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Ladies and gentlemen, good day, and welcome to the Q3 FY '22 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. Ravi Agrawal, Head of Investor Relations, Glenmark Pharmaceuticals Limited. Thank you, and over to you, sir.
Yes. Thank you so much. A warm good morning to everyone, and welcome to our Q3 FY '22 results conference call of Glenmark Pharmaceuticals Limited. Before we start the call, a review of operations of the company for the third quarter. For the third quarter FY '22, Glenmark's consolidated revenue was at INR 31,734 million as against INR 27,868 million, recording an increase of 13.9% year-on-year. For the 9 months ending 31 December, 2021, Glenmark's consolidated revenue was at INR 92,858 million as against INR 80,840 million, recording an increase of 14.9% year-on-year. Some key highlights before we get into the businesses. Glenmark was listed in the prestigious Dow Jones Sustainability Index for the fourth consecutive year. The company is amongst only 15 companies from India to be listed on the DJSI Emerging Markets Index this year. This inclusion is a validation of the company's commitment to sustainability and ESG principles, and we reiterate our consistent performance across all sustainability indicators. A detailed ESG profile of the company is available under the Investors section on our website. Glenmark was selected for the production-linked incentive scheme aimed at improving India's manufacturing capabilities and enhancing exports. Glenmark is one of the 11 companies under Group A selected for the scheme. On to the business. First, the India business. Sales from the formulation business in India in third quarter FY '22 was at INR 10,069 million as against INR 8,821 million in the previous corresponding quarter, recording a growth of 14.2% year-on-year and 3.9% quarter-on-quarter. As for October, December 21 IQVIA data, the non-COVID-based portfolio grew 15.5% as compared to the non-COVID IPM growth of 11.7% during the quarter. The India business continues to outperform the industry growth and has grown consistently over the past several years. Glenmark is one of the fastest-growing companies amongst the top 20 companies on MAT December 2021 basis. As for IQVIA MAT December '21 data, Glenmark's India businesses recorded growth of 23.9% compared to IPM growth of 16.9%. The company increased its market ranking to 13 from 14 with market share of 2.4% as compared to 2.34% last year. As for IQVIA and MAT December '21, Glenmark's India business further strengthens its core position and its core therapy areas in respiratory, with market share increasing to 5.36% as compared to 5.11% in Q3 last year. Similarly, market share in cardiology has increased to 4.86% as compared to 4.74% last year. Glenmark is now ranked fifth in cardiology from sixth earlier and has retained its rankings of second in dermatology and fourth in respiratory market in India during the quarter. The company launched 8 new products during the quarter. Amongst key launches during this quarter, the company launched the first triple combination of remogliflozin, vildagliptin and metformin in diabetes under the brand name Remo MV and Remozen MV. In addition, the company also launched the only ultra Laba and ICS combination in India with once-a-day dosing schedule in vilanterol and fluticasone capsules for the treatment of COPD under the brand name VILOR F. The company recently received manufacturing and marketing approval for nitric oxide nasal spray in India as the part of the accelerated approval process for treatment of adult patients with COVID-19 who have high risk of progression of the disease. Phase III trials in India demonstrated reduction in viral load of 94% in 24 hours and 99% in 48 hours. And the product was safe and well tolerated in COVID-19 patients. The product has been launched in India under the Glenmark brand name of FabiSpray. The Consumer Care business. GCC business recorded revenues of INR 358 million in the third quarter. New launches like Candid Cream and La Shield delivered strong robust growth during the quarter. Secondary sales in Candid Cream grew 32% year-on-year, while La Shield recorded secondary sales growth of 89% year-on-year. Candid product continues to maintain its dominant market leadership status with a market share of 63.4% in the current financial year. Coming to North America. North America registered revenue from the sale of finished dosage formulation of INR 7,567 million, which is USD 101 million for the quarter ending December 31, 2021, as against revenue of INR 7,804 million for the previous corresponding quarter, recording a degrowth of 3% year-on-year and a growth of 1% quarter-on-quarter. In the third quarter of this -- of FY '22, Glenmark launched Abiraterone Acetate tablets 250 mg and Clindamycin and Benzoyl Peroxide Gel. The company filed 13 ANDA applications with the FDA, including 4 from Monroe in 9 months FY '22 and is on track to file around 18 to 20 ANDAs in this financial year, including 4 or 5 filings from Monroe. In Jan '22, the company received U.S. FDA approval for its first NDA product Ryaltris, highlighting the company's commitment to innovation to create breakthrough therapies and promising treatments for the benefits of patients. Ryaltris will be marketed in the U.S. through our partner Hikma. Glenmark's current marketing portfolio for December 31, 2021, in the U.S. consists of 172 generic products authorized for distribution. So company currently has 47 application pending in various stages of the approval process with the FDA, of which 20 are Para IV applications. Coming to Europe. Glenmark's Europe operations revenues for the third quarter FY '22 was at INR 3,807 million, which is USD 51 million, as against INR 3,133 million, recording growth of 21.5% year-on-year and 13.3% quarter-on-quarter. The company witnessed