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Ladies and gentlemen, good day, and welcome to the Q4 FY '19 Earnings Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Jason D'souza. Thank you, and over to you, sir.
Thank you, moderator. Welcome to Glenmark's Q4 Earnings Call. We'll start with the review of operations for the quarter ended March 31, 2019. For the quarter ended March 31, 2019, Glenmark's consolidated revenue was at INR 25,634 million recording an increase of 12.44%. For the financial year ended March 31, 2019, Glenmark's consolidated revenue was at INR 98,65 million (sic) [ INR 98,654.68 million ] as against INR 91,030 million recording an increase of 8.38%. We would like to give you an update on the 3 businesses, which is Glenmark Pharmaceuticals, Glenmark Life Sciences Ltd. and the newco, which is the innovation business.Before we start on Glenmark Life Sciences and the newco, I would like to hand it over to Bob Matsuk to give us an overview of the U.S. generic business and the branded business in the U.S. Over to you, Bob.
Okay. Thank you, Jason, and thanks, everyone, for joining us today. Before I get to the quarterly performance of the North American business, I'd like to provide a few updates. First, for Ryaltris, our investigational fixed-dose combination nasal spray for the treatment of seasonal allergic rhinitis in patients 12 years and older, Glenmark recently announced in early May positive results from a Phase III study of Ryaltris in patients aged 6 to under 12 years. The study met its primary endpoint in achieving clinically meaningful and statistically significant change from baseline in average morning and evening reflective total nasal symptom score compared to placebo. The company continue to work closely with the FDA with the goal of meeting the June 21 PDUFA date for Ryaltris. For Glenmark Therapeutics, a wholly owned subsidiary of Glenmark Holding, SA, we announced in May a co-promotion agreement with Otonomy, Inc. This agreement provides Glenmark Therapeutics with an exclusive right to promote Otiprio for the treatment of acute otitis externa in patients 6 months of age and older due to Pseudomonas aeruginosa and Staphylococcus aureus in ear, nose and throat specialist offices in the United States.In terms of this quarter's business performance, the North American finished dosage form business closed the fourth quarter with recorded revenues of $109.39 million versus last year's corresponding quarter of a $108.87 million.In terms of the generic industry, the environment remains challenging, and we continue to see price erosion. In particular, the dermatology sector of the generic industry witnessed increase in price erosion. The price erosion in the fourth quarter, as reflected at IMS, was around 10% when compared to the third quarter of the financial year and was around 20% year-over-year comparing Q4 FY 2019 to Q4 FY 2018. In addition, we also had a stock-out situation in Mupirocin 15-gram cream, which impacted sales for the fourth quarter.On the approval side, the U.S. was granted 7 approvals for the U.S. market during the last quarter of FY 2018/'19. This includes 4 final approvals and 3 tentative approvals. The final approvals were as follows: Sevelamer Hydrochloride Tablets, 400 milligram and 800 milligram; Clobetasol Propionate foam 0.05%; Telmisartan and Hydrochlorothiazide Tablets USP; Clindamycin and Benzoyl Peroxide Gel 1%/5%. For the tentative approvals received, they were Abiraterone Acetate Tablets, 250 milligram; Topiramate Extended-Release Capsules; Fulvestrant Injection, 250 milligrams per 5 mL. And since the fourth quarter ended, Glenmark has received 3 additional ANDA approvals for Esomeprazole Magnesium Delayed-Release Capsules USP, 20 milligram and 40 milligram; Solifenacin Succinate Tablets, 5 milligram and 10 milligram; and also Aspirin and Extended-Release Dipyridamole Capsules. In total, for the fiscal year 2018/'19, Glenmark was granted 25 ANDA approvals with 20 final approvals and 5 tentative approvals.Glenmark's marketing portfolio through March 31, 2019 consists of 152 generic products authorized for distribution in the U.S. market. The company currently has 53 applications pending in various stages of the approval process with the U.S. FDA, of which 28 are Paragraph IV applications.And with that, I'll turn it back over to Jason to talk about the progress we're making on our innovation pipeline.
