Glenmark Pharmaceuticals Ltd

NSE:GLENMARK

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, ladies and gentlemen, welcome to the Q2 FY '23 Earnings Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Utkarsh Gandhi, General Manager, Investor Relations for Glenmark Pharmaceuticals. Thank you, and over to you, sir.

[Utkarsh Gandhi, executive]

Thank you, moderator. Good morning, everyone, and a very warm welcome to the Q2 FY '23 results conference call of Glenmark Pharmaceuticals Limited. Before we start the call, a quick review of the operations for the company for the quarter ended September 30, 2022. For the second quarter of FY '23, Glenmark's consolidated revenue from operations was at INR 33,752 million, as against INR 31,474 million in the corresponding quarter last year, recording a growth of 7.2%. For the 6 months ended September 30, 2022, Glenmark's consolidated revenue was at INR 61,525 million as against INR 61,123 million, recording an increase of 0.7%.

We'll provide some key highlights for each of our businesses, starting with India formulation business. Our sales for the formulation business in India for the second quarter of FY '23 was at INR 10,916 million as against INR 9,689 million in the previous corresponding quarter, recording growth of 12.7%. India business contribution was at 32.3% of the total revenues in the second quarter of FY '23 compared to 30.8% last year. As per IQVIA MAT September 2022, data, Glenmark's India formulation business is ranked 14th with a market share of 2.19%. During the quarter, Glenmark's India business continued to strengthen its position in its core therapy areas in terms of market share. As per IQVIA data, the cardiac market share increased to 5.3% compared to 4.73% last year, while the anti-diabetic market share increased to 1.82% compared to 1.79% last year.

In Dermatology, also, the market share increased from 8.12% to 8.16% and in the Respiratory, the market share changed from 5.3% to 5.27%. As per IQVIA data, the company is ranked second in the Dermatology segment, fourth in Respiratory and has increased its ranking to fifth in the Cardiac segment. The company has 9 brands in the IPM Top 300 brands in the country on the basis of the IQVIA MAT September '22 data. The company launched 9 new products during the quarter and continued to gain market share in some of the key launches in cardiac anti-diabetic segment.

The key new launches, which are the driving growth in the anti-diabetic segment includes sitagliptin and its fixed dose combination with metformin and dapagliflozin, respectively, all of which were launched at the start of the second quarter of FY '23. The company has introduced 8 different combinations of sitagliptin-based drugs under the brand name, SITAZIT and its variants to increase accessibility to affordable and quality treatment options for patients with uncontrolled Type 2 diabetes.

In the first quarter, Glenmark had also become the first company to launch teneligliptin + pioglitazone fixed dose combination drug for Type 2 diabetes under the brand name Zita Plus Pio. At the time of launch, it was only available DPP4 and glitazone combination brand in India. Glenmark also recently launched a combination of teneligliptin with dapagliflozin. Recently, Glenmark also became the first company in India to launch lobeglitazone 0.5 mg, under the brand name LOBG, for the treatment of uncontrolled Type 2 diabetes. With this launch, the company aims to improve glycemic levels in uncontrolled diabetics and create a pathway to treat insulin resistance in India. Glenmark now has a strong portfolio of products across various levels of interventions for the treatment of Type 2 diabetes in India. The company has an overall healthy pipeline of differentiated products, which it plans to launch in the market going forward.

The Consumer Care business in India. The primary sales for GCC business in Q2 was INR 555 million with a growth of 8%. This was mirrored by strong secondary sales growth of 11%. As of YTD September, the GCC revenue was at about INR 1,203 million with a growth of 42%. Our flagship brand, Candid Powder delivered strong revenue growth of 11% for Q2 and 44% for the first half of FY '23. La Shield portfolio, which is our second brand delivered 31% growth in Q2 and more than 100% growth in the first half, while Scalpe+ portfolio recorded 18% growth in Q2 and 28% growth in the first half of FY '23.

Moving on to North America. North America registered revenue from the sale of finished dosage formulations of INR 7,533 million for the second quarter of FY '23 as against revenue of INR 7,543 million for the period corresponding quarter, recording a decline of 0.1%. North America business contributed 22.3% of the consolidated sales in the second quarter of FY '23 compared to 24% in Q2 last year. In the second quarter of FY '23, Glenmark received final approval for norethindrone acetate and ethinyl estradiol capsules and ferrous fumarate capsules 1 mg/20 mcg generic to Taytulla. The company has filed 1 ANDA in the second quarter and plans to file 10 to 12 ANDAs in FY '23. Glenmark's marketing portfolio through September 30 consists of 176 generic products authorized for distribution in the U.S. market. The company currently has 47 applications pending at various stages of the approval process.

