GLANDNSEQ3FY23January 31, 2023

Gland Pharma Limited

8,907words
130turns
14analyst exchanges
3executives
Management on call
Srinivas Sadu
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
Ravi Shekhar Mitra
CHIEF FINANCIAL OFFICER
Sumanta Bajpayee
VICE PRESIDENT, FINANCE AND INVESTOR RELATIONS GLAND
Key numbers — 40 extracted
rs,
earnings call for the third quarter of fiscal 2023. I wish a happy new year to all our shareholders, analysts and the families. We entered into a Put Option agreement in the last quarter and subseq
INR 9,383
ditional supply opportunities that may come up. We closed this quarter Q3 FY23, with a revenue of INR 9,383 Mn as against INR 10,633 Mn in Q3 FY22 and our PAT stood at INR 2,319 Mn for the quarter, against
INR 10,633
ities that may come up. We closed this quarter Q3 FY23, with a revenue of INR 9,383 Mn as against INR 10,633 Mn in Q3 FY22 and our PAT stood at INR 2,319 Mn for the quarter, against INR 2,730 Mn in Q3 FY22
INR 2,319
Q3 FY23, with a revenue of INR 9,383 Mn as against INR 10,633 Mn in Q3 FY22 and our PAT stood at INR 2,319 Mn for the quarter, against INR 2,730 Mn in Q3 FY22. We have generated INR 398 Mn of cash flow fro
INR 2,730
Mn as against INR 10,633 Mn in Q3 FY22 and our PAT stood at INR 2,319 Mn for the quarter, against INR 2,730 Mn in Q3 FY22. We have generated INR 398 Mn of cash flow from operations in Q3 FY23.The performa
INR 398
our PAT stood at INR 2,319 Mn for the quarter, against INR 2,730 Mn in Q3 FY22. We have generated INR 398 Mn of cash flow from operations in Q3 FY23.The performance continues to be subdued on account of o
INR 500 million
y soon. During Q3 FY '23, upon excluding capital 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 quart
5.3%
, upon excluding capital 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
INR 394 million
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 AN
21%
summarize our performance across various geographies. Our rest-of-the-world markets accounted for 21% of our Q3 FY '23 revenue against 19% during Q3 FY '22. We maintain inventory of raw materials and
19%
ous geographies. Our rest-of-the-world markets accounted for 21% of our Q3 FY '23 revenue against 19% during Q3 FY '22. We maintain inventory of raw materials and packed materials to be able to cater
70%
AM and APAC. Our core markets, namely US, Canada, Europe, Australia and New Zealand accounted for 70% of our revenue, similar to the contribution in Q3 FY '22. Part of our new launch product portfoli
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Guidance — 20 items
Sumanta Bajpayee
opening
“The transcript of the call will be submitted to the stock exchanges and made available on our website.”
Srinivas Sadu
opening
“We are well prepared to focus on integrating the business going forward.”
Srinivas Sadu
opening
“We are in advanced stages of regulatory review for a couple of products filed in China and expect approvals very soon.”
Srinivas Sadu
opening
“GLAND We hope to close the acquisition of Cenexi by March, April 2033 time frame, plus which our focus shall be on leveraging synergies between these businesses to generate stakeholder value.”
Srinivas Sadu
opening
“China remains a key geographic focus, and we expect to start receiving approval soon.”
Ravi Shekhar Mitra
opening
“Increased receivable and inventory days has pushed the overall cash conversion cycle, which we expect to normalize.”
Ravi Shekhar Mitra
opening
“Microsphere powder filling line and the additional bank line project is on track.”
Ravi Shekhar Mitra
opening
“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.”
Srinivas Sadu
qa
“I mean, I'm just assuming that going forward, would there be an improvement in the US and the ROW market, if business issues -- no issues resolve?”
Saion Mukherjee
qa
“If I look at from a 3-year perspective, we are seeing 13% CAGR, maybe it's 9%, 10% in dollar terms.”
Risks & concerns — 15 flagged
And 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 US side as well as the ROW markets developed and the ROW market, we have seen a decline.
— Srinivas Sadu
I mean, I would assume that the decline would also be on the volume side.
— Srinivas Sadu
If you can give some color on why we are seeing a Q-on-Q decline?
— Srinivas Sadu
I wouldn't say at the end market, there's a decline in the market share, but I think it's all the timing.
— Srinivas Sadu
Now you talked about the competitive pressure.
— Saion Mukherjee
How should we think about growth in this changed environment where you're talking about price pressure, you're talking about, I mean, the kind of opportunities you had in the past is currently not visible.
— Saion Mukherjee
So while there are positives in terms of transfers happening from other sides and increased capacities, there's also pressure of price pressure and competition pressure.
— Srinivas Sadu
And also, there are some products where it's a low-margin business, which we are trying to stay away from because the risk involved with very low margin and also, if you see, we did mention about India business, the products which get into NLEM, which are in the borderline cases earlier.
