Ladies and gentlemen, good day, and Welcome to this Q3 FY 2022 Earnings Conference call of Glenmark Pharmaceuticals Limited. As a reminder, all participant lines will be in the listen-only mode, and 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 and we'll join you. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ravi Agrawal, Head of Investor Relations, Glenmark Pharmaceuticals Limited. Thank you, and over to you, sir.
Thank you so much. A warm good morning to everyone and welcome to our Q3 FY 2022 Results Conference call of Glenmark Pharmaceuticals Limited. Before we start the call, a review of operations of the company for the third quarter. For the third quarter FY 2022, Glenmark's consolidated revenues was at INR 31,734 million as against INR 27,868 million, recording an increase of 13.9% year-on-year. For the nine months ending December 31, 2021, Glenmark's consolidated revenues was at INR 92,858 million as against INR 80,840 million, recording an increase of 14.9% year-on-year. Some key highlights before we get into the businesses. Glenmark was listed in the prestigious Dow Jones Sustainability Index for the fourth consecutive year.
The company is among only 15 companies from India to be listed on the DJSI Emerging Market Index this year. This inclusion is a validation of the company's commitment to sustainability and ESG principles and reiterates our consistent performance across all sustainability indicators. A detailed ESG profile of the company is available under the investor section on our website. Glenmark was selected for the Production-Linked Incentive scheme aimed at improving India's manufacturing capabilities and enhancing exports. Glenmark is one of the 11 companies under Group A selected for this scheme. Onto the business. First, the India business. Sales from the formulation business in India in third quarter FY 2022 was at INR 10,069 million, as against INR 8,821 million in the previous corresponding quarter, recording a growth of 14.2% year-on-year and 3.9% quarter-on-quarter.
As per October-December 2021 IQVIA data, the non-COVID base portfolio grew 15.5% as compared to the non-COVID IPM growth of 11.7% during the quarter. The India business continues to outperform the industry growth and has grown consistently over the past several years. Glenmark is one of the fastest-growing companies amongst the top 20 companies on March-December 2021 basis. As per IQVIA March-December 2021 data, Glenmark's India businesses recorded growth of 23.9% compared to IPM growth of 16.9%. The company increased its market ranking to 13th from 14th, with market share of 2.4% as compared to 2.34% last year.
As per IQVIA March, December 2021, Glenmark's India business further strengthens its core position in its core therapy areas in respiratory, with market share increasing to 5.36% as compared to 5.11% in Q3 last year. Similarly, market share in cardiology has increased to 4.86% as compared to 4.74% last year. Glenmark is now ranked fifth in cardiology from sixth earlier and has retained its rankings of second in dermatology and fourth in respiratory markets in India during the quarter. The company launched eight new products during the quarter. Amongst key launches during this quarter, the company launched the first triple combination of remogliflozin, vildagliptin, and metformin in diabetes under the brand names Remo MV and Remozen MV.
In addition, the company also launched the only ultra-long acting ICS combination in India with once-a-day dosing schedule in vilanterol and fluticasone capsules for the treatment of COPD under the brand name Vilor. The company recently received manufacturing and marketing approval for nitric oxide nasal spray in India as a part of the accelerated approval process for treatment of adult patients with COVID-19 who have high-risk of progression of the disease. Phase III trials in India demonstrated reduction in viral load of 94% in 24 hours and 99% in 48 hours, and the product was safe and well-tolerated in COVID-19 patients. The product has been launched in India under the Glenmark brand name of FabiSpray. The consumer care business, GCC business, recorded revenues of INR 358 million in the third quarter.
New launches like Candid Cream and La Shield delivered strong robust growth during the quarter. Secondary sales in Candid Cream grew 32% year-on-year, while La Shield recorded secondary sales growth of 89% year-on-year. Candid Powder continued to maintain its dominant market leadership status with a market share of 63.4% in the current financial year. Coming to North America, North America registered revenue from the sale of finished dosage formulations of INR 7,567 million, which is $101 million, for the quarter ending 31st December 2021, as against revenue of INR 7,804 million for the previous corresponding quarter, recording a degrowth of 3% year-on-year and a growth of 1% quarter-on-quarter.
In the third quarter of this, of FY 2022, Glenmark launched abiraterone acetate tablets 250 mg and clindamycin and benzoyl peroxide gel. The company filed 13 ANDA applications with the FDA, including four from Monroe in nine months FY 2022. It is on track to file around 18-20 NDAs in this financial year, including four or five filings from Monroe. In January 2022, the company received U.S. FDA approval for its first NDA product, RYALTRIS, highlighting the company's commitment to innovation to create breakthrough therapies and promising treatments for the benefits of patients. RYALTRIS will be marketed in the U.S. through our partner, Hikma. Glenmark's current marketing portfolio through December 31, 2021 in the U.S. consists of 172 generic products authorized for distribution.
The company currently has 47 applications pending in various stages of the approval process with the FDA, of which 20 are Para IV applications. Coming to Europe, Glenmark's European operation, Europe operations revenues for the third quarter FY 2022 was at INR 3,807 million, which is $51 million, as against INR 3,133 million, recording growth of 21.5% year-on-year and 13.3% quarter-on-quarter. The company witnessed healthy growth in both its key markets of Western Europe and Central Eastern Europe during the quarter. Despite continued COVID restrictions in some countries like Germany, overall growth in Western Europe was strong, led by double-digit growth in markets like U.K. and Netherlands. In the Central Eastern European region, growth momentum continued across all key markets.
