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Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Jason D'souza. Thank you, and over to you, sir.
Welcome to Glenmark's Q2 earnings call. First, the review of operations for the quarter ended September 30, 2020. For the second quarter of FY 2021, Glenmark's consolidated revenue was at INR 29,524.79 million, recording an increase of 4.88%. For the 6 months ended September 30, 2020, Glenmark's consolidated revenue was at INR 52,972.66 million, recording an increase of 3.10%. India business, sales from the formulation business in India for the second quarter was at INR 10,506.91 million, recording growth of 17.22%. The India business continued to outperform the industry growth and has grown consistently over the past several years. As per IQVIA September '20 data, Glenmark's India business recorded growth of 25.6% as compared to IPM growth of 6.2%. The strong performance of the India business during the quarter was aided by revenue generated from the sales of FabiFLu, Favipiravir. As per IQVIA MAT September '20 data, Glenmark Pharmaceuticals IF is ranked 14th, with market share of 2.31%. Glenmark is the fastest-growing company among the top -- second fastest-growing company among the top 20 companies on a MAT September 2020 basis. In terms of market share, Glenmark strengthened its positions in all its core therapy areas, including cardiac, diabetes and respiratory. During the second quarter, Glenmark also launched the world's first hypertension awareness symbol in collaboration with the Association of Physicians of India and Hypertension Society of India. The symbol is developed in consultation with 50,000 leading doctors in the country to raise awareness of the growing burden of hypertension and the need for timely streaming. Glenmark has also pledged on-ground support to the cause by committing to screen 5 million people for hypertension through screening kiosks at corporate hospitals in all major metro cities. Glenmark's novel patent-protected and globally researched SGLT2 inhibitor, remogliflozin etabonate continues to do well in India. Glenmark is the first company in the world to launch remogliflozin, and the response from KOLs has been positive. As for IQVIA 2020 data, Glenmark remogliflozin ranks first in terms of prescription with Rx share of 25.2% and sixth in terms of value with a market share of 7.4%. Glenmark recently launched NINDANIB, Nintedanib 100 and 150 mg capsules for the treatment of pulmonary fibrosis in India. Glenmark, being one of the leading players in the area of respiratory is amongst the first to launch the branded generic version at an affordable cost to treat pulmonary fibrosis in India. Glenmark's Consumer Care business, despite headwinds in discretion consumer care categories in the country, Glenmark Consumer Care business performed well in the second quarter. Even with the ease of restrictions, the recovery in the skin care category is the slowest. However, the GCC business has still clocked revenue of INR 465.2 million in the second quarter, growing in excess of 40%, excluding VWash. This growth is led by Candid Powder, which grew in excess of 50% in the second quarter. North America, Glenmark Pharmaceutical U.S.A. registered revenue from the sale of finished dosage formulation at INR 7,521.77 million, recording decline in revenue by 11.28%. In the second quarter of the financial year, Glenmark launched CHARLOTTE 24 Fe, adding a trade name to its existing generic Minastrin 24 Fe tablets. The company filed 4 ANDAs with the USFDA until September 2020 and plans to file 15 to 20 ANDAs in this financial year. Africa, Asia and CIS region for the second quarter of FY '21, revenue from Africa, Asia and CIS region was INR 3,805.87 million, recording growth of 9.11%. In the second quarter of the financial year, secondary sales growth for the Russian subsidiary was at 3% in value vis-à-vis corresponding quarter for the previous financial year. The Russian subsidiary has performed well relative to market conditions. The Russian subsidiary expects to launch 3 to 5 new product approvals in the next half of the financial year. This will ensure that the subsidiary performance will rebound strongly from the next financial year. The rest of the CIS region continues to remain challenging with the YTD retail market declining by minus 9.9%, dermatology market by minus 8.2% and expectorant market by minus 42%. However as per Morion, MAT September '20 data, Glenmark Ukraine recorded growth of 13.3% in value. The company also continues to do well despite challenging market conditions in the remaining markets of the CIS region. In the second quarter of the financial year, most of the Asian markets absorbed partial lockdown following the second wave of COVID-19, which impacted patient flows to the clinic or hospital OPDs. Due to this, the Asia region continued to be under pressure as secondary sales declined by 10% for the second quarter. The Middle East and Africa region recorded strong growth in the second quarter of the financial year. The