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Gland Pharma Ltd
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Good day and welcome to the Q1 FY '23 Earnings Conference Call of Gland Pharma Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Corporate Finance & Investor Relations. Thank you, and over to you, sir.
Good evening and warm welcome to Gland Pharma's earnings conference call for first quarter of financial year '23. I have with me Mr. Srinivas Sadu, Managing Director and Chief Executive Officer; Mr. Ravi Shekhar Mitra, Chief Financial Officer to discuss the business performance and to answer queries during the call.
We will begin the call with the business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After the opening remarks from the management, operator will open the bridge for Q&A session.
Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and based on management estimates, and this must be viewed in conjunction with market risk, uncertainties involving our business. The safe harbor language contained in the press release also pertains to this conference call. This call is being recorded, and the playback shall be made available on our website shortly after the call. The transcript of this call will be submitted to the stock exchanges and made available on our website as well.
I will now hand the call over to Mr. Sadu for his opening remarks. Thank you, all. Over to you, Mr. Sadu.
Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the first quarter of fiscal 2023. My best wishes to all our shareholders, analysts, and their families. I must say it is a tough start to FY '23 with few supply chain issues, which were ongoing for the last couple of quarters hit us hard on our quarterly dispatches. We faced delay in receipt of APIs and primary packing materials which caused delay in production. We are making all efforts possible to minimize the impact of these disruptions by qualifying new suppliers as well as optimizing our production planning.
We lost productivity during the quarter on account of delays in material supply. At our Dundigal facility, we lost nearly 70% to 80% of our available production capacity of lyo and liquid vials during the quarter owing to supply chain disruption, but we should be able to go back to normal utilization levels from next quarter. In spite of the ongoing supply side disruption, we ensured the new product launches were not impacted during the quarter, which are key to our business growth.
We also initiated cost optimization and productivity initiatives, as part of which 2 lines at our Dundigal facility were shut down during the quarter to make the modifications and mitigation of production bottleneck, thereby growing production output. Both lines became operational from July and the lost production will be covered in the next 3 quarters on account of improved productivity.
We closed this quarter Q1 FY '23 with the revenue of INR 8,569 million as against INR 11,539 million in Q1 FY '22 and our PAT stood at INR 2,292 million for the quarter against INR 3,507 million in Q1 FY '22. We have generated INR 3,328 million of cash flow from operations in Q1 FY '23. We continue to make progress on our key focus areas to build a differentiated portfolio along with expanding geographic penetration. We continue to make investments in R&D, and were able to complete 6 ANDA filings during Q1 FY '23 in line with our plan. The progress on the complex portfolio also is in line with expectation. We have also finalized next set of products and filings for the China market upon detailed assessment of our parent, Fosun Pharma. And with this we are confident of building a robust portfolio for the China market. The addressable market share for the next set of products in the China market is USD 1 billion.
We ensured timely new product launches and managed to launch 14 product SKUs during this quarter. To highlight a few, we commercialized products including bortezomib, pemetrexed, pantoprazole and cyanocobalamin in the U.S. market. We were granted 180 days CGT exclusivity for zinc sulfate injection in the U.S. market from its first commercial marketing date of 27 June 2022. We also launched other products, including Bortezomib in Australia and oxaliplatin in the Canadian market.
During Q1 FY '23, upon excluding capital R&D expenditure, the R&D expenditure stands at 4.1% of our revenue for the period in line with the historical trend. As on 30th June 2022, we, along with our partners, have 316 ANDA filings in the U.S. and 1,567 product registrations globally. We're recruiting talent to further strengthen our capabilities in biosimilar manufacturing and complex development. We are experiencing increased attrition and hence are ensuring we build enough resources keeping in mind anticipated growth initiatives of the company.
Let me summarize our performance across various geographies. Our Rest of the World markets accounted for 12% of our Q1 FY '23 revenue for the quarter, as against 19% in Q1 FY '22. The delay in material supplies has hit our ability to take up Rest of the World orders with lower delivery times. The good aspect is that the demand stays strong. We are working on ensuring we can build inventory to meet the demand for our Rest of the World portfolio. We anticipate another quarter for us to go back to normalized levels of inventory for this market.
Our key markets continue to remain MENA, LATAM and APAC. We registered our products Ethacrynate sodium, ganciclovir, foscarnet sodium, and labetalol hydrochloride in new geographies during the quarter. Our core markets, namely U.S., Canada, Europe, and Australia, remained strong during the year despite market challenges. Our core markets accounted for 82% of revenue during Q1 FY '23, as against 65% during Q1 FY '22. We continue to maintain our new launch momentum in our core markets. There is visible price erosion in the U.S. which is impacting profitability for certain products. But as our new launches scale up, the impact will normalize.
The quarter was impacted with shortage of API and primary packing materials, which should relax over next couple of quarters. We remain confident of our launch pipeline that will ensure sustainable growth in the market. The key products in the core markets contributing to the sales were enoxaparin sodium, ketorolac tromethamine, and ertapenem.
India market accounts for 6% of the Q1 FY '23 revenue. The Indian market sales were impacted by shutdown of our dedicated insulin line during the quarter to accommodate line modifications. The demand for insulin remained strong, and we'll cover the loss in production by improved productivity during the rest of the year.