The European regions have signed nine contracts for in-licensing products in the current financial year. In line with the company's global focus on the respiratory segment, the company further launched tiotropium dry powder inhaler in Germany, Denmark, and Sweden during the quarter, making a total of seven countries in Europe where the company has launched the product. Further, the company launched RYALTRIS in U.K., Poland and in the Czech Republic in the quarter, and the response has been encouraging. The company has detailed plans to launch both products in multiple other markets in Europe, both with our own front end and with partners in the coming quarters. Coming to ROW, which consists of RCS, Asia and MEA regions.
For the third quarter of FY 2022, revenues from ROW were at INR 4,178 million, as against INR 3,360 million for the previous corresponding quarter, recording a growth of 24.3% year-on-year. The company witnessed healthy growth in base business in the region across all its key geographical segments. Growth momentum continued in Russia and across CIS markets. Secondary sales grew 12% year-on-year and 66% year-on-year in value terms in Russia and Ukraine respectively. As for IPM, Russia segment grew 20.8% in value terms as compared to retail market growth of 10.7% in Q3. The overall response to RYALTRIS and Ryaltris-Mono has been very encouraging in this market. Secondary sales in Asia grew 22% year-on-year, led by positive momentum in key markets like Vietnam, Malaysia, and Philippines.
Glenmark's first global specialty brand, RYALTRIS, was launched in Philippines during the quarter. The company plans to commercialize travoprost in the region from Q4 FY 2022 under the name of Vylex. The Middle East and Africa region recorded strong growth with secondary sales growth of 24% year-on-year during the current financial year. The growth across all the major MEA markets, including Kenya and South Africa, was positive. Revenues from Latin America was at INR 1,170 million for the third quarter of FY 2022, as against INR 1,286 million, recording revenue decline of 9% year-on-year. The business has been impacted by Brazil, where the market remains challenging for the company due to the pandemic. Glenmark Pharmaceuticals Specialty and Innovation R&D pipeline. RYALTRIS.
In January 2022, RYALTRIS nasal spray received FDA approval in the U.S. for the treatment of symptoms of seasonal allergic rhinitis in adults and patients 12 years of age and older. During the third quarter, Glenmark also received approvals in Myanmar and Kenya. The company's awaiting regulatory approvals for its filings in Canada, Brazil, Malaysia, and several other emerging markets. RYALTRIS sales continue to grow in Australia, Czech Republic, Poland, Russia, South Africa, Ukraine, the U.K., and Uzbekistan. Glenmark initiated the commercial launch in Philippines in Q3 and plans to launch in Peru and Ecuador in Q4. Menarini, Glenmark's partner in select EU markets, is targeting launch in key markets starting Q4 FY 2022. GBR 310.
Glenmark had announced successful phase I results for GBR 310 that suggested similarity in pharmacokinetic, pharmacodynamic, safety and immunogenicity profiles between GBR 310 and the reference product omalizumab, marketed in the U.S. under the brand name Xolair. GRC-39815 is the company's respiratory pipeline asset being developed as an inhaled therapy for treatment of mild to moderate COPD. It is currently under phase I clinical development with a single ascending dose study in the U.S. GRC-17536 is the company's pain pipeline asset being developed as an orally administered treatment for pain in patients with painful diabetic peripheral neuropathy. The phase IIb study was initiated in Q2 FY 2022 and is currently ongoing in India with 128 patients randomized till date. GLP toxicology studies for metabolite qualifications were completed in Q3 FY 2022.
GRC-54276 preclinical and in vitro and in vivo profiling was completed in Q1 FY 2022, and preclinical DMPK and non-GLP toxicology studies were completed, and IND-enabling studies were initiated in Q3 FY 2022. Phase I IND submission is planned in Q4 FY 2022. Glenmark Life Sciences. For the third quarter of the financial year, revenue from operations including captive sales was INR 5,225 million as against INR 5,002 million, growing at 4.5% year-on-year. The EBITDA margins stood at 28.6% for Q3 FY 2022. External sales for GLS was at INR 3,032 million as against INR 3,201 million, recording a decline of 5.3% year-on-year. The group was impacted due to higher base of COVID products in the previous year.
GLS is in the process of executing brownfield and greenfield capacity expansion projects to support strategic growth levers. For further updates on GLS, please log on to www.glenmarklifesciences.com. Ichnos. For the third quarter of the financial year, Glenmark invested INR 1,520 million, which is $20.5 million, as compared to INR 1,713 million, which is $23 million invested in the corresponding quarter of the previous financial year. For the first nine months of the current financial year, Glenmark has invested INR 4,987 million, which is around $67.5 million, as compared to INR 5,693 million, which is $76.3 million invested in the corresponding period of the previous financial year.
During the quarter, Ichnos entered into an exclusive licensing agreement with Almirall for the IL-1RAP antagonist ISB 880. Under the agreement, Almirall is granted global rights to develop and commercialize this monoclonal antibody for autoimmune diseases. Ichnos retains the rights for antibodies acting on the IL-1RAP for oncology indications. Ichnos received an upfront payment of EUR 20.8 million and will receive additional development and commercial milestone payments and tiered royalties based upon future global sales. For further updates on the pipeline and the organization, please log on to www.ichnossciences.com. The pipeline update for the third quarter of this financial year is published on this slide. A key objective for FY 2022, which I would like to reiterate, for what we'd reiterated last time as well. The revenue growth of 10%-15% during the year.