Thanks, Bob. Before the innovation, overview of the other businesses. India, sales from the formulation business in India for the fourth quarter was at INR 6,677 million recording a growth of 9.71%. The India business continued to strengthen itself across focused therapy areas, namely dermatology, cardio-metabolic, respiratory and oncology. It continues to outperform the industry growth rate and remains one of the fastest-growing companies in the Indian pharmaceutical market. As per IQVIA MAT March 2019, Glenmark India formulation business is ranked 14th with market share of 2.18%. Glenmark now has 9 brands among the top 300 brands in the Indian pharmaceutical market. Most of the core therapy areas witnessed an increase in market shares compared to MAT March 2018 data as compared to MAT March 2019 data: the cardiac market share increased from 4.26% to 4.51%; the respiratory segment market share rose from 4.75% to 4.77%; the antidiabetic market share changed from 1.65% to 1.61%; and the dermatology market share changed from 9.17% to 9.08%.In April 2019, Glenmark announced the launch of its novel, patent-protected, globally researched SGLT2 Remogliflozin etabonate in India. Glenmark is the first company in the world to launch Remogliflozin. The molecule has been studied in 26 clinical trials globally, covering 2,500 people from various ethnicities. Glenmark received regulatory approval for Remogliflozin tablets 100 mg after successfully completing of Phase III clinical trial, in which the molecule demonstrated good efficacy and safety profile in a head-to-head comparison against Dapagliflozin.The India consumer care business -- Glenmark's consumer care business continued to strengthen itself in this financial year growing in excess of 35% in the fourth quarter of FY '19. The consumer business grew -- growth was around 29% to around INR 1,900 million for the entire financial year. The consumer business has increased its distribution reach during the financial year, which resulted in the non-pharmaceutical distribution network growing by 59% during the year. For the full year, secondary sales for the consumer business was at 31%. All of 3 Glenmark's power brands, which is Candid Powder, VWash and Scalpe, recorded good growth rates and are market leaders in its respective categories.The Africa, Asia, and CIS region. For the fourth quarter, revenue from Africa, Asia and CIS region was INR 3,852 million recording an increase of 29.06%. As per IQVIA MAT data for March 2019, Glenmark recorded growth of 8.3% in value vis-à-vis overall retail market growth of 5.8%. As per IQVIA, Glenmark Russia business ranks 44th. In the dermatology segment, Glenmark showed growth of 1.6% in value vis-à-vis dermatology market growth of 2.2%. Glenmark dermatology business ranks 11 in the market. The Asia region recorded good performance in the fourth quarter with sales growing in excess of 25% and for the full year at around 20%. The business continued to deliver strong growth in key Asian markets such as Philippines and Malaysia. The Africa region performed well in the financial year recording growth in excess of 30%. The subsidiaries in South Africa and Kenya grew in excess of 30% for the financial year. The Africa region launched 15 products in the fourth quarter and 56 products for the entire financial year.Europe. Glenmark Europe operations revenue for the fourth quarter was INR 3,184 million recording a decrease of 0.17%. While the European region recorded strong growth in the first 9 months of the financial year, the fourth quarter of the European business was subdued as both the Western and Central Eastern Europe regions did not perform as per expectations. During the fourth quarter, businesses in the U.K., Germany and Poland recorded de-growth. Nevertheless, the overall region witnessed multiple new product launches across key markets during the financial year. During the fourth quarter, the Czech subsidiary launched 5 products, U.K. subsidiary launched 3 products, and the German subsidiary launched 1 product. Similarly, the European subsidiary signed multiple in-licensing agreements during the financial year in multiple products across multiple countries in the region.Latin America. Glenmark's revenue from the Latin America and Caribbean operations was at INR 1,204 million recording a decrease of 5.65%. Glenmark recorded good growth in constant currency in Mexico, whereas the Brazil unit recorded de-growth of 5% in the fourth quarter. The overall performance of the region continued to remain subdued in the financial year 2019.The GPL specialty and innovative R&D pipeline. GBR 310. In FY '19, Glenmark announced results from a Phase I study that suggest similarity in pharmacokinetic, pharmacodynamic, safety and immunogenicity profiles between GBR 10 (sic) [ GBR 310 ] and the reference product, omalizumab. The company is in active discussions with potential partners and is targeting to conclude a deal before initiating Phase III studies.GBR 304 is a long-acting muscarinic antagonist administered by nebulization being studied for the long-term, once-daily, maintenance treatment for bronchospasm associated with COPD. The GSP 304 program is ongoing and is currently in Phase II for patients with mild-to-moderate COPD as established by the Global Initiative for the COPD disease.GRC 39815 RORy gamma inhibitor. GRC 39815 is an NCE currently being evaluated as an inhaled compound for the possible treatment of COPD. The compound is currently in preclinical development, and the company plans to initiate a Phase I study in FY '20.Glenmark Life Sciences Ltd. Glenmark Life Sciences finally includes the manufacturing and marketing of API products across all major