healthy growth in both these key markets of Western Europe and Central Eastern Europe during the quarter. Despite continued COVID restrictions in some countries like Germany, overall growth in Western Europe was strong, led by double-digit growth in markets like U.K. and Netherlands. In the Central Eastern European region, growth momentum continued across all key markets. The European regions have signed 9 contracts for in-licensing products in the current financial year. In line with the company's global focus on the Respiratory segment, the company further launched Tiotropium Dry Powder Inhaler in Germany, Denmark and Sweden during the quarter, making a total of 7 countries in Europe where the company has launched the product. Further, the company launched Ryaltris in U.K., Poland and in the Czech Republic in the quarter, and the response has been encouraging. The company has detailed plans to launch both products in multiple other markets in Europe, both with our own front end and with partners in the coming quarters. Coming to ROW, which consists of RCIS, Asia and EMEA regions. For the third quarter of FY '22, revenues from ROW was at INR 4,178 million as against INR 3, 360 million for the previous corresponding quarter, recording a growth of 24.3% year-on-year. The company witnessed healthy growth in base business in the region across all its key geographical segments. Growth momentum continued in Russia and across CIS markets. Secondary sales grew 12% year-on-year and 66% year-on-year in value terms in Russia and Ukraine, respectively. As for IQVIA, Russia segment grew 20.8% in value terms as compared to retail market growth of 10.7% in Q3. The overall response to Ryaltris and Ryaltris Mono has been very encouraging in this market. Secondary, sales in Asia grew 22% year-on-year, led by positive momentum in key markets like Vietnam, Malaysia and Philippines. Glenmark's first global specialty brand Ryaltris was launched in Philippines during the quarter. The company plans to commercialize FabiSpray in the region from Q4 FY '22 under the name of VirX. The Middle East and Africa region recorded strong growth with secondary sales growth of -- growing by 24% year-on-year during the current financial year. The growth across all the major MEA markets, including Kenya and South Africa, was positive. Latin America -- revenues from Latin America was at INR 1,170 million for the third quarter of FY '22 as against INR 1,286 million, recording revenue decline of 9% year-on-year. The business has been impacted by Brazil, where the market remains challenging for the company due to the pandemic. Glenmark Pharma specialty and innovation R&D pipeline, Ryaltris. In January 2022, Ryaltris Nasal Spray received FDA approval in the U.S. for the treatment of symptoms of seasonal allergic rhinitis in adult and patients 12 years of age and older. During the third quarter, Glenmark also received approvals in Myanmar and Kenya. The companies are waiting regulatory approvals for its filing in Canada, Brazil, Malaysia and several other emerging markets. Ryaltris sales continue to grow in Australia, Czech Republic, Poland, Russia, South Africa, Ukraine, the United Kingdom and Uzbekistan. Glenmark initiated the commercial launch in Philippines in Q3 and plans to launch in Peru and Ecuador in Q4. Menarini, Glenmark's partner in select EU markets, is targeting launch in key markets starting Q4 FY '22. GBR 310. Glenmark has announced successful Phase I results for GBR 310 that suggested similarity in n pharmacokinetic, pharmacodynamic, safety and immunogenicity profiles between GBR 310 under the reference product, omalizumab, marketed in the U.S. under the brand name Xolair. GRC 39815 is the company's respiratory pipeline as its been developed as an inhaled therapy for treatment of mild-to-moderate COPD. This is currently in the Phase I clinical development with a single ascending dose study in the U.S. GRC 17536 is the company's same pipeline asset being developed as an orally administered treatment for pain in patients with painful diabetic peripheral neuropathy. The Phase IIb study was initiated in Q2 FY '22 and is currently ongoing in India with 128 patients randomized fill date. GLP toxicology studies for metabolite qualifications were completed in Q3 FY '22. GRC 54276 preclinical and in-vitro and in vivo's profiling was completed in Q1 FY '22. And preclinical DMPK and non-GLP toxicology studies were completed. And IND-enabling studies were initiated in Q3 FY '22. Phase I IND submission is planned in Q4 FY '22. Glenmark Life Sciences. For the third quarter of the financial year, revenue from operations, including captive sales were INR 5,225 million as against INR [ 5,002] million, growing at 4.5% year-on-year. The EBITDA margin stood at 28.6% for Q3 FY '22. External sales for GLS was at INR 3,032 million as against INR 3,201 million, recording a decline of 5.3% year-on-year. The growth was impacted due to a higher base of COVID products in the previous year. GLS is in the process of executing brownfield and greenfield capacity expansion projects to support strategic growth levers. For further updates on GLS, please log on to Glenmark, www glenmarklifesciences.com. Ichnos. For the third quarter of the financial year, Glenmark invested INR 1,520 million, which is USD 20.5 million, as compared to INR 1,713 million, which is USD 23 million invested in the corresponding quarter for the -- of the previous financial year. For the first 9 months of the current financial year, Glenmark has invested INR 4,987 million, which is around USD 67.5 million, as compared to INR 5,693 million, which is USD 76.3 million invested in the corresponding period of the previous financial year. During the quarter, Ichnos entered into an exclusive licensing agreement with Almirall for the IL-1RAP antagonist ISB 880. Under the agreement, Almirall is granted global rights to develop