Sustain EBITDA margin performance at similar levels of FY 2021. Reduce debt by at least INR 16 billion through a combination of free cash generation and IPO proceeds during the year. Post FY 2022, the strategic priority to enhance free cash generation for further debt reduction, prioritizing over R&D investments and capital expenditure. Close one to two out-licensing agreements at Ichnos. Before we open for Q&A, some notes. The Forex loss for the quarter was at INR 17 crore, which is recorded in other expenses. Gross debt for the period ending December 31, 2021 was at INR 3,574 crore as compared to INR 4,687 crore as on March 31, 2021. A reduction of INR 1,113 crore.
Net debt for the period ending 31st December 2021 was at INR 2,149 crore as compared to INR 3,549 crore as on 31st March 2021. Thus, the total net debt reduction was at INR 1,400 crore from during this period. Inventory for the period ending 31st December 2021 was at INR 2,621 crore as compared to INR 2,277 crore as on 31st March 2021. Receivables for the period ending 31st December 2021 was at INR 2,869 crore as compared to INR 2,572 crore as on 31st March 2021.
Payables for the period ending 31st December 2021 was at INR 2,389 crore as compared to INR 2,238 crore as on 31st March 2021. Thus, the net working capital of the company has increased by INR 491 crore in nine months FY 2022. Total asset addition was at INR 162 crore in the quarter as compared to INR 138 crore in Q3 FY 2021. Of this, the tangible asset addition was for the quarter was at INR 140 crore. R&D expenditure for the third quarter was at INR 303 crore, which is 9.55% to net sales for the quarter, of which Ichnos was at $20.5 million as compared to $23 million in Q3 FY 2021.
Before we open the floor for Q&A, I would like to introduce the management of Glenmark on the call. We have Mr. Glenn Saldanha, Chairman and Managing Director, Mr. V.S. Mani, Executive Director and Global CFO, and Mr. Robert Crockart, Chief Commercial Officer. With that, we'd like to open the floor for Q&A. Over to you, moderator.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your 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 is assembled. Before we take the first question, I'd like to remind participants, if you have a question, please press star then one at this time. The first question is from the line of Damayanti Kerai from HSBC Securities. Please go ahead.
Hi, good morning, and thank you for the opportunity. My first question is on your U.S. business. We have seen sales stabilizing in $105 million in last two quarters. Want to hear your thoughts on like how we should look at U.S. sales going in coming quarters, and what are your observation on the pricing erosion trends in the U.S.?
Good morning. This is Robert. What we're looking at in the U.S. is, yes, there's been factors impacting the business in quarter three. However, on a quarter-on-quarter basis, we expect to see growth going into quarter four.
Okay. Where are pricing erosion levels in recent times? Has it reduced from previous quarters?
No, not really. We're really seeing it in the region of around 7% or 8%.
Okay. 7%-8%, and it's similar to what you have seen in some of the previous quarters?
Yes. It's close to that.
Okay. Can you update us on the pickup from Monroe facility, how it is moving up?
As you know, Monroe, we had a recall in the third quarter, which also impacted our U.S. performance. I think from Q4, we are ramping up Monroe production. I think next year you'll see a big benefit coming out of the Monroe facility, particularly on injectables, nebulizers, both the lines, as well as oral solids. From Q4 onwards, I think, you'll see a ramp up. The main benefit will come starting the most of next year, starting Q1.
Sure. Great. My last question before I get back in the queue is V.S. Mani, can you please comment on the fact that staff costs has reduced sharply on a sequential basis. What has led to this reduction, and how should we look at this cost on a more sustainable basis?
Staff cost is slightly lower compared to, I mean, previous year and previous quarter because normally most of the bonuses are paid out in the quarter two. Therefore this year, I think a lot more has been paid out in quarter two. I think quarter three looks a little lower. On a yearly basis, we trend at the same level, so it should not be very different. Okay.
Okay, I'll get back in the queue. Thank you.
Thank you.
Thank you. Before we take the next question, a reminder to the participants. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Good morning. Thanks for the opportunity. My first question is on RYALTRIS. Can you comment on the launch timelines here? Your partner Hikma, what is the estimated timeline that we're looking at for Hikma's launch? And what exactly is the arrangement that we have with Hikma? Is it some kind of royalties that we'll get or is there a profit share? If you can comment on this.
On RYALTRIS, we anticipate we will launch this product in Q1 of FY 2023 on the U.S. market. As you know, we are launching in multiple parts of the world as we speak, and we've already launched the product in many parts. I think the U.S. market, you can anticipate a Q1 launch for RYALTRIS. As far as our relationship with Hikma goes, I mean, I really can't comment on the commercial aspects of the relationship, but it's a partnership. Hikma will be commercializing, and we will be supplying the product, and we will continue to get both milestones and, you know, some kind of profit share/royalty structure from Hikma.
Okay. That's helpful. Second one is on this impairment that we've had in the quarter, impairment of intangibles. These intangibles are related to which market and, given that we have a fairly high intangibles on our balance sheet, should we expect more impairment?
Yeah, sure.
-possibility?