I would like to touch upon a little about our growth initiatives. The geographic growth as has been seen from our performance, we have expanded our penetration in the rest of the world markets. China remains a key geographic focus, and we expect to start receiving approval during the current year. On the portfolio front, we are progressing well on our complex injectable portfolio and have completed installation of manufacturing lines. We're also in the process of evaluating manufacturing lines for technologies involving microspheres and combi-vials. On this front, we have made significant progress in building internal capabilities and are also exploring opportunities for external partnerships. And another key focus area remains biosimilar CDMO business, on which again we're seeing a lot of interest from our partners.
With this I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra, who will share details about our financial performance for the quarter. Thank you.
Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our first quarter earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance of first quarter of financial year 2022-'23. Revenue from operations for the quarter 1 FY '23 stood at INR 8,569 million, declined by 26% due to various reasons as explained by Mr. Sadu in his opening remarks. But some of these are transient in nature, and we would like to restate that our differentiated business model remains robust with the focus on supplying quality products to our customers. In spite of the continued challenges in non-availability and delayed supply of critical materials, our efforts were to ensure that sufficient level of inventory remains available at our customers' end in our core markets.
Other income for the first quarter of financial year 2023 was INR 744 million, which includes foreign exchange gains on operations of INR 342 million and interest on fixed deposit of INR 376 million. Gross margin for Q1 FY '23 was 56%, an improvement of 284 basis points as compared to Q1 FY '22, higher percentage of sales from regulated markets and favorable business model mix, along with focus on optimizing cost levers have positively impacted the gross profit margin.
We have reported an EBITDA of INR 3,443 million in Q1 FY '23, an EBITDA margin of 37%. During the quarter, we have managed to maintain EBITDA margin in higher band of our earlier-communicated target range. In Q1 FY '23, we have witnessed increase in power and fuel cost by 53% year on year basis and 36% from last sequential quarter due to increased power tariff and oil and gas prices. During this quarter, we faced shortages of power resulting in increased purchase of power at higher tariff. The situation has normalized now, and we expect the cost of power to come down. Manpower-related cost has increased by 22% on year-on-year basis due to equipment for the additional lines coming in and yearly salary increment impact. If you compare the staff cost on a sequential basis, it increased marginally due to increase in headcount.
Our net profit for first quarter was INR 2,292 million and PAT margin of 25%. Effective tax rate was at 25.7% for the quarter. The total R&D expenses for first quarter were INR 410 million compared to INR 438 million of the same period previous financial year, which is decrease of 6% and stands at 4.8% of the revenue. Cash flow from operations for the first 3 months of current financial year was INR 3,329 million. Cash conversion cycle stood at 241 days for the quarter, same as first quarter of last year. In anticipation of business recovery for the rest of the financial year, we are building up our inventory and that is the reason for higher inventory and resultant higher payable days.
Due to supply-related issues, most of the sales during the quarter were back-ended and hence you see increase in receivable days, which we expect to regularize with normalization of business. Total CapEx incurred during the quarter was INR 414 million. Our ROCE on ex cash basis stood at 21% for Q1 FY '23. The reduction is primarily due to substantial decrease of post-tax EBIT during the quarter. As on June 30, 2022, we had total INR 37,892 million of cash and equivalents.
We had evaluated a number of M&A targets in the recent past. Current market dynamics, making the valuation of a target assets more reasonable, has provided impetus to our goal of acquiring right strategic fit for our growth plan.
With this, I would request the moderator to open the lines for questions. Thank you.
[Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital.
Three questions from my end. First, if I look at each of your markets, business loss seems to be material. Will it be safe to presume that a significant proportion of business loss was owing to supply bottlenecks rather than changing front-end market environment? Because in your presentation and in your opening remarks, you've also alluded to a price erosion in some markets, impact of a high base in the other markets. So just wanted to get some sense as to whether it's really on the demand side or it's really the supply chain bottlenecks for each of your markets.
Yes, so primarily it's a supply chain issue. If you look at the 3 baskets, U.S. we are -- if you look at the revenues -- if you look on quarter on quarter, we still grow by about 4%. And year on year have degrown by 4%, but then there's a timing issue on certain products, but I would say it's still lot of products in the U.S. actually have grown substantially.
And because of the syringe shortages, we have allocated most of our suppliers what we got to the U.S. market to cater to the contract what we got like I mentioned last time. So we didn't have enough syringes to supply it to domestic and rest of the world market. So that has impacted sales in other markets. And from domestic perspective, you see 2 major issues: one, of course, the syringes what I just told; and the other is taking a shutdown of a couple of lines to increase the productivity. So that has contributed about INR 30 crores, INR 40 crores of loss of domestic sales.
While there's a large base last year on the domestic, if you look at the first quarter of last year, it's almost INR 180 crores, out of which about INR 70 crores was related to – INR 70 crores to INR 80 crores was related to products like remdesivir and enoxaparin, which were COVID products. So if we remove that, we're still probably off by about INR 7 crores, INR 8 crores, but major impact I would say in domestic is because of the shortages of syringes and also the RoW business also because of this.
Okay, that's helpful, sir. Just a second follow up. Sir, in the U.S., despite the launches that you had in this quarter, growth has been nice, but one would have presumed that the sheer size of those products would translate into maybe better business. So is there lot of heightened competition out there in the U.S., even in the supposed big products?