Moving on to Europe. Glenmark Europe operations for the second quarter of FY '23 recorded revenue of INR 3,785 million as against INR 3,383 million, recording a growth of almost 12%. Europe business contributed 11.2% to the total revenues in the second quarter of FY '23 compared to 10.7% last year. The company continued to achieve a healthy double-digit growth across all key markets in Europe in the second quarter of FY '23 in spite of ongoing macroeconomic challenges.

Glenmark's covered market growth continued to remain strong across both Western Europe and Central and Eastern Europe market. Base business growth in Western European markets, such as U.K. and Germany remained strong, while CEE markets like Poland, Czech and Slovakia benefited from new product launches. Overall, Glenmark continued to launch multiple new products across various markets and the Respiratory portfolio in Europe also continued to gain share across both Western Europe and CEE countries.

ROW, which consists of Asia, Middle East Africa, Latin America and Russia CIS. For the second quarter of FY '23, revenue from the ROW region was INR 6,154 million as against INR 7,486 million for the previous corresponding quarter, recording a decline of 17.8%. The decline is on account of a high base last year due to strong sales of the COVID portfolio. Adjusted of that, the region recorded 15-plus percent growth in Q2. Our ROW business contributed 18% to the total revenues in Q2 of FY '23 compared to 23% in Q2 last year. While the macroeconomic situation continues to remain challenging, the pharmaceutical market in Russia remained stable and provided opportunities for growth.

Overall, Glenmark Russia business recorded a positive trend in the second quarter. For the month of September, Glenmark outperformed the retail market by value and also gained 2 positions in terms of the overall rankings on the retail market. Glenmark also gained 2 positions and was ranked eighth on the Dermatology market, while it continued to be ranked second on the Expectorants market in Russia. Business growth was aided by strong performance in key products such as across the Dermatology market as well as additional promotion on the new indications for Ryaltris.

Asia region recorded a slightly subdued growth in the second quarter. Market such as Malaysia and Philippines recorded double-digit secondary growth, but there were multiple headwinds in other Asian markets like Myanmar, Vietnam and Sri Lanka, which led to a slightly lower growth. As per IQVIA MAT June 2022 data for the Philippines, Malaysia and Sri Lanka markets, Glenmark is ranked sixth in the overall covered market and ranked first in the Dermatology segment. Our partner Yuhan Corporation received approval for Ryaltris in South Korea towards the end of the second quarter. Also, Ryaltris continues to do well for us in Australia and the Philippines that the product has already been launched.

In Middle East and Africa, the region recorded 21% growth in secondary sales during the second quarter of FY '23. While growth in Kenya was marginally impacted by macro-economic factors, Glenmark continued to achieve strong secondary sales growth of 30-plus percent in South Africa and Saudi Arabia. As per IMS MAT data, Glenmark is ranked third amongst all generic pharma companies in Kenya. Latin America witnessed growth of 22% at a regional level with most of the markets reporting good growth during the second quarter. The respiratory portfolio in Latin America continues to gain significant scale, particularly in large markets like Brazil and Mexico. The company is planning to launch additional products in the region to further augment the overall portfolio.

Some updates on our global respiratory business for the second quarter, starting off with Ryaltris. In FY '23, Ryaltris is targeted to be approved/launched in 34 markets globally. As of September 30, 2022, we have already received approval or launched the product in 16 markets, either through our own sales force or through our partners, and we are further awaiting approval in 18 markets, which are expected to be received in the second half of FY '23. Glenmark's partner in the U.S., Hikma, commercially launched Ryaltris in August 2022.

As mentioned before, Glenmark also supplied products to its partner in South Korea, Yuhan upon its approval in the second quarter and to enable them to launch the -- to complete the commercial launch of Ryaltris in October 2022. Following approval in Canada, Glenmark's partner Bausch intends to launch the product in the fourth quarter of FY '23. And additionally, in the second quarter, Glenmark received marketing authorization grants for Ryaltris in Malaysia, Kazakhstan, Moldova and Dominican Republic and also submitted the MA application in Vietnam and Zimbabwe. The company is awaiting regulatory approvals for its filings in Brazil, Mexico, Vietnam and several other emerging markets.

Ryaltris sales continued to grow in various markets where the product has already been launched across the globe. Some of the key markets include Australia, the UK, Czech Republic, Poland, Italy, Russia, South Africa and the Philippines. Glenmark's partner in Europe, Menarini, intends to launch the product in H2 of FY '23 in additional key European markets. And Glenmark's partner in Mainland China, Grand Pharmaceutical has made significant progress on the enrollment in the Phase III study, with approximately 70% of the recruitment being completed by end of second quarter. Grand Pharma aims to complete the study by mid-2023 and submit the NDA application by end of 2023.

