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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D'souza. Thank you, and over to you, sir.
Thank you, moderator. Welcome to Glenmark's Q3 earnings call. Before we start the call, the review of operations for the quarter ended December 31, 2020. For the third quarter of FY '21, Glenmark's consolidated revenue was at INR 27,867 million, recording an increase of 1.87%. For the third quarter, Glenmark consolidated sales was at INR 27,605 million, recording an increase of 3.88%. For the 9 months ended December 31, Glenmark's consolidated revenue was INR 80,840 million, recording an increase of 2.67%. Glenmark issued $200 million, 4.5% senior notes on August 2016 maturing on 2nd August 2021. These senior notes were redeemable at the option of the company at any time on or after 2nd August 2019 by paying the redemption price subject to fulfillment of certain conditions. The senior notes were listed on the Singapore Stock Exchange. The organization tied up a syndicated loan to refinance the senior notes. In December 2020 and Jan 2021, the company elected to redeem the entire principal amount of the senior notes under optional redemption. The company paid a redemption premium of 101.125% as well as the accrued and unpaid interest, and the notes were delisted. The business of Glenmark Pharmaceuticals Limited, first, the India business. Sales from the formulation business in India for the third quarter was INR 8,821 million, recording growth of 11.82%. The India business continued to significantly outperform industry growth rates, continuing the trend of the past several years. As per IQVIA data, Glenmark remains the second fastest-growing company in the industry among the top 20 players on a MAT December 2020 basis, with growth of 15.8% as compared to IPM growth of 6.12%. On a quarterly basis as per IQVIA, the business recorded growth of 15.11% as compared to 9.75%. In terms of market share, Glenmark India business further strengthened its position in its core therapy areas such as cardiac, diabetes, and respiratory. Glenmark's novel, patent-protected, globally researched SGLT2 inhibitor, Remogliflozin etabonate, indicated for the treatment of type 2 diabetes in adults, continues to do well in India. Glenmark is the first company in the world to launch Remogliflozin, and the response from the KOLs has been positive. As per IQVIA December 2020 data, Glenmark's Remogliflozin ranks first in terms of prescription with Rx market share of 22.8% and fifth in terms of value with market share of 6.4 -- 6.50%. Also as per IQVIA data, the overall Favipiravir market has seen a significant decline in this quarter as compared to the previous quarter. Thus, revenue for FabiFlu in the third quarter dropped substantially as compared to the second quarter. Further, Glenmark became the first company to launch Remogliflozin + Vildagliptin fixed-dose combination at an affordable price for adults with type 2 diabetes in India. The FDC is marketed under 2 brand names, Remo V and Remozen V. With this launch, the company aims to increase patient access to SGLT2 and DPP-4 inhibitors. Glenmark's Remo V and Remozen V is priced around 65% lower than other available SGLT2 and DPP-4 combination brands in India. India Consumer Care business. Glenmark's Consumer Care business continued to perform well in the third quarter of the financial year. Despite the challenging economic environment especially in discretionary consumption categories, the GCC business recorded value sales of INR 265.7 million, registering growth of 29% excluding VWash sales. Candid Powder continues to drive growth for this category, recording value sales growth in excess of 30%. North America business. Glenmark Pharmaceuticals U.S.A registered revenues of sales of finished dose formulation of INR 7,803 million, recording a decline of 2.43%. However, the business recorded quarter-on-quarter growth of 4.4% in USD terms. The North America business registered sales of $101.42 million in the second quarter of the financial year. In the third quarter of FY '21, Glenmark received final approval and launched Sirolimus Tablets and Tacrolimus Capsules. Additionally, final approval was received for Dimethyl Fumarate Delayed-Release Capsules and Tadalafil Tablets, USP. And tentative approvals were received for a number of tablets. The company is on track to file in excess of 15 ANDAs in this financial year. Glenmark recently received final approval from the U.S. FDA for Topiramate Extended-Release Capsules, the generic version of Qudexy. As per MAT December 2020 data, Qudexy Capsules achieved annual sales of approximately $120.8 million. Glenmark launched the product and, as on date, remains the sole generic in the market. Africa, Asia and CIS region. For the third quarter of FY '21, revenue from Africa, Asia and CIS region was INR 3,360 million, recording a decline in revenue of 1.56%. As per IQVIA MAT December '20 data, Glenmark Russia recorded value growth of 3.5%, vis-à -vis overall retail market growth of 10%. In terms of units, the subsidiary witnessed sales decline of 2.6% as compared to overall retail market growth of 0.7% in units. Further, the Russian subsidiary entered into a definitive agreement with Dr. Reddy’s Laboratories to divest its brand Momat Rino for Russia, Kazakhstan and Uzbekistan; Momat Rino Advance for Russia; Momat A for Kazakhstan and Uzbekistan; Glenspray and Glenspray Active for some CIS regions. This divestment is in line with our strategy to launch Ryaltris, our global anti-allergy brand in markets of Russia and other CIS countries. We look forward to strengthening our respiratory franchise in the Russia/CIS region. The challenging conditions continue to persist across other CIS markets. As per