and commercialize this monoclonal antibody for autoimmune diseases. Ichnos retains the right for antibodies acting on the IL-1RAP for oncology indications. Ichnos received an upfront payment of EUR 20.8 million and will receive additional development and commercial milestone payments and tiered royalties based upon future global sales. For further updates on the pipeline and the organization, please log on to www.ichnossciences.com. The pipeline update for the third quarter of this financial year is published on this site.A key objective for FY '22, which I would like to reiterate or what we reiterated last time as well. The revenue growth of 10% to 15% during the year; sustained EBITDA margin performance at similar levels of FY '21; reduced debt by at least INR 16 billion through a combination of free cash generation and IPO proceeds during the year; post FY '22, the strategic priority to enhance free cash generation for further debt reduction, prioritizing over R&D investments and capital expenditure; close 1 to 2 out-licensing agreements at Ichnos.Before we open for Q&A, some notes. The ForEx loss for the quarter was at INR 17 crores, which is recorded in other expenses. Gross debt for the period ending December 31, 2021, was at INR 3,574 crores as compared to INR 4,687 crores as of March 31, 2021, a reduction of INR 1,113 crores. Net debt for the period ending December 31, 2021, was at INR 2,149 crores as compared to INR 3,549 crores as on March 31, 2021. Thus, the total net debt reduction was at INR 1,400 crores from -- during this period. Inventory for the period ending December 31, 2021, was at INR 2,621 crores as compared to INR 2,277 crores as of March 31, 2021. Receivables for the period ending 31st December 2021 was at INR 2,869 crores as compared to INR 2,572 crores as on 31st March 2021. Payables for the period ending 31st December 2021 was at INR 2,389 crores as compared to INR 2,238 crores as of 31st March 2021. Thus, the net working capital of the company has increased by INR 491 crores in 9 months FY '22. Total asset addition was at INR 162 crores in the quarter as compared to INR 138 crores in Q3 FY '21. Of this, the tangible asset addition was -- for the quarter was at INR 140 crores. R&D expenditure for the third quarter was at INR 303 crores, which is 9.55% to net sales for the quarter. Of which, Ichnos was at USD 20.5 million as compared to USD 23 million in Q3 FY '21. Before we open the floor for Q&A, the management of -- I would like to introduce the management of Glenmark on the call. We have Mr. Glenn Saldanha, Chairman and Managing Director; V. S. Mani, Executive Director and Global CFO; and Mr. Robert Crockart, Chief Commercial Officer. With that, we'd like to open the floor for Q&A. Over to you, moderator.
[Operator Instructions] The first question is from the line of Damayanti Kerai from HSBC Securities.
My first question is on your U.S. business. So we have seen sales stabilizing in 100 million, 105 million in the last 2 quarters. So want to hear your thoughts on like how we should look at U.S. sales going in coming quarters? And what are your observation on the pricing erosion trends in the U.S.?
This is Robert. So what we're looking at in the U.S. is, yes, there's been factors impacting the business in quarter 3. However, on a quarter-on-quarter basis, we expect to see growth into -- going into quarter 4.
Okay. And where are pricing erosion levels in recent times? Has it reduced from previous quarters?
No. Not really. We're really seeing it in the region of around 7% or 8%.
Okay. So 7% to 8%, and it's similar to what you have seen in some of the previous quarters.
Yes. It's close to that.
Okay. And can you update us on the pickup from Monroe facility? How it is moving up?
So as you know, Monroe, we had a recall in the third quarter, which also impacted our U.S. performance. But I think from Q4, we are ramping up Monroe production. And I think next year, you'll see a big benefit coming out of the Monroe facility, particularly on injectables, nebulizers, both the lines as well as oral solids. So from Q4 onwards, I think you'll see a ramp-up. But the main benefit will come starting the most of next year, starting Q1.
Sure. Good. And my last question before I get back in the queue is like, Mani sir, can you please comment on the fact that staff costs has reduced sharply on a sequence basis? So what has led to this reduction? And how should we look at this cost on a more sustainable basis?
So staff cost is slightly lower compared to, I mean, previous year and previous quarter because normally, most of the bonuses are paid out in the quarter 2. So therefore, this year, I think a lot more has been paid out in quarter 2. So I think -- so therefore, quarter 3 looks a little lower. But on a yearly basis, we trend at the same level. So it should not be very different.
[Operator Instructions] The next question is from the line of Harith Ahamed from Spark Capital.
My first question is on Ryaltris. Can you comment on the launch time line here? Your partner, Hikma, what is the estimated time line that you're looking at -- from product launch. And what exactly is your arrangement that you have with Hikma? Is it some kind of royalties that you'll get? Or is there a profit share? So if you can comment on this.
So on Ryaltris, we anticipate we will launch this product in Q1 of FY '23 on the U.S. market. As you know, we are launching in multiple parts of the world as we speak, and we've already launched the product in many parts. So I think the U.S. market, you can anticipate a Q1 launch for Ryaltris. As far as our relationship with Hikma goes, I mean, I really can't comment on the commercial aspects of the relationship, but it's a partnership Hikma will be commercializing, and we will be supplying the product. And we will continue to get both milestones and some kind of profit share/royalty structure from Hikma.