In terms of other key respiratory products, as mentioned in the first quarter also clinical trial continues to move forward at the plan for the generic Flovent pMDI and we expect to file the product in the calendar year 2023 and we plan to file at least 1 more generic respiratory pMDI asset in the U.S. in the calendar year '23 and continue filing momentum beyond that. Some updates on our innovative R&D pipeline. GRC 54276, which is our HPK1 Inhibitor is the company's oncology pipeline asset being developed as an orally administered IO-adjuvant treatment for patients with solid tumors in oncology.

Our Phase 1 dose escalation study is ongoing in India as per plan. Successfully recruitment of patients in Cohort 1 was completed in second quarter of FY '23. There was no dose limiting toxicities observed in the first cohort and subsequently Cohort 2 has also been initiated, and in total, 10 patients have already been dosed with the drug. GRC 39815, this is RORgammat and company's respiratory pipeline asset being developed as an inhaled therapy for treatment of mild to moderate COPD, which is currently under Phase 1 clinical development in the US.

A quick update on Glenmark Life Sciences. Revenue from operations, including captive sales were INR 5,093 million as against INR 5,618 million, recording a Y-o-Y decline of minus 9.3% due to the high base of oral products last year. During Q2, regulated market contribution increased to almost 74%, with growth of 7% Q-on-Q. CDMO business also recorded strong growth of 27-plus percent Q-on-Q. GLS filed 4 DMFs/CEPs during the second quarter and also made progress in the capacity expansion initiatives across its plants. External sales for Glenmark Life Sciences in Q2 FY '23 were at INR 3,744 million as amount INR 3,354 million in Q2 FY '22, recording a growth of 11.6% Y-o-Y. For some further updates on GLS, please log on to our website, glenmarklifesciences.com.

Lastly, on ICHNOS, ICHNOS Sciences. Glenmark has invested been INR 1,727 million, almost USD 22 million in the second quarter of FY '23 compared to INR 1,850 million, which is about USD 25 million in the corresponding quarter last year. For the first 6 months of FY '23, Glenmark has invested in INR 3,363 million compared to INR 3,467 million invested in the corresponding period for the previous financial year. For further updates on the pipeline and the organization, please log on to ichnossciences.com. The pipeline update for the second quarter of FY '23 has been published on their website.

I would just like to state a few objectives for FY '23, which remain unchanged from the start of the year. Revenue growth of 6% to 8% during the year, sustaining our EBITDA margin performance at similar levels. As of FY '22, CapEx of about INR 700 crores to INR 800 crores, keeping up our focus on enhancing free cash generation and debt reduction and closing out 1-2 out-licensing agreements in innovation pipeline. Some additional notes to the results before we open the Q&A. Our reported EBITDA, excluding other income, was at INR 612.6 crores with a margin of 15.4%. There was a COVID-related inventory provision of INR 31 crores in the second quarter. Adjusted for that, EBITDA for Q2 was INR 652.6 crores with a margin of 19.3%. Forex exchange for the quarter was at INR 89 crores, which is recorded in other income.

Gross debt for the period ended September 30, 2022, was at INR 3,954 crores as against INR 3,670 crores as of March 31, 2022. Net debt for the period ended September 30, 2022, was at INR 2,715 crores as against the INR 2,260 crores as of March 31. The increase in net debt was primarily on account of adverse forex exchange impact during the first half of FY '23. Working capital inventory for the period ended September 30 was at INR 2,865 crores as against INR 2,500 crores in March. Receivables were at INR 3,328 crores as against INR 3,101 crores, and payables was at INR 2,348 crores compared to INR 2,289 crores. Total asset addition in the quarter was INR 134 crores. Most of it was related to tangible assets. R&D expenditure in Q2 FY '23 was around INR 330 crores, which is close to 10% of revenue from operations for the second quarter. For the full year, we expect R&D spend to remain around 10% to 11% of our sales.

Before we open the floor up to Q&A, I would like to introduce the management of Glenmark Pharmaceuticals on the call today. We have with us Mr. Glenn Saldanha, Chairman and Managing Director; Mr. V.S. Mani, Executive Director and Global Chief Financial Officer; and Mr. Brendan O'Grady, Chief Executive Officer, Global Formulations Business.

With that, we'd like to open the floor up for Q&A. Over to you, moderator.