growth was across all major MEA markets, including Kenya and Saudi Arabia subsidiaries, which was positive. Glenmark's Europe operations revenue for the second quarter FY 2021 was at INR 3,181.27 million, recording growth of 11.59%. Due to the fear of the second wave of the ongoing pandemic, Glenmark's European business remained weak in the second quarter even though sales for the anti-malarial drug Atovaquone-Proguanil declined substantially due to travel restrictions, the U.K. subsidiary still recorded growth in the second quarter of the financial year. The Western European business continued expanding through increased penetration in the Nordic region, U.K., Germany, Spain and Netherlands. During the quarter, the U.K. subsidiary launched 1 product, German subsidiary 3 products and 6 products were launched in the Nordic region. The Central Eastern European regions was under pressure due to the pandemic with most of the major markets not performing well in the quarter. Latin America. Glenmark's revenue from Latin American and Caribbean operations was at INR 983.51 million, recording revenue decline of 18.88%. The Brazilian subsidiary was impacted in terms of sales in the second quarter. This was on account of the respiratory market, which declined by 19% for the year. Further 20% of the pharmacy stores in the country remained close due to the pandemic. The Mexican and the Argentinian subsidiaries recorded growth in constant currency in the second quarter. GPL Specialty/Innovative R&D pipeline, Ryaltris. Ryaltris, the company's respiratory pipeline asset is currently under review with the USFDA as a treatment for seasonal allergic rhinitis in the U.S. Ryaltris sales continues to progress well in Australia after the successful launch in the first quarter of fiscal year 2021 by Glenmark's partner, Seqirus. During the quarter, Ryaltris was launched in South Africa. Glenmark plans to initiate commercial launch in Ukraine and Uzbekistan in the third quarter of the financial year. Glenmark is also supporting its partner, Yuhan Corporation to launch Ryaltris by the end of the financial year in South Korea. Glenmark received approval for Ryaltris in Australia, South Korea, Cambodia, Ukraine, Uzbekistan, Namibia and South Africa. The company has filed an application for Ryaltris approval in European Union, Canada, Russia, Brazil, Malaysia and several emerging markets. Glenmark is also working to close a partnership deal for Ryaltris in various other markets, including the EU and Canada. Denmark is working with his partners in Australia and South Korea to submit the pediatric efficacy supplement in the fourth quarter of this financial year. Glenmark's partner in China, Grand Pharmaceutical plans to submit an IND in the third quarter of this financial year. A pre-IND meeting application was submitted to the CDE in the first quarter of this year, which was followed by receipt of feedback from the CDE in September 2020. GBR 310. The company continues to be in discussion with potential partners and is targeting to conclude a deal before initiate Phase III studies. GRC 39815. The company recently received an IND approval from the USFDA to commence a Phase I first-in-human study. Glenmark Life Sciences Limited, GLS. For the second quarter of the financial year, Glenmark Life Sciences Limited registered consolidated revenue, including captive sales of INR 5,192 million, recording growth of 39.9%. For the first half of the financial year, Glenmark Life Sciences consolidated revenue, including captive sales was at INR 9,179 million, recording growth of 30.5%. For the second quarter of fiscal year 2021, external sales for Glenmark Life Sciences was at INR 3,213 million, recording growth of 19.11% over the corresponding period of the last year. The external sales for the API business performed well in the second quarter, recording strong growth primarily in markets of India and the U.S. During the quarter, Glenmark GLS submitted 1 DMF each in Canada, Korea, Russia and submitted 2 DMFs in China. The company is also looking to file at least 10 to 12 DMFs in the third quarter of the financial year. Ichnos Sciences. For the second quarter to the financial year, Glenmark invested INR 2,250 million, $30.09 million as compared to INR 1,935 million invested in the corresponding quarter of the previous year. For the first 6 months of the financial year, Glenmark invested INR 3,980 million as compared to INR 3,835 million invested in the corresponding period of the financial year. For further updates on the pipeline of the organization, please log on to www.ichnossciences.com. The pipeline update for the first quarter of this financial year is secondary is published on the site. Script for the earnings -- before we start the question and answers, a few comments that I would like to make. ForEx loss for the second quarter was at INR 57 crores, INR 17 crores was recorded in other expenditure and INR 40 crores was recorded in other income to offset the ForEx gain of INR 40 crores in the first quarter. R&D expenditure for the second quarter was