Morion MAT December '20, Glenmark Ukraine sales declined 9.3%. The Asian markets continue to remain under pressure due to lockdown on account of the pandemic. The Philippines and the Malaysian units continue to struggle with decline in secondary sales growth that was reported for the quarter. For the quarter, the Africa and the Middle East region recorded growth as number of markets witnessed signs of recovery due to the easing of lockdown measures. Secondary sales growth for the region was in excess of 20%. The growth across MEA markets including Kenya and South Africa units was positive. Europe. Glenmark Europe's operations for the third quarter was at INR 3,133 million, recording growth of 1.42%. Glenmark European business remained weak in the third quarter mainly impacted by the enhanced lockdown measures due to heightened pandemic concerns in most key markets. This resulted in sales decline recorded in both Central Eastern European region and Western European region. Glenmark continues to increase penetration across major markets in Western Europe. For the financial year, the European region signed 12 major contracts for in-licensing products from various companies across its operating markets in the region. Latin America. Glenmark's revenue from Latin American & Caribbean operations was at INR 1,285 million, recording a decline of 17.75%. The pandemic continues to impact the Brazilian business, and the unit once again recorded decline in sales for the quarter as compared to the previous corresponding quarter. The Mexico subsidiary performed relatively better, recording sales growth for the quarter. The entire region continues to witness a challenging environment on account of the pandemic. GPL specialty, innovative R&D pipeline. Ryaltris Nasal Spray is the company's respiratory pipeline asset and is currently under review with the U.S. FDA as a treatment for seasonal allergic rhinitis in the U.S. During the quarter, Glenmark and Menarini entered into an exclusive licensing agreement for commercializing Ryaltris Nasal Spray across numerous markets throughout Europe. The agreement will be effective in 33 countries throughout the European region including France, Italy and Spain. Under the terms of the agreement, Glenmark will be responsible for the development and the regulatory approvals of Ryaltris by relevant European regulatory authorities, while Menarini Group will be responsible for the commercialization of Ryaltris across these markets. Ryaltris sales continues to progress well in Australia after the successful launch in this financial year by Glenmark partner, Seqirus Ltd. During the second quarter, Ryaltris was launched in South Africa. Glenmark is planning to initiate the commercial launch in Ukraine and Uzbekistan in the fourth quarter of this financial year. The company is awaiting regulatory approvals for its filing in various markets across Europe, Canada, Russia, Brazil, Malaysia, Saudi Arabia and several other emerging markets. During the quarter, Glenmark's partner in China, Grand Pharmaceutical (China) Co. Ltd., received feedback from the CDE on the pre-IND meeting application outlining the development and registration strategy for Ryaltris in China. IND submission in China is targeted for mid-2021. Also, a pediatric efficacy supplement was submitted in the TGA in December 2020. Glenmark is working with its partner in South Korea, Yuhan Corporation, to submit the pediatric efficacy supplement in the fourth quarter of this financial year. GBR 310. Glenmark had announced a successful Phase I results for GBR 310 that suggest similarity in pharmacokinetic, pharmacodynamic, safety and immunogenicity profiles between GBR 310 and the reference product, omalizumab, marketed in the U.S. The company is in discussions with potential partners and is targeting to conclude a deal before initiating Phase III studies. GRC 39815, ROR gamma-t inhibitor. GRC 39815 is an NCE currently being evaluated as an inhaled compound for the possible treatment of COPD. The company received an IND approval from the FDA and plans to commence a Phase I first-in-human study shortly. Glenmark Life Sciences Limited. For the third quarter of the financial year, Glenmark Life Sciences registered consolidated revenue including captive sales of INR 5,006 million, recording growth of 22.35%. For the first 9 months of the financial year, Glenmark Life Sciences consolidated revenue including captive sales was at INR 14,185 million, recording growth of 27.52%. The EBITDA margin for Glenmark Life Sciences was at 29.78% for the first 9 months of this financial year. For the third quarter of FY 2021, external sales of Glenmark Life Sciences was at INR 3,200.70 million, recording growth of 22.09%. The external sales for the API business performed well in the third quarter, recording strong growth. The India API business grew over 50%, and the Lat Am business grew in excess of 30% in the third quarter. During the quarter, GLS submitted 9 new DMFs across various operating markets. The company is looking to file at least 10 to 12 DMFs in the fourth quarter of the financial year. Ichnos Sciences. For the third quarter of the financial year, Glenmark invested INR 1,713 million, USD 23.3 million, as compared to INR 2,108 million, USD 30.01 million, invested in the corresponding quarter of the previous financial year. For the first 9 months of the current financial year, Glenmark invested INR 5,693 million, USD 76.26 million, as compared to INR 5,943 million, USD 85.03 million, invested in the corresponding period of the previous financial year. For further update on the pipeline, please log on to www.ichnossciences.com. I would like to hand over the floor to Ravi Agrawal, who will now lead Investor Relations at Glenmark. Thank you.