Yes. So the competition is there, but if you look at the percentage wise, in the new product, the growth has contributed -- about 4% of growth comes from -- came from new products. But also, you need to see when the product got launched. Many products got launched in either May or June. So it's not 100% recognized. That's one aspect. And also, while large products have some competition, there are also smaller products, INR 20 million, INR 30 million products where the competition is not there where we just mentioned zinc as the smaller product, about INR 28 million, but still we have exclusivity for that.
But you'll see more of that coming in the next few quarters. So that way I think it's a combination of competition in some large molecules not being able to recognize for the entire quarter, because most of the launches happen in the mid of the quarter or the end of this quarter.
The next question is from the line of Dheeresh Pathak from WhiteOak Capital.
The profit share number for the quarter, if you can share please.
So it is about 10% of the revenue.
Okay. And the CapEx number looks low. So what is the guidance for the full year and where are you spending the CapEx money this year?
So CapEx full year guidance remains same, INR 300 crores what we told last time. So we are building up this microsphere combi line, as Mr. Sadu was talking about little while ago, for our complex products and that ordering and spending should start soon. And first quarter was more of a timing thing, so we'll end up at INR 300 crores. And other than that, complex injectables line, in Pashamylaram, we are also adding more API capacity and also one bag line we need to add because of the increased demand we are seeing. So these are the large items where the CapEx would go.
And last question, in terms of the biologics CDMO, if you can share any further progress you've made from the last communication we've had.
So there are 4 actually customer wins which has happened during the quarter, and we are discussing about the commercial terms, which has led -- so that's where the status is.
But first revenue, when should we expect to see the first revenue hit the P&L?
Yes, I think, Dheeresh, it's too early to comment at this point of time. So we have -- just now we were discussing that we have seen a lot of traction and ongoing discussion with our parent also. But at this point of time, we would refrain from commenting that which particular month or quarter this revenue will start coming in. But capability wise, team wise, we are all ready and that's why customers are coming and visiting us.
The next question is from the line of Amey Chalke from Haitong Securities.
I have a few questions. First is, Mr. Sadu, is it possible for you to quantify how much of the impact from the supply shortages and the plant shutdown is there during this quarter and how much of the sales lost is recoverable in the coming quarters?
So if you look at the market wise, I would say, U.S. we lost -- because of syringes, we lost about INR 25 crores, RoW about INR 100 crores we lost, and domestic we lost about INR 40 crores, I would say. And recovery wise -- yes, go ahead.
So even if we add these numbers the total is still lower from what the growth trajectory we were hoping to be on. So is there any also impact on the demand side of the business? That's the second.
So I would say not the demand side. If you look at the timing, last year, if you see micafungin is a big product. If you look at last year first quarter, almost INR 126 crores came from that product. Whereas this quarter, we didn't supply anything on that. It's more of inventory issue where the customer is liquidating it, and we don't want to supply more now. But if you look at the end market, the sales what the customer or partner is selling is consistent. So that will come back in a quarter or so. There's more of a timing issue because last year they were -- normally our partners have those 3- to 6-month inventory because our model is little different, so that's what is happening. So it looked a little bulky last year, but that will come back in a quarter or so.
Sure. The second question is related to our PFS suppliers. So what I understand is that even these PFS supplier are struggling to cope with the demand or to provide. So even in coming next 1 year or so, what I understand, they will be operating at full capacity utilization. So what could be the way out for us, if you have any thoughts on the same?
For rest of the world, we're already qualifying other suppliers because U.S. still I think we have enough supplies commitments from somewhere -- from BD. But we are qualifying a Chinese supplier as well as Italian supplier for the rest of the world market. So we're going to use those for this. So I think that can be mitigated by then.
Do you think that whatever growth expectation we have from our business that would be fulfilled by the suppliers as well in the coming years and there won't be any supply disruption?
Yes, yes, we're pretty confident there.
Just last question on the staff cost side, because the last quarter when I had asked the same question, I was told that there were some onetime item in the staff cost and it was expected to normalize from this quarter onwards. However, rather it has gone up during this quarter. So if you can provide some guidance of the staff cost.
Yes. So what we earlier referred was for one-time bonuses given off, but if you compare now with the with Q4, I think it's the incremental staff cost which has come -- is on account of additional headcount and normal yearly increment. But that impact is not that additional onetime bonus, which we talked about earlier. That is now not there in this quarter.
So should we assume this INR 98 crores to be a normalized base for the staff cost?
Yes, that's correct.
Sure. I'll join back.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
One clarity on the India revenue. So this quarter we've done about INR 51 crores. If I look at the March quarter or the December quarter, we were doing very close to INR 200 crores. You talked about INR 40 crores impact from the supplier disruption from that insulin facility. So still trying to understand the decline from INR 200 crores to just INR 50 crores.
So if you see the last quarter, there was a export restriction on enoxaparin product. So we were supplying a lot of domestic suppliers to third parties. So most of the revenue came -- almost INR 100 crores revenues came from supplying the third parties but with lower margins. And we could supply with the different syringes, but if you look at the logistic costs, the import costs, and also the dollar, it's not doing any sense to operate at the price levels that are there -- which are under price control in India.
So we didn't continue to supply to those. Because of the restriction last quarter, we did that. But at least we had some margin that point of time. But this quarter because of increased costs and also the dollar not helping us because we had to pay duty for the import of materials. So we actually stayed away from the supply side.