at INR 365 crore, which was around 12.36% to net sales. For the first 6 months, R&D expenditure was INR 619 crores, which was 11.7% to net sales. Innovation expenditure was at INR 398 crore, and generics R&D expenditure was at INR 221 crores for the first 6 months of the financial year. Gross debt for the second quarter September 2020 was at INR 4,689 crores as compared to INR 4,868 crores for the year ended March 31, 2020. Net debt for the second quarter ended September 30, 2020, was at INR 3,780 crores as compared to INR 3,758 crores for the year ended March 31, 2020. Total asset additions for the first half of the financial year was INR 390 crores, of which intangible addition was to the extent of INR 156 crores. Working capital. Debtors as of September 30, 2020, was at INR 2,648 crores as compared to INR 2,409 crores. In number of days debtors was 88. Inventory as on September 30, 2020, was at INR 2,202 crores as compared to INR 2,136 crores INR. Inventory number of days was at 73. Payables as of September 30, 2020, was at INR 2,167 crores as compared to INR 2,126 crores. Payables in number of days was at 72 as on September 30, 2020. With this, I would like to introduce Glenmark's management on the call. We have Glenn Saldanha, Chairman and Managing Director of Glenmark Pharmaceuticals; V.S. Mani, Executive Director and Global Chief Financial Officer; and Robert Crockart, Chief Commercial Officer, Glenmark Pharmaceuticals Limited. With this, I'll hand it over back to the operator for Q&A.
[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.
A couple. First, on the India business. If you could give us some color on how much of the contribution of FabiFLu, if not in absolute numbers, probably some color on how the underlying performance was? And are we -- what are we seeing in terms of trend in October?
Robert, do you want to?
So yes, thank you for the question. Just to give you a good idea, our growth has been pretty consistent, including the Fabi. Our base business, we have found has been growing around 7% to 8%. So really, the difference between our overall growth and this 8% is all accounted for Fabi.
When you say 7% to 8% growth, that is for the India business?
Base business, yes, for the India business.
All right. Okay. My second question is on the U.S. We're still hovering at around the 100 million [ north ]. If you could give us some sense on how did we see pricing in derma as you seen [indiscernible] derma because s,ome of our peers have shown a pickup in sort of the generic derma business also. And how should we look at this business from a 12 to 18-month perspective?
Sure, no problem. I think, first of all, the second quarter, yes, it's been a tough one. And we have seen price erosion probably hitting the bottom now. And we've been unfortunate to not have too many big approvals coming through. And yes, of course, the dermatology area has taken significant impact as a result of the pandemic. However, if you look at the upcoming quarters, we are pretty optimistic about quarter 3. We've had quite a few approvals coming through, looking at Sirolimus, [dimethyl ] fumarate, Pimecrolimus. And then of course, we have quite a few exciting approvals we're expecting in the next couple of quarters. So we do see a positive trend, and we're quite optimistic about quarter 3 and quarter 4.
Robert, if I may ask, how many approvals should we look at more from second half perspective? And also, if I were to think about FY '22, based on our pipeline?
So Neha, I think Jason mentioned 15 to 20 approvals, right, for the full year filings.
I thought he mentioned...
Filings. Sorry.
Filings. Yes. Okay.
Yes, I apologize. Filings. But you can typically expect 10 to 12 approvals annually, yes.
Okay. And sir, on the injectable approvals, when will we start seeing that in the U.S.?
So Fulvestrant, we are already commercialized, right? And I would anticipate next financial year, you should see quite a few injectables coming through. We're expecting one more yet. We are expecting one more yet this year out of Monroe. And then next year, you should see quite a few coming through.
Understood. And my last question is on the inflow from the sale of the consumer brands to HUL. I see that we have recorded only, I think, about INR 40 cores, INR 42 crores in this quarter. Could you -- I thought number was supposed to be higher than that?
Yes. So Neha, Mani here. So broadly, whenever we accrue these kind of cash flows, we obviously have expenses in any assets, et cetera, that we give against that. So it is net of that. And also we're getting some amount of money as a part of the royalties, okay? So the part of the arrangement, we are -- it is an undisclosed amount. So that's why we're not able to put that. Yes.
So from the first part of the payment, everything has been received. There's nothing payment other than the royalty payments?
Yes. Correct.
Understood. Okay. And even for the [ following ] business, all inflows have been...
Yes, yes. That was last year, yes.
[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC Securities.
