Ladies and gentlemen, good day and welcome to Gland Pharma Limited Q3 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Finance and Investor Relations. Thank you. Over to you, sir.
Thank you, Faizan. Warm welcome to Gland Pharma's earnings conference call for third quarter of FY 2023. I have with me Mr. Srinivas Sadu, MD and CEO, Mr. Ravi Shekhar Mitra, our CFO, to discuss business performance and to answer queries during the call. We will begin the call with the business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After the opening remarks from the management, operator will open the bridge for Q&A session. Our earnings presentation has been submitted to the stock exchanges and is available on our website. Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and are based on management estimates. These must be viewed in conjunction with the risk and uncertainties involved in our business.
The safe harbor language contained in our press release also pertains to this conference call. This call is being recorded, and the playback shall be made available on our website shortly after the call. The transcript of the call will be submitted to the stock exchanges and made available on our website. I will now hand over call to Mr. Sadu for his opening remark. Thank you all. Over to you, Mr. Sadu.
Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the third quarter of fiscal 2023. Wish a Happy New Year to all our shareholders and the families. We entered into a put option agreement in the last quarter and subsequently signed the share purchase agreement this month for the acquisition of Cenexi. This is our first acquisition overseas and it is in line with Gland's long-term growth objectives. It will enable Gland to increase its presence and to expand its product and service offering capability in Europe, where it is currently not a significant player in the CDMO market. It also provides access to know-how and development capabilities in sterile and other innovative technologies like ophthalmic gels and needleless injectors. We are well prepared to focus on integrating the business going forward.
We have already received EIR from U.S. FDA post the audit conducted at our Dundigal facility. We have been at the forefront of maintaining highest standards of quality at our sites, and we continue to invest in constant improvements. Our teams across all our sites remain prepared for any regulatory audit. As FDA has started physical audits, we're also keeping a close watch on the progress of regulatory audits in the industry to ensure we're prepared to leverage any additional supply opportunities that may come up. We closed this quarter, Q3 FY 2023, with a revenue of INR 9,383 million, as against INR 10,633 million in Q3 FY 2022, and our PAT stood at INR 2,319 million for the quarter against INR 2,730 million in Q3 FY 2022.
We have generated INR 398 million of cash flow from operations in Q3 FY 2023. The performance continues to be subdued on account of ongoing supply disruptions, certain production-related delays, and softer offtake of few of our key products in the U.S. Post-line improvements were in the process to ramp up production on our Insulin line. We also had a two-week shutdown for a couple of lines at our Pashamylaram plant for line upgradation. We are focused on ensuring the supply continuity across our portfolio of products. We completed eight ANDA filings during Q3 FY 2023 in line with our filing plan. As mentioned during the last call, we have seen the pickup in filings during the quarter. We are in advanced stages of regulatory review for a couple of products filed in China and expect approvals very soon.
During Q3 FY 2023, upon excluding CapEx R&D expenditure, the R&D expenditure stands at INR 500 million, which is 5.3% of the revenue for the period as against INR 394 million during the previous quarter. As on 31st December 2022, we along with our partners have 325 ANDA filings in the U.S. and 1,581 product registrations globally. We have begun the process of strengthening our U.S. subsidiary with the right talent to further focus on business development initiatives and building new partnerships. We are also strengthening the plant operations teams with new capacities coming online. Let me summarize our performance across various geographies. Our Rest of World markets accounted for 21% of our Q3 FY 2023 revenue against 19% during Q3 FY 2022.
We maintain inventory of raw materials and packing materials to be able to cater to the demand. We continue to register our products in new geographies. Our key markets continue to remain MENA, LatAm, and APAC. Our Core Markets, namely U.S., Canada, Europe, Australia, and New Zealand, accounted for 70% of our revenue, similar to the contribution in Q3 FY 2022. Part of our new launch product portfolio, we have shipped out five product SKUs during the quarter, which included Regadenoson and Lacosamide, among others. The supply chain issues continue to impact the disparities for these markets. We are constantly working on improving material availability and resolving any production delays. India market accounts for 9% of our Q3 FY 2023 revenue.
The steep price drop announced for key products like Heparin in the newly published NLEM list has impacted sales and margins of our India business. The Insulin line is still in the process of ramping up post line improvements. We hope to close the acquisition of Cenexi by March-April 2023 timeframe, post which our focus shall be on leveraging synergies between those businesses to generate stakeholder value. China remains a key geographic focus. We expect to start receiving approval soon. On the portfolio front, we filed two more complex injectable products during the last quarter. We continue to invest in the long-term growth of the business. With this, I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra, who will share details about our financial performance for the quarter. Thank you.
Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our third quarter earnings call. Let me begin with sharing the financial performance of third quarter and nine months ended December 31, 2022. Revenue from operations for the Q3 FY 2023 stood at INR 9,383 million, a reduction of 12% on year-on-year basis. Revenue from operations for the nine months period of FY 2023 stood at INR 28,396 million, a year-on-year decrease of 14%. Primary reasons for reduced revenue are due to certain supply side challenges and lower offtake of some of the older products. Revenue contribution from new products launched during the period were lesser than previous year. Other income for the third quarter was INR 615 million, which includes interest on fixed deposit and foreign exchange gains on operations.
For the nine months FY 2023, the other income was INR 2,015 million, of which interest on fixed deposit was INR 1,314 million and foreign exchange gains on operation was INR 665 million. Gross margin for Q3 FY 2023 has improved due to change in geography and product mix. Gross margin in nine months period of current financial year remains stable as compared to same period of previous financial year. We have reported an EBITDA of INR 3,511 million in Q3 FY 2023 compared to INR 3,946 million, which is a decrease of 11% compared to same period last financial year. Energy cost increased as compared to same period previous year, but has reduced compared to Q2 FY 2023.
Higher employee cost during the quarter as compared to previous period was largely due to additional people added to support the new production lines in Pashamylaram plant and for the Bio-CDMO facility. EBITDA margin excluding other income for Q3 was 31% and was 13% for the nine months period. Our net profit for third quarter decreased by 15% and stood at INR 2,319 million compared to Q3 FY 2022 due to decrease in EBITDA and higher depreciation expense on newly capitalized assets. During the quarter, we have recorded PAT margin of 23%. During the nine months period of the current financial year, our PAT was INR 7,024 million at 23% margin.
The total R&D expenses for third quarter was INR 512 million and stands at 5.5% of the revenue as against INR 699 million, 6.6% of revenue in the same period of previous year. The total R&D expense for the nine months period was INR 1,336 million, it is 4.7% of our revenue. Our effective tax rate remains at about 25% in third quarter and 26% for nine months of the current financial year. Cash flow from operation during nine months period was INR 4,354 million. Working capital increased and stood at INR 23,322 million as on 31st December as compared to INR 20,217 million as on 31st March 2022 due to increase in inventory and receivable levels.
Average cash conversion cycle stood at 246 days for the nine months ending December 2022 as compared to 190 days of same period last financial year. Increased receivable and inventory days has pushed the overall cash conversion cycle, which we expect to normalize. Total CapEx incurred during nine months of fiscal 2023 was INR 1,253 million. Microsphere powder filling line and the additional bag line project is on track. Our ROC on ex- cash basis was at 20% on an annualized basis for the nine months period for this fiscal year. Our fixed asset turnover stood at 2.4 x for nine-month FY 2023, decreased from 3.2 x for the same period last year.
As on December 22, we had total INR 38,297 million of cash and bank balances, which we intend to utilize for the CapEx plan and to fund Cenexi acquisition. With this, I would request the moderator to open the lines for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The first question is from the line of Sudarshan Padmanabhan from JM Financial. Please go ahead.
Yeah. Thank you for taking my question. My question is on the, you know, comment about, you know, the supply chain issue still persisting. I remember the previous quarter we did mention that, you know, we are, you know, approving a lot more newer, you know, a couple of new players, you know, for the supply chain. The broad belief was the supply chain was easing. Has there been a difference in the commentary post the last communication?
No, we did resolve most of the supply chain issues. I think still, few issues still persist. We did apply for, specifically for Heparin, we did apply for a second source. We've not received approval yet, waiting for that approval. Other one or two smaller products also have these issues. Generally, like, syringes and some of these have been addressed.
Yeah. I mean, if that is the case, if I'm looking at it from a Q- on- Q basis, I mean both I'm talking about the, you know, U.S. side as well as the ROW markets, developed and the ROW markets, we have seen a decline. I mean, I would assume that the decline would also, you know, be on the volume side. I mean, has there been a change in the demand or have we lost market share in some of the key products? If you can give some color on why we are seeing a Q- on- Q decline.
I won't say at the end market that there's a decline in the market share, but I think it's all the timing. If you look at our, you know, Enoxaparin, on an annual basis, still our revenues is around $50 million. If you look at last quarter is about $5 million. I think it's a timing issue for a particular product. And also, what we have seen is, maybe because of the high Fed rate, people are rationalizing the inventories. People were holding seven to eight months inventory earlier. Now, I think they're cutting down on the inventory levels. We have seen a substantial shift in that. The off-take has been softer, you know, to be fair.
The replacement of those, what we lost was two big products that couldn't get replaced by some of the big launches, what we mentioned the last quarter also. Off-take has been softer. At the end market level, still, at least our key products, the market share remains intact. I think it's the question of timing and also the way the partners are looking at the inventories right now.
On the inventory adjustment, given that the last couple of quarters we are seeing that inventory adjustment continuously happening, I mean, has that kind of settled to a reasonable level? I mean, I'm just assuming that going forward, would there be an improvement in the, you know, U.S. and the ROW markets if this issue... you know, issue is resolved?