Thank you, Jason. Good morning to all, and welcome to Glenmark's 3Q FY '21 Call. Some notes before we open for Q&A. The ForEx loss for the third quarter was INR 53 crores, which is recorded in other expenditure. Thus, the EBITDA for the operating business was in INR 583 crores after adding back the ForEx loss. The net ForEx loss for the 9-month period ending December 31, 2020, was INR 70 crores and presented in other expenditure. The gross debt for the period ending December 31, 2020, was at INR 4,690 crores as compared to INR 4,869 crores as of March 31, 2020. This is lower by INR 179 crores during the period. The net debt for the period ending December 31, 2020, was at INR 3,641 crores as compared to INR 3,758 crores as of March 31, 2020. This is lower by INR 117 crores during the period. Inventory for the period ending December 31, 2020, was at INR 2,292 crores as compared to INR 2,202 crores as of September 30, 2020. Receivables for the period ending December 31, 2020, was at INR 2,598 crores as compared to INR 2,648 crores as of September 30, 2020. Payables for the period ending December 31, 2020, was at INR 2,103 crores as compared to INR 2,167 crores as of September 30, 2020. The total addition -- asset addition was at INR 138 crores in the third quarter and at INR 528 crores for the 9-month period ending December 31, 2020. Of this, the tangible asset addition for the quarter was INR 83 crores and INR 285 crores for the 9-month period ending December 31, 2020. The total R&D for the third quarter was INR 298 crores, which was 10.7% to net sales for the third quarter. And for the 9-month period, the total R&D was at INR 917 crores, which was 11.3% to net sales for the 9 months for this period. For Ichnos Sciences, the R&D expenditure for the third quarter was INR 171 crores. And for the 9-month period, it was INR 569 crores. Before we open the floor for Q&A, I would like to introduce the members of Glenmark management present for the call. We have Mr. Glenn Saldanha, Chairman and Managing Director, Glenmark Pharmaceuticals; Mr. V. S. Mani, Executive Director and CFO of Glenmark Pharmaceuticals; and Mr. Robert Crockart, Chief Commercial Officer, Glenmark Pharmaceuticals Limited. With that, we would like to open the floor for Q&A. Over to you, moderator.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
First question is on Ichnos, that there is an update on the possible monetization which you were planning, if you could highlight that.
Sure. So Prakash, we are still working on the capital raise as we speak. In addition, we have several partnering discussions with various companies to partner out some of the Ichnos portfolio. So I think between these 2, we feel pretty confident that we will close something in the near future.
So we should expect by end of this fiscal? Or it can slip to next fiscal?
I can't give you a definitive time line, but we will close something pretty quickly.
Okay. Could be molecule-wise or the company level?
Absolutely.
Okay. Okay. And secondly, some color on the U.S. markets. So what we understand from other -- your peers that the volume tailwind and the pricing tailwind which came in the first half of the year is now normalizing. How do we see as a company our U.S. business shaping up given things have already normalized and we have not benefited in the first half because of these 2?
So this is Robert. Thank you for the question. I think first of all, if you look at the third quarter, we've got the opportunity to launch quite a few new products when you're looking at Sirolimus and Tacrolimus. And we've also had the opportunity of having our results for Pimecrolimus on a full quarter basis. So we've already seen some momentum gained with these new products. And I think in particularly looking at the current quarter, we've just recently had the opportunity to get approval on Solife, Topiramate and Clinda and also antihistamine. So we are quite optimistic with all the new products coming through, and we're going to see some good positive gains in the U.S. business going forward. And this should set us up really strongly for the start of the new year.
Is there any guidance to fiscal '22 growth or very rough question estimate?
Yes. Well, I mean we believe that we should expect growth in the region of around 10%.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Glenn, on the India business, is FabiFlu still a reasonable contributor to the business at the current days or for the quarter? Or this essentially now a nonrecurring business, non-COVID business effectively?
So Nitin, if you don't mind me jumping in here, I think quarter 3, we've seen a dramatic drop in FabiFlu. So everything -- the majority of what you've seen has actually come from our base business, and this will continue into this current quarter. So we're still quite optimistic that even with some of the challenges we've had in respi and derma, we're even going to see a recovery in that, which should set us again up really well for the closing and the start in the new year.
Okay. That's great. And secondly, on the other non-India, non-U.S. geographies, now looking at the next few quarters in these businesses, if you -- Latin America, ROW as well as Europe, I mean, what should we -- how should we maybe look at how this business is scaling us now going forward given that probably the peak of the pandemic is behind us and those are behind us.