Mani, on the working capital front, there is a very sharp increase in receivables. How do you -- and how should we look at this now for the end of the year?
So Nitin, as you are this year, there have been on and off, basically logistics and supply chain, it takes a little time. So I think a lot of shipments went closer to the end of the quarter. So I believe that this should substantially correct itself in Q3 and Q4, okay. It's basically -- I mean, debtors that have gone up, so that is the most liquid on the assets. So I think we should be in a good position to see some of these.
Okay. This [ does seem ] a little surprising because we've seen [ our business in a ] quarter or in the first half. We've seen very strong cash [ actualization ] across [indiscernible]. So this came as a bit of a surprise.
Yes, I agree. But then if you look at it, inventory is well under control, that creditors are under control. Only a portion of the receivable that as it goes. And that's over INR 200 crores out of -- I mean, when you look at a quarter sale of about INR 3,000 crores, it's not a very substantial portion. INR 100 crores, INR 200 crores could always get a little bit lumpy at the end of the quarter, which you could receive in the next quarters, yes.
And secondly, the CapEx number seem to be high on the higher side versus what you're guiding.
Yes. So I mean, we have guided about 700 to 800. So we are closer to 400, right? We are -- so I believe that in the second half, it should be slightly lower than this also. So I don't think that we are off the guidance much. So we should be pretty much there, yes.
Okay. And lastly, on the cost front, there seems to be a fairly decent reduction of control in both staff costs and other expenses excluding R&D on a Y-o-Y basis. So how should we look at these numbers now going forward?
I think broadly, Nitin, we've seen an EBITDA of around a little less than 20% for the first half. I think we would guide to that in the next half of the year as well. So I think we've got a good handle on the cost side going forward. So you should definitely see this around these levels, yes.
And I think this is my last one, Glenn, on the areas of [indiscernible] point summary, you put out a time line of December to close the transaction. How comfortable are you with the time line?
So Nitin, we have quite a lot of interest right now from several U.S. investors. So the management believes that by December, we'll be able to close the transaction.
[Operator Instructions] The next question is from the line of Krish Mehta from Enam Holding.
I have 2 questions. The first one was on the inventory. So if you could please give the number for the Q1 and Q2 inventory, like a breakup of that.
So the Q2 inventory we have given. So broadly, the Q1 was also similarly in line. I mean, I don't have the number right now, but it is very much. So between March and today, the increase in the inventory is about max number INR 60-odd crores, okay. So inventories have been pretty much in control, yes.
Okay. And my second question was about the U.S. business. So what is your estimate on like when this U.S. business will bottom out and when it will start to show growth since we've seen like a decline this quarter?
I think just to build on what I've said a bit earlier, is we believe we've seen the bottom out now, right? So we believe that we'll see the growth now pick up in quarter 3 and even furthermore in quarter 4.
[Operator Instructions] The next question is from the line of Alankar Garude from Macquarie.
My first question is on the ANDA filing. So we did [ quote ] until September, and you are planning to find 15 to 20 in this fiscal. So does this mean some shift in our R&D strategy? And are we looking to have possibly a higher focus on generic R&D than maybe what we have had over the past couple of years?
Well, Alankar, we've been very consistent in terms of our spends on the generic and supporting the overall business. I mean, I think second half will look better for -- in terms of number of filing of generics. And also, I think Ichnos spends will be a little lower. So I think overall, our R&D spends, full year, we'll finish within 10% to 11%, somewhere thereabouts, right, as a company. But I think our spending pattern on our investments in R&D in the different pieces of R&D have been pretty consistent.
Understood. And my second question, Glenn, is if you look at ISB 830, it seems that even with higher dosage, the primary end point -- or rather the secondary end point has not been met. So how are we looking at this product going forward?
So ISB 830 is a broad immunology compound, right? It could work in various different types of immune diseases, right? Obviously, for atopic dermatitis or Phase IIb, which was carried out, we met the primary endpoint, which basically shows that the drug is working in patients, okay, but it is not as good as -- the response is probably not as good as some of the competing molecules. So our view is ISB 830 could play an important role in the treatment of other forms of inflammation and other immunology indications. We have approval for rheumatoid arthritis from the agency. And right now, we are looking for partners who can take the drug forward into other indications.
Okay. All right. So basically, we won't be going ahead with Phase IIb for RA before we get a partner?
That's correct.