Okay. That's helpful. And the second one is on the impairment that we've had in the quarter in terms of intangibles. It means we need to -- intangibles are related to which market? And given that we have a fairly high intangibles on balance sheet, should we expect more impairment?
Yes. Yes. So as you see that as time goes by, there are changes to the market conditions, okay? So these are basically in-license products that we have basically licensed out -- in-license in U.S. and Europe, okay? So we -- on a periodic basis, we look at the -- we do a portfolio review. We look at the landscape, and then we try and see that we map it against how the overall thing looks like. Is there any estimated erosion, et cetera. So I think it's pretty common in the industry that -- and then when you look at it, you will decide that some products may not continue the development, okay? And hence, you decide to sort of deprioritize them and you kind of -- you provide for them. So we had a couple of products, which we thought -- there are more, but there are -- these are key products. Like we were doing some projects on amphetamine salts. We were doing on bendamustine, we were doing on paclitaxel. So there were a couple of products we were working on and a few more. So we thought it's a good time when we look across the review and decide to deprioritize them for now, and that is how we provided for them. As of now, I don't see anything further on that front. But to be sure, I mean, there are winners. There are some that don't do well. So a couple of them did very well in the past. Some may take time, may not happen right now. So we did prioritize them, and this is pretty common in the industry. So that's how we did it for this quarter. Yes.
And then Mani sir, one follow-up on that. When we think of the INR 2,000 crores of entitlement that we have, is it fair to assume that most of this is related to the Europe product that we've licensed, the majority of this INR 2,000 crores, is that the correct understanding?
Yes. Not in Europe, but few are in the U.S. as well, okay? It's not just there. And sometimes in some other geographies also, we in-licensed products, okay? Not just -- and obviously, Europe is the biggest piece here. Sure.
Okay. And my last one is on Ichnos. Congrats on the deal with Almirall. I'm thinking of the weak asset specifically. So there's been a bit of a churn there. We have one African Phase I, so how can you think about the licensing deals of -- from the [ BEAT ] side of Ichnos? And any particular asset that we think is ready for a potential licensing deal? And is there any data that we should kind of look at about -- that we are expecting post risk licensing deal can happen?
So I think on ICHNOS, the most near-term event for us should be -- we are trying our best to try and close something on ISB 830, right? So that our entire immunology portfolio is partnered out. So that's the most near term. On the BEAT platform, we are anticipating 1342. We will get PoC in Q1 of FY '23. 1442, we are hoping as soon as it gets into the clinics sometime next year, we could see some evidence of efficacy. And then given the technology and given the portfolio, we think there is a strong possibility you'll see some partnering activity next year on the oncology side, and that's what we are targeting.
I just wanted to add one more point. Yes. So basically, in life -- I mean, this licensing that we have done of 880, we received the mony in January, okay? So we will receive the funds in Jan.
The next question is from the line of Krish Mehta from Enam Holding.
And sir, one question on free cash flow for this quarter.
So in this quarter, if you look at it, the -- I mean, while the operating business generated a decent amount of cash flow, I mean, as we read out in the initial part, there have been some increases on the working capital side. So on a very broad basis, our debt has come down further by a very big marginal amount, INR 10 crores, INR 15 crores. But as you can see, our inventories, et cetera, have gone up because of obviously the market conditions. And as you know, sometimes there are challenges in terms of sourcing materials, et cetera. So we wanted to take business first. So as you can see, CapEx have come down. I mean other things have been taken care of. But I think working capital is something that is something we cannot compromise on. So we have actually added something to the inventories, okay?
And to follow up on that, how do you see working capital stabilizing in terms of inventory going forward?
See, for a few quarters, it will be still up because see, as you can see, there has been volatility. You keep reading about the logistic issues that people are having. So last few quarters, the logistics also have been quite -- have seen, freight rates go substantially for air freights. So people have even worked on the production cycles to ensure you do more of sea shipments. So you bring down your manager cost and manage your this -- very well. So I think -- I mean it's a trade-off, okay, end of your day. So you will see it a little up for a couple of quarters. And hopefully, things stabilize. And as more normalcy comes in, it will come off, okay? That's what we look at.
[Operator Instructions] The next question is from the line of the Kunal Randeria from Edelweiss.
So my first set of questions is around Spiriva in Europe. So can you share how the market share in some of your key markets, which we launched a couple of quarters back, how is it progressing? And what is the realistic share that you can go to? Secondly, any kind of competition that you could expect in this molecule in Europe in the next 12 months or so? And thirdly, how much of the growth in this quarter in Europe could be attributed to Spiriva?
Well, I think this is Spiriva is -- our generic is a -- it's a big product for us, right, in Europe, and it's a large opportunity. So as we keep launching in multiple markets, our share overall for the molecule will keep growing. And we launched as the first generic -- there will be competition going forward. But I think given the head start and given the opportunity, we think this will be a substantial contributor at least for the next few quarters for Glenmark. So between Spiriva's -- I mean the Tiotropium DPI generic and Ryaltris, we think the European growth will remain pretty strong over the next few quarters as we go forward.