We have to see, you know, Like I said, there is a tremendous competition at the marketplace and also there are also some exits happening at the front end. Being a B2B player, we have to see who are the guys who are exiting certain products and certain businesses. It's a dynamic situation right now. We are monitoring it. Otherwise from endpoint perspective, the products, what we've been selling over the years, those volumes remain intact. These are key products. Barring the new product launches, that's not done pretty well because of the competition in the market.
One final question before I join back is. You know, we have seen some of the, you know, competitors getting import alert or warning letter. I mean, I don't want to name them specifically. Does that open an opportunity for you in terms of tapping incremental volumes?
Yes, there's active, things happening in that space also. A couple of, I would say, you know, two, to be specific, two companies we are interacting with to, transfer some of the products to our sites. It might take one or two quarters, but, yeah, there's a substantial movement in that sense. Several products are, under discussions to getting transferred and some on the agreement stage, yes.
Sure. Thanks. I have some PR more questions. I'll come back on the queue.
Sure. Sure.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Hi. Good evening. Sir, can you share the profit share number for this quarter, and has that sort of increased, decreased versus the previous quarter?
Yeah. Give me a second. Yeah. Saion profit share for this quarter is at 9%, and previous quarter it was 7%. Last year it was 10%.
Okay. Now you talked about the competitive pressure. We have seen this increase. I'm just wondering what's the sustainable number? Is the 9% on the higher side, you think?
No, I think it should be sustainable at this level. you know, see, one way is, you know, do you want to compromise on your margin and then go aggressively on the top line? Which we are reluctant to do because then it's a permanent damage you're going to cause for the market. It's like an ongoing discussions with partners, and we want to do that. Currently the focus is on how to keep the margin intact, even if the revenue numbers are not that great, because we are seeing several companies exiting because of the price pressures and the costs involved. We have seen historically that's what has happened. We don't want to damage the whole market by reducing our car price. We want to keep that margin.
I think currently the focus is how to keep the margins intact and improve the margins internally.
Okay. My second question is on growth. Now, of course, you know, this year we have seen a lot of disruptions. Even the previous years, you know, there was COVID and a demand associated with that. If I look at from a three-year perspective, we are seeing 13% CAGR. Maybe it's 9%, 10% in dollar terms. How should we think about growth in this changed environment? You know, where you're talking about price pressure, you're talking about, you know, I mean, the kind of opportunities you had in the past, is currently not visible. How should we think about growth from FY 2024 onwards?
While, you know, we can't really comment on the growth percentage, you know, we just now mentioned about companies getting import alerts and all that, which was existent even prior to COVID. That was always another opportunity, you know, we encashed on. That's been our strength in terms of quality and manufacturing. That we are seeing coming back. That's one area. There are also large products where, you know, where we did very well in 2010, 2021, 2020. To replace those losses is taking a lot more capacities, which we are incrementally increasing the capacities. While there's a positives in terms of transfers happening from other sites and increased capacities, there's also pressure, price pressures and competition pressures. We are seeing some exits happening at the marketplace.
We just need to see how this pans out in the next six months to come out from a clear vision on how the margins and how the sales will pan out.
Okay. Sir, you mentioned in your opening remarks about supplying of, Regadenoson to the U.S. I mean, can you comment how large this opportunity for Gland?
We can't really comment because a few players in it. We'll be, you know, one among the first few launches. From number-wise, we can't really comment, yeah.
Okay. Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Thank you. Good evening, and thank you for taking my question. Just the first one on the gross margins, Q3 saw a QoQ improvement. I think opening remarks mentioned about product mix and geography. If you could please elaborate. Is this sustainable?
Yeah, the focus is on to, you know, improve these margins, both internally and also, like I said, from material perspective, we have qualified some alternate sources which are cheaper. I think next few quarters, the focus is on improving the margins in that perspective. Also there are some products where the low margin business, which we are trying to stay away from, because the risk involved with very low margin. Also if you see, we did mention about India business. There are products which get into NLEM, which are in the borderline cases earlier. We don't want to go aggressively and pursue those kind of...
It's a combination of, you know, our own strategy how to minimize the low margin products and utilize that space or, you know, the capacities for high margin products.
Got it. Thank you for that. My second question is just elaborating on Enoxaparin. Again, I think you said it's a $50 million product, but we are doing $5 million in the Q3. You know, is there a possibility that we go back to the $50 million run rate at some point of time? You know, what are some of these stumbling blocks here? I think the syringe, as you said, is now back. Just want to understand, you know, is it, like you said, timing issues or March or June quarter, we will try and do $12.5 million. I'm just trying to get some kind of a pathway on your, like, top product.
Without getting into a lot of technical things, basically our run rate for the year is about $50 million, and that's been the run rate. A few quarters we are doing more on the run rates and a few quarters less. You know, if you look at the previous quarter, I think it was about $20 million. April, $19 million. Previous that, $20 million, something like that. It's more a timing issue when you're billing this, number one. Number two, also the inventory-wise, how much which SKU the partner is holding because there are several SKUs in this product. Some are high value and some are low value SKUs. It depends on which SKU gets dispatched which quarter. On annual basis, still the run rate is intact.