Okay. And one final question from my side. You mentioned about similar EBITDA margins in the second half, 19.5%. So can you just throw some light on what exactly is happening on the cost side? I think at the beginning of the fiscal, you had mentioned about R&D and possibly employee cost. Are there any other expenses where we have seen some structural reduction in savings? So any color on that would be helpful.
Yes. So broadly, if you look at it on an overall basis, when you look at your SG&A expenses itself, there has been a decent reduction. And looking at travel and so many other things, there are 9 -- there are many lines that one can look at. So on a very broad basis, I think there has been at least a good a 2% to 3% that we could pull down. And I think it will remain there. And also our R&D, as we just said, is about almost 1.5%, 2% lower than the previous year. So all in all, when we bunch all this together, we feel we are in good position. And we definitely can see a 3% to 4% increase on our margins going forward as well.
[Operator Instructions] The next question is from Prakash Agarwal from Axis Capital.
Just wanted some outlook on the India business. I understand there's a very good growth on the back of Favipiravir in your chronic portfolio. So I'm not sure you already discussed, but what would have been growth look like ex Favipiravir and the outlook for the second half?
Yes. So yes, just to -- the question was a bit earlier as well. But just to give you clarity, our base is actually growing around 7% to 8%. So the balance is all on favi. And then, of course, for the balance of the year, we expect FabiFLu to slow down, but we're also expecting our base to systematically also improve. So we also have an optimistic view on the balance of the year.
Double-digit is clearly achievable as we've been doing in the past?
Yes, Prakash.
Yes, we believe so.
And if we just strip out the cost savings on the SG&A line, I mean, which we have seen across the pharma company, especially, which have high branded generic sales, so I mean, we remove that savings, we are back to that 16%, 17% margins. So I understand the easing of lockdown, traveling and all will increase, but not to that extent. But what is the business change, which has led to better margins? I mean, is Favipiravir a lower-margin business or because looking at Y-o-Y, not much change in the base margins, there's a [ comment here ]? And how do we see this moving up?
So Prakash, as you can see, we are continuing to keep our gross margins right there, okay, at about 35%. I mean that is a margin of about 65%. So in spite of whatever you said about some other businesses where the margins could be lower and in spite of that, the business has managed to keep the margins well up, it's a combination of product and the kind of work we've done on the procurement side as well. So it's not just about only SG&A, it's all around, okay? So that we have done well. So going forward, if some of those lesser margin businesses come up, we should see a slight improvement in the margins at the GC level as well, it is our endeavor to do that. So -- and as far as the other expenses, what we said, I mean, that will be the -- across the industry, everybody would have got some benefit of the other. But I think there is a big lesson for everybody to look at it. So in our mind, we feel that we are quite confident of achieving the 19% to 20% margin, and that's where the confidence comes from. And also, as we said, even the R&D expenses, we have grown down a bit. So overall, we have tightened the belt across the board by 1%, 2% everywhere. So it's not just one factor that went and made the big change, okay.
Perfect. That is helpful. And lastly, on R&D side, so suppose this deal happens by end of this calendar year, which we are very confident. How does the R&D look next year for us in fiscal '22 so?
So, Prakash, it's hard to put a finger on what the R&D spend is going to look like for next year until we complete the capital raise, right? It will all depend on the quantum of capital raise. But that will impact basically the cash, okay, on the P&L side, to the extent that we will dilute, to that extent, it will get consolidated.So I think R&D spends -- I mean our view on the P&L will be more or less in the same ballpark, right, maybe slightly lower. But on the cash side, it will help dramatically because you'll get external funding into the business.
Okay. And so we should model in around what, 10% when you say we'll tone down a bit on an overall basis?
Prakash, you can -- I mean between 10% and 11%, but you can keep it closer to 10%, okay? That's how we can model it.
And what would be the current split of generics and [indiscernible]?
I think [ we have ] the numbers.
There are the numbers. So Prakash, if you look at it, innovation expenditure was INR 398 crores, so for 6 months. And generic expenditure was INR 221 crores.
[Operator Instructions] The next question is from Shyam Srinivasan from Goldman Sachs.
Just the first one on the respiratory pipeline for the -- in Europe. I recollect that we have done -- completed our litigation and all of that. So how has that portfolio behaved in quarter 2?
