a platform to launch more brands on these platforms, and they might actually threaten companies like yourself only at some point in time. So, I just want to understand this entire brand divestment strategy in Indian market.

So, I think, Nikhil, our -- this is Glenn, our top process is basically, we -- what we've divested is some of our tail-end brands, right, which are not getting actively promoted because of the sales reps concentration going to the core brands, right? And we are re-channelizing that capital into driving our front-end brands much harder, right? So, it's more a portfolio rationalization effort, right, basis which we have taken out those brands and we are channelizing the capital into our front-end brands and growing them faster.

Yes. I understand that, but the point being that why don't treat those brands as cash cows to further your initiatives, whether in India or even certain other differentiated assets globally? I mean you have taken time and effort to build those brands. I mean, there must be something attractive in those brands, why some of these smaller companies are kind of pursuing those clients. I'm just not trying able to understand that.

See our scale, we are operating at a very different scale, right? Our India business is almost 4,000 -- INR3,500 crores, INR4,000 crores business, right? Our objectives in terms of brand size and brand potential is very different from a smaller company, right? They would look at it very much, much more differently. We are not able to provide the kind of time and energy involved in growing those brands. And if we just keep them in the portfolio and we don't resource them, over time, they're going to keep declining, right? So, we think it's better to take that capital and redeploy it and to growing the front-end brands much faster. And if you see, I mean, brands like Telma and some of the others that we have, we are still launching new variants. We're still growing at a much, much faster pace, right than the market, right? And they have -- there's still a lot of potential that's untapped, right, which we are now going after.