Sir, last question, just following up. I thought we had a step up to go to $70 million or $80 million with additional contracts on Enoxaparin. That may not happen, right?
Current run rate is $50 million. That's what we are seeing. You know, the transition is happening. You know, that's why I said it is getting difficult to get into technical because the two NDCs the partner is having. They have to move, you know, a few hospitals, one after another, from one NDC to another. That's what is taking time. I think future, I think it will move to those numbers, but currently the run rate is that much.
Got it. Thank you and all the best.
Thank you. Ladies and gentlemen, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from line of Shubham Goyal from Motilal Oswal. Please go ahead.
Good evening, sir.
Yeah, good evening.
Hello. Yeah. Sir, actually my question is that, like I know a few of your peers from the pharma industry are also entering the European market. What is your strategy considering that you also have some supply chain issues as you mentioned?
Europe for us, you know, we are purely CDMO there. We are not launching products yet. The first area is, you know, to continue business what they're doing. They're purely CDMO where they manufacture products for the branded, generics, and that will continue. Then, leverage our contacts with the players who have a presence in Europe, but getting product done at somewhere. That can be leveraged and get some of those businesses to our side. We can't really compare with the peers who are launching their own products in Europe because we are purely a CDMO player from Cenexi perspective.
Okay. Thank you. That answers my question.
Mm-hmm.
Thank you. The next question is from the line of Kartik Mehta from Klay Capital. Please go ahead.
Yeah, hi. Thank you for the opportunity. You know, if you could just talk about the acquisition and which is now so going to be integrated. You know, with this acquisition broadly, if you have to take a two to three year view, what it does to our existing business. I mean, I don't want the numbers, but three years down the line with the combined entity approaching a European customer vis-à-vis other Indian players who do business in the U.S., what would Gland in a way look like? I'm not asking for the any numbers. I just want to know about the overall offering that an entity will have after the acquisition. Thank you.
If you look at currently, you know, where we started as Gland and where we are today, our business moved from a pure CMO/CDMO to a more product, generic product driven company. The mix has moved towards more on a product company. Now with the Cenexi acquisition, where the entire 100% of the revenue comes from the CDMO. Our mix actually improves because the competition what we're seeing in the generic space will get diluted a bit because we are more stronger CDMO players in that sense. That's one. Second, our strategy getting into biologic CDMO space, that will strengthen because Europe is a place to be in for a lot of these opportunities to get in, this will add to that capability as well.
Overall I'd say, you know, from business perspective, we are getting a more balanced business for the company. In the longer run, to avoid the fluctuation what we're having, this generic competition. At the same time, getting access to newer technologies which we don't have today, and getting into the branded side of the business which we don't have today. I would say it's a broader offerings in the same space.
Thank you. From the perspective that this was asked by one of the participants in terms of a large player in India who's receiving some very severe observations who is competitive in the electrical space. You know, in terms of timelines, you spoke about two or three quarters, in terms of capacity, if you, if you have to move those volumes or more volumes, are we equipped? Do we have that or can that be done in the two, three quarters time? Can you throw some light on the opportunity? I mean, in terms of the capacity and the opportunity. Thank you.
Yeah. What the capacities what we have had recently in terms of liquids and lyos, that will help this. Also, in the last year when we have converted one of these biologics line to cater to that, because of the recent increase in demand of these opportunities, we've gone back and changed one of these lines to the regular product portfolio. That is getting added this quarter. We have actually increasing our capacities to cater to these additional needs, what we're hearing from the market. That's one. Second, the discussions are also around how, you know, where the products are common. We can actually license our own products instead of transferring and, you know, taking more time to transfer those products and make it more expensive.
We are replacing that with our own products. It's a combination of transfers as well as our own product licensing it to these players.
Thank you. Thank you. Yeah.
Yeah.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Hi. Thanks for the opportunity. Good evening to management. Just, you know, understanding U.S. better versus the last call, we had talked about three things. One was pricing pressure, which you started seeing in Q2. Then there was a stopper issue which was expected, the Heparin, for and expected to revive in November 2022. Thirdly, you mentioned inventory. There's still inventory, some clarification that, you know, you mentioned about credits, et cetera. Just clarification if there's a demand which is also slowing down post-COVID. That is all from my side.
Yeah. I think, all three are right. You know, the competition, the price pressure is there, and I know it's, you know, it's all related, right? Once you see, the price pressure, new players entering to sell these products will also come down. We don't have an alternative. In terms of, the stoppers, I think temporarily there's a... We got one supply last quarter, but then there was no subsequent supplies. We did qualify the second supplier and we applied for an approval, so that should, that we should get, next month or two. We have submitted a CBE-30 this month. From the inventory perspective, we have seen a larger impact of that.