So on our respiratory pipeline, we've made some real good progress, right? I mean, we've been able to relaunch in some of our markets. We've also -- so we have now got pretty much coverage across most of the markets. And furthermore, we are looking at a further expansion in terms of how we can penetrate even further with our respiratory portfolio. So this is really going to be the strength for us moving forward.
Is there any contribution this quarter? Or you think it's more second half in fiscal '22, where we'll see meaningful growth. So what about the 5% constant currency growth we have seen in Europe that the other things rather than respiratory?
Yes. I would say it's more of the other because I think the respiratory as a whole has also had an impact, of course, due to the pandemic. But I think with the balanced view, as we look at the balance of the year, we would see it pick it up systematically.
Got it. Second question is on Ryaltris, right, the FDA is under review the file, is there any incremental updates have you got back? Or is it still too early on that one? And the second one on the launch in Australia, any qualitative sense you can give on how the market is looking at that?
So Shyam, on the...
So I think on -- sorry.
Go ahead.
Go ahead please, Glenn.
Go, Robert. No, you go ahead.
I was just going to say that on the U.S., it's a bit early, right, unless you wanted to add to that, Glenn. So it's still a bit of work in progress. And then furthermore, when we're looking at Australia, we now have -- we launched this in quarter 1, and the initial indicators have been very positive, right? So we are, at this stage, ahead of expectations. And also, we've recently launched in South Africa. And also the initial months, the results have been pretty promising.
Shyam, on the U.S. side, we are expecting a likely approval of H2 -- calendar H2, right. 2021, right, in the U.S. As you know, we partnered with ITMA. So I think we are hoping to go back to the FDA soon, right? This was on -- I mean there was an outstanding CRL, right, hoping to go back to the agency soon. So that's the status on the U.S. And of course, Europe, also, we've filed -- so we are expecting Europe to start contributing next year in a big way to Ryaltris. So I think when you look at next year, I think across the different geographies, Ryaltris should be a substantial contributor to the year.
Then last question is on Latin America. I read through the MD&A, we said that there has been issues in Brazil, specifically the respiratory portfolio again. And so what's the outlook in the second half? Are you seeing -- and just the -- and Rob just a general thing on second wave of COVID, is there something that one needs to worry? Do you think this will keep the developed market, including Latin America, kind of under pressure for the second half for the fiscal?
Thank you for your question, Shyam. So yes, I think when we look at LatAm, we've seen some impact with reference to the currency. Of course, the lockdown had its effect, but I think the biggest challenge we've had is in the respiratory category, right? You've seen that it's declined by 19% to 20%, and it just had to have an impact, right? You also should look at the pharmacy stores, up to 20% of the stores have not even opened again. So in general, it's been a real challenge for us in quarter 2. We've -- however, now at very early stages. I mean October is gone, we've seen a positive trend. And we hope that we can see this trend continue through the balance of the year. Just on your question on second lockdown, Our guess is as good as yours. However, we will manage that as time -- time will tell.
[Operator Instructions] The next question is from Tushar Manudhane from Motilal Oswal AMC.
Just on the API side, the traction has been improving or strengthening quarter-over-quarter. So is this to do -- and there have been some commentaries from the other formulators that this is more because of the inventory buildup to avoid any disruption because of this COVID. So for -- is it the case for us also on the API [ experiment phase ]?
I think our -- we are very optimistic about our API business. I mean we're seeing some very good offtake. It's got nothing to do with inventory buildup. This is actually -- a lot of the shift which is happening is coming on account of, I think, more and more customers wanting to move from China to India, right, and to pick up suppliers from India. So that is also assisting the whole trend on the API side. So our view is the next few years -- I mean, the API business will continue to show strong growth across the board.
And is this more led by -- so effectively, more led by volume rather than just favorable pricing?
Correct. Correct.
And just if you could just also highlight the product concentration on the API segment, like top 5, top 10 products would be contributing how much?
It's very, very broad-based. So our business, unlike many of our peers, API -- who have API businesses, right, our concentration is very broad-based. So I don't think any single product contributes to more than 10%.
Correct.
And just secondly on the ROW segment. Just also, and if you could just clarify, this is also led by this COVID-led products or again, some improving outlook in select geographies?
I think it's -- there's very little of COVID-led products in Europe. I mean this is mostly some geographies outperforming and growing faster.
Can you give more colors if [indiscernible] and is that sustainable?