No, you're right, Nitin, you're spot on. I mean we really had some challenges with regards to the pandemic. It's impacted us across all of these regions. I mean even as we speak, several of these markets are still in total lockdown. So -- but however, when we're looking at markets like Middle East and Africa, we've seen some good, positive gains in quarter 3 and also expecting in quarter 4 some good results. Asia has been dramatically impacted, right? And I think, as you know, many of those markets are still in full lockdown. And then again, I think when you look at the EU, there's some key markets like Germany, U.K., even in the Central Eastern European markets that are still in lockdown. So as we speak, still there's impact. We expect still further impact in this quarter. But we believe, as we all know, that this is going to show a strong recovery pretty much probably more from quarter 1 next year, so we just kind of got to go through this period.
Okay. And I guess a couple of questions on the balance sheet. So you have a pretty remarkable improvement on the cost side. We had -- so we saw the fourth quarter earnings where we've seen Q-o-Q and Y-o-Y reduction in other expenses. Is this where -- have you sort of pretty much maxed out our cost containment out here or there's still opportunities to take cost out further in this business in this -- in the cost base?
So what I would like to guide you to is that we're seeing an EBITDA margin in this quarter at least higher than 20%. But what we'd like to guide is that going forward, we're seeing a 19% to 20% EBITDA margin, okay? So I think in that sense, we'll try and ensure that, overall, we manage an EBITDA of about 19% to 20%.
And that is the guidance for what, for FY '22? Or this is...
Yes, FY '22, yes.
But if you take it slightly long term, say, 2 to 3-year period, how should I look at the EBITDA trending now going forward?
I think going forward also, we look at some -- I mean we have had a lot of -- in a way, we've been working very hard to ensure on all fronts, be it in improvement in our gross contributions, bet in some of the expenses. But obviously, some were very low during the pandemic, so some of them may go up a little bit. But on an overall basis, I look at it that we should track towards these numbers at least for the foreseeable future, yes.
Okay. And then in the quarter, we had a reasonably sharp increase in gross margin. Is there any particular core segment contributing meaningfully? Or...
Yes. No, I'll tell you it's not a particular segment as I see -- I mean just adding to what Robert's commentary was, that if there are certain markets that have a higher proportion of GCs. Their growth was much better, like India, Russia, et cetera, some of these. And some of the new launches also had a better margin. So overall, the mix came to -- and we have a GC, a gross contribution of almost 67%. I mean I would like to guide that we will be somewhere around -- historically also, we've been between 67% and 65%. It should be somewhere in between closer to 66%, yes.
Okay. And then last one, Mani, on -- so on the ForEx loss that you've had this quarter, this is what, largely translation losses of the subsidiary?
Yes, largely translation losses, yes. You have debtors which get reclassified, yes, mainly.
And this typically happens when the dollar weakens?
When the dollar appreciates actually. When the dollar appreciates, your debtors go down, right, your overseas debtors also -- they also play a role, yes.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just first one on the Remo + Vilda, the launch of the FDC, and you've initiated the pricing as well, price adjustment. Sir, I just want to understand what is the initial response. And what is also the competitive dynamics? Are there other players who are lining up? If you can help us understand it.
Sorry, I didn't quite get that question clearly.
Robert, let me take it. So I think, Shyam, the Remo/Vilda launch is a very strong launch for us. And our main competitors are other SGLT2 with DPP-4s which are priced almost 3x -- 2 to 3x higher than us. So we see a good opportunity to penetrate this market and to further drive share in this market.
And just curious, we have been in this market now through different drugs, so just want to understand how large can this entire franchise see if I look at it for Glenmark.
So Remo, we think, can be a 150 crores, 200 crores franchise for us in the next 3 years, 2 to 3 years.
Got it. And you're including the FDC in there? Or...
Including FDC. Including the FDC.
Okay. And what are we analyzing now, just to understand?
Probably like 100-odd crores.
Okay. Got it. Got it. Good. And the second question is on the API business. Just in terms of the 9-month margin, did I get it right, it's about 29%, at least in the NBE. So what is the nature of the products? It seems to be -- and the growth in both India and Africa business is pretty high. So from a capacity standpoint, we are seeing a lot of the peers increase capacity for API businesses. Just want to understand the general outlook for the API business.
I think -- so I think API will continue to see strong growth for the next couple of years at least, right, given the tailwind that we have seen and because of people shifting from Chinese APIs to Indian APIs. And that is really driving and also backward integration further into some of these APIs. So we think the next 2, 3 years, the growth will continue to remain strong in the segment. In terms of capacities, we keep building capacities, adding capacities. And I think that trend we will continue for the next few years to come because we see a great opportunity to scale this business and both in APIs as well as CDMOs.