But, Glenn, any sort of spinoff, maybe market share number you would like you'd be happy with mid-teens...
I don't think we can share a market share number at this point because it's so specific based on market-by-market that it's hard to put a specific market share to the molecule as a whole.
Sure. Sure. And in this quarter, how much of the growth would have been due to Spiriva? I mean would it be fair to say that excluding Spiriva also, the year-on-year growth would have been double digits?
I think the base business, it's hard to anticipate that it will grow more than double digit, right? At best, it will be double digit. So the real contribution is coming out of the new molecules and the new launches in Europe, which is driving it.
Sure. Sir, second question is on your India business. Quite a strong performance in this quarter. I think going forward, should we expect something like there's a market beating kind of growth? And what would be the growth drivers here? I mean what kind of therapies you look at? What are the kind of new launches that you are aiming for? If you can just maybe highlight a bit on that.
So India is one of our strongest businesses, right? I mean if you look at the 9-month IQVIA growth is somewhere like 28%, we grew -- I mean, internally, we've -- our internal reported 9-month number is around 18%. If you look at the month of January, the recent IQVIA data, which came out, we've grown at 36%. So these are very, very big numbers, right, for India. And we continue to be among the fastest-growing companies in India, and I think we will continue to sustain that. Among the big launches, obviously, FabiSpray will be a good contributor for the India growth near term. We've launched a whole bunch of products in India, which are also driving growth in the areas of respiratory, in the areas of dermatology, in diabetes. We launched a triple combination for Remo. In respiratory, we have a number of launches. And in derm, we launched Suba Itraconazole for the first time. So I think there are lots of new molecules, new products targeted to India, which is helping the growth overall. And so India will continue -- we will continue to outperform in the Indian market.
[Operator Instructions] The next question is from the line of Sanjiv Duggal from HSBC. Sanjiv Duggal?
[ I'm his analyst ] Okay. So I have a couple of questions for management. First thing is on EBITDA margin. So the -- I noticed that this quarter, your EBITDA margin, if we exclude the licensing income, the EBITDA margin actually came down to 17.8% compared to last year, which is a decline. And I notice that for the industry, energy price and API price has been an issue. So I'm just wondering how much of that contributed to the EBITDA margin decline for the business this year -- this quarter?
Thanks for the question. So see, I mean, obviously, there will be volatility quarter-to-quarter, okay? So in this quarter, definitely, there has been some volatility in terms of the input costs and also the freight costs, et cetera, okay? So -- but if I were to look at it, I mean, it's about 1 percentage, lower than what we have been there. But on a 9-month basis, again, if you look at it, we are closer to 19%, okay? So we continue to think that with more product launches coming in the next couple of quarters, and especially in the next quarter as well because we didn't have too many launches in the U.S., et cetera, and this quarter. So I believe that we should be very close to the 19% what we guided to, okay? I think we'll be there, closer to that.
Okay. Sure. And on the API energy price pressure, do you see that to turn around in the next quarter? Or will that sustain for a while?
I think overall, you are seeing pressure overall on API prices, on input costs, on freight costs. And we think that will sustain at least for another quarter, right? However, I think as Mani mentioned, with all the new products that we are launching and the opportunities that we foresee going forward, we feel pretty comfortable in terms of sustaining our overall EBITDA margins, right, both for Q4 and for next year. So we'll continue to be around the 19-odd percent going forward in terms of margin profile.
Okay. Sure. And my other question is on FabiSpray. So I noticed that you recently launched the product in India. And I'm just wondering how you're planning to position this product against Moderna and Pfizer COVID drug given the competition? And in terms of pricing, how much cheaper do you plan to price against the other 2 products?
So I think -- so FabiSpray is a nasal spray for the treatment of COVID, right? So I think basically, we've got approval for treatment. Our partner, SaNOtize is running a 15,000 patient, which is a prevention study. So I think overall, this product will be a useful product to be taken, both for COVID treatment and eventually as and when we get the approval for prevention of COVID. I mean that's the way we look at it. Moderna and Pfizer is not a fair comparison because those are vaccines. So clearly, this is more treatment and prevention on a real-time basis as opposed to a vaccine, which is a completely different therapy altogether.
I was referring to the oral drugs from Moderna and Pfizer.
You mean the Pfizer's oral drug Paxlovid, right? And the Merck product molnupiravir, I'm guessing, right? Those are the 2 oral products. I mean those 2 products, obviously, we have FabiFlu, right, which is a big product, which is Favipiravir for us, right, which is well-established, which will compete with the oral products out there. In addition, I think this product's positioning is very different than the oral drugs. Those are products for treatment of COVID, and this is more treatment/prevention, right? And it'll be treated -- it'll be another product in the armament of the doctor, right, who can prescribe multiple products for COVID-positive patients.
Sure. And my last question is on your net debt. So I noticed that for 9 months, you guys have reduced about 14 billion net debt this year. So I think the target is 16 billion for this financial year. I'm just wondering where do you plan to secure the last 2 billion from?