markets globally. It also includes captive sales, that is the use of API by GPL for its own formulations. Glenmark entered the API business in 2003 and built a large business based on strong product selection, focus on key regulated markets, maintaining high operational efficiencies and a strong compliance culture. The API business has grown at a 14% CAGR over the last 3 years while maintaining consistently high EBITDA margin. Glenmark transferred its API business to a wholly owned subsidiary titled Glenmark Life Sciences Ltd., which became operational on January 1, 2019.Over 75% of GLS revenue is supplied to regulated markets of Europe, U.S. and Japan. The top 10 molecules contribute 60% to the overall revenues of GLS. For the financial year 2019, the unaudited consolidated revenue for Glenmark Life Sciences Ltd. was at INR 14,458 million recording growth of 12.1% over the previous corresponding year. For the fourth quarter in FY '19, revenue from external sales of API globally, excluding captive sales of GPL, was INR 2,487 million as against INR 2,048 million recording an increase of 21.44%.In spite of a challenging environment in FY '19, the business continued. Due to nonavailability of raw materials during the initial month and increasing procurement costs, the material margins for the API business remained fairly steady at 61%. This was achieved on account of change in product mix as well as development of alternate vendors for sourcing raw material to offset the supply constraints in the market. Overall EBITDA margin recorded for the business in FY '19 was in excess of 30%.As we mentioned recently, Dr. Yasir Rawjee was appointed the CEO of Glenmark Life Sciences Ltd. Yasir joins GLS from Mylan, Inc. India.Moving on to the innovation new company. The newco, which is the innovation company, is focused on discovery and development of novel, first-in-class treatments in both therapeutic areas of immunology, oncology and pain. The newco has strong capabilities in biologics as well as new chemical entities. As part of the strategy to create a leading and cutting-edge biotech organization, Glenmark announced the spin-off of its innovation business into the new company headquartered in the U.S. The setting up of the new company would provide enhanced focus to the business and help accelerate the pipeline towards commercialization. The new company -- the new innovation company will be a wholly owned subsidiary of Glenmark.Glenmark also recently announced that Alessandro Riva, MD, has joined as the Chief Executive Officer of this new innovation organization. Glenmark is also in the process of putting in place an independent board in place to spearhead the newco's growth plan. Additionally, the newco is looking to hire a Chief Financial Officer and other members of the leadership team over the next 2 quarters.All innovative molecules in the pipeline, including preclinical assets and technology, the R&D center in Switzerland, the R&D centers in Paramus in the U.S., the R&D center at Navi, Mumbai related to the innovation business and the biologics manufacturing facility in Switzerland, along with all employees associated with the innovative R&D, will be part of the new company. The transfer of assets and employees to the new organization is expected to get completed in the next 6 to 9 months.During FY 2018/'19, Glenmark invested approximately USD 113 million in the innovation newco's business. Glenmark expects to invest a similar amount in FY '19/'20 for the newco. The newco intends to raise capital in the U.S. within the next 12 to 18 months to fund the development of the pipeline and for future growth plans.Quarterly highlights on the innovation assets. Glenmark's current innovation pipeline consists of 6 assets, including NCEs, NBEs in various stages of development in the areas of immunology, oncology and pain management.GBR 830, an OX40 antagonist. A Phase IIb study of GBR 830 has been initiated and will enroll 312 adult patients with moderate-to-severe atopic dermatitis. As of May 2019, 157 patients had been recruited with 75 sites actively open to enroll patients in the U.S., Canada, Germany, Czech Republic and Poland. Top line results of the Phase IIb study are expected to be available in H1 CY 2020. New post-hoc analysis of data from Phase IIa's proof-of-concept study of GBR 830 in atopic dermatitis was presented at the American Academy of Dermatology Meeting in March 2019. Preparation of a Phase IIa proof-of-concept study has been initiated in patients with SLE. In addition, the evaluation of GBR 830 for treatment of multiple immunology indications such as ulcerative colitis, systemic sclerosis/scleroderma is ongoing.GRC 27864, an mPGES-1 inhibitor. GRC 27864 enrollment for Phase IIb study with 624 patients with osteoarthritic pain of the knee and hip is progressing as per plan with 41 active sites and 411 patients recruited for the study as of May 2019. Top line results for the Phase IIb study are expected to be available in H2 CY 2019.GRC 17536, a TRPA1 antagonist. A positive Phase IIa study of -- proof-of-concept study for GRC 17536 conducted in Europe and India in patients with painful diabetic neuropathy has been completed. The company is targeting to initiate a Phase IIb dose range finding study in neuropathic pain in H1 CY 2020.GBR 1302, a HER2 CD3 bispecific antibody. The GBR 1302 Phase I first-in-human study with biweekly dosing to determine the MTD in patients with HER2-positive cancers has completed enrollment. The company plans to initiate a GBR 1302 Phase I study to evaluate a weekly dosing regimen in H2 CY 2019.GBR 1342. A Phase I first-in-human study to determine MTD in a biweekly dosing regimen in patients