Got it. Glenn, last question is on the capital allocation. Just trying to understand, we have divested certain assets in Russia, and I think you're also talking about Ryaltris launch there. So -- and it seems to be similar, the respiratory side, as it looks. Trying to understand what is the need to do the first ones and how does it enable the second one.
I think strategically, we divested certain assets and because of conflicting brands and conflicting areas. So the Russian divestment was purely because we have Ryaltris launching, which is exactly in the same space. So it made sense for us to divest Momat Rino and Momat Rino Advance. I think most of our divestments are pretty much done now. As far as Ryaltris, Ryaltris for us is a global brand. So as Robert mentioned, we have launches in the -- in Europe coming up next year, in the U.S. coming up next year, russia/CIS coming up next year, and various other markets, some on our own, some with partners. So I think it will be a very exciting brand for us starting FY '22.
The next question is from the line of Girish Bakhru from Bank of America.
Actually just the previous question on Remo, with the launch of Dapagliflozin, are you expecting some sort of cannibalization in this market?
Well, clearly, there is some slowdown in Remo because of the Dapa launch. But I think given our line extensions, both Remo/Vilda, we have one more line extension, which is Remo/Teneligliptin coming up. I think this is what will differentiate us from some of the other segments, including Dapa.
Thinking Dapa, will the combination will also come? Is that something that you can share something on?
So far, there is no combination for Dapa. So I think someone will have to do the clinical trials to launch the combo.
Okay. Okay. That's helpful. And on the R&D side, I know you have been kind of controlling that, and there has been some decline in the Ichnos contribution as well. But on the generic side, if you could throw some color, what assets are you focusing on now? And how is the R&D coming down?
I think on the generic R&D, we don't see a decline in spend. We will continue to sustain or grow from here, right? I think Ichnos spends are coming down Y-o-Y. But on the generic side, we continue to invest. I think we have some exciting launches coming up and exciting areas that we're working in, areas like nebulizers, areas like injectables, we have some complex injectables. A lot of our Monroe launches will come up. Next year, we'll add 5, 6 launches out of the Monroe facility. And then we have some other areas, which I can't talk about, which we're investing in, in terms of growing our franchise, right? Respiratory, of course, as you know, we have a great franchise in Europe. And we continue building our global respiratory franchise in various markets, including the developed markets. I think these are some of the areas where we continue investing.
Okay. And just last one on the Ichnos side. I know you gave some color on, I mean, when we can probably see a capital raise. But had positioning of certain assets become more clear with these discussions that you have been having over the last couple of months? Where do you see -- and I know you had mentioned on the update on ISB 1302 and, let's say, more clinical assets moving in Phase III and some in Phase II. I mean where do you see the positioning is really strong for you?
So I think, look, Ichnos' biggest strength is its platform, right? So we have a platform technology, which is a big platform, right, which can keep churning out bispecific, trispecific antibodies in oncology. And that is the key area Ichnos wants to focus on going forward. We want to partner out our immunology franchise. So clearly, 830 and 880 will get partnered out going forward and pain asset 17536. So I think the primary focus over the next few years will be the BEAT technology and the bispecific, trispecifics. Within that, of course, you have 1342. We are in advanced Phase Ib in the dose-range finding. We have 1442, which is pretty advanced and very exciting compound. And there's a bunch of other oncology compounds which we are using the platform, which we are further developing both bispecifics and trispecifics. So I think from an investment perspective, we think it's a great investment because, frankly, the works we're doing is world-class and competes with some of the best technologies globally in oncology.
And is there a potential to take some of these assets to China even though they are in the clinical stage? Understand many out-licensing deals in China happening only when the product is in the final stage. But can you like take Phase IIb assets to China?
So Girish, I'm not sure about the specific Chinese strategy per se, right? I mean it's possible to take all these assets. If you see 1302, we have done a deal with a Chinese company, Harbour BioMed. So we are partnered in China also. But I can't give you any specifics on what is the product strategy for China.
The next question is from the line of Saion Mukherjee from Nomura.
Glenn, you mentioned on Ichnos a capital raise or a partnering pretty quickly. So I'm just trying to understand like what's the time line we are looking at. Do you have an offer in hand already based on the discussions on capital raise that you had? And when you're talking about partnering, is it about the platform that you mentioned or specific products? I just want to understand what's your expectation on cash flows from all that, that you expect to happen at Ichnos over the next whatever time frame you are indicating.
So I think the way to think about it, Saion, is next year, we'll definitely have cash flows coming out of Ichnos, right, either through partnering or through capital raise, FY '22. That's the maximum visibility I can give you. On partnering, we have several discussions ongoing, right, as we speak. And likewise, on the capital raise, we have several ongoing discussions. I can't give you anything more definitive in terms of time and how quickly we can conclude some of these.