So I think we continue to progress well on that front. So we are hopeful we'll be very close to what we planned at the beginning of the year. Yes.
[Operator Instructions] The next question from the line of [ Vishal Manchanda].
Just on other expenses, it has been up. Excluding R&D, the other expense is sharply up Q-on-Q and even year-on-year. So any one-offs there?
Obviously, there is a little bit of seasonality when we look at normally H2 other expenses are a little higher. But if you look at it as a percentage of sales compared to the previous year, it is very much close to that or thereabouts maybe a little bit lower also in terms of a percentage. But I mean if you look at the quarter of assets, there would obviously be freight costs were a little higher. So those were probably the one-offs. Also, as -- I mean, obviously, at some stage in the -- especially in the second half, normally, we do spend some amount of the companies on promoting products, et cetera. So on an overall basis, I don't see it substantially getting distorted or anything. I mean if you look at it historically, at one stage, it used to be 29%, 30%. We have come off a long way from there, okay? So I think we can guide to it being around these levels, 25%, 26% here. Yes. It should not be higher than that.
Got it. And just value [indiscernible] contribution to the overall sales would be how much state I mean for 9 months FY '22? Or is it the third quarter in specific where the COVID cases were, I guess, minimal, at least in India or across the ocean?
I think globally, I mean, it's minimal, right? It has very little impact in other markets. For India, we don't specifically guide to breaking up FabiFlu with the other products. But if you look at Q3, we had virtually no sales of COVID drugs. So I think that's a fair reflection of how the business is performing, right, despite not having any COVID products in there.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Then on FabiSpray, while it's been about a weekend or since its launch, any sense of initial response that you got from doctors?
So currently, Nitin, the response is very positive. I think the clinical trial data is -- looks really good in terms of -- both in terms of improvement in viral load as well as on the treatment side. So the initial response is very positive for the product.
And any -- then this product has been around for a while, it hasn't -- what's your experience being for the pickup in the products in other markets where it's been a lesser [indiscernible] for some time now.
Actually, Nitin the product is just launched by SaNOtize and multiple markets in the last 3 or 4 months, and it's done really well in multiple markets across the world, right, wherever they've launched. So I think it should do well overall.
Okay. Secondly, on the U.S. Now in terms of the pickup in the business, is it fair to assume that it's essentially going to be driven by the Monroe launches intimately from here on?
I mean the U.S., if you see Q4, for instance, right, we anticipate launching at least 4 or 5 new products, right, 2 of which we got approval. We're relaunching Esomeprazole, we have one more approval pending. We have some of the Monroe products ramping up. So I think from Q4 onwards, the U.S. business should do well. And if you look at next year, we have some great injectable products coming out of Monroe. Regadenoson was a good tentative approval for us, and we expect some more approvals coming through. And much longer term for the U.S., we think the respiratory products that we are working on should start contributing significantly. So we have a clear roadmap for U.S. products and U.S. launches. But the Monroe site over the next 2, 3 years should be a substantial contributor to the U.S. business overall, and that's what we are targeting.
If I can speak on Monroe. What would be -- because you're generating much revenues in Monroe right now, what would be the under covered cost, which will be there roughly on this plant right now, which you can possibly versus revenue scale up?
So the total cost of running the plant is about roughly about 30 million, okay? So today, as it is we anyway -- about -- almost half of it is anyway because of OSD and other lines going line, we already are writing them off. So the balance will also get written off as the products come in, okay? So I don't see a big challenge there.
Okay. And lastly on the non-innovation R&D, what are the focus areas now for you, given the fact that this whole space has been -- the generic space has been in the state of churn, there's fewer opportunities really speaking for generic companies as we go along? How we use now looking at incremental R&D spend in the generic space?
I mean I think -- so Nitin, we have not backed off on R&D spends in -- across the board, right, on -- be it India, be it ROW, be it emerging markets, Europe, U.S. So I think our portfolio mix of investments in R&D have not changed to a large extent. It's more the quality of the products. We think Ryaltris will drive the near-term performance for the emerging markets and U.S. and Europe starting next year, they have products like FabiSpray, which are launching in India and other parts of the world as we speak. We have a host of other respiratory products launching. So I think overall, the portfolio remains very strong over the next 2, 3 years across all the markets that we operate in, which will be the biggest driver to our performance.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Mani, just a quick question on the gross debt. Why are we carrying so much of gross cash on our books, if I'm not wrong INR 1,300 crores, INR 1,400 crores? And what's the negative spread? What's the cost of carrying this?
So Sameer, as you can see -- I mean I'll answer you in 2 parts. So the gross debt is as we -- explains about INR 3,500-odd crores. So we had some longer-term loans, okay? So Sameer, so obviously, as and when they are due, we try and refinance them, okay? Or we prepay them off, okay? So that's one reason. I mean, historically, if you look at it, we have so many operating geographies that we've always carried about 900,000. And many of the peers in the industry do the same as well, okay? So obviously, when you have so many operations in many markets, you do need some funds in everywhere. You can't obviously do a kind of pooling in one place and reduce everything. And as I can see, the -- I mean the interest cost assets over a period of time has come down. As you can see, our interest costs in these quarters are hardly INR 60 crores compared to what it used to be almost INR 80 crores INR 90 crore in the past. So advise the carrying cost can be 1.5%, 2% if at all one looks at it. So -- but then at the same time, I have to ensure that there are -- we have U.S. operations. We have Monroe. We have so other places. Some funds need to be there. So that's the reason why we have -- but we always try and see how best to innovate and try and reduce it. We look at that as well. Yes.