Okay. So you're saying that that business largely is -- you're not taking up now. It's not that that business is getting booked in some other segment. That business itself you're not taking up now.
Correct, correct.
Okay. So when things recover now, let's say, 2Q or 3Q, so India business will be about INR 100 crores base a quarter level?
Yes. So on front-end B2C is around INR 60 crores and then around INR 30 crores of insulin, INR 25 crores, INR 30 crores, and another INR 10 crores of miscellaneous.
Yes.
Around INR 100 crores is correct.
Okay. That's helpful. Second question is just a clarity on the R&D spend. So we annually -- and if I look at the revenue expenditure of the company, we're doing about INR 160 crores to INR 180 crores R&D spend a year right now, and we are filing about almost close to 25 ANDAs in the U.S. market. That's almost like the very simply $1 million spent per product. As now you're changing business model more towards your own filings, not doing partner filings, do you think that in 2, 3 years this INR 180 crores can become a INR 400 crores R&D number for you? I'm not talking about if it's possible for you. I'm just talking as you file more complex product, et cetera, do you see a step-jump in this R&D becoming 2x in 2 years or 3 years?
So we've been filing our own products in I would say last 3 years, not just now. So if you look at our initial percentages, with a lower base, the percentage was same, but the absolute number was lower than what we're doing for the last 2, 3 years. So we don't think that will increase that much. Even for the complex products, we always collaborate with our partners. So they do pitch in some of the studies they do. So we don't anticipate that to go that high. So we still keep that as a percentage of revenue, around 4%.
Okay.
The next question is from the line of Sudarshan Padmanabhan from JM Financial.
Yes. My question is to understand the extent of shortage. We've been hearing the shortage from the third quarter to the fourth quarter, and we're seeing a significant part in the first quarter. Now that we are into the second quarter, in terms of intensity, how do we see things easing up, say, from the second quarter? And when we are talking about, say, the second half to normalize, what gives us that confidence in that commentary?
So while the syringes is a major impact which has happened, there are also issues around 4 or 5 products where we have filed alternative tubing or filters with FDA. So we also lost some productivity on that, about 16 to 18 productivity days across sites and across lines. So that's kind of sorted out.
Syringes we have seen some quantities coming at the end of the quarter, so that's why we were able to cater to the U.S. market, without impact, still could probably impact another INR 20 crores, INR 25 crores, and we have delivery schedules [ from BD ] for this quarter as well. So looking at that, I think, we are more comfortable on the syringe side.
The heparin product is kind of impacted with stoppers from West. That still we have not got the resolution yet. That is impact about INR 40 crores, INR 50 crores. So they are working around alternative stopper for that. So we see that's the only risk about INR 40 crores to INR 50 crores of heparin which couldn't supply. We don't have a solution for that yet, which we're working with West for an alternate supplier. But otherwise we're good with other components.
Okay. So I think barring this INR 50 crores a year, I think you're saying that most of the issues are sorted and that should come in the second.
Yes. So it's not INR 50 crores for a year. I'm saying the quarter INR 50 crores was lost. So that's what we're now trying to see an alternative stopper. So the schedule we got from West is in November, but we wanted that, actually, the last quarter and at least pushed to this quarter. So that will help. But the schedule we got is in November.
Sure. And my second question is on the demand side specifically, I know you don't share the order book and something towards that. But when I look at, say, the U.S. business or the RoW business specifically, with respect to, #1, the newer customers and existing customers increasing in terms of volumes. And whatever that we have missed, because if you look at the RoW, we've lost about INR 100 crores, INR 120 crores odd. Is this sale recoupable, say, in the next 9 months? So would this INR 120 crores be added, say, in the second quarter or the third quarter in addition to the typical INR 220 crores kind of run rate that you do?
With the capacity constraint, I don't know whether we can recover everything what we lost in this quarter, but at least the growth what we told in our normal business, that could be maintained. But what we lost about INR 250 crores or INR 300 plus odd crores this quarter, it could be difficult to recover 100% of that.
Okay. And in terms of the demand as far as volumes, whether are we seeing a increase in the volumes on a year-on-year basis as far as the demand is concerned across RoW and the developed markets?
Yes, the demand is there, and if you really go by molecule, enoxa, we almost -- quarter-on-quarter basis, we almost 3x we sold in the first quarter, last quarter was about INR 47 crores in the U.S. We did almost INR 160 crores this quarter. Demand is there. Same like ketorolac is almost like 90% growth. So 6 or 7 molecules which have grown almost 90%, 100%, 200% like that. So that way we know we don't see demand dropping off. But pre-COVID, there are some products which were big prior to COVID which has not really -- the total market has not come back. Vanco was one of the top 5 products. Again, we can look at the total market, 30%, 35% market has never come back. And what we hear from the market is more people moving to RTUs because of the compounding business, issues with the labor force, and all that. So there are some issues with the older products, but there are a lot of other products which are actually doing extremely well compared to others.
Okay. And one last thing. Earlier we had been talking about the 18 to 20 kind of percent a growth. Would this year be a -- given that the first quarter is pretty bad and we are seeing recovery in the second half, so what is something that you are looking at and would this year be significantly lower, and probably a FY' 24 and FY '25 should be relatively better? Any color on that?