And I mean if you have a partnering discussion, does it make sense for you to do capital raise after you partner out an asset where some value gets created? Or you think it can -- even a capital raise can happen before partnership?
I think the 2 are mutually exclusive processes, okay? So we can -- we will continue down both the parts, and we can run both in parallel.
But do you have a quantum in mind, Glenn, as to how much of monetization you are looking at? Or even when you're doing these discussions for capital raise, is there a valuation that you have in mind? And is there a big gap between what you expect and what is being offered? Can you just throw some light here because this process is going on for some time now?
So the process has been going on for the last 3 or 4 months, Saion, right? So I don't think that's a long time. We have some idea on both these topics, Saion, on valuations and various things that we're looking at. But I can't give you any visibility right now.
Okay. And just, Mani, sir, one question on the cash flows. So if I look at your debt reduction for the 9 months is just INR 117 crores. And this year has been a very good year in terms of the FabiFlu opportunity and the cost initiatives that you have talked about. So with INR 1,600 crores of EBITDA generated over the 9 months, you had 2 reasonably large transactions, VWash and Dr. Reddy's. And based on the public information, this would have generated at least INR 400 crores. So we have INR 2,000 crores. So even if I take out interest, taxes, there's not much of working capital and CapEx, it should have generated a lot more -- or should have led to a lot more reduction in net debt. So we haven't seen that. So can you just take us through the cash flow statement for 9 months, please?
Yes, yes, absolutely, Saion. We had earlier reported EBITDA about INR 1,600 crores. We had an interest -- cash interest of almost INR 210 crores or INR 211 crores. And then we have a cash tax of INR 335 crores. Also, there were some increases in the working capital because of basically our -- some increase in inventory and debt, so it's about INR 300-plus crores. We have an asset addition for the 9 months almost INR 530 crores. We paid dividend out in this quarter. So -- and also, there were expenses and inventories that went along with some of these assets. So on a net basis, yes, there is a reduction. But I think going forward, in the next quarter, we would definitely see an improvement in our cash flow. So I think I can guide you to saying at the end of the year, we should have about INR 200 crore to INR 300 crore reduction in the net debt.
But what is the cash inflow from the VWash and the brand that you sold in Russia to Dr. Reddy's?
Yes, those were not -- at least one of the transaction was not even there, so we couldn't say about that. So I can't separately say that to you.
Sorry, sir, you said this...
I said, definitely, these transactions are not reported. And I mean as per partnering, we are not supposed to mention these, so I have not mentioned that.
So -- but what you said, these numbers are large, right? I mean you had...
Yes, yes, but -- then I have baked in all these numbers, Saion, and have obviously used that money for some of the expenses, some of the -- there were people along with some of these transactions. A multiple number of things have happened. So net of that, I have reported around stand-alone INR 70 crores plus net income. So all that is there. In fact, it's baked into it.
And sir, last question, if I can. Just on these divestment strategies that you have, so you were saying that we are done with most of the disinvestments. Sorry...
Yes, Saion, we are done with all the divestments, and I don't think there's going to be anything anymore and even whatever we spoke of somewhere strategic in nature, so we don't have anything anymore.
[Operator Instructions] The next question is from the line of Neha Manpuria from JPMorgan.
Glenn, on Ichnos, is the partnering or fundraise based on any outcome for -- or any data readout for our molecule?
So obviously, Neha, the valuation will be linked to the data readout at least of 1442, right, which should come up near term. So I mean it's not -- the fundraise is not dependent on that. But obviously, the valuation will change if you get 1342 data, right?
So what I mean is the 1342 data which is going to come out, let's say if you don't have a successful readout, does that delay the entire fundraise?
No, we don't think so because there's a lot of -- there are multiple assets in Ichnos, right, which will drive the success of both the fundraise and partnering.
Okay. So irrespective of readout, we expect some monetization to happen in Ichnos. Is that the right way to look at it?
Correct.
Okay. And in case of partnering, sir, in the U.S., I know you mentioned that it is under review with the U.S. FDA, but could you give us a little more color as to where it is? And when you mentioned this is an FY '22 launch, will this be back-end weighted? Or any color there would be helpful.
Yes, I'll take this. So yes, it is indeed under review. And our expectation is actually in the second half of next year, we'll be working through our partner hit mark.
And just to be clear, on approval, we do have milestone linked with Ryaltris, right? Or is it only on launch of the product?
That's correct. So we have milestones even on approval, Neha.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
First of all, Jason, thanks a lot for all your help all these years. And welcome, Ravi. I have 2 or 3 questions. Glenn, what's the expectation from Sole? When do you think you can -- I know you're looking for a partner, but when do you think you can complete Phase III and the file would be ready for submission?
So Sameer, we will not move Sole on our own. We are currently in discussions with partners to take it forward. So until we close a partnership, we will not invest in the Phase III.