We'll take that. Yeah. As you see that as time goes by, there are changes to the market conditions. Okay. These are basically in-licensed products that we have basically licensed out in U.S. and Europe. Okay. We on a periodic basis look at the, you know. We do a portfolio review, we look at the landscape, and then we try and see that we map it against how the overall thing looks like, is there any estimated erosion, et cetera. I think it's pretty common in the industry that when you look at it, you decide that some products may not, you know, continue the development. Okay.
Hence you decide to, you know, sort of deprioritize them, and you kind of, you know, you provide for them. We had a couple of products which we thought, you know, there are more, but there are these key products. Like, we were doing some projects on amphetamine salts, we were doing on bendamustine, we were doing on paclitaxel. There were a couple of products we were working on and a few more. We thought it's a good time, you know, when we look across the review and, you know, decide to deprioritize them for now. That is how we provided for them. As of now, I don't see anything further on that front. To be sure, I mean, there are winners, there are some that don't do well.
A couple of them did very well in the past. Some may take time, may not happen right now, so we deprioritize them. This is pretty common in the industry, so that's how we did it for this quarter. Yeah.
V.S. Mani, I have one follow-up on that. When we think of the INR 2,000 crore in intangibles that we have, is it-
Yeah.
Is it fair to assume that most of this is related to the European products that we've licensed, you know, majority of this INR 2,000 crore. Is that the correct understanding?
Yeah. A lot is Europe, but few are in the U.S. as well. It's not just there. Sometimes in some other geographies also we license products, okay? It's not just. Obviously, Europe is the biggest piece, yeah. Sure.
Okay. My last one is on Ichnos. Congrats on the deal with Almirall. I'm thinking of the BEAT asset specifically. There's been a bit of a churn there. We have one asset in phase I. How should we think about the licensing deals from the BEAT side of Ichnos? Any particular asset that we think is ready for a potential licensing deal, and is there any data that we should kind of look at or that we are expecting post which licensing deal can happen?
I think on Ichnos, you know, the most near-term event for us should be, you know, we are trying our best to try and close something on ISB 830, right? So that our entire immunology portfolio is partnered out. That's the most near term. On the BEAT platform, you know, we are anticipating ISB 1342, we will get POC in Q1 of FY 2023. ISB 1442, we are hoping, you know, as soon as it gets into the clinics, sometime next year, we could see some evidence of efficacy. And then, you know, given the technology and given the portfolio, we think, you know, there is a strong possibility you'll see some partnering activity next year on the oncology side, and that's what we are targeting.
I just wanted to add one more point. Yeah. Basically this, I mean, this licensing that we have done of 880, we received the monies in January, okay? We received the funds in January.
Okay. That's very helpful. Thank you very much.
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go on.
Yeah. Hi. Thank you for taking my question. I just had one question on the free cash flow for this quarter.
In this quarter, if you look at it, I mean, while the operating business generated a decent amount of cash flow, I mean, as we read out in the initial part, there have been some increases on the working capital side. On a very broad basis, our, you know, our debt has come down further by a very marginal amount, INR 10 crore-INR 15 crore. As you can see, our inventories, et cetera, have gone up because of obviously the market conditions. As you know, sometimes there are challenges in terms of sourcing material, et cetera. We wanted to, you know, take business first, you know. As you can see, CapExes have come down. I mean, other things have been taken care of, but I think working capital is something we cannot compromise on.
We have actually added something to the inventories, okay? That's that.
To follow up on that, how do you see working capital stabilizing in terms of inventory going forward?
For a few quarters it will be still up, yeah, because, as you can see, there has been volatility. You keep reading about the logistics issues that people are having. Last few quarters, the logistics also have been quite. You could have seen freight rates go up substantially for air freight, so people have even, you know, worked on the production cycles to ensure you do more of sea shipments, you know, so you bring down your costs and manage your costs very well. I think, I mean, it's a trade-off, okay, end of the day. You will see it a little up for a couple of quarters, and hopefully things stabilize and as more normalcy comes in, it will come off. Okay. That's what we look at.
Okay. Thank you so much.
Thank you. Kindly to the participants, if you have a question, please press star then one. The next question is from the line of Tanav Randeria from Rewire. Please go ahead.
Yeah, good morning, everyone. My first set of questions are on Spiriva in Europe. Can you share how the market share in some of your key markets which may have lost a couple of quarters back, how is it progressing, and what is the realistic share that you can go to? Secondly, any kind of competition that you could expect in this molecule in Europe in the next 12 months or so. Thirdly, how much of the growth in this quarter in Europe could we attribute to Spiriva?
Well, I think this is Spiriva, you know, our generic is a big product for us, right, in Europe and it's a large opportunity. You know, as we keep launching in multiple markets, our share overall for the molecule will keep growing. We launched as the first generic. There will be competition going forward. I think given the head start and given the opportunity, we think this will be a substantial contributor, at least for the next few quarters, for Glenmark. Between Spiriva, I mean, the tiotropium DPI generic and Ryaltris, we think the European growth will remain, you know, pretty strong over the next few quarters, as we go forward.
any sort of, you know, maybe market share number you would like, you know, you'd be happy with mid-teens, maybe 20%.
I don't think we can share a market share number at this point because it's so specific based on market by market, that it's hard to put a specific market share to the molecule as a whole.
Sure. In this quarter, how much of the growth would have been due to Spiriva? I mean, would it be fair to say that excluding Spiriva also, the pure growth would have been double digits?