Yes. So if you can just forget one quarter, then probably the growth will be stronger. But if you include this quarter because it's difficult to recover what is lost in this quarter to 100%. So it could be lower growth year. But moving forward, the demand what we are seeing and the growth what we have even shown for a lot of other products, other than where we faced shortages. We're still confident that we could maintain the growth what we told before in the next 2 years.
Okay, sure.
The next question is from the line of Neha Manpuria from Bank of America.
Yes. Just in the China business, I think in the presentation you have mentioned that our facility inspection has been waived off. So when do we expect to start seeing revenues from China come through? And what's the filing that we expect from China over the next year?
So for 2 products they are in the clearance phase and they confirmed that there's no need of inspection. So the summary should come by the third or the fourth quarter. That's what we are anticipating. And 5 products getting the filed in FY '23 and then another 6 to 7 products in FY '24.
Got it. And in terms of margins for the full year, now that given your commentary that supply chain issues would partly get resolved in the second half, then it should improve, how should we look at the margin in light of the higher cost and this is ex other income -- margins ex other income? Will it be similar to what we have done in the current quarter?
Yes, it should be around that range, yes, I would say so.
And going forward, sir, what would drive these margins higher, because given the uncertainty in the cost environment, how much of that will be dependent on the new launches coming through versus existing products growth?
So once we start getting some complex product approvals, those are higher-margin products, so we should be able to get the increase in margins. And also, once we start leveraging more lines in this facility, we've just added 3 or 4 new lines, which we need to start manufacturing. Like I said, the fixed costs are there already. So then they should start adding to the additional margins for the coming years.
Okay. So what would be the guidance then for, let's say, the next 2 years in terms of margin?
I would say from 33% to 35%, Ravi?
Understood.
The next question is from the line of Kunal Dhamesha from Macquarie Capital.
So first question on the biologics business. You have shared that we have got 4 visits. But typically, what's the process, let's say, from site visit to actual contracting, what are the steps? And the visits that we are getting from clients, are those new clients for us or some of the existing clients but they are biosimilar division or biologics division visiting us? So how should we think about that?
The 3 are new customers and 1 is known customer with a different division. And typically, they -- I think it varies for all the 4 clients. A few are looking at transferring their technology and looking at making clinical batches, the other is looking at doing more analytical development for what they have done. One client is looking at taking a line for like 2 months and putting up their own -- some of their people for the technology transfer. So it depends on who the customer is, but it's at various kinds of discussions happening.
Okay. And secondly, in terms of I think just clarity on the earlier participant's question on the margin, you said FY '24-'25 or '23 beyond we are targeting 33% to 35% range. So is this would you say is this including other income, or is it like to like without other income, the store operating profit that we are targeting?
So, hopefully, the other income, if you really look at today, part of it is on interest and other is operational income, and if you can utilize this to get a good asset this will go down, if you can acquire a good profitable asset. So on overall basis other than the other income we are looking at 33% to 35%.
Sure. And on the acquiring the assets, what's the priority now? I think at some point, the priority was complex products followed by some backward integration. Is it the same or [indiscernible] changed on that front?
We are looking at -- ultimately, we don't go one by one by one. It's 3 of options we are looking at, whichever asset we find we have to go after it, because all these are important either for profitability or for growth of the business. So it's not like one -- it's not a sequential thing. So we look everything at the same time, and whenever we get an opportunity we try to look at it.
The next question is from the line of Mayur Patel from IIFL AMC.
Most of the questions got answered, but on the margins side, 31.5% core EBITDA margins, which you managed in this tough environment to maintain at least QoQ, should we see that the worst is behind from the margins' perspective, or this API-related pressure and the syringe-related disruption can lead to some more downside in the short-term before it starts going up to your desired 33% plus levels?
I would say, no. It's one of the toughest quarter in terms of everything, right? The cost of utilities are high, power shortages in our states are very high, so we have to use utilities for that. And then we have the airlift lot of goods, too, because of the shortages of materials. So that has been absorbed. So, I would say, the worst things have already happened. And I think, hopefully, some of these comes back to normal, the margins should only improve.
And just one more question if I can. You are very -- you nicely explained about all the problems across markets are mostly supply chain driven. So earlier RoW market was growing at a very sharp -- significantly higher rate than the other markets, which was also helping us to report 18%, 20% kind of growth or even more in some of the quarters. So ahead, except for the supply chain issues, on the demand side, so whenever the syringe supply normalizes, the RoW can come back to that same high growth rate in your view?
Yes, so we have clear visibility on RoW because most of the tenders are won for couple of years. So we know how the order books looks like. It's mostly the supply constraints what we have in [ order to book ] top line. So that way, we're not too concerned about the growth in RoW. It's more to do with how much we can supply.
And you were expecting around September or so the syringe supply would normalize. What is the expectation currently?
I think it is the same thing, right? While we are also qualifying other syringes for other markets, but even with BD, this quarter we should be good enough to normalize the supplies. At least if you look at from April perspective, today we are better off. In one way, we are able to cater to most of the U.S. needs, except maybe 2 million syringes. But this quarter we should be able to cater to the demand.
Okay.
The next question is from the line of Ashish Thakkar from IIFL.
So we have guided for launching 7 products in the U.S., say, over the next 3 quarters, which has an addressable market of around USD 1.3 billion? So what's our take there? Are we still on it?
Yes, actually, we have approval for 3 these products, which are planned to be launched. And the rest we have goal dates of I think next month. So we should be able to launch most of it, yes.