[Operator]

[Operator Instructions] The first question is from the line of Saion Mukherjee from Nomura Securities.

[Saion Mukherjee, analyst]

My first question is on the other expenses. They have gone up almost 18% year-on-year, much higher than the way the top line has grown. If you can just elaborate on this, why the expenses are moving at a much faster pace?

[V. Mani, executive]

I'll respond to this question. So Saion, obviously, last year, if you recollect, the first quarter and a little bit of the second quarter, we had some amount of the COVID effect, okay. So obviously, current year, we don't have COVID effect and obviously, everybody is ramping up on their marketing initiatives, et cetera. So, those costs are a little up. I would also, urge you to look at, on a half yearly basis, if I look at it, yes, it's definitely higher than the sales growth but on a half yearly basis year-to-year, it's about 12% growth, okay.

So, the first quarter was still a little low. Second quarter has been a little high, but obviously, we are trying to kind of take some initiatives and therefore, the spends are a little higher. I think -- but the overall, even still, if you take that, our other expenses to sales is about 25-odd percent. So over the years, we've kind of brought it down to 25%, 26% compared to what it used to be. And I think we'll try our best to keep it around those margins.

[Saion Mukherjee, analyst]

And the second question is on your net debt level. It has gone up for the 6 months. I think one of the objective is to organically to kind of bring down the net debt. So, what's your comment for the second half and how you see net debt level by the end of the year?

[V. Mani, executive]

So -- and absolutely, that will one of our key objectives over the last couple of years. We made some progress there, but I think definitely, we would like to do more. So, what I would like to say is that obviously, the objective remains the same. But -- and also, we certainly will see it assuming that currency remains at the current level or kind of goes lower and there are no major disruptions in the supply chain it. Okay? So, one of the reasons why you can see over the last couple of quarters, the inventory levels are -- while they're still important, and we need to keep it in those levels. But of the inventory -- I mean, EBITDA for that increase also is due to some of the inventory and some of the working capital issues that we have. And that's across the board.

[Saion Mukherjee, analyst]

And just one final question, if I can ask on the U.S. market. So, what would be the dollar-million impact because of the import alert? And what's your outlook, therefore, on the U.S. market going forward?

[V. Mani, executive]

So Saion, as you can see that we had also kind of indicated that it's about 1% to 2% of our overall global sales. It's about $20 million or so. So, I think -- but also we will work actively on site transfers, et cetera, to mitigate what we have. So obviously, we'll try to best to ensure that it will not get impacted. But if you're asking an impact, this is what it could be at best for a full year.

[Operator]

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

So, just on this other revenue -- other revenue as a segment is significantly up this quarter. Is this to do with some milestone income? And if you could quantify?

[V. Mani, executive]

Yes. A certain portion of that is due to basically a milestone that we have received. Normally, we don't give an indication what is amount because these are within an agreement within us and the party concerned. But a decent part of that is still sustainable at least, that's what I can guide you on.

[Tushar Manudhane, analyst]

So, you mean to say, if the other revenue has a quantum is sustainable for the remaining...

[V. Mani, executive]

No, not the full amount, but at least a certain portion of that, at least 20%, 25% is definitely sustainable.

[Tushar Manudhane, analyst]

And just as a clarity, this inventory provision is done of over INR 31 crores in corp or in other expenses?

[V. Mani, executive]

No, it is done in sales. You get a good return. So, it goes to sales directly and then obviously, it has no value. So, it immediately impacts your COGS as well as our EBIT. And go straight to EBITDA. You sold a good, it came back to you, it has no value today. You're right, it expires. That's how expiries work.

[Tushar Manudhane, analyst]

Right. So it is deduct it from sales itself is what…

[V. Mani, executive]

Exactly. And it has no value to it.

[Operator]

[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Just a first question on Ryaltris, and we've launched through the partner in August. Any early signs or anything that you can share there and you have now launched in multiple countries. So, if you could help us understand how large this is or any outlook here will be very helpful?

[Brendan O'Grady, executive]

Sure. So, I'll take that question. So, we launched in the U.S. through Hikma. The launch date was August 30. So, right at the end of August kind of midway through the fall allergy season. So, I don't expect to see a ton of uptake in the fall allergy season because it will take the rest a couple months and a couple cycles to see its position to generate demand. But what I've seen to date is the uptake has been good. It's been well received. I think it's going to take a little bit of time to get payer access. But again, I reviewed the plan there and a little bit ahead of where I thought they would be with payer access.