We realize it's only one product, but we are seeing across most of the products, people are cutting down on inventories, how much they're holding. Earlier the inventories were longer period they were holding. Being a B2B, that's impacting us larger than probably other players are getting impacted.
No, no. Wanted some clarification. Is it a demand issue or it's just keeping inventory down? I mean, have you seen that in terms of number of days for them coming down or using the offtake itself is softer?
I think mostly it's inventory days coming down for some of the key products. There are also products where it's a, it's a softer offtake because there are other players who have come in with those products. That's mostly with the newer products what we launched in the recent time.
Heparin November 22, You said, you got some supplies, but it is not full supplies.
Correct. Correct. We did dispatch whatever we got, and now, you know, the next supply is not in the near term, so we have qualified the second one. Once that gets approved, the supplies will start.
Moving into Q4 and FY 2024, of the three, which is, you know, lesser pain point for us and which is the improving outlook of the three?
I think the near-term pain point is still the inventories, we are seeing because the near-term focus is still reflecting the softer pickup because of the inventory valuation. At the end market we're seeing the same numbers for at least out team products. That's a good sign. Also there are a lot of transfers which is happening that could be a positive point from the first quarter of next fiscal.
I mean, summarizing that, we do expect growth coming back from fiscal 2024.
Yeah. That's, that's an estimate, and that's what we are looking at this opportunity. Yes.
Okay. Secondly, on China, so you mentioned, there are two products expected in fiscal 2023. How are we playing there? I mean, is it still this fiscal or it might be a calendar year thing for us?
Yeah. In fact, we were expecting in December to see the clearance for at least one product. It's the Chinese, you know, That product is almost $100 million product. That's what we understood. That's, that's expected anytime, you know. We thought of December, it didn't happen, so it's a holiday now, so could be Jan, Feb, or maybe next quarter.
INR 100 million is the market opportunity. We would be participating.
Yeah.
in that.
Correct. Correct.
It would be at least a five-player market already?
There is a local player, you know, being a specific product and which is going through a first approval based on the BD approval. We have to see how it will be placed. We are little positive about this product, yes.
Okay. Thank you so much.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you, and good evening, everyone. Just talking about the stopper supplier resumption for Heparin. Assuming it gets normalized in the next couple of months, would you get the entire business back or do you think, part of it is already gone by... You know, taken up by competitors? If I'm not wrong, it was INR 160 crore or on a full year basis.
Off ahead I don't remember the numbers, but I know the one strength what we have is still holding the contract, the $30 million, which is in discussion. At least we are not seeing the product going away.
Okay. Which means that you will get part of it back, not fully.
I can't comment on... That's what I'm saying. The contract still is in place, so... The orders and the forecast is there. We got to see, you know, by the time we enter. We just supplied the product, so it's moving well. We have to wait and watch how much we can get, or can we get the entire market.
Okay. For enoxaparin, looks like you have done $44 million in the nine months. Does it mean that Q4 will also be soft considering $50 million run rate that you have?
It all depends on which quarter how much offtake it will have. On an annual basis, you know, that's the number, the estimate we have for $50 million. Yeah.
Okay. Sir, if you can just help us with the expansion going on at Pashamylaram site. How many lines do you have right now and how many you plan to add in fiscal 2024 and 2025?
Currently we have eight lines out of which, I think three lines are not still active. It's just under validation. First one we are taking the exhibit batches. That will be commercialized this quarter. The other line, what we just mentioned about two more coming on track, that will be commercialized next quarter. By the time we qualify everything, we'll be having eight, 11 lines, three to be, four to be qualified and commissioned.
Okay. If I'm not wrong, sir, five are operational right now and you're adding six more. 11 would be operational in the next 12 months or so. Is that the right number?
Yeah. Yeah.
Okay, that's great. With your permission, one final question, and that is on China and biosimilar CDMO. In two years' time, how big can these be, opportunity for you? Any ballpark, any signpost you can give us?
Give me a second. Yeah. Bio is too early to comment on the numbers. It's just, you know, we're at a very nascent stage. China and again, you know, it's a large market where we're targeting 14 products this year, till this year, and then a few more coming next year. We are looking at a few billion-dollar products we are targeting. We have to see how much market share we'll get. From number perspective, it's too early to comment on before we launch because it's a new market for us. We have to see how it goes.
Okay, great. Thank you so much.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Sir, just again on this biosimilar. How much CapEx, new CapEx you're lining up for biosimilar CDMO facility?
Bio-CDMO facility we have more or less spent about INR 300 crores. Now we are in evaluation stage with the customer how much more we need. It's not a very significant item. Overall CapEx plan is about going to be INR 200-250 crores for this year. Next year to be around INR 300 crores. This is overall.
Spent INR 3 billion, INR 250 for FY 2023 and another INR 250 for FY 2024. That's all right?