with refractory multiple myeloma is ongoing. Cohorts 1 to 9 have been completed, and the study continues with enrollment of patients in cohort 10.GRC 5xxxx. The company is developing GRC 5xxxx, a MAP4K1 inhibitor compound, which has the potential to be used as a monotherapy or in combination with approved therapies to address unmet needs in cancer treatment. The compound is currently progressing in preclinical studies. The company is initiating to target Phase I studies in H2 CY '20.FY 2019/'20 objectives for Glenmark Pharmaceuticals Ltd. Target overall revenue growth to be in the range of 10% to 15%. Manpower cost as percentage to sales to trend lower as compared to FY 2019. Conclude at least 1 partnership on innovative/specialty assets. Total R&D expenditure to be lower in absolute value as compared to FY 2019. Bring in a minority investor into Glenmark Life Sciences Ltd. Divest other noncore global assets.Before we move to the Q&A, some information on the balance sheet and P&L. Net debt as of March 31, 2019, was INR 3,425 crores as compared to INR 3,404 crores. Gross debt as of March 31, 2019, was INR 4,448 crores as compared to INR 4,639 crores in March 31, 2018. On a constant currency, net debt reduced by INR 200 crores, approximately $30 million as compared to March 31, 2018. R&D expenditure for the quarter was at INR 403 crores, which was 15.7% of sales. For the year, entire R&D expenditure was INR 1,298 crores, which was 13.1% of sales. Other income in the fourth quarter was INR 390 million, of which INR 380 million was ForEx gain. Other income for the year was INR 208 crores, of which INR 180 crores was ForEx gain. Inventory as of March 31, 2019, was INR 2,252 crores as compared to INR 2,030 crores. Receivables as of March 31, 2019, was INR 2,194 crores as compared to INR 2,331 crores. Trade payables was at INR 2,221 crores as compared to INR 1,869 crores in March 31, 2018.During the quarter, we had one-off expenses pertaining to the launch of Remogliflozin, which was to the extent of INR 35 crores. This was on account of clinical trial expenditure and other marketing expenditure on Remogliflozin anticipating the launch in Q4 FY 2019. Remo was launched in Q1 of the current financial year. The one-off expenditure pertaining to the setup of Glenmark Life Sciences Ltd. was to the extent of INR 25 crores and was recorded in the fourth quarter. This was primarily on account of the transfer of assets to GLS.Total asset addition for the U.S. was INR 1,140 crores. Fixed asset was INR 560 crores. Intangible assets was INR 580 crores. Brand in-license acquired was to the extent of INR 520 crores. Amortization of intangibles recorded and depreciation was to the extent of INR 158 crores. The primary reason for the addition of intangibles was on the acquisition of Exeltis portfolio and other in-licensed products in Europe and India.With this, I would like to introduce the management team at Glenmark and open the floor for question and answers. We have Glenn Saidanha, Chairman and Managing Director, Glenmark Pharmaceuticals Limited; V. S. Mani, Executive Director and Chief Financial Officer, Glenmark Pharmaceuticals; Robert Matsuk, President, North America and Specialty Business; Utkarsh Gandhi, Senior Manager, Investor Relations and Strategy.With this, we would like to open the floor for Q&A. Over to you, moderator.
[Operator Instructions] We take the first question from the line of Aditya Khemka from DSP Mutual Fund.
So Glenn, in your objectives for FY '20, you have mentioned the divestment of other noncore assets. Could you sort of throw a bit more light on that as to what are these noncore assets that you are looking to divest?
So Aditya, we can't specify what specific noncore assets, but there are -- see our primary objective is to continue to strengthen our presence in certain therapeutic areas, primarily dermatology, respiratory, oncology, right? So there are some assets sitting globally which don't fall in our therapeutic focus, which we are looking to divest, but I can't give you too much color on those specifics.
That's not a problem. So basically, you're not talking about divesting geographical businesses? You are talking about divesting certain products, which are not in the therapy area where you want to divest.
Exactly, exactly.
Yes. That's the color I wanted. Okay. And the next question was on this Mupirocin stock-out situation in U.S. Could you describe as to what really happened? And how should we think about Mupirocin moving forward?
Yes. I'll take that, Glenn. All right. The -- there was API shortage in Q1, but we're back to market with it, and we don't foresee any shortages moving forward.
Right. So Bob, so this API shortage, how did this impact your revenue for the fourth quarter? I mean were you not able to sell any part of Mupirocin? Or are you able to sell 1 month worth of it? Or how about in terms of quarter?
So if you look at the IMS numbers, there was overall 25% drop in unit sales, Aditya. So it was just a little bit in the beginning of the quarter, but after that, it was kind of a complete stock-out. And as Bob mentioned that we expect now these supplies to resume in this quarter, some of it has just begun to start.
Right. So this 25% drop is what you're seeing in primary sales as well from the third quarter to the fourth quarter for Mupirocin. Is that a fair assessment?
That's right, in unit.
And it's only a channel. It's only -- I mean we're restocking the channel in Q1, right? So as for demand line, there has been no shortage.
Fair enough. Has there been any price inflation in the API for Mupirocin? And have you passed it on to the customers in terms of price inflation for your end products as well?
