Real activity will start from Q4 of this year: Glenn Saldanha, Glenmark
From here on, the US sales should grow back and start trending upwards.
We have got a mixed verdict from brokerages on how things have moved for Glenmark for the quarter gone by. Before we get into specifics, what have been the hits and misses according to you?
In Q1, we grew the business at about 7%-7.5% on overall revenues. There was some currency impact on EBITDA margins, but if you strip out the currency, our EBITDA margins grew compared to Q1 of last year. So, all in all, it was an okay quarter of the CV. We expect Q2 to be much stronger than Q1. We continue to maintain overall guidance of 10% to 15% top line growth for the full year.
The US business revenue came at close to $105 million versus the estimates of close to a $114 million. Do you think the decline that we have seen on the derma portfolio will continue to impact your sales?
The bulk of the decline is on account of just one product, mupirocin. We are seeing some changes in the reimbursement environment and that is the reason why the US sales YoY was flat compared to the same period last year. This quarter, we are expecting a couple of big approvals and so we have pretty much hit the bottom as far as the US goes in Q1. From here on, the US sales should grow back and start trending upwards.
There seems to be a decline in derma portfolio. Is this a price erosion which is natural and do you know even the brokerages are mentioning it? This is something which normally happens with a generic cycle. It starts at an uptick and then the price drop happens?
Derma has been an attractive segment for a long time in the US and in the last two or three quarters, we witnessed a lot of competition in the derma space. We have seen quite a lot of price erosion happening and Glenmark, despite getting so many new product approvals, is still not able to grow the top line substantially.
Partially that is because of the price erosion that we are seeing in derma and products like mupirocin. Again, our view is Q1 was the overall bottom. As far as derma price erosion is concerned, it has hit a trough right now and from here on, the price erosion should be normalised to about a 5% kind of a regular price erosion.
Glenmark is expecting two significant generic approvals -- a limited competition injectable product and a topical product with CGT designation in the second quarter. What kind of opportunity do you see from these approvals?
We think both these approvals are big. I cannot talk too much about the specifics but they are $350 million and $200 million products with limited competition. They should positively contribute to the second quarter for us.
Your debt levels have definitely changed from where they were but in order to bring them down substantially, you have shared a roadmap. Are you committed to stick to that roadmap?
We are absolutely committed and there are two things that we are doing; one, on our API business, we continue to work to try and bring in a minority investor. We have got a number of non-core assets which are getting divested this year. Overall, the leverage should come down by Rs 700-800 crore this year.
The other point is, we have been continuously investing in our innovation business which has recently got spun out. We invest almost 30 million a year in innovation and starting Q4, we will start our capital raise in the US.
That should help increase the cash flows for the parent starting next year. From here on, deleveraging should happen on a consistent basis.
Would any large erosion in pricing in your current portfolio have an impact on your future cash flow? Could this delay your debt reduction plan?
The core business continues to do well. That is less of a concern and we continue to grow from strength to strength on the core business. It is a very stable business and we continue to grow 10-15% on a consistent basis. I do not see that as a big issue.
In the last decade, the standout feature for Glenmark was your capability on R&D and your ability to take the molecules higher to different levels. But that Glenmark is no longer visible to me, why is that?
It is very clear. Over the last four or five years, we have invested close to $500 million on innovative research and we have taken some significant investments and we have created a lot of value in the portfolio. The spinout that we have done in NewCo and once we do the capital raise, the value that we have created for investors particularly out of our innovation business will be evident.
We have multiple options on whether to bring investors to value the company or we go out and license it to big pharma and give up some of the upside. Those are decisions that we will keep making as we go forward. But our view is post Q4, you should see a significant upsurge on the innovation side of Glenmark and that is a completely different lever as compared to the rest of the business that we run, particularly the generic and branded businesses globally.
Any molecules that you will be licensing? We have not seen too much movement on that front. What can we expect?
We have two molecules in the phase-2b GBR-830 which is a big product in immunology and we have two 7864 which reports phase 2b data in December-January. These are both very exciting products on the oncology side. We have multiple options of licensing on the innovation side and we keep pursuing it but as I said, the real activity will start from Q4 of this year.