I think the base business, it's hard to anticipate that it'll grow more than double-digit, right? At best, it'll be double-digit. The real contribution is coming out of the new molecules and the new launches in Europe, which is driving it.
Sure. Second question is on your India business. You know, quite a strong performance in this quarter. I think going forward, you know, should we expect something, you know, like there's a market-leading kind of a growth, and what would be the growth drivers, here? I mean, what kind of therapies you look at? What are the kind of new launches that you are aiming for? If you can just maybe highlight a bit on that.
India, you know, is one of our strongest businesses, right? I mean, if you look at the nine-month IQVIA growth is somewhere like 28%. I mean, internally we've our internal reported nine-month number is around 18%. If you look at the month of January, you know, the recent IQVIA data which came out, we've grown at 36%. You know, these are very, very big numbers, right? For India. We continue to be among the fastest growing companies in India, and I think we will continue to sustain that. Among the big launches, obviously, FabiSpray will be a good contributor for the India growth near term. We've launched a whole, a bunch of products in India, which are also driving growth in the areas of respiratory, in the areas of dermatology, in diabetes.
You know, we launched a triple combination for Remo. In respiratory, we have a number of launches. In derm we launched Luliconazole for the first time. I think there are lots of new molecules, new products targeted to India, which is helping the growth overall. India will continue—we will continue to outperform in the Indian market.
Got it. Thank you very much, Rahul.
Thank you.
Thank you. Before we take the next question, reminder to the participants, if you have a question, please press star then one. The next question is from the line of Sanjiv Duggal from HSBC. Please go ahead. Mr. Sanjiv Duggal from HSBC, your line is unmuted. You may proceed with your question. As there's no response from-
Hello.
Mr. Sanjiv Duggal.
I'm his analyst. I have a couple of questions for management. First thing is on EBITDA margin. I noted that this quarter, your EBITDA margin, if we exclude the licensing income, the EBITDA margin actually came down to 17.8% compared to last year, which is a decline. I note that for the industry, energy price and API price has been an issue. I'm just wondering how much of that contributed to the EBITDA margin decline for the business this year, this quarter.
Thanks for the question. I mean obviously there will be volatility quarter to quarter. Okay? In this quarter, definitely there has been some volatility in terms of the input cost and also the freight cost, etc. Okay? If I were to look at it, I mean it's about a percentage lower than what we have been there. On a nine-month basis, again, if you look at it, we are closer to 19. Okay? We continue to think that with more product launches coming in the next couple of quarters and especially in the next quarter as well, because we didn't have too many launches in the U.S., etc., in this quarter. I believe that we should be very close to the 19% what we guided to. Okay?
I think we'll be there, closer to that.
Okay, sure. On the API price and energy price pressure, do you see that to turn around in the next quarter or will that sustain for a while?
I think overall, you know, you are seeing pressure overall on API prices, on input costs, on freight costs, and we think that will sustain at least for another quarter, right? However, I think as Mani mentioned, with all the new products that we are launching and the opportunities that we foresee going forward, we feel pretty comfortable in terms of sustaining our overall EBITDA margins, right? Both for Q4 and for next year. We'll continue to be around the 90%-odd, right, going forward in terms of margin profile.
Okay, sure. Thank you. My other question is on FabiSpray. I noted that you recently launched the product in India, and I'm just wondering how you're planning to position this product against Moderna and Pfizer's COVID drug, given the competition. In terms of pricing, how much cheaper do you plan to price against the other two products?
I think FabiSpray is a nasal spray for the treatment of COVID, right? I think basically we've got approval for treatment. Our partner, SaNOtize, is running a 15,000-patient prevention study. I think overall this product will be a useful product, you know, to be taken both for COVID treatment, and eventually as and when we get the approval for prevention of COVID. I mean, that's the way we look at it. Moderna and Pfizer are not a fair comparison because those are vaccines. You know, clearly this is more treatment and prevention on a real-time basis as opposed to a vaccine, which is a completely different therapy altogether.
I was referring to the oral drugs from Moderna and Pfizer.
Oh, you mean the Pfizer's oral drug Paxlovid, right?
Yes.
the Merck product, molnupiravir, I'm guessing, right? Those are the two oral products. I mean, those two products, obviously we have FabiFlu, right, which is a big product, which is favipiravir for us, right, which is well-established, which will compete with the oral products, you know, out there. In addition, I think, you know, this product's positioning is very different than the oral drugs. Those are products for treatment of COVID and this is more, you know, treatment/prevention, right? It'll be another product in the armament of the doctor, right? Who can prescribe multiple products for COVID positive patients.
Sure. Thank you. My last question is on your net debt. I noted that for nine months, you guys have reduced about INR 14 billion net debt this year. I think the target is INR 16 billion for this financial year. I'm just wondering, where do you plan to secure the last INR 2 billion from?
I think we continue to progress well on that front, so we are hopeful we'll be very close to what we planned at the beginning of the year. Yeah.
Okay. Sure. Thank you. I have no more questions.
Thank you.
Thank you. A reminder to the participants, if you have a question, please press star then one. The next question from the line of Tushar Manudhane from Edelweiss. Please go ahead.
Just on other expenses, it has been up, excluding R&D. The other expenses are sharply up Q-on-Q and even year-on-year. Any one-off there?