Okay. Fair enough. And sir, like this other participant had this question on biosimilars, so while we understand that 3 to 4 clients you are in active discussion with, but some timelines as to when can we see that first dollar revenue coming in, roughly in your expectations versus where you are engaged with your client currently. Some flavor on that part would really be helpful.
Because we are actually not meaningfully adding to near-term numbers for this. But at least the first dollars, hopefully, we are trying to get in the last quarter of this year, if this discussion and everything goes well.
Okay. And typically you would say about -- anything to say about the tenure of the contract, the duration, where you would like to begin with?
So, see, what happens with this is, initially people want to test waters. These are all new businesses we are entering, new technologies we're entering. So they would like to give us smaller contracts for a year or so, or it could be a project-based thing. And some of this gets converted to commercial scale after they do the clinicals and they come back to us for technical batches and stuff like that. So once they start up, normally once they started taking batches here, of course, they have to continue till the product reaches a conclusion. So that's how all these contracts work.
[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on this biologics again, so how much would be the operational cost already into the P&L related to this biologics?
So INR 15 crores, Tushar, for this quarter.
So broadly INR 15 crores per quarter would be there at least for next 1 to 2 years and fully reflected?
Sorry, your voice was not clear. Can you repeat?
So INR 15 crores as a normal quarterly run rate to consider for biologics at least for next 1 to 2 years?
Yes. We have already all -- manpower and all is there. The team is full there. So this will be there.
Got it. And sir, because of these constraints on account of syringes, how much of the -- would there be any penalty on account of delay or payment to supplier or that is taken care of despite shortage of ancillary materials?
No, no, That's why the priority was given to U.S. and normally penalties exist. So there, we don't -- we're not losing anything. But other markets we are not catering because of the shortage issue. So domestic and other markets there's no penalties.
Sir, just one more. Typically, these syringes or even the stoppers we would be having a long-term contract, right, because irrespective of the product, these materials would be any which ways required. So what is it that went wrong? Or this is more like a phenomenon which has been faced by the other companies as well? And how do we take care that this doesn't repeat going forward?
So we do have contracts for syringes, but always it's -- because there is a single supplier, especially for the U.S., it also linked to the safety device, so there has to be discussion with the supplier how to manage it. But it's not like one stopper fix, all right. There's hundreds of different stoppers depending on which product -- which stopper is compatible with which product. So the R&D decides which stopper to use. So it's not that all stoppers are under shortage. If we're supplying 150 products, there are only like 5 or 6 stoppers which are getting into this issue. So it's not like it's a problem with all the stoppers.
But syringes, unfortunately, there are very few players, and especially in the U.S. very few approved suppliers. And also because we need to put a safety device for this and it's a combination product, so we can't change the syringe without the device being changed, and there is only one device, that's the restriction we have.
Sorry, if I am dragging on this. But just one last question on this aspect. So given that there are a limited number of suppliers for such kind of materials, they would also have their order book kind of filled already from the other global players. So even if we get into contract today, what could be the lead time to get the material in place?
No, we already have a contract with them, Tushar. We already have a contract with them for almost 50 million syringes per year, but still they are not able to supply it. So it's more to do with how much is the demand and how much they have, and they have also added new capacities which they are saying they're going to get online by September or so. So the overall demand across the globe has gone up in the last couple of years and that's why the constraint is. So I would say they are more -- I think they are giving us as a ratio of how much orders versus how much they can supply and that's been the case. But I think that is getting resolved now, now that there is a gap of almost 6 to 7 months where they didn't supply much.
Okay. And any COVID-related sales in 4Q?
Sir, sorry to interrupt, but for any follow-up questions, may we request you to rejoin the queue please. We have other participants waiting in the queue. [Operator Instructions] The next question is from the line of Saion Mukherjee from Nomura.
Sir, on the partnership, typically, for the product so that you have launched in the recent past, so over the last 2 years or so in the U.S., typically, how many partners you sell the product in the U.S. market? And are these like exclusive contracts or more of them are non-exclusive in nature?
Some products are exclusive and some are semi-exclusive, I would say. Especially the big products or wherever there is patent litigation or some BE study need to be done, there it will be exclusive because they also pitch in with the upfront cost. But otherwise, normally either we'll give semi-exclusive or even if we give exclusive, then we will have a clause if they don't get -- hit a percentage of market share then it becomes semi-exclusive.
Okay. So on an average, would you say -- so for the less complex products you would have multiple players, right? So would that be like 2, 3 players or typically like how many players you generally have a contract with for relatively less complex...?
Normally we do with 2 people. But if they're not performing, then we go and give third person also, because it's not only our product, we also sometimes get the same product for tech transfer wise and other model. So ultimately, the product which we're manufacturing might be for 3 or 4 players.
Right. Sir, in the past, I think you had seen long-term contracts for bulk -- for a large number of ANDAs with Athenex, with Fosun, et cetera. So do you -- have you signed any such large contracts which you can disclose in the recent past, either for the U.S. or maybe for the non-U.S. markets?
You mean a set of products?
Yes.
Not in a set of products, but 2, 3 products, like a bunch of 3 products at a time, that's how we signed, but not like 15 products, 17 products like that, no. Normally we do that when a new company starts their own business when they are looking at a portfolio, and so they also look at some old products also where we have option to give them. But for the companies that are already there, they normally look at 2 products, 3 products depending on the portfolio what we have. So we sign up like 3 products at a time or 2 products at a time or 1 product at a time.