No, there hasn't been any changes.
Neither in the input costs nor in the selling price?
No. No on both.
Okay. Last question from my side. This 10% to 15% top line growth that you're [ aiming ] for FY '20, can I have some more granular details? So how much is India? And broad color, how much is India? How much is ex U.S. exports? And how much is U.S. growth are you expecting?
I think -- I mean, for the U.S., we are -- we think we'll end up at mid-single digit, right? But the rest of the geographies we anticipate strong growth in the current year.
Should India be more than 15%, Glenn? Or would you be in the range of 10% to 15% for India as well?
I guess a lot depends on how Remo does. I mean so far the launch is going very well, right? So assuming Remo continues to do well, right, I mean, we could have a very good year for India.
[Operator Instructions] Next question is from the line of Neha Manpuria from JPMorgan.
My first question is on the R&D spend. We've indicated that this would be lower on an absolute level. Is this because of the investment that we'll hope to get in the new company because we've indicated that the innovative investment remains the same? Or are we reducing our generic spend? I'm just trying to get a sense here.
Sure. So I think, in FY '19, right, we had Ryaltris. Major spends coming on the Phase III of Ryaltris, right, which we completed, right, which we don't have in FY '20, right? So that's where there is a delta coming in, in terms of the overall R&D expense.So newco, as we said, we will continue to fund newco in FY '20, right? And we've said we will spend the same amount that we spent in FY '19, which is the INR 113 million number, right, for the ongoing projects and ongoing programs. It's only -- I mean, currently, we are targeting to capital raise in H1 of FY '21, right? I mean -- so the first half of FY '21 is when realistically we think we will capital raise in newco.
Okay. Understood. And my second question. Bob, in your opening remarks, you mentioned that the pricing pressure on derma seems to be pretty high even now. The numbers that you mentioned for IMS, that was for your entire portfolio? Or were you specifically indicating that for derma?
It was specifically for derma, the industry.
Okay. And you don't see -- could that further [ exacerbate ] because of competition expected in derma?
I think we've reached the bottom at this point. I think moving forward, we would guide upper single-digit price erosion, but this past quarter was especially bad.
Okay. And that assumes competition in Mupirocin? Or that will be excluding that, I'm assuming?
That excludes competition on Mupirocin. We would expect the competitor either Q4 FY '20 or '21 on Mupirocin, it looks like right now.
[Operator Instructions] Next question is from the line of Prakash Agarwal from Axis Capital.
Just question on the gross margins. If we look at the unit performance in U.S. and especially with high-margin products, not able to understand, gross margins seem to be pretty healthy. So what has led to stable gross margins?
Yes. Prakash, this is Mani here. So basically, if we look at the sales in some of the rest of the world countries like Russia and Asian countries, where our margins are very good, and also India, even ex sale of our pain management, rest of the business had very healthy margins. So [ income, these ] both have managed to keep the margins quite okay.
Yes. But I mean there's not much change Q-on-Q, right? But in U.S., you're talking about particular product being -- not being able to be supplied, and that's being a very-high-margin product? I'm just trying to...
No. I appreciate. Only what I'm saying is that innovate, the sale, what was not there was made up by the sales from the other geographies, where the margins are higher. So that is why on the margin basis -- gross margin basis, it came quite -- ended up quite steady, okay?
Understood. Okay. And secondly, you made some comments on the outlook. So if there a target given in terms of net debt position or net debt equity? Is there any target you're looking at for the end of fiscal '20?
So I think we've not put out a target, but it's very clear that the minority investor will come into GLS. So the capital flowing from that as well as certain divestitures that we're doing all will go towards reduction of the net debt. Besides that, we think the overall business will continue to generate free cash in FY '20.
Okay. And lastly, on the CapEx side, what was fiscal '19 and expected '20?
So for fiscal '19, as Jason earlier said, asset additions both on the tangible as well as the in-license were about INR 1,140 crores, okay? And next year, we expect basically overall about INR 500 crores plus in the tangible assets and about -- maybe about INR 300 crores plus in in-licensed products. Overall, this should be about trending between INR 800 crores to INR 900 crores at the most. It should be. So this year, major addition was basically the Exeltis brand purchase.
Next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just one on the cost-efficiency program, I think, which we outlined. And if you can tie it up to -- we know -- I know you've talked about the manpower cost, but in terms of EBITDA margin, how should we look at fiscal '20? What kind of gains we can potentially make? If you can highlight that, please.
So I think margin -- clearly, we anticipate margins to continue to improve, right, from here on. One is because of R&D as a percent to overall sale is coming down, right? So margin improvements will continue. We're not giving any specific guidance to the EBITDA margins, but we anticipate further improvement at the EBITDA level. One is on account of the -- both the cost efficiencies that we're driving, and second is the low R&D spend, right, on an -- on a percent-to-sales basis.