See, obviously, there is a little bit of seasonality when we look at normally H2 our expense, other expense are a little higher. If you look at it as a percentage of sales compared to the previous year, it is very much close to that or thereabout, so maybe a little bit lower also in terms of a percentage. I mean, if you look at the quarter as such, there would obviously the freight costs were a little higher, so those were probably the one-offs. Also as, I mean, obviously at some stage in the, especially in the second half, normally we do spend some amount of extra monies on promoting products, et cetera. So on an overall basis, I don't see it substantially getting distorted or anything.
I mean, if you look at it historically, at one stage it used to be 29%-30%. We have come up a long way from there. Okay. I think you can guide to it being around these levels, only 25%-26%. Yeah. Should not be higher than that.
Got it. Just favipiravir contribution to the overall sales would be how much, say, I mean, for nine months FY 2022 or maybe for third quarter in specific, where the COVID cases were, I guess, minimal, at least in India or across the world?
I think globally, I mean, it's minimal, right? It has very little impact in other markets. For India, we don't specifically guide to breaking up FabiFlu with the other products. If you look at Q3, we had virtually no sales of COVID drugs. I think that's a fair reflection of how the business is performing, right? Despite not having any COVID products in there.
All right. Thanks. That's a journal.
Thank you. A reminder to the participants, if you have a question, please press star then one. The next question is from the line of Nitin Agarwal from DAM Capital. Please you may go ahead.
Thanks for taking my question. On FabiSpray, while it's been about a week now since you guys launched, any sense on the initial response that you've got from doctors?
Currently, Nitin, the response is very positive. I think, you know, the clinical trial data looks really good in terms of both improvement, you know, in viral load as well as on the treatment side. The initial response is very positive for the product.
Anyway, given this product has been around for a while, what's the experience been for the pickup in the product in other markets where it's been, for example, I think in U.K. and Israel, it's been there for some time now?
Actually, Nitin, the product is just launched by SaNOtize in multiple markets in the last three or four months, and it's done really well in multiple markets, you know, across the world, right? Wherever they've launched. I think, you know, it should do well overall.
Okay. Secondly, on the U.S., now in terms of the pickup in the business, what is it fair to assume that it's essentially gonna be driven by the Monroe launches, increasingly from here on?
I mean, the U.S., you know, if you see Q4 for instance, right, we anticipate launching at least four or five new products, right? Two of which we got approval. We're relaunching esomeprazole. We have one more approval pending. We have some of the Monroe products, you know, ramping up. I think from Q4 onwards, the U.S. business should do well. If you look at next year, you know, we have some great injectable products coming out of Monroe. Regadenoson was a good tentative approval for us, and we expect some more approvals coming through. Much longer term for the U.S., you know, we think the respiratory products that we're working on should start contributing significantly. We have a clear roadmap for U.S. products and U.S. launches.
The Monroe site over the next two to three years should be a substantial contributor to the U.S. business overall, and that's what we are targeting.
Thank you.
Second question, Monroe. V.S. Mani, what would be, you know, I believe because you're not generating much revenues in Monroe right now, what would be the uncovered cost which will be there roughly on the plant right now, which you can possibly cover once this revenue scale up?
The total cost of running the plant is about, roughly about INR 30 million, okay? Today, as it is, we anyway, about almost half of it is anyway because of OSD and other lines going online, we already are writing them off. The balance will also get written off as the products come in. Okay. I don't see a big challenge there.
Okay. Last one on the non-innovation R&D. What are the focus areas now for you, given the fact that, you know, this whole space has been, the generic space has been in a state of churn with fewer opportunities, really speaking for generic companies as we go along. How are you now looking at incremental R&D spends in this industry?
I mean, I think, Nitin, we have not backed off on R&D spends across the board, right? On be it you know India, be it ROW, be it emerging markets, Europe, U.S. I think our portfolio mix of investments in R&D have not changed to a large extent. It's more the quality of the products. You know, we think RYALTRIS will drive the near term performance for the emerging markets and U.S. and Europe starting next year. We have products like FabiSpray, which are launching in India and other parts of the world as we speak. We have a host of other respiratory products launching.
I think overall, you know, the portfolio remains very strong over the next two to three years across all the markets that we operate in, which will be the biggest driver to our performance.
Thank you.
Thank you. The next question is from the line of Sameer B. from Morgan Stanley. Please go ahead.
Yeah. Hi. Thank you. Good morning, everyone. V.S. Mani, just a quick question on the gross debt. You know, why are we carrying so much gross cash on our books, if I'm not wrong, INR 1,300-INR 1,400 crore, and what's the negative spread, what's the cost of carrying this?
Sameer, as you can see, I mean, I'll answer you in two parts. The gross debt is, as we explained, about INR 3,500 crore. We had some longer term loans, okay? Sameer, so obviously, as and when they are due, we try and refinance them, okay? Or we prepay them off, okay? That's one reason. I mean, historically, if you look at it, we have so many operating geographies that we've always carried about INR 900,000, and many of the peers in the industry do the same as well, okay? Obviously, when you have so many operations in many markets, you do need some funds everywhere. You can't obviously do a kind of pooling in one place and reduce everything.
As I can see, I mean, the interest cost as such over a period of time has come down. As you can see, our interest costs in these quarters are hardly INR 60 crore compared to what it used to be, almost INR 80 crore, INR 90 crore in the past. I mean, at best, the carrying cost can be 1.5%-2% at Tawa, if at all one looks at it. But then at the same time, I have to ensure that there are, you know, we have U.S. operations, we have Monroe, we have so many other places. Some funds need to be there, you know. That's the reason why we have. But we always like try and see how best to innovate and try and reduce it. We look at that as well. Yeah.