No, fair enough. So assuming it takes 6 to 9 months to get a partner and about 2 years to Phase III, I would say, 2.5 years plus for the Sole filing? Is that the way-forward time line?
I think that's fair.
Okay, great. And second question is on Topiramate Extended-Release. Do you expect competition anytime in the foreseeable future?
We don't think there'll be a competitor any time soon.
Okay. Excellent. And finally, on Ichnos, I know enough has been talked about on this call. Just on -- I think you are quite often saying that you have a better deal done end of 2020. So the question here is what is the key bottleneck to get this deal done? Is the deal -- meeting of mind on valuations or something else, if you could share your thoughts.
So Sameer, I can't give too much visibility, right, other than the fact that the capital raise will get done. It's only a matter of time. And the partnering will get done, right? And we are saying, in FY '22, you will see some color on either of these activities or maybe both, right? That's the only visibility I can give you.
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.
My question is on the U.S. business. So can you provide us update on the pricing situation in your derma as well as non-derma portfolio at present? And how do you see going it forward?
On the pricing as we see, it's pretty much normalizing, right? And it's operating probably at a year-on-year single-digit erosion of around 4%, 4% to 5%. And however, I think as you've heard, there's quite a few new approvals that's coming through, and we are quite optimistic in terms of this compensating that erosion. So that's pretty much the current status, yes.
Okay. So if you go to 5% year-on-year price erosion, it's for the entire portfolio, right? So I was asking for a bit more clarity. Like derma was a bit of a drag for us. So any improvement there?
No, it's -- honestly, it's pretty much in that range. It is the biggest part of our portfolio as well. It's one -- part of our biggest portfolio, but it has pretty much that average as well.
Sure. And my second question is on progress on the Monroe supplies. Like how has been the progress there at present? And gross percentage of Monroe costs are right now reflected in P&L?
Yes. As of now, I mean the Monroe costs, basically, our OSDs are reflected into the cost. I mean the -- largely the injectables and the nebulizers will start somewhere later in this year or next year.
Supplies we have the -- yes, go ahead.
No, I was just clarifying on the cost. So around 50% cost on the OSD side are in P&L, and nebulizers and other opportunities will...
Out of the total cost, maybe about -- already, it is in here.
And on supplies update?
The supplies, we have 2, 3 products which we are selling in the market now out of Monroe. For next year, you'll see the full impact of Monroe in terms of supplies, FY '21.
Okay. And my last question is on clarity on the debt reduction part. So Mani, did you mention, for this year, we are looking for INR 200 crores to INR 300 crores of debt reduction or it's for the next year?
No, no, that is for the current year. Next year could be higher, okay?
It could be higher in next year?
Yes, yes, yes. Sure.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
So just a clarification on other expenses given that the competition is coming back on the domestic formulation side and we'll be having ongoing R&D spend. So during 3Q FY '20, we have the other expenses to the tune of INR 460 crores. And now we are at INR 400 crores. So how much of it can sustain? And how much can come back because of the competition?
I think now you're looking at the standalone, better to -- would be to look at the consolidated. I mean when you look at the -- I mean, that's across all markets. So it's a little lower than last year. But I think even if it picks up a little bit, we are prepared for that, yes.
Even considering the other expenses moving up, you should be able to maintain 19% to 20%?
We should be maintaining -- able to maintain 19% to 20%. We are confident of that.
[Operator Instructions] The next question is from the line of Vikas Sharda from NTAsset.
Just wanted to clarify on the other revenues part. I mean this quarter is down sharply. I guess part of it is because of ForEx gains turning into losses. But now the export incentives are also reduced for the sector, so how much of the impact are you having from this export incentives? And how would that impact your margins going forward?
See, the export -- I mean if you recollect the government had withdrawn the MEIS scheme from September until December, okay? So that would have been about INR 20-plus crores, okay? And obviously, the government has come up with a new scheme called RoDTEP. So that would be, I would assume, at least half or a little more than that. So really difficult to say how it will impact our margin going forward. We'll have to see. They're yet to announce some rates, et cetera, for RoDTEP. For the current quarter, it was at least INR 20 crores lesser, okay?
Got it.
Only MEIS scheme. The duty drop is continuing, okay? So there are a couple of schemes the government gives the exporter. So only MEIS is what they have withdrawn. The duty drop still continues.
But overall, that -- then you mean that under the RoDTEP, you could have like INR 40 crore less on a full year basis for next 3 years?
Maybe INR 40 crores, INR 30 crores, I don't know. I don't have the scheme of the rates coming out as yet. I think people are awaiting that, yes. So probably by the next call, we can give a better visibility on that.
The next question is from the line of Harith Ahamed from Spark Capital.