Glenn, on this manpower, are we looking at -- what kind of -- is it rationalization? Or is it -- how should one look at manpower cost reduction?
Again, it's not something we can guide to other than coming off as a percent to sales, right?
Okay. And my second question is on Ryaltris. There is a PDUFA date coming up. So how should one look at it from a commercialization standpoint? Is the infrastructure already in place? Are we looking to partner out? If you can give us some of these highlights. And when is the likely launch if the PDUFA date -- if you get an approval there?
So I think, on Ryaltris, clearly, the plan is to: one, is we're looking at bringing on a partner who can commercialize alongside with us. And assuming the PDUFA date goes through, we will -- our best guess is it's around the October time frame. So today, we don't have the infrastructure up, and we don't anticipate putting the infrastructure until we have the approval with us.
So Glenn, it could have -- you could have like maybe contract employees and stuff or outsourced people?
Sales force. Outsourced sales forces and stuff like that. But all that will come into play only once we have the approval with us, and we don't anticipate incurring, bringing on additional expenses, right, before -- I mean, we would bring that only closer to the launch, which we anticipate won't be before October.
Got it. And last question is on the API business. Just reading through the MD&A and I think Jason's comment as well. 30% EBITDA margin. A little bit surprised on that. If you can just share what is driving these higher margins. I think 61% gross margin. So if you can just walk us through what's driving the slightly higher margin than expected?
I think our API business has consistently been a very profitable business unit for us, right? And I think -- I mean it's no deviation from the rest of the industry. If you look at DVs, if you look at many of the other leading API players, they all have pretty lucrative margins. So I think it's a very profitable business. It's a good business. And with over 70% of the sales coming externally, right, we see that just growing strongly going forward. And -- so it's a positive business overall.
[Operator Instructions] Next question is from the line of Nishant Chandra from Temasek Holdings.
Able to hear me?
Yes. We can.
Yes. So I wanted to understand what is the reason behind the gross cash position of over INR 1,000 crores. What is the intended end use of that instead of paying net -- paying the debt down?
So actually, we have written very clearly that it is for replacement of the net debt only. So it's an enabling provision so we may have the bonds and other things coming up in the next 2 years. So we thought, like all good corporates, you basically have an enabling resolution from the shareholders. So if the time is right, we can replace some of those, it will help us.
Okay. Understood.
And the resolution that I very clearly said, it's refinancing of debt only. We're not talking of anything else.
No. Not the resolution for debt. But the balance sheet has about INR 900,000 crores (sic) [ INR 900 crores ] of cash and financial investments, right? So how should one look at that line?
So actually, over a period of time, we even reduced the cash, okay? It used to be INR 1,200 crores, INR 1,300 crores. This year, it's about INR 900 crores. So basically, it's an enabling resolution. If and when an opportunity arises, we may replace some of the debt. So we've just taken an enabling resolution, that's all.
Okay. And is there any covenant at this point of time on the gross debt that is preventing us from paying it down in an accelerated manner?
No. Actually, it has come down. As earlier Jason had alluded, in a gross debt position, if you really look at it, it is -- it should be rated as INR 300 crores at least lower as compared to last year, but the reason is basically the rupee is more than about almost INR 5 in the current year. So that's the reason why it looks higher.
True. But as compared to that gross debt, the cash position is also substantial, right? So I was just wondering why do we have both, right? We're paying about an interest and earning interest income in the process?
Absolutely. But we are spread all over the geography, so that is why we have cash. We've actually reduced, and gross debt is lower. And on the net debt level, it should have been lower by at least INR 2 crores to INR 3 crores at least.
[Operator Instructions] Next question is from the line of Nitin Agarwal from IDFC Securities.
Again, on Remo, what are your expectations in terms of how we'll -- what kind of launch can be done out for us?
So I mean it's very exciting, right? I mean we've -- we're in the launch process, and we're seeing some very good uptake, right? And I think because of our pricing strategy, not only are we able to gain share or gain from the other SGLT2s but, I think, also some of the other antidiabetics, right? So whether it is the DPB4 market or even some of the sulfonylureas and -- because the cost to the patient now is so low, right, the per day cost, right, which is getting close to the other sulfonylureas, so I think the overall uptake is very, very strong. It's still early days. But I think it could be a very big launch for us. I mean that's the view. And we're also working now on some of the line extensions and the add-ons, right? And we're hoping to bring those to the market in the next 6 months.
And secondly, on the U.S. business, on a relatively mute-ish base in the current year, you guided to a mid-single-digit growth next year. I mean how does U.S. go from here, right? I mean even if FY '20 is still -- if you have subdued FY '20 -- I mean, if you look at the next couple of years -- I mean, how do you look at this whole U.S. generic piece now? And if you can probably add comments on all the branded piece in the U.S. also that you recently bought. I mean how does that figure in the overall scheme of things?