I think it's sustainable. I can't give you a breakup of specific geographies because ROW is a very broad-based business. I mean we have operations in 30, 40-odd countries. So it's much broader, right? I can't call out a specific geography, but I think we see this trend continuing.
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
My question is on the debt reduction front. So if you can update on debt reduction plan for this year as well as for next coming years?
So as you can see, the gross debt has come down to about INR 180 crores in the first half of this year. And while we had some requirements on the working capital side, but I see that going forward in the current year, you should see similar kind of reduction in the net debt as well as we go along. And also as the business grows, obviously, sometimes there are requirements, but on a very broad basis, it is there. And with the improvement in the EBITDA, I think the ratios all look quite good. I think it's difficult to put a number on what we'll do next year. But going forward, if we continue to manage -- I mean, our -- if we continue to do our business as well, obviously, we should see a reduction as we go along, similar to what we'll see in the current year.
Okay. So debt reduction mainly led by the operational cash flow? And do we have any diversification plan for any nonstrategic assets, which can help us in debt reduction front?
So I think the biggest outset of the core business, where you'll see constant debt reduction, right, going forward. Also, with the Ichnos capital raise, right, our investment in Ichnos will go down which, obviously, will mean the business will have significant free cash coming in. So I think starting next year, you should see a big chunk of delever happen, right? Of course, in the next few quarters, also, you see some amount from the business, but I think next year will be a big amount of delever.
Okay. That's helpful. And one question on the API business. So you're seeing -- you said it's held by customers divesting away -- diversifying away from China. So are we seeing such more queries from the global customers who are looking to diversify their sourcing away from China and that should continue to help us?
Absolutely. I think we are seeing a lot of that. A lot of global customers who are now looking for India sources, and that is helping and will continue to help going forward.
Okay. And this is across the product portfolio, not something related to COVID or some specific therapy, right?
Correct.
[Operator Instructions] The next question is from the line of Vishal Manchanda from Nirmal Bang.
I wanted to check whether the cost related to the Monroe facility...
I'm so sorry, but your audio is not very clear. [Operator Instructions]
So on the sense whether the costs related to the Monroe facilities into the P&L. Are there's still some costs that need to be we [indiscernible] going forward?
So since -- I mean, already, we are on with oral solids and also the injectable side, a lot of the costs are already in the P&L, okay?
So more than half is [fair to say]?
Yes, around closer to half, yes. Closer to half.
Okay. And one more on the -- your NCE side, it's really the bispecific antibody platform. Just wanted to check whether there are any approved bispecific antibodies or this is basically a new target and would need to be validated?
There is 1 bispecific approach for Micromet, I think which eventually got sold to Amgen. So Amgen has one, I think it's called [indiscernible] , right, which is approved, which is, again, a CD3 engager. And obviously, there are a lot of -- there is a huge amount of work ongoing on bispecific antibodies, right? And many of them have shown positive responses in Phase Is and Phase IIs in the clinics and have progressed quite significantly.
There is -- there could be bispecific antibodies that would have come into Phase III now, apart from the one that's already approved.
That's correct.
[Operator Instructions] The next question is from the line of Rohit Kothari from [ GC Holding ].
Yes. Just 2 questions on Ichnos. What is the size of fund raise are we talking about? What is the expected dilution we would look at in Ichnos? And after this fund raise for the financial year of FY '22, what would be still the investment, which the parent Glenmark will have to make into Ichnos?
So Rohit, unfortunately, I don't think we can give any visibility on any of the questions you've asked. Basically, I think the fund raise will all depend on the valuation. I think base is that, we will decide how much of capital to raise at this juncture versus how much capital will be raised subsequently, right? So I think this is a Series B fund raise. There will be a series C, D. And obviously, hopefully, one of the series will be an IPO. So I think there's a big runway there. As the company keeps -- the value keeps increasing, right? And as we keep these assets keep progressing, there will be subsequent rounds of capital raise. That's the only visibility we can give you right now. I mean we can't give you any details on the size of the capital raise at this time.
[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC Securities.
Glenn, on a broad level, the Q1 challenges we've had historically is while your operating performance [indiscernible] you'll be okay, our capital allocation issues [indiscernible] have been essentially a bit of a concern in [indiscernible], if you will, the challenging market has been grappling well. So when you take our next, say, year, 2-year view, [indiscernible] , which we have on the capital allocation side in terms of the debt reduction part of it, whether being deployment of capital focused on incremental businesses, where are we -- I mean how are we looking at incremental capital deployment for the business?