Okay. Yeah. Thanks. Just on the U.S. RYALTRIS launch, so when is it? Is it possible to share more color on this in terms of would it be a typical, which is like market dynamics? Would it be a typical specialty product where you need to get onto all the formulary lists, et cetera, retailing to doctor, you know, but essentially a retail product? I mean, is this the way to think about it?
Yeah, this is a typical specialty product, Sameer, where, you know, detailing to doctor will be essential, right? Hikma, because they have a sales force out there, right, they're well positioned to promote this, especially for allergists/ENTs.
Which also means then that therefore the scale-up would be gradual, you know, in a way to say.
That's correct.
Because all of this needs to be done, yeah?
That's correct. The good news, Sameer, is look, in the rest of the world, right, the product is already launched in many markets, and just the sheer magnitude of promotion across the world, right, and Menarini in Europe, Hikma in the U.S., right. This product will be a major product for the company. Starting next year, we'll see significant contribution out of RYALTRIS.
on that point, you know, I'm not looking for a number from you, but looking out three-four years, you know, as it scales up in U.S., could this be a triple-digit sort of opportunity for us?
For sure, Sameer. I mean, next year itself, we think, you know, we will be $40+ million in sales just out of this one product, so on a global basis, right? I mean, clearly this will be ahead of a three-digit number at peak sales.
Okay, 40 million global, but I was referring to triple-digit U.S. alone.
I can't comment on U.S. alone, Sameer, because that's part of Hikma's revenues also.
Okay.
I can say what it'll be to Glenmark.
Okay. No, that's fine. Yeah, that's fine. That's fine. One final question from my side. For Ichnos, is it that the licensing out of immuno, you know, candidates is a bit easier than onco or is it really product specific?
I think, Sameer, you know, it's all depending on the science, right? Eight-thirty, you know, is. As you know, the OX40 is an exciting target, and there's just three guys who are in phase II clinical trials, right? We are one of three. The other two have got partnered out. We are hoping to do something there. In oncology, obviously it's harder, Sameer, but just given the technology, given the kind of products we are working on, 1442, for instance, we did an oral presentation at ASH, which got a great response. It's, I think it's all related, you know, specific to the product overall, right? Which will ensure bringing on partners.
Okay, great. Yeah. Thanks so much. That's all from my side.
Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
We are just picking up from the last question on response on right. Just to clarify, when you talk about the sales numbers, we talking about because the fact we partnered on the product in lot of geographies, so we're talking of our revenue contribution, or it is the overall sales for this product of global sales?
Nitin, we are just giving a consolidated number, okay? Obviously there will be some amount of royalties, some amount of transfer pricing built into the partners and everything. We're just talking about what it is to us, right? Overall. Obviously, the margins will be significantly higher, Nitin, because it'll include a royalty and a profit share component, right? For us.
I got it. Essentially on a global basis, it can potentially be a triple-digit dollar million number for us at some point in time going forward or in terms of our consumer product contribution to us, to our business.
Absolutely.
Okay. Got it. Thank you.
Thank you. The next question is from the line of Prakash from Axis Capital. Please go ahead.
Yeah. Hi. Thanks. Good morning to all. My question is on gross margins. Typically 3Q, 4Q, given the seasonality, we have higher gross margins. If I exclude the licensing income, then the gross margins seem to be a little lower. You mentioned about input costs, et cetera, which most companies are talking about. You tell me something like, you know, with the input cost being higher, you mentioned Q4 likely, but how do you look next year in terms of gross margins? Is there any visibility? Would you be able to improve from the base that you have currently?
Prakash, as we also earlier alluded, see, we do see some increase in the input cost, but obviously it will be kind of season volatility, whatever. What I can guide you at best is to say that, look, there will be new product introductions. Obviously your realizations are higher. Gross margin is not just about only the input cost, it will also be about the realizations you have. If you introduce more new products and some of them do better, like we've been doing RYALTRIS, et cetera, obviously the margins will look better. At an EBITDA level is what we are guiding better, that obviously there are more levers to manage better. I think that's where we said that current year we are closer to...
I mean, last year we were 19%, this year also we're closer to 19%. We should be around there. But obviously input costs are something that everybody is mindful of, and not everything lies in our hands, okay? We have to be careful how we play it. But we do see some new product introduction that should give us better margin, that should help us to kind of take better care of our margins, okay? That's what we are seeing.
Okay. On India business, like the strong performance, now looking at this base of, you know, high base of last year and this year also, how do you think next year? Do you think industry and yourself could be double digits?
Prakash, obviously our challenge for next year is our base high, right? Because of the COVID drugs that we had this year also. I think with some of the new launches, right, we clearly see India, you know, growing strongly, right, and outperforming. We'll just have to take it as it comes. I mean, January has been a great month, and we are expecting, you know, similar performance at least for the next couple of quarters in terms of outperforming the overall market. Because of the high base of COVID drugs in this year, right, it's hard to project India at a double digit for next year.
Lastly, on the, you know, the amortization, this is largely the European intangibles, right?
Yeah. European as well as a few of the U.S. as well. Obviously we've in-licensed products across geographies, more so in Europe. That's where we built a business with that. We did a complete portfolio review like many of our peers do, and we decided that these probably currently they need to be prioritized. That's why we did that, yeah.