So the generic business is a mid-single-digit growth business, and I -- I mean, frankly, given the pricing environment and given all the challenges that most companies are facing in the U.S., right, I believe it's going to be hard to grow above 5% to 10% on a consistent basis out of the U.S. business, right? I mean the current year, we are guiding to a mid-single digit. Hopefully, pipe line in FY '21 looks much stronger than FY '20, so that number could be higher in FY '21. But on a realistic basis, I don't see organically growing our generic business beyond 10% as the U.S. generic business as a real situation going forward just because you continue to lose margins on price, right, and top line on price on an annual basis. I think the growth levers that we put in place is the branded business, and this year is the first year for the branded business. So we don't anticipate it being a major year for us. But I think, starting FY '21, right, we think the branded business will start contributing with Ryaltris, with Otiprio and many other launches coming up, particularly on the derm side, right? So actually FY '20 -- yes, FY '21 onwards, that business will kick off. So I think, all in all, if you add the 2 businesses from FY '21, right, we think achieving a 10% to 15% growth seems realistic for the U.S. alone, both put together between Gx and branded business.
Sorry. Since you alluded to Otiprio, what is the thought process behind that transaction? And how do you see that -- where does that product fit in into your overall branded portfolio?
So Otiprio is an ENT product, right? And it will go well with Ryaltris, which is also an ENT product, right?
Yes. This represents another product that reps can carry in the bag with Ryaltris basically.
Exactly. So you'll have 2 products on promotion, both Ryaltris and Otiprio, and that will help bring down the sales force cost, right, and further leverage the sales force.
[Operator Instructions] Next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Glenn, question on this -- when you mentioned about conclude at least 1 partnership innovative/specialty asset, what are the assets which are under consideration? For example, I could figure out GBR 310, Ryaltris. What else you are considering here?
Well, I think on the innovation side also, we're continuing to look for a partnership, which is what we're working on. So we don't know which one will conclude. So we have 2 or 3 of these assets where we have active discussions. So we don't know which one will conclude at the end of the year.
Okay. And this quarter, our receivable days are now down to 80 days versus it's been what is stable level almost 100 days for the past 2 years. Is this 80 days now a new norm? Or what is this last-minute money coming in that -- if normal level?
So I think, Anubhav, it should trend around 90 days. So -- I mean there are always cycles in movements. It depends what point of time you sold and then how do you receive 60 days, 90 days. So I think, broadly, it should be around 90 days.
Okay. And just one more clarity on what you mentioned about Ryaltris and Otiprio. So when you're looking out to partner Ryaltris even for the U.S., so then -- doing this partnership, what is the -- does this mean you would sublicense out Otiprio again to the same partner?
No. So Otiprio, we have in-licensed, okay? For -- we are co-promoting. So the idea is our sales force will have 2 products in the bag, okay, to promote, right? Otiprio and Ryaltris, right? And on Ryaltris, obviously, we can't -- we have a limitation in terms of number of sales reps we are ready to invest in upfront, right? So the idea is we would bring in a partner to co-promote for other specialties, right, beyond ENT and -- that's the way we're looking at it.
[Operator Instructions] Next question is from the line of Damayanti Kerai from HSBC.
First, can you update us on the FDA compliance status of your key plants? Anything like due for inspection in near term?
So as of now, Damayanti, we have -- our compliance record remains clean. We just mentioned that, even in Goa, which was reported, we've received VAI. And product approvals also have started coming in from that plant. So Goa, as you know, is our largest plant servicing the U.S. market.
And we have received VAI for that for this March '19 audit?
Correct. Yes.
Okay. That's great. And second question to Glenn. Glenn, if I understand correctly or if I hear you correctly from your previous discussion, the U.S. generic part, should we think now that -- the generic part in the U.S. obviously remains very challenging business, and now since we have branded business also, what you say, starting in U.S. So going ahead, our focus will increase towards the branded part and maybe not much on the generics? Any thought there?
I don't think that's a fair statement. I think -- look, we will continue to drive both the businesses, okay? I mean the generic business is equally important for us, and we will continue to drive and file products and continue to compete in the generic business, right?But just my perspective is, and this is my own personal view on how the generic business is trending, right, is basically -- increasingly, it's going to become challenging to grow above 10%, right, on the generic business. And I think that's going to be consistent for all generic companies, right? And that's my own personal view on this.So if we're able to get some better approvals and lower price erosions, I'm sure we could go beyond that, but my own personal view tells me that it'll -- it's going to be hard to grow beyond 10% to 12% in the generic business.