I mean, Nitin, I think the next few years where we only see -- we've gone through a massive capital investment cycle, okay, over the last 5-odd years, right, or more. And for me, the next 2, 3 years are purely making sure we unlock all the value that we've already created, right? So I think from that perspective, I think the next few years is all about free cash generation and repaying debt, right? And will we complete that cycle, right, of delevering, right? We will not deploy additional capital to it -- beyond the regular investments that we make to sustain our current businesses and the current growth. There are no new initiatives, which will stock up cash. That's the way we see it. So I think the next few years is probably about cash generation and using that capital to repay debt and delevering. Our base business growth continues to remain strong. The margins have improved now to 19%, 20%, and the margins will keep improving over the next few years, consistently. Also with -- so once we get the Ichnos capital raise done, our investment in innovation or innovative research will go down. So I think overall, we think the next few years will all be about the value creation and using the free cash to repay debt.
[Operator Instructions] The next question is from the line of Cyndrella Carvalho from Centrum Broking.
If you could help us understand the overview on U.S. business specifically over next 2 to 3 years, FY '22, '23. As we expect it to be bottoming out and things should roll ahead in our expectation there. So what should we model then for '22 and '23 in U.S.? And if you could help us -- you just guided us on the entire view over next 2, 3 years. Similarly, you can help us understand the India business also would be helpful.
Sure. So I'll -- so on the U.S., right, I mean, our view is the last 3, 4 years have been really painful for us in the U.S. We've not had significant growth coming through, and that's primarily because of all the price erosion we witnessed, particularly on the derm portfolio, right? I mean we had Naprosyn, we had calcipotriene, we had atomoxetine, a whole bunch of products, which have seen unprecedented price erosion, right, over the last 2, 3 years. So as Robert mentioned, we are now at the bottom of the price erosion curve. And at this -- from this quarter from Q3 onwards, that cycle will reverse. So I think FY '22 and '23, you should see good growth coming back from the U.S. and primarily driven by also the filings coming -- which we've done in Monroe, right, which now will start getting approved and have started getting approved. So I think that will also help in FY '22 and '23. And also our investment in Monroe, we are hoping will start paying back from '22 and then '23. So all in all, the U.S. looks strong over '22 and '23. We've gone through a difficult phase in the U.S. over the last 2, 3 years. We are expecting strong comeback over the next few years. As far as India grows, India has always been a strong market for Glenmark. We have a number of filings. We have a lot of good products, and we still think India will continue to sustain double-digit growth going forward for us. And we keep having enough of new product filings, new product approvals, market expansions to ensure that.
Any key approvals that we could look forward to in '22, '23 in U.S.?
Sorry, can you repeat that?
Any key approvals or any niche approvals that we should look forward to in '22, '23 apart from Monroe.
I mean, we don't give any visibility to specific approvals. But you can expect the same 10, 12 approvals coming through. Only the quality of approvals, as Robert mentioned, will improve substantially going forward because we have some good filings pending with the agency.
[Operator Instructions] The next question is from the line of Rahul Vira from [ Abates ].
Just a quick question. I wanted to understand, so [indiscernible] opportunity will be at a risk launch, right?
That's correct. But we've still not made a decision whether we want to go ahead or not go ahead with commercializing it.
Okay. It was almost like 7 approvals now for [indiscernible]furoate. And about 3 or 4 launches have happened. So I believe even though the opportunity size seems sizable, but eventually, it will fall down to $30 million, $40 million. Is my thought process correct?
I mean we can't comment on the specific details of DMFs, right? But I think, as you rightly said, it's an at risk launch, the Federal Circuit decision is expected, right? And we'll see what happens.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Jason D'souza for closing comments.
Thank you, Janice. So just before we close the call, the disclaimer the information statement and analysis made during this call describing the company's objectives, projection and estimates are forward-looking statements and progressive within the meaning of applicable security laws and regulation. The analysis contained herein is based on numerous assumptions. Actual results may vary from those expressed or implied, depending upon economic conditions, government policies and other incidental factors. No representation or warranty either expressed or implied is provided in relation to this presentation. This presentation should not be regarded by recipients as a substitute for the exercise of their own judgment. With this, we end Glenmark's Q2 earnings call. Thank you, everyone.
Thank you. On behalf of Glenmark Pharmaceuticals Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.