No, no. First, biosimilar, we have already spent INR 300 crores. Now on an overall basis, company as a whole, we'll be spending INR 200 crores-INR 250 crores for other projects like Pashamylaram we are spending, and Vizag API we are spending. That number is INR 250 for this year and INR 300 for next year.
Sure. Sir, any other product other than Enoxaparin where you have a significant headwinds, and the business visibility is relatively getting reduced maybe on account of pricing pressure or a new player coming in or on account of inventory restructuring, so to say?
I would say the damage is already done. The numbers are seeing based on the impacts what we had in one of the large products, Micafungin. That was a big product in 2021. It's almost contributing about, I don't know, large number, INR 300 crores-INR400 crores. I'm not even sure. That got settled now. In terms of market share, we still hold 50% market share. Although first year we were holding 80% market share. That's intact. I don't think there's any impact in terms of more going down on this. Newer products, well, we have a little concern. It's not contributing as much to recover the loss we got from these last products.
Just again on gross margin, at least on a quarter-on-quarter basis where the core market sales has been lesser and even the ROW market. At the same time we have pricing pressure as well. What's driving the gross margin?
Yeah, I think it's, like I said, you know, some of the areas where we have qualified alternative sources, that has increased our contribution volume for some products and that we continue to do. Some products we have increased the batch sizes to get better efficiencies. That has contributed. Of course, the mix, some of the products which have a lower margin, we sold less compared to the high margin products. I think it's a combination of everything.
This gross margin can sustain, right? Even so given Enoxaparin is already less in the overall scheme of things, the other products are sort of stabilized. This level of gross margin can be expected going forward.
Well, the idea is to maintain that, you know. We are not able to judge how the market behaves, but the idea is to maintain this kind of margin.
Sure, sir. Thank you. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead. Neha Manpuria, your line is on talk mode. Please go ahead with your question.
Yeah. Thank you so much. Just wanted to get some color on the complex filing that we've been making. You know, we mentioned a few in the last year, you also mentioned two more this year. Any color on what areas these are and when should we start seeing contribution from this in the new launches?
These four products, you know, different market value perspective, it's I think about $2 billion. These are into peptides. One we're going to file, I think, next quarter on a suspension product. It's a combination of hormonal peptides and suspensions. At least, you know, we should see some coming, one or two products getting approvals in FY 2024, and then the rest post that. Hello? Hello, Neha.
Mrs. Manpuria.
Sorry.
Answer your question.
Yeah. Just to follow up. The filings that we made in FY 2022, we've seen a fair bit of pickup then. Those should also start seeing approval, you know, in the next few quarters, right, sir?
Yeah, that's correct. Yes.
Out of that, how many would be complex, in your view?
No, total we have done complex products four, till now.
Okay. Okay. two last year and two in this quarter.
Correct. Correct. Correct.
Out of which you said one or two approvals in FY 2024 and the rest thereafter.
Correct.
Okay, got it. Thank you so much.
Thank you. The next question is from the line of Tarun Shetty from Haitong. Please go ahead.
Good evening, and thank you for this opportunity. Just one clarification first. You mentioned $50 million of Enoxaparin sale. That is for the U.S. market, if I'm right?
That's correct.
Okay. You're looking to launch around 14 odd products in the Chinese market. That is for FY 2023, or this will spill over to the next year also?
No, no, those are the filings I mentioned about, not launches. The launches could be post that. Yeah.
Okay. In total, we are looking at, one near-term launch and, in, FY 2024 and any more launches in the China side in the current year?
Yeah, maybe a couple of more launches might happen, in FY 2024 and the rest post that.
Okay. Lastly, just a final comment on the R&D spend.
Sorry to interrupt you, Mr. Shetty. The audio is not clear from your line. Please use the handset mode.
Is this better?
Yes, sir.
Yeah, it's better. Go ahead.
Yeah. Lastly, on the R&D spend, so do you see this increasing as you move into more complex product filings in the near term?
I think from a absolute number perspective, we already moved to a highest spend compared to before. We're spending around 5.5% or maybe 5% around with the larger base. It's already baked in.
Okay. Yeah. That's it from my side. Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Group. Please go ahead.
Yeah, good evening. Thank you for taking my question. First one, basically now that, you know, more low-cost Indian players entering the injectable market, are we seeing more shift from the likes of Hospira, Hikma, you know, to us, you know, for their older product maybe, you know, where they might not be as competitive as Indian player? Since the generic injectable market is still dominated by Hospira, Hikma and Teva, and yes, Sandoz. Has there been any acceleration in, you know, the shift from their own manufacturing to, you know, people like us, you know, big companies like Gland or any other company?
We have seen few Indian players actually getting into this space as well, on the manufacturing side. I would say, you know, the virtual companies in the U.S. are going down, which also contributed significantly for launching the newer products. That's, that's going down a bit. Yeah, true, you know, from Pfizer perspective or those companies perspective, we are hearing some product transfers happening to Indian manufacturers. If the pressure continues, I think that that will only increase, you know, hopefully.