But as a portfolio like Athenex also, when they started the company, that's when we signed up, likewise Xiromed when they started the company we have signed up a portfolio of product, same like Alvogen. These are all like newly-formed entities where we have helped them with the portfolio.
Yes. So, yes, that's what I was referring to. So like these bulk contracts, you didn't have any in the recent past.
No.
Okay. And sir, just one bookkeeping. I know you've given the inventory days receivable and payable. Is it possible to mention that in rupees million, at least the inventory and receivable numbers as of the end of...?
I don't have it right now with me, but I can give you offline. You can also back-calculate it based on the sales. So the [indiscernible] given in the presentation. But we'll give it to offline.
Okay.
The next question is from the line of Prakash Agarwal from Axis Capital.
You mentioned the employees have been [Technical Difficulty].
Mr. Agarwal, sorry to interrupt, but your voice is breaking up. May we request you to move to a better reception area please?
Is this better?
Yes, sir. Please proceed.
The cost...
Sir, sorry, but your voice is breaking up once again, sir.
Trying again. [indiscernible] because of addition of employees it has been higher. What about other expenses? I missed that part. So other expenses weren't substantially higher despite your revenues. So are these operating costs and here to stay? And how do we think about it? Or is it due to escalation of freight, et cetera, which is coming down now and [Technical Difficulty].
Other expenses for this quarter is INR 808 million. March was INR 899 million. So this quarter it has come down actually. And last year June was INR 783 million. So it's about 3% up actually, not so much. Only power and fuel has gone up substantially.
They will also come down, right? So the reference was percentage to sales.
Yes. So, see, most of our cost is fixed in injectable facilities, so it will not so much vary especially with other expenses in relation. That's why we have a leverage effect whenever our sales go up or down.
Okay. In terms of timing for qualifying from other injectable syringes players, so I heard saying that U.S. is largely in place with BD, and you are trying to qualify others with respect to RoW market. So how long does this qualification take, because you mentioned some normalization from next quarter, so reference was the upcoming quarter or the current quarter?
The current quarter for domestic and some of the rest of the world markets, because it's a glass syringe so we don't take much time. We can quickly replace it. But some markets like Brazil or Saudi were more regulated. There we need to submit the data and that might take 3 to 4 months.
Okay. And lastly, on the clarification [Technical Difficulty].
Sir, seems like we lost the connection for the current participant. We move to the next question from the line of Sameer Baisiwala from Morgan Stanley.
Sir, can you talk a bit about the pricing pressure in the U.S. that you mentioned, and especially in the context that I thought that your partnerships in your business model is fair bit insulated from the end market competition?
So the impact of price for us I think is about 1%. So it's not much. And that's been the case over the years, either there is no impact or 1% or something. So there's not much impact for us on that front.
Sir, how does it percolate down to your P&L? Is it through profit share or how does it work?
Yes, it's through profit share, yes.
Okay. Sir, I am just wondering if the end market product pricing falls 10% or 15%, would the impact not be much bigger for you?
Because overall revenue wise it's only about 10% for us. So even that fall won't impact much.
Okay, exactly. So that was the question that if you are having 1% impact, what does it mean for the end market pricing? So that would be about 10%, right? It's 1 is to 10, that's what you are saying.
Yes, correct.
Okay. That's all from my side.
The next question is from the line of [ Rakesh Naidu ] from Motilal Oswal.
My question is to Sadu sir. Sir, until about few weeks back, we were guiding about a high-teen growth trajectory overall. What exactly has changed in few weeks that we are looking at these kind of numbers? That is number one. And second question is you talked about disruption-led sales loss of around INR 250 crores, of which the COVID impact seems to be around INR 150 crores odd. So should we, when we build numbers, take additional INR 400 crores off the estimates for FY '23? Is it a fair way to look at it?
Rakesh, Can you just repeat the question again? Both the questions can you just split and come back again?
My question is, until about a few weeks back, because of silent period, we were guiding for high-teen kind of growth trajectory overall. And then what essentially has happened that we are seeing such stark contraction in the numbers overall across all the segments? What exactly is that we have missed out?
See, one is, what we anticipated to get delivered, got delivered late in the quarter. We were anticipating to get the syringes delivered at the beginning of June, end of May, and it got shifted to third week of June. So that is a big impact. That's when 67 million syringes couldn't get delivered. So that got shifted. But from line shutdown perspective, it was there even prior to this quarter? So that was the plan one. But we were probably discussing over the entire year, not for this particular quarter, but that impact was there just because of the delay of supplies.
And sir, to understand it very clearly. The syringes issue is it for the U.S. market? In the last call you had alluded to the shortage being in for the U.S. market and now you are telling that the same shortage issue is there in the India market as well, and then obviously the cost dynamics has changed. How should we actually look at this? Should we expect a resolution of this in the current quarter or in the immediate foreseeable future, or it's something which will take some more time?
So these syringes are used for not just U.S. market, these syringes are used for U.S., some of the [indiscernible] regulated markets and other markets also, other than the domestic and also other markets where we can't replace the syringes overnight. So we have actually supplied most of our U.S. demand with what we got. That impact for the U.S. was lesser, probably INR 20 crores, INR 25 crores was impact for the U.S. But the impact was large in other markets where we couldn't supply because of shortage. So it is no different thing going on. So that way there is no separate set of syringes what we get for the Indian market or for the U.S. market.