So, I think as we work through the rest of the late fall and we get into the early spring, I think Ryaltris, will be successful on a good trajectory in the U.S. As far as other markets, I think, as we mentioned, we've launched 16 through the second quarter, another 5, so far year-to-date, 12 to 21, we'll launch another -- we'll have 34 by the end of the year, 6 directly and then 7 through partners. So, Ryaltris is off to certainly a good start. And from a revenue perspective, this year, I would expect probably USD 20 million to USD 30 million in revenue for Ryaltris for Glenmark.

[Shyam Srinivasan, analyst]

My second question is just again on the U.S. business. So, it's declined about 11%, I'm just talking in dollar terms here. So, if you could help us understand what's happening in terms of the base business and how are we mitigating? How should we look at it in the second half? Will it stabilize here? Do you think there is erosion still ahead?

[Brendan O'Grady, executive]

Yes. I mean, so thanks for the question. I mean if you think about the U.S. business, I think it's a challenging market for everybody. We continue to keep price erosion along with the market. And I think that the regulatory environment has been challenging as well. So, trying to get new products to approve and launch in the market as Q2 combating price erosion. I think that if you look at the U.S., we'll be probably about flat to where we were last year. I think that you'll see third quarter improve over second quarter. And I would expect that fourth quarter, even with the body impact, fourth quarter will improve over the third quarter. So, we're gaining momentum as the year goes along. Again, we'll probably be relatively flat to last year and we hope to see several new product approvals as we go throughout the rest of this year.

[Shyam Srinivasan, analyst]

I'm just kind of do the math here. So, we had about USD 410 million or USD 412 million something last year. We have done for the first half like USD 180 million. So, we should be getting there, right? Or...

[Brendan O'Grady, executive]

I think we'll be close to right around USD 400 million give or take, somewhere in that. We'll see how things go, but relatively flat to last year.

[Shyam Srinivasan, analyst]

And my last question is on, I think, the gross margins, I think, is this just the impact of that out-licensing impact? Or how should we look at gross margins for the rest of the year right now? Should I just strip out -- you've not quantified it, but how should we look at just the gross margin line?

[V. Mani, executive]

The gross margin currently, I think in the last 1, 2 quarters, we had some challenges because of the input cost going up, et cetera. We're seeing it slightly taper down. So, I think gross margin, you should look at anywhere between 64% and 65%. That's historically where we are, we should more or less be there.

[Shyam Srinivasan, analyst]

And the adjusted EBITDA, Mani sir, on 19%, that is sustainable. Is that the...

[V. Mani, executive]

Yes, it is sustainable. And Shyam, just one thing maybe -- may not be so important. But when you said in dollar terms our quarter was lower while compared to -- decline was about 7% to 8%. I mean 11% was a little higher...

[Shyam Srinivasan, analyst]

I had a historical number of USD 107 million, probably maybe that's lower than that you're saying? Last year number?

[V. Mani, executive]

Yes, it's a little lower than that.

[Utkarsh Gandhi, executive]

It was about 102% last year actually, and this year, we had about 95%.

[Operator]

The next question is from the line of Saion Mukherjee from Nomura Securities.

[Saion Mukherjee, analyst]

Just one question on India. So, you reported around 13% growth. Now you mentioned also that this INR 30 crore is a return -- sales return. Is it true to assume it is in India? And if we are to add that, then we get to more like 15%, 16% growth, I guess? And then...

[V. Mani, executive]

Yes, it should -- you have to add back to India, and it should be higher growth, yes.

[Saion Mukherjee, analyst]

And then lastly, you would have had some Favi in the base also, right? So, I'm just wondering this growth number looks a bit high. So...

[V. Mani, executive]

No, second quarter didn't have any major Favi at all.

[Utkarsh Gandhi, executive]

Last year, we had Favi in ROW.

[V. Mani, executive]

In second quarter.

[Saion Mukherjee, analyst]

So Glenn, like -- so I mean what kind of growth expectations you have for India, I mean, for this year and also let's say sustainably going forward?

[Glenn Saldanha, executive]

So, I think it's safe to assume we are growing between 10% to 15% on a sustainable basis.

[Operator]

The next question is from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Again, on the U.S. plant, by when are we expecting the Monroe reinspection to be done?

[Glenn Saldanha, executive]

So, we are currently under remediation mode Nitin. We are hoping in Q4, we will get an inspection and -- but still hoping to commercialize products from the U.S. from Monroe.

[Nitin Agarwal, analyst]

And how many ANDAs would we have in Monroe filed by now roughly?

[Glenn Saldanha, executive]

I'd say about 6 to 8 ANDAs.

[Nitin Agarwal, analyst]

All put together, including the file and approved?