You are suggesting that there are similar Indian companies as well offering similar service to the likes of Pfizer, and those are not the direct B2C guys?
No, there are companies who are doing a pure CMO, not like us where we develop products and license. There are also some few contract manufacturers who are offering services, but in a smaller scale.
Okay. You know, now that we have seen, you know, what B2C has to offer and what B2B has to offer, when the competition intensifies, would it still make sense for us to do all the, you know, legwork in terms of developing ANDA, et cetera, and then giving out back to someone, you know, and give out 50% profit share maybe?
Well, you know, that's a debate we always do. You know, from perspective of manufacturing, efficiencies and cost, in the model what we have, we've been doing it for so many years. The throughput what we give, you know, it's not possible if we just go and do our own on a B2C basis for the number of volumes will come down. Are we going to be competitive enough to offer this, number one. That's one. Second is, do we want to become a low margin front-end company, because it's also an expense related to your sales force, because we looked at B2C companies spending $25 million-$30 million on your sales force. From that angle, you know, our strengths are manufacturing and quality.
If you can work on your strengths, I think there's still market there. It's a temporary situation where, you know, there's a disruption there. I think if you can stay put on your strategy and keep working on your strengths in terms of quality and manufacturing, I think there's market out there.
Just a follow-up, as you said that this is kind of a temporary situation where the competition increases, then it kind of, you know, balances out. In your view, previously, have you seen such cycles and if yes, you know, when does it kind of balances or balance out?
Yeah, I think we did see, I think 2016, 2015, 2016, that time, when we also had a flat year. We did see that players coming in and exiting. We are seeing that, as we speak, some players exiting the space. It's just that the temporary blip where we also are supplying products to these companies, but then they exit, there will be a revenue pressure. It's also over long term, it's good because, you know, the competition is getting reduced. You know, fair enough, you know, we see a lot of products going into the shorter situation, but still it's not catching up. I think the prices will catch up once some of the products are getting into 40%, 50% of shorter situations right now.
Okay. The last one, if I may. On the client side, the inventory days are reducing, and on our side, the, you know, inventory days are kind of increasing. What's the disconnect there? Are we expecting demand to come back, you know, in a very strong manner in the near term? What's the thinking behind having more inventory right now?
One is, you know, we don't want to get in the situation what we faced last nine months, because of the long lead times we are having. That's one. Second, it's also reverse because the offtake is lower, but, you know, the end market is still intact. Based on that, you know, we are trying to keep those inventory. Also be ready with the. You know, we did touch upon a point where the FDA audits are happening, and we are seeing a lot of issues happening in different sites. We want to be ready with those kind of opportunities which we couldn't encash in last few quarters, I would say.
Okay. Perfect. Thank you.
Thank you. The next question is from the line of Pramod Dangi from Unifi Investment Management. Please go ahead.
Yeah. Thanks. You know, you have explained it, I just want to one thing, two-part on the working capital side. You know, one side we are seeing-
Sorry to interrupt you, Mr. Dangi. The audio is not clear from your line. Please use the handset mode.
Is it better now?
Yes, sir. Thank you.
Yeah, go ahead.
Yeah. No, thanks for the, you know, opportunity. My question on the working capital side, one side we are saying that we had the supply chain issue for a few of our product. On the other side, our inventory base has gone up significantly. Would you say that product where we don't have any supply chain issue, the inventory actually have sort of drastically beyond 217 days, which we have reported. That's the one. The second is, again, when our customers are cutting down on the inventory, obviously their cash flow would have been improved. At the same time, our debtors, they also went up. Is it that we are pushing inventory to the customer?
Is it that more credit is being given to the customers throughout the industry? Now, these two things, you know, if you can throw some light on these two parts?
One on the... I think Ravi will address the second part. One is on the inventory. Just take an example of Heparin, right? We are sitting on the API, we are sitting on other components, we just don't have stopper. Still the rest of the inventory, we are sitting on a high value, where I'm not able to sell the product, but still I have to hold the inventory waiting for the one component to come. Likewise, there will be products where, you know, one is missing, but I have the rest of the materials. I have to sit on that inventory. That's one, that's one reason why we have this situation. I think the rest Ravi will take.
Yeah. Receivable, to your question, is that this is a factor of that most of the sale is towards the quarter end, and the receivable are not due mostly. It is appearing like this. This is similar to also what we had faced in the last two quarters. If you're comparing with last year, yes, that time we had uniform sales, this sale got due and we collected. Here it is towards the far end of the quarter, which has led to this spike.
Also I think our ROW business.
Yes. ROW has a. Yeah.
Is there any discounting which had happened on the pricing because of the inventory at our level and the people cutting or customer cutting down on the inventory? Have you offered any kind of a discount to the customers, any specific discounts?