Now, Indian market we can use other syringes, but we also need to see, because we have a contract for 50 million we have better pricing. And if you go and buy from others, it's a little higher cost. And with the added logistic costs increase, the dollar fluctuating, the margin profile was not helping us to sell in Indian market. That's why we stayed away from selling in Indian market with other syringes.
Okay. And sir, what component of these INR 250 crores lost sales in this quarter is COVID related?
You're asking whether to compare with last year first quarter? That's what it is?
Yes, sir.
So last year first quarter, like I said, Indian sales last year was INR 180 crores, out of it INR 80 crores was COVID related where we made remdesivir and additional enoxa. So that's INR 80 crores from Indian market, yes.
So that segment would continue to see a similar kind of trajectory over the rest of the current fiscal, right?
Yes, correct. That's gone. Yes, correct. That's like a one-time surge.
Sor, sir, then help me understand your earlier guidance on how are we confident that even if we exclude this quarter as a one-off, how are we confident that we'll be able to do high-teen kind of growth for FY '23? I am also looking from the context of what Hepalink and Nanjing King is talking in terms of how they are going to ramp up their production in heparin and other products. So how should we actually be looking at your guidance for FY '23 now?
If you look at our last year sales to this year, our enoxa itself in the U.S. is -- additional revenue we're getting around INR 300 crores. Last year entire year for the U.S. we did about INR 250 crores. Now this year the run rate is around INR 160 crores per quarter. So it's almost like INR 600 crores, INR 620 crores. So there itself we have a big surge in the numbers for that product.
And you are confident of maintaining the market share in the second half as well, right? Because the dynamics changed in the second half.
No, these are all contracted, right? That's why we've been -- this contract was there for many -- couple of years, and till we got enough syringes, we didn't move to that contract. And that's why we have to start supplying in this quarter compromising on the local supplies.
Okay. And there won't be any penalty hits for not being able to deliver the earlier supplies?
No. So if you know the history, the partner already had this contract for few years and was taking from the innovator. And we had an agreement to move that contract to us because we licensed our product when we didn't have approval. So when he took that from the innovator, then we gave him the right to license that product till we get our product approval, and so he got that contract. So there was a time limitation on that. So it's more to do with us giving him the right to take the product from the innovator [indiscernible].
The next question is from the line of Alankar Garude from Kotak Securities.
My first question is, can you help us understand what percentage of your IP-led and tech transfer contracts have a profit share built into the agreement, and does this differ across markets?
So this profit sharing model is only for the U.S. market, not for other markets. And our own IP-led products, the profit share might range from 40% to 50%, whereas the tech transfer models is more on royalty where we have about 5% royalty on net sales, that kind of a model.
Okay. So basically no profit share as far as the tech transfer models are concerned.
Yes, correct.
Fair enough. And secondly sir, we have seen some selling by key personnel, including you, Mr. Sadu, in the last couple of months. Can you please help us understand the reasons for now completely selling out your stake in the company?
These are all stock options which the employees got 3 years ago and hit some tranches. And as you know, the taxation won't help you to keep long, right? You have to pay a perquisite tax and you have to pay exercise price. So there's a substantial amounts of money where you have to pay upfront. So if you don't pay that, then you have to pay interest on that. So that's one of the reasons why employees have sold off.
Understood. Sir, I thought actually the tax obligation would be a small proportion of the overall ownership, but that was not the case.
Not really because you have to see at what price people have exercised it and you have to pay at an exercise price plus the price at which it is exercised minus the price at which it got awarded. And on that, you have to pay a perquisite tax, which for many people it could be 35%, 40%. So you will end up almost 60% of -- 50% to 60% of the price, so that's substantial amount. And if you wait for long, then there is no meaning in actually people getting any money because then they have to pay interest on the loans they take to get this, right?
Understood.
And also internally, we also have an understanding that people should not trade stocks and all that, so people can't -- actually employees cannot buy and sell, so we also have that policy just as a good corporate governance. We don't want that issue.
Understood. And maybe one final question from my side. If I look at Fosun specifically, USD 40 billion of debt, and there have been some concerns of late on cash flows. So is there any change at all as to how Fosun is strategically looking at Gland as an investment?
So not that we are aware of anything. And Fosun has -- it's a strategic investment for them and Gland is like a injectable platform globally for Fosun. So it remains the same. And Fosun Pharma is also listed in a separate company, and our parent is Fosun Pharma direct holding and the Board members Fosun Pharma nominated. And there is no also any impact as Gland as an independent company to perform business either financially [indiscernible] because there is no interdependence on the business side or there is no financially dependence on Fosun or any intercompany any deposits. So Gland, as an whole, will continue to operate like it was doing earlier, but that's what we are.
Sure, sir. That's all from my side.
Ladies and gentlemen, due to time constraint, we take that as the last question. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments. Over to you, sir.
Thank you, Steven, and thank you all the participants for joining us today for our first quarter earnings call. If any questions still remain unanswered, please feel free to reach out to us. Thanks, and looking forward to interact with you again in our second quarter earnings call. Thank you. Goodnight.
Thank you. Ladies and gentlemen, on behalf of Gland Pharma Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.