Firstly, on ISB 830 and your out-licensing efforts there, so you have initiated the out-licensing efforts for this a couple of years back as well. So for my question is how far are we in our discussions this time around especially given some of the secondary endpoints, next trials on this space, atopic dermatitis space has become much more competitive than a couple of years back. So how confident are we of closing a deal on this asset?
I mean I can't give you a specific on this asset, but I think across the portfolio, we are pretty confident we'll have -- you'll see some deal flows, right, or one or more assets across the board.
Okay. And a follow-up to your comments on the BEAT platform. So is it a correct assumption to make that the platform is a bigger value driver for Ichnos than the individual assets there? Because when we look at most of the assets, it's there in early stages, either in Phase I or early Phase II. So any takeaway from your discussions with potential investors regarding what is -- what are the bigger value driver there?
The platform is clearly the value driver, right, for Ichnos, right? It's not any individual asset, it's the ability to keep generating multiple assets out of the same platform, which is the driver for -- the biggest value driver for Ichnos.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Glenn, on our CapEx, I think a good chunk of the CapEx is coming from the intangible additions. I presume a lot of it is for the Europe in-licensing that we keep doing. Now as a business, I mean, Europe is now a reasonable-sized business. How long does this thing go on in terms of our imperative to keep sort of spending money on buying these assets?
So Nitin, if you see, the intangible addition has come down substantially in this quarter. And I think going forward, it will keep coming down. So we have actually taken a pause, right, on the in-licensing. I mean we've done a number of good deals, right? So we have tio DPI. We have multiple good product launches coming up through in-licensing in FY '22. But I think the CapEx intensity, the intangible CapEx intensity will come down from here on.
Okay. If I could just follow up a bit just there, should we see our CapEx now offset FY '22 or whatever broad number will you guide us to?
About 600 to 650.
Okay, which is probably the lowest you've done in a while?
Yes, absolutely. And currently are also much lower than last year, yes.
And this is where you should sort of sustain now going forward?
Yes, I think so, around these levels, yes.
Okay. And secondly, on the cash tax rate, so we're still having a fairly high cash tax rate. What is your perspective on how this changes sort of going forward or how this moves going forward?
Look, I mean whatever you see as tax going forward, not all of it we will see as cash tax because we'll start using our MAT credit also. So maybe if you look at the overall tax, most of it is paid in the stand-alone level, okay? I mean there, the tax rates are lower. So obviously, on an overall basis, if you look at it as I go along, and MAT will be used. So I think it's around maybe MAT is around 30%, 31%, not more than that, yes.
That is the cash tax rate?
Yes. Yes. I mean one thing in MAT, right, whatever MAT credit you have, you use it going forward, okay? Next 3, 4 years.
And how will the ETR look like then? Is it at a range of 31% tax rate?
It will be around these levels, not more than that. Maybe 1% or 2% up and down, that's what I see, Nitin, at least for the next 1 to 2 years. Then we'll see how things come on. But our government has withdrawn some of the benefits on R&D, et cetera, et cetera. So all companies are seeing it works.
But we don't have an option to go into the lower tax rate of 25% or thereabout?
No, I have MAT, right? I'll use up my MAT first because I don't pay cash, right? You use the MAT first and then go to the lower tax rate, yes.
Okay. And so is it fair to say a larger cash tax rate are because of the R&D spend which are there, because of which the overall...
Yes, I mean it looks a little higher because of the R&D spends we have outside. Otherwise, on a stand-alone basis, if you look at it, it is hardly 21%.
Got it. And lastly, on the interest costs, how should that sort of trend going forward?
In this quarter, we did about INR 95 crores, out of which INR 15 crores was actually I made a prepayment of the senior notes. So broadly, around INR 80 crore is where I see it, yes, INR 80 crores, INR 85 crores.
Ladies gentlemen, we'll take the last question from the line of Krish Mehta from Enam Holdings.
I just wanted to like confirm more about Ichnos. I just wanted to know like the Q4 will not see any licensing deals for any of the assets in the portfolio, right?
No, that's not what I said, Krish. I mean we could have deals coming even earlier. I said we've given ourselves until FY '22 to get both the capital raise and partnerships done.
Okay. So we could potentially see something in Q4 as well?
There's always a possibility.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Ravi Agrawal for closing comments.
Yes. Thank you, moderator. I will just read the disclaimer before we end. The information statement and analysis made during this call describing the company's objectives, projections 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 recessed or implied, is provided in relation to this presentation. This presentation shouldn't be regarded by recipients as a substitute for the exercise of their own judgment. With this, we end Glenmark's Q3 earnings call.
Yes, so this is Mani here. There is an investor relations update. We would like to inform you that Jason D'souza would be leaving the organization, and Ravi Agrawal would now take charge of the investor relations function. We would like to thank Jason for his long-standing services to the company. Thank you.
Thank you, everyone.
Thank you very much, sir. Ladies and gentlemen, on behalf of Glenmark Pharmaceuticals Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.