[Glenn Saldanha, executive]

That's correct.

[Nitin Agarwal, analyst]

And secondly on -- so incrementally -- sorry, just to push that, when you are doing your non-incremental ANDA filings, I presume you will not be going ahead with Monroe for the time being. So, is there some impact on your plans on account of that, where some of the filings that you were proposed to do from Monroe, you probably could do right now and then you may be doing alternate files from there for the filings?

[Glenn Saldanha, executive]

I mean, clearly, Nitin, obviously, because of the Monroe situation, a lot of our filings plans were pushed out, right, from Monroe. So, some of those filings will hopefully come through next year, right, in terms of new filings for injectable products. We have some ultimate strategies around injectable products, but we can't clearly elaborate right now.

[Nitin Agarwal, analyst]

And secondly, on Ryaltris, the guidance that we gave for USD 20 million, USD 30 million of revenue this year for Ryaltris, given the fact that we've got multiple partnership agreements which are there on the product, is it fair to assume a lot of the USD 20 million, USD 30 million, whatever revenue that you'll make on Ryaltris would be essentially just royalty income and profit share for us?

[Glenn Saldanha, executive]

So, I think we are launching on our own Nitin, in many, many markets. So, I would not assume that it's only profit share or royalty income, right? A lot of it is our own sales, right, for the year. So going forward, it's a mix, right? We have some markets where we commercialize on our own markets in South Africa, markets in Russia, markets in Asia, multiple markets, right, which we sell on our own. So, it's a mix.

[Nitin Agarwal, analyst]

And Glenn, when you talk about this number of USD 100 million-plus peak revenue for Ryaltris, the assumption is the bulk of these revenues would be coming through our own front-end sales?

[Glenn Saldanha, executive]

Again, it's a mix, Nitin. And that's why the margin profile on this USD 100 million, USD 150 million will be significantly higher because it will also have partner royalty in there, right? Partner royalties and partner transfer sizes, right? So, I think it's really a mix.

[Nitin Agarwal, analyst]

And on that, Glenn on Ryaltris, we did book some milestone this quarter across where the partnership that we've done, are there meaningful milestones still to be realized? Or is it going to be largely from here on royalty income and sales income that will come through on Ryaltris?

[Glenn Saldanha, executive]

I think constantly, there will be milestones coming through, right, Nitin, on a consistent basis. One is, of course, some sales-linked milestones to have some development milestones, right, on approvals. So, I think milestones will keep coming through, right, on an annual basis to us in addition to, of course, royalty income and other transfer pricing income that we make through partnerships.

[Nitin Agarwal, analyst]

And lastly, on the innovation R&D portfolio, I mean how should we look at the next maybe 6 to 12 months on this portfolio, news flow perspective, from a licensing perspective?

[Glenn Saldanha, executive]

Currently, I think it's safe to assume that we close at least 1 licensing deal a year between GPL and Ichnos on a consistent basis, right, on the innovation side. So, if we achieve that, I think we would have done well on a consistent basis. We closed Almirall, obviously, Almirall, the product is now in Phase I, there will be subsequent milestones coming through from Almirall on a consistent basis. So, I think this can be a good revenue stream for us, right, between new deals, existing deals, Ryaltris milestones, Ryaltris royalty inflow on a consistent basis, which will help shore up the overall revenue line item, the EBITDA margins on a consistent basis.

[Nitin Agarwal, analyst]

So Glenn, we're already in mid-November for FY '23, do you still see the prospects of our licensing deal coming through for kind of portfolio?

[Glenn Saldanha, executive]

We still continue to maintain that we will try and close the licensing deal this year.

[Nitin Agarwal, analyst]

And I think pushing 1 last, Mani sir, on the net debt, given -- you had some working capital pressures in H1. Now for the year, do we see or are you able to generate cash to maybe make some impact, debt levels going forward by the end of the year?

[V. Mani, executive]

Certainly, Nitin. I think that will be endeavor, any way rupee should remain stable and also the discussions are lesser in the second half, you should definitely see some improvement...

[Operator]

The next question is from the line of Harith Ahamed from Spark Capital.

[Harith Mohammed, analyst]

So, in your press release, you've talked about plans to file 1 additional respiratory inhaler product in the U.S. in the next calendar year and this is apart from generic of Florent. So, have you started taking plans for this and then any color on this product will be helpful?

[Glenn Saldanha, executive]

So at this point, we can't give any visibility to what the product is or what we're doing in terms of a development pathway. We still maintain that be we'll able to file additional product next year.

[Harith Mohammed, analyst]

And this is the inhaler product, just to confirm?