Okay. And just on the U.S. Ryaltris launch. So is it possible to share more color on this in terms of would it be a typical -- which is like market dynamics? Would it be a typical specialty product where you need to get to onto all the formulary list, et cetera, returning to doctor, but essentially a retail product? I mean is this the way to think about it?
Yes. This is a typical specialty product, Sameer, where detailing into doctor will be essential, right? And Hikma, because they have a sales force out there, right, they're well positioned to promote this, especially for allergic rhinitis.
Okay. Okay. Which also -- we use Glenn then, therefore, the scale-up would be gradual in a way to say because all of this needs to be done, yes?
That's correct. But the good news, Sameer, is, look, in the rest of the world, right, the product is already launched in many markets and just a sure magnitude of promotion across the world, right, and Menarini in Europe, Hikma and the U.S., right? This product is -- will be a major product for the company. Starting next year, we will see a significant contribution out of Ryaltris.
So then on that point, I'm not looking for a number for you. But looking out 3, 4 years, as it scales up in U.S., would this be a triple digit sort of opportunity for...
For sure, Sameer. I mean next year itself, we think we will be $40-plus million in sales, just out of this one product, so on a global basis, right? So I mean, clearly, this will be ahead of a 3-digit number at peak sales.
Okay. So $40 million global, but I was referring to triple-digit U.S. alone.
See, I can't comment on U.S. alone, Sameer, because that's part of Hikma's revenues also. But I can say what it will be to Glenmark.
Okay. No, that's fine. That's fine. That's fine. And one final question from my side. For Ichnos, is it that the licensing out of immuno candidates is a bit easier than onco? Or is it really product specific?
I think, Sameer, it's all depending on the science, right? So 830 is -- as you know, the OX40 is exciting target. And there are just 3 guys who are in Phase II clinical trials, right? We are one of 3. The other 2 have got partnered out. So we are hoping to do something there. In oncology, obviously, it's harder, Sameer. But just given the technology, given the kind of products we are working on, 1442, for instance, we did an oral presentation at ASH, which got a great response. And so it's -- I think it's all specific to the product overall, right, which will ensure bringing on partners.
The next question is from the line of Nitin Agarwal from DAM Capital.
Yes, just taking up some of your last question, respond rightly just to clarify. When you talk about the sales number, are we talking about -- because it actually partnered out the production model geographies? So we're talking of our revenue contribution? Or is this the overall sales for these products of global sales?
So Nitin, we are just giving a consolidated number, okay? So obviously, there will be some amount of royalties, some amount of transfer pricing built into the partners and everything. We're just talking about what it is to us, right, overall. Obviously, the margins will be significantly higher, Nitin, because it will include a royalty and profit share component, right, for us.
I got it. So essentially, on a global basis, it can potentially be a triple-digit million number for us at some point in time going forward in terms of our product contributing to us?
Absolutely. Absolutely.
The next question is from the line of Prakash from Axis Capital.
My question is on gross margins. So typically, 3Q, 4Q, given the seasonality, we have higher gross margins. And if I exclude the licensing income then the gross margins seem to be a little lower. You mentioned about export costs, et cetera, which most companies are talking about. But you tell me something like with the input cost being higher, you mentioned Q4 likely, but how do you look next year in terms of gross margins? Is there any visibility? Would you be able to improve from the base that you have currently?
So Prakash, as we also earlier alluded, see, we do see some increase in the input cost, but obviously, it will be kind of season volatility, whatever. So what I can guide you at best is to say that, look, there will be new product introductions. Obviously, our realizations are higher. So gross margin is not just about only the input cost. It will also be about the realizations you have. If you introduce more new products and some of them do better like we've been doing Ryaltris, et cetera, so obviously, the margins will look better. At an EBITDA level is what we are guiding better, but obviously, there are more levers to manage better. So I think that's where we said that current year, we are closer to -- I mean last year, we were 19%. This year also, we're closer to 19%. It should be around there. But obviously, input costs are something that everybody is mindful of and not everything lies in our hands, okay? So we'll be careful how we play it. But we do see some new product introduction that should give us better margin. That would help us to kind of take better care of our margins. That's what we're seeing.
Okay. And on India business, like the strong performance. Now looking at this base of high base of last year and this year also, how do you think -- next year, do you think the industry and yourself could be double digits?
So Prakash, our -- obviously, our challenge for next year is our base is high, right, because of the COVID drugs that we had this year also. But I think with some of the new launches, right, we clearly see India growing strongly, right, and outperforming. So we'll just have to take it as it comes. I mean Jan is -- has been a great month, and we are expecting similar performance at least for the next couple of quarters in terms of outperforming the overall market. But because of the high base of COVID drugs in this year, right, it's hard to project India at a double digit for next year.