Sure. And earlier, I think, you have divested some of the, what you say, complex generic programs which were in our pipeline due to unfavorable economics. So going ahead, where we are focusing our efforts and energy in the U.S. complex generic part, like which areas or any particular therapies, where we're looking there?
So we still have a lot of programs in complex generics. But mostly, they are in the oral solid space, some in the semisolid, and we have few programs in the respiratory space.
[Operator Instructions] Next question is from the line of Aditya Khemka from DSP Mutual Fund.
Just a couple more. So on the guidance of INR 300 crores plus intangibles for next year, what are we spending the INR 300 crores on?
Aditya, these numbers that we've given are broad approximations. Primarily, this will go into in-licensing of products in Europe, and there will be some payments that will come up for various other programs that are there in the pipeline, but the effort will be to try and see that as much as possible to reduce this number.
Okay. So I'm just trying to understand the strategy here. So we are divesting noncore products, which we -- which won't fall in the 3 areas that we want to focus on. At the same time, we want to invest in products in these 3 areas so that you can leverage the platform that we have. Is that a fair assumption?
Yes. I think that's fair, Aditya.
Okay. And on the INR 500 crores of fixed asset CapEx, what are we spending back on? How much of this is maintenance? And how much of this is expansion of capacity?
So broadly, a lot of it will be on the maintenance. As you know, today, the environment in terms of regulatory, et cetera, is quite stringent. So obviously, we need to spend money on maintaining it all properly. And there'll be no new plants as such or new sites being put up as of now. At least, that's not the plan in the next year. But we may put up new lines, et cetera, wherever we have any bottlenecks or anywhere where we have any kind of capacity improvements, we'll work on that.
Okay. And Jason, can you review the breakup of your R&D spend for FY '19 between generics and innovation? How much for [ things ] and on innovation?
So on the innovation alone, we had spent about $113 million. Plus, there was expenditure on the specialty side, which is quite marginal in this year, and the balance was all on the generic side.
Got it. And Glenn, when you say that the cost structure will be kept in check for FY '20 versus '19, and you alluded to R&D spend, but at the same time, it seems like you're putting the sales force for Ryaltris and the other products, which have been placed. So wouldn't that sort of add-on to your sales force costs as well as your other expenses, promotion costs? And therefore, there will be some meaningful inflation in FY '20 over '19?
So again, it's all built into the plan, right? I mean basically what we are saying is that in the U.S. branded side we will -- and that's the reason we have a product like Otiprio coming in, right? So it's -- how do you better leverage that sales force cost and how do you make sure that the U.S. branded business form day 1, right, is at a breakeven situation.So we have -- between the derm portfolio that we're selling and the respiratory, we anticipate the overall business to be pretty much at a breakeven in the first year itself in FY '20, right? And thereafter, FY '21, we will continue to grow it both in terms of expenditure and in terms of profitability as we go forward.So I think we are using the number of products that we're selling to better leverage the cost that we are incurring.And we're also going with, obviously, we are limited in terms of number of sales reps that we're going to add for Ryaltris and the branded side in the first year, and that's the reason why we're looking at partnering opportunities, right, for other specialties.
Right. And on Mupirocin, when we said that we expect guidance from fourth quarter of FY '20, what has changed? Because if competitors [ which have already ] been approved and has not come to the market despite several quarters of approval. So are we now getting any hints that we're actually looking to produce the product and [indiscernible] and eventually launch in the fourth quarter?
No. We have no visibility, Aditya, to our competitor. We are -- this is just what we anticipate, okay? We have absolutely no visibility to our competitor on Mupirocin. So it's hard to comment, okay? But it is just a placeholder basically, right? So it could be Q4 of this year. It could be next year. It could be 2 years from now. We have no idea.
Understood. But then the guidance of mid-single-digit growth is assumed for competitor in the fourth quarter for Mupirocin.
Exactly.
And then your guidance on FY '21 of double-digit growth in U.S. also assume for the full year of FY '21, you'll have competitor [indiscernible].
Correct.
[Operator Instructions] Next question is from the line of Neha Manpuria from JPMorgan.
Sorry. Just one follow-up. On the stock-out situation of Mupirocin, is there a risk of any failure to supply penalties that we might have to pay in the current quarter?
No. Not on that one, there won't be.
Operator, if there are no more questions, what I can do is I'll start with...
Sure. You may please go ahead with your closing comments, sir. Thank you.
Thank you. Just to read the closing comments. The information, statement and analysis made during this call describing the company's objectives, projections and estimates are forward-looking statements and progressing 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 condition, government policies and other incidental factors. No representation or warranty either expressed or implied is provided in relation to this judgment. This presentation should not be regarded by recipients as a substitute for the exercise of their own judgment.With this, we'll end Glenmark's Q4 Earnings Call. Thank you, everyone.
Thank you very much. Ladies and gentlemen, on behalf of Glenmark Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may disconnect your lines now.