[Glenn Saldanha, executive]

That's correct.

[Harith Mohammed, analyst]

And trying to understand the compliance situation a little better. We noncompliant at this facility from early 2019. And I presume you've undertaken a fair bit of remediation measures before it got re-inspected this year -- earlier this year. So, that inspection didn't really go too well, which we received an import alert post that. So, what exactly are the challenges specific to this facility and what's really led to this important situation despite our remediation efforts? And have we undertaken any measures across the network to improve our quality systems because we had a couple of other OAIs as well in the recent months?

[Glenn Saldanha, executive]

So clearly, we are disappointed about getting the import alert. We're working with the FDA to see how we can remediate and bring the facility back on track as soon as possible. I think we've also taken many, many measures across the firm, right, to ensure that we are -- we strengthen our quality systems, and we continue to excel in the quality across all our sites, right, across the network. So, I think there are several things we've done and we continue to work through to strengthen our network, our capabilities on the quality side.

[Harith Mohammed, analyst]

And then last 1, the capital raise at Ichnos you talked about in the past, is that plan still on? Or are we shifting our focus more towards licensing some of the categories?

[Glenn Saldanha, executive]

I think at our Investor Day, which is coming up, we will give much more visibility on the road map there.

[Operator]

The next question is from the line of Kunal Randeria from Nuvama.

[Kunal Randeria, analyst]

Just a quick one on Ryaltris, being a branded product, have you already invested or still investing in sales force in the countries that we are going to market it yourself?

[Glenn Saldanha, executive]

So, the good news is we are continuing to leverage the existing sales force. And the reason we built out some of these segments in emerging markets is precisely that, right? Now we are actually getting the benefits of the investments we've made by way of sales force in these different countries. So the network, the sales force that we have is we are able to better leverage them through the launch of Ryaltris in almost all of our countries. We've not added sales force anywhere to the best of my knowledge right across the network.

[Kunal Randeria, analyst]

And we believe these are sufficient to sort of for Ryaltris to achieve its potential?

[Glenn Saldanha, executive]

Yes. We think we'll get to the USD 100 million, USD 150 million mark in the next 4, 5 years using the existing infrastructure.

[Operator]

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.

[Nikhil Mathur, analyst]

So, my first question is on the revenue guidance showed for FY '23. I think it is a number that has been shared. And first half, you have closed on a flattish level. Second half, I would also suspect that India is usually seasonal, especially because of respiratory, India is also maybe having the impact of the import alert. So, what will drive this growth in the second half and that's one of reasonable dates in the second half of FY '22?

[Glenn Saldanha, executive]

We clearly see, I mean, if you assume that we currently have the same run rate, okay, of INR 3,300 crores, INR 3,200 crores a quarter, right? That itself will take you to very close to the guidance, right? I mean what we did in Q2. So, very clearly, outside of that also, we have most of our markets, as Brendan mentioned, U.S. Q3 will be better than Q2. Q4 will be better than Q3. India continues to perform well for us in the second half. Europe is doing well. ROW. So, I think overall, but there will be impact, we think, will hit us in Q4. And even there, given the launches, given all the other things we have going on, we believe Q4 will be strong. So overall, we continue to maintain the overall guidance.

[V. Mani, executive]

And just to add further, the first half looks a little flattish because we had heavy COVID sales in the first half. First quarter was India, second half was ROW and so in the second quarter, second half of the year will be more normal to normal...

[Glenn Saldanha, executive]

And if you strip that out, clearly, we are well ahead of double-digit growth, right, on an overall basis.

[Nikhil Mathur, analyst]

Any royalties from Ryaltris that you are expecting in second half, which will also [indiscernible] numbers in second half, October '23.

[V. Mani, executive]

Sorry, we couldn't get the question.

[Nikhil Mathur, analyst]

Any royalties from Ryaltris are you taking that in second half?

[Glenn Saldanha, executive]

So we don't guide to royalties Nikhil, right. So I think they'll keep coming as we go along, right, depending on markets and depending on as the products get commercialized.

[Nikhil Mathur, analyst]

And on usage of there is a significant amount of cash in the balance sheet. And obviously gross debt is also high. So, why don't repo gross that from that cash? I mean in an interest pricing cycle, especially because your debt is in USD. Wouldn't that help finance cost in the P&L?

[V. Mani, executive]

So just to answer that. So obviously, my cash is slightly lower compared to the last year end. Besides that almost INR 350 crores to INR 400 crores are lying in GLS, so that's a separate listed company that's consolidated along with us, Nikhil. So, those are not something that we use. But in any case, Nikhil, any company of our size with so many locations around, we definitely need some cash with us to manage the day-to-day, how we took care of it. I mean that here and there, 100 or 200 we could manage, but that's about what we can. Besides that we're running so many enterprises across so many geographies, you need some cash. And the collections keep coming in and we some of them remain in the cash.