What is the value which is still sitting in Europe in terms of intangible assets?
See, overall we had almost like, I mean, we have intangibles of closer to INR 2,000. Obviously a good portion of that will be in Europe, yeah.
No, no. I mean, what is the current gross block there for intangibles?
Current gross block, I mean, when I did September also it was about INR 2,000 crore. To this extent it will come down and almost 80%+ would be in Europe, yeah. That's the way to look at it.
V.S. Mani, my question is what is the current gross block there? I mean, you have not impaired everything, right?
No, no. I'm telling you my gross block was around INR 2,000 crore. Of which now I have impaired INR 178 crore. The balance will be still there in the gross block. You are asking against that. That gross block will still be there, INR 1,800+ crore will be still there.
Okay. This, you think every year there will be a similar amount which can continue?
It will be reviewed regularly, so there will be an amortization bit to it, Prakash, which we do every year. Beyond that, if there is anything that we feel that any product is not doing well or any in-licensed product is not doing well, we'll impair it. That's the way to do it, right?
Prakash, this quarter our addition to intangibles is around INR 22 crore. It's more than INR 22 crore addition.
Yeah. Okay. Thank you so much. All the best.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Thank you for taking the question. Just one on the U.S. business again. Sorry to harp back on this. The run rate of $105, and I think during the call we've got a lot of pressure points both on raw material, utility costs. So Glen, just a very directional question for your industry, right? There's been challenges in the generic space. You know, how should we look at this? Is there scope that something changes? Can this 7%-8% price erosion continue forever? You know, maybe the answer is launches, which you have talked about. But just want to understand how should we look at this business, like a three to five-year perspective.
Shyam, as you know, the U.S. business is a tough business, right? The U.S. generics business. I think, you know, with so many new players coming to the market and the agency approving many more products, I don't see the price erosion tapering off, right? In the near term at least, right? It's hard to predict much longer term, but at least for the next few quarters, I don't see the price erosion tapering off. I mean, for a company like Glenmark, just given the fact that, you know, our scale is much lower, right, than some of the other companies, right, in terms of size.
Given our new product launches and our Monroe investment and you know number of products coming out of Monroe, we still you know we are still confident that we'll be able to grow this business, right, on a consistent basis going forward, right? As far as the price erosion and the margin pressures are real, and they will continue to stay for a while. It's a lot of hard work to even sustain your margins and keep on working hard on the cost side of things, right, to continue to operate in this business. Bottom line, Shyam, is there are too many players right now. Until you know some of the players exit the market or reduce their efforts in the U.S., it's gonna remain competitive.
Got it. Helpful. To Mani's point on higher working capital, is it again driven largely by the U.S. business?
Partly U.S. and partly other geographies as well, Shyam, because obviously you need API and other key source materials across various businesses, right? I mean, to some extent U.S., but across many geographies, yeah.
Yeah. Just my underlying question is similar. Like when you look at an ROCE basis, right, you know, it makes lesser and lesser sense you think to do more U.S. generic business at least? You think it's, you know, we have not reached the scale, so you need to invest before reaching-
I will rather say it will be across most geographies. It will not be just the U.S. business alone, okay. Obviously U.S. business definitely. If you look at it, 30% of our business is U.S. and 35% is India. Obviously they'll have a bigger share of whatever is the pool. If you look at it, 65% of the business is between these two. Obviously you need to stock materials and ensure that you are not losing any business because of supply. Because as you can see, there have been challenges on the supply chain in terms of how you have looked at not just the freight costs, even the timeliness of the material reaching the ports, et cetera.
We have been a little careful to ensure we have enough raw materials with us so that we don't lose any business at all. I mean, there is a trade-off, Shyam, clearly there, which we are trying to take care.
Got it. Last question, just a suggestion on, you know, we have talked so much about RYALTRIS, about Spiriva. If there is a way, I know you don't want to call out specific products. But other companies have now started giving some complex generic or something like that, so that we can look at it and say, "Okay, this is one area where, you know, Glenmark is doing better." Right? I know we give geographical splits but these products are across geographies. If there is something that we can highlight, and you can put things together in one bucket so that we are not able to disaggregate.
I think that's a fair suggestion, Shyam. I think going forward, you know, when we do have our next investor presentation, right, we will try and pinpoint some of the areas that we wanna focus on, right, and where we are focusing on.
Got it. Helpful. Thank you and all the best.
Thank you.
Thank you very much. Ladies and gentlemen, that was our last question. I would now like to hand the conference over to Mr. Ravi Agrawal for closing comments.
Yes.
Thank you and have a good day.
Yes. Thank you, moderator. We will read the disclaimer before we end. The information, statement, and analysis made in this presentation describing the company or its affiliates, objectives, projections, and estimates are forward-looking statements. These statements are based on current expectations, forecasts, and assumptions that are subject to risk and uncertainty, which could cause actual outcomes and results to differ materially from those statements, depending upon economic conditions, government policy, and other incidental factors. No representation or warranty, either expressed or implied, is provided in relation to this presentation. This presentation should not be regarded by recipients as a substitute for the exercise of their own judgment. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, further events, or otherwise. With this, we end the call today.
A very big thank you to all of you for joining us on the call.
Thank you. On behalf of Glenmark Pharmaceuticals Limited, this concludes this conference. Thank you for joining us. You may now disconnect your line.