And lastly, on the amortization. So this is largely the European intangible, right?
Yes. European as well as a few of the U.S. as well. So obviously, we've in-license products across geographies, more so in Europe. That's where we built a business with that. So we did a complete portfolio review like many of our peers do, and we decided that this probably -- currently, they need to deprioritize So that's why we did that. Yes.
And what is the value, which is still sitting in Europe in terms of intangible assets?
So overall, we had almost like -- I mean we have intangibles of closer to INR 2,000 crores. So obviously, a good portion of that will be in Europe. Yes.
No, no, no. I mean what is the current gross block there for the intangibles?
So current gross block -- I mean last -- I mean when I did September als it was about INR 2,000 crores. So to this extent, it will come down, and almost 80% plus would be in Europe, yes. That's out the way to look at it.
Mani, my question is what is the current gross block there? I mean you will not impaired everything, right?
No, no. I'm telling you my gross block was around INR 2,000 crores. Office now have impaired INR 178 crores. The balance will be still there in the gross block. You are asking against that. So that gross block is still there INR 1,800 crores plus will be still there.
Okay. And this you think every year, there need get be similar amounts, which can continue?
It will be reviewed regularly. So there will be an amortization bid to it, Prakash, which we do every year. And beyond that, if there is anything that we feel that any product is not doing well or any in-license product is not doing well, we'll impair it. That's the way to do it, right?
And Prakash, this quarter, addition to intangibles around INR 22 crores.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just one on the U.S. business again. Sorry to hop back on this. So we are -- the run rate of 100, 105. And I think during the call, we have got a lot of pressure points, both on raw material, utility costs. So Glenn, just a very directional question for your industry, right? You've been challenges in the generic space. How should we look at this? Is there scope that something changes -- can this 7%, 8% price erosion continue forever? Maybe the answer is launches, which you have talked about, but I just want to understand how should we look at this business like a 3-, 5-year perspective?
So Shyam as you know, the U.S. business is a tough business, right, the U.S. generics business. And I think with so many new players coming to the market and the agency approving many more products, I don't see the price erosion tapering off, right, in the near term, at least, right? It's hard to predict much longer term. But at least for the next few quarters, I don't see the price erosion tapering off. I mean for a company like Glenmark, just given the fact that our scale is much lower, right, than some of the other companies, right, in terms of size and given our new product launches, given our Monroe investment and number of products coming out of Monroe, we still -- we are still confident that we'll be able to grow this business, right, on a consistent basis going forward, right? But as far as the price erosion and the margin pressures are real, and we will continue to stay for a while. So it's a lot of hard work to even sustain your margins and keep on working hard on the cost side of things, right, to continue to operate in this business. Bottom line, Shyam, is there are too many players right now. So until there is -- some other players exit the market or reduce their efforts in the U.S., it's going to remain competitive.
Got it. Helpful. And to Mani sir's, point on higher working capital. Is it again driven largely by the U.S. business?
Partly U.S. and partly other geographies as well, Shyam, because obviously, you need API and other key source materials across various businesses, right? So therefore, I mean, to some extent, U.S., but across many geographies. Yes.
Yes. So just my underlying question is similar. Like when you look at an ROCE basis, right, makes lesser and lesser sense do you think to do more U.S. generic business at least? Or do you think it's -- we have not reached the scale so you need invest before reaching there?
No. I will rather say it will be across most geographies. It will not be just the U.S. business alone, okay? So obviously, U.S. definitely -- if you look at it, 30% of our business is U.S., and 30%, 35% is India. Obviously, they'll have a bigger share of whatever is the pool. So if you look at it, 65% of the business is between these 2. So obviously, you need to stock materials and ensure that you are not losing any business because of nonsupplies because as you can see, there have been challenges on the -- basically the supply chain in terms of how we are looking at not just the freight costs, even the timeliness of the material reaching ports et cetera. So therefore, we have been a little careful to ensure we have enough raw materials with us so that we don't lose any business at all. Okay. I mean there is a trade-off, Shyam, clearly there. It's time to take care.
Got it. And last question, just a suggestion on -- we have talked so much about Ryaltris, about Spiriva. If there is a way -- I know you don't want to call out specific products, but other companies have now started giving some complex generic or something like that so that we can look at it and say, okay, this is one area where the market is doing better, right? So I know we give geographical splits, which -- and -- but these products are across geographies. So if there is something that we can highlight -- and you can put things together in one bucket so that we are not able to disaggregate.
I think that's a fair suggestion, Shyam. I think going forward, when we do have our next investor presentation, right, we will try and pinpoint some of the areas that we want to focus on, right, and where we are focusing on.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Ravi Agrawal for closing comments. Thank you.
Thank you, moderator. We will read the disclaimer before we end. The information statement and analysis made in this presentation describing the company 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 those statements depending upon economic conditions, government policy and other incidental factors. No representation of 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. The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. With this, we end the call today. A very big thank you to all of you for joining us on the call.
Thank you. On behalf of Glenmark Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.