[Nikhil Mathur, analyst]

And any guidance you can give on the tax rate, it seems to be running high first half. So, if you can help on this.

[V. Mani, executive]

So, if you look at it compared to last quarter, this is better. For the year, we're guiding around a little less than 40%. But going forward, it will come lower as we do well. Cash taxes and also the reason we have been using our bank credit over the last 2 quarters in a good year. So obviously, that doesn't amount to cash tax. On a cash tax basis, our tax rate was about 27%. So, I think in a couple of years, we'll be able to use up our MAT. I mean, so therefore, naturally, we can opt for a lower tax rate. Tax laws allow you to do that, you can -- 25% tax rate. The other thing that would happen is also as we grow and grow our sales, our profitability. And the way we have been quite tight on our R&D spend and especially the innovation side, that should also contribute to improvement in the overall tax rate, that's how it will be.

[Nikhil Mathur, analyst]

So, for '24 and '25 for the timing being will be in 30s, somewhere around that?

[V. Mani, executive]

Sorry, sorry.

[Nikhil Mathur, analyst]

On the book tax rate in FY '24 and '25, it would be around 35% level.

[V. Mani, executive]

Yes, it should be 35% yes, that should be around this level. But cash tax will be still around -- maybe around 26%, 27%. So we're not paying any cash because I have to use the MAT also, right?

[Operator]

[Operator Instructions] The next question is from the line of Sachin Kasera from Svan Investments.

[Sachin Kasera, analyst]

A question for you, Mani, sir, what gives us the confidence in terms of being able to reduce the target for that the full year target? Is it that you're expecting significant correction backlog in the working capital cycle? Or you're expecting the profitability to grow significantly has been to...

[V. Mani, executive]

So obviously, as comes on profit, so we should be able to significantly improve. I mean, if you can see you guided to a higher number in terms of our turnover, that's one part of it. As far as working capital goes, obviously, if the disruptions are not so much and can be improved, as we are seeing still definitely help us to reduce our debt level.

[Sachin Kasera, analyst]

Secondly, would you able to give us some sense, what is the type of impact Monroe is having in overall profitability of the company?

[V. Mani, executive]

So Monroe assets, I mean, obviously, the strategic and all that, but we have not really started any major sales from there. So to that extent, it is not really hit us in that sense. So broadly, that is where we are working. So, maybe if it was there, some opportunities could have been there. But today, it's not there. So, we are waiting remediating that we should be able to start...

[Sachin Kasera, analyst]

I see that it must be held sometime because of the cost that you're incurring, apart from remediation also establishment costs. Is it a large number you have some impact or a small number?

[V. Mani, executive]

So remediation cost, if you recall that last year, we had taken something to our P&L. So, we are seeing how it goes along. Maybe there could be some in the future, something a little bit coming more. But see, this is part and parcel of the business, right? I mean, obviously -- and the cost obviously we will be as careful as possible now that we have -- it's under remediation. But these numbers are baked in with those numbers as well as. And then this is a challenge of running the plant and having some issues. But I think in the long run, it will survive.

[Sachin Kasera, analyst]

And lastly, on the domestic sales to sustain 10%, 15% growth, we are looking at adding next couple of years or you think [indiscernible] next couple of years you can pull through.

[V. Mani, executive]

I think we will continue to expand and grow in India. I mean we give some visibility at the Investor Day on what is the road map, right, for some of these geographies. But clearly, India is a great destination from a growth perspective. So, we will continue to expand into India.

[Operator]

Thank you. Ladies and gentlemen, that is the last question. I would now like to hand the conference over to Mr. Utkarsh Gandhi for closing comments.

[Utkarsh Gandhi, executive]

Thank you, operator. I will read the disclaimer before we end the call. So, the document has been prepared by Glenmark Pharmaceuticals Limited. The information, statement and analysis made in this document describing the company's or its affiliates' objectives, projections and estimates are forward-looking statements. These statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties, which could cause actual outcomes and results to differ materially from these statements depending upon economic conditions, government policies and other incidental factors.

No representation of warranty either expressed or implied is provided in relation to this document and it should not be regarded by recipients as a substitute for the exercise of their own judgement. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information or future events or otherwise.

With that, we would like to end the call today. A big thank you to everyone for joining us on the call.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Glenmark Pharmaceuticals Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.