No, no. No, no, we don't, we don't do that. See, ultimately, it's not impacting the end sale. See, what we have discussed, if is it impacting the end sale, we don't want to do that because why do you want to give a discount just to push inventory from India to the U.S.? No, we don't do that.
Okay. Okay. Thanks.
Thank you. The next question is from the line of Binod Prasad Roulley from Integrity Capital Partners. Please go ahead.
Hi. Good evening. Just a follow-up question on the biosimilar CDMO. In an answer to one question, you said you have already spent about INR 300 crores of CapEx on that. In another situation, you said we are still pretty far away from any visibility of revenues. Is there a mismatch there? Did you do the CapEx in anticipation of something earlier? Can we have some clarity on that?
In fact, not just biosimilar side. Even when you start a plant, it will take a couple of years to start generating revenues. It's just that now we are in the When adding lines to the same facility, you'll feel that when you had started the Pashamylaram plant, for first two years, you know, it's not even commercialized by the time you invest INR 300 crore-INR 400 crore. That's, that's the nature of the business we are in. By the time you install, validate, apply for an approval, it takes so much time and also you have to generate business. In a normal injectable business, you know, if you go back to 20 years back, you know, it takes some time for that.
Once you are into that space and you're supplying products, then it's more, you know, you have that opportunity to, what do you call, plan your e-expansion and all that. We are getting into a new space, and now we've started doing the business development. This is like a situation where, you know, without a facility, companies won't come to you to give business. So we have to build that and then approach the customers to do business development. That's how it works.
Understood. Your first target would be what? These biosimilar companies who already have products that are selling in the semi-regulated markets? Or are they completely new products or are they companies who have products already in the regulated markets? Who will be your first target set?
I think mostly these are development companies who have developed clone, the cell lines or the clones, who are looking at taking clinical batches and getting the scale of batches. That's one, because it's easier to attract than the larger biosimilar companies who have already got their products approved in a particular site, and transferring from those sites to this site will take time. Number one. Number two, unless you have experience in delivering certain projects, no one wants to take a risk of transferring a product to you. You need to establish that credibility before you really get to more biologic or biosimilar products which are active in some markets. It's more a development companies which you have to do and then build up the business based on that.
Understood. Yeah. One final question on CapEx. For the nine months, you have done only INR 125 crores. And for the full year you said INR 200-250. Are you going to do the entire CapEx that you did in nine months in the next three months or in this quarter?
No, it depends on the timing of the PO and what stage the project, equipment, installation, et cetera, is there. It does not be like a pro rata basis in every quarter.
Oh, understood. Okay. Good. Thank you very much.
Thank you. The next question is from the line of Mayur Shah from Mistra Capital . Please go ahead.
Hello, am I audible?
Yes, go ahead.
Yeah. Good evening to the management of the Gland Pharma. I have a simple question that you have such good products, and because of certain products, your supply gets hampered. Why can't you all put up a plant where, I mean, you all feel where it is good to put a in-house plant where you all can manufacture in-house, like stoppers, syringes, whatever raw materials which is very much crucial for your sales? Would that help you all to get over the supply constraint? That's it.
We do work on a key APIs. You know, for example, for most of our key APIs we do manufacture. If that's the technology or, you know, R&D we can do. For stoppers and the others, you know, that's not the area where we have expertise, right? They're completely different technologies, so we can't really enter those markets now.
Yeah. still the sales are being affected because of these small things. This is not such a big product where, you know, you all don't have the expertise to manufacture, I assume. Because,
Yeah. Stopper manufacturing and glass manufacturing is not our area of expertise, so we can't really manufacture those. You know, at the scale at which these are manufactured overall, you know, this is like a situation once in a lifetime, right? You know, COVID is like once in a lifetime. They have got it and they are expanding capacities. You'll never be able to compete even if you start a small stopper manufacturing unit, so.
Okay. You mean to say-
Yeah. Yeah, go ahead.
You mean to say that these supply glitches will not happen further, this is once in a lifetime kind of a situation?
Yeah. I mean, we are in this space for like more than 20 years. We are facing this first time, That's because so many stoppers and these have diverted to vaccine production, which is like once in a lifetime, right? Billions of units have to be produced and all this manufacturing got diverted to that requirement.
Okay. One last question is that for any focus on an Indian pharmaceutical sector. I mean, is Indian market quite good for you? I mean, are you planning to increase the market share in India since it's just a 9% of your revenue base?
India, our focus is more on how we can get into more CMO side of the business because most of the critical care products, what are in India, most of it falls under the price control. That's not really lucrative for us with the facilities what we have. That's why we are selective in choosing products in Indian market. Unlike solid orals where it's more branded and still you can get some businesses, some margins where you have branded, but this is more a critical care hospital product where it gets into tenders and, you know, it's under price control by the government.
Okay. Thank you so much. All the best for your future endeavors. Thank you. Bye.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. On behalf of Gland Pharma Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.