— Srinivas Sadu
That's why I said it is difficult to get into technical because the two NDCs the partner is having.
— Srinivas Sadu
One was pricing pressure, which you started seeing in Q2.
— Prakash Agarwal
I think all three are right, the competition, the price pressure is there.
— Srinivas Sadu
Once you see the price pressure, new players entering to sell these products will also come down.
— Srinivas Sadu
But from the inventory perspective, we have seen a larger impact of that.
— Srinivas Sadu
And sir, any other product other than Enoxaparin where you have significant headwinds and the business visibility is relatively getting reduced, maybe on account of pricing pressure or the new player coming in or, on account of inventory restructuring so to say?
— Tushar Manudhane
So what's driving the -- and at the same time, we have pricing pressure as well.
— Tushar Manudhane
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Q&A — 14 exchanges
Q
No, we did resolve most of the supply chain issues. I think still few issues still persist. We did apply specifically for Heparin for a second source. We've not received approval yet, waiting for that approval. But other 1 or 2 smaller products also have these issues. But generally, like syringes and some of these have been addressed. Sudarshan Padmanabhan: Yes. And 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 US side as well as the ROW markets developed and the ROW market, we have seen a decline. I mean, I would assume that the de
Srinivas Sadu
I wouldn't say at the end market, there's a decline in the market share, but I think it's all the timing. If you look at our Enoxaparin on an annual basis, still our revenue is around $50 million. If you look at last quarter, it's about $5 million. I think it's a timing issue for the 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 are cutting down on the inventory levels. We have seen a substantial shift in that. So the offtake has been
Q
Sir, can you share the profit share number for this quarter? And has that sort of increased, decreased versus the previous quarter?
Ravi Shekhar Mitra
Yes, Saion, profit share for this quarter is at 9%. And the previous quarter, it was 7%. Last year, it was 10%. Now you talked about the competitive pressure. So we have seen this increase. So I'm just wondering what's the sustainable number? Is the 9% on the higher side, do you think? No, I think it should be sustainable at this level. See, one way is do we want to compromise on your margin and then go aggressively on the top line and which we are reluctant to do because then it's a permanent damage you're going to cause for the market. So it's like an ongoing discussion with our partners and
Q
Just the first one on the gross margin. If you saw a Q-o-Q improvement, I think the opening remarks mentioned about product mix and geography, if you could please elaborate? And is this sustainable?
Srinivas Sadu
Yes. The focus is on to improve these margins, both internally and also, like I said, from a material perspective, we have qualified some alternate sources, which are cheaper. And I think next few quarter, the focus is on improving the margins in that perspective. And also, there are some products where it's a low-margin business, which we are trying to stay away from because the risk involved with very low margin and also, if you see, we did mention about India business, the products which get into NLEM, which are in the borderline cases earlier. So we don't want to go aggressively and sell t
Q
Sir, actually my question is that like I know a few of your peers from the pharma industry are also entering the European market. So what is your strategy considering that you also have some supply chain issues, as you mentioned?
Srinivas Sadu
So Europe for us, we are purely CDMO there. So we're not launching products yet. So the first area is to continue business what they're doing, they're purely CDMO, where they manufacture products for the branded generics, and that will continue and then leverage our contracts with the players who have a presence in Europe, but getting product done at somewhere else. So that can be leveraged and get some of those businesses come to our site. So 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.
Q
If you could just talk about the acquisition and -- which is now going to be integrated. With this acquisition, broadly, if you have to take a 2- to 3-year view, what it does to our existing business? I mean, I don't want the numbers, but 3 years down the line with the combined entity approaching a European customer vis-à-vis other Indian players who do business in the US, what would Gland in a way look like? I'm not asking for any numbers. I just want to know about the overall offering that an entity will have after the acquisition?
Srinivas Sadu
Yes. So if you look at currently where we started as a Gland and where we are today, our business moved from a pure CMO, CDMO to a more generic product-driven company, and the mix has moved towards more on a product company. And now with Cenexi acquisition where the entire 100% of the revenue comes from the CDMOs, 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 place, that will strengthen because Europe is a place t
Q
Just understanding US 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 '22. And thirdly, you mentioned the inventory, so there is still inventory, some clarification that you mentioned about fed rate , etcetera, just clarification, if it is a demand, which is also slowing down post-COVID? That is all from my side.
Srinivas Sadu
Yes. I think all three are right, the competition, the price pressure is there. And it's all related, right? Once you see the price pressure, new players entering to sell these products will also come down. So we don't have an alternative. In terms of the stoppers, I think temporarily we got one supply last quarter, but then there was no subsequent supplies. But we did qualify the second supplier we applied for an approval, so that we should get next month or two. We've submitted a CBE30 this month. But from the inventory perspective, we have seen a larger impact of that. We realized it's only
Q
So just talking about the stopper supply 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 -- taken up by competitors? If I'm not wrong, it was INR 160 crores odd on a full year basis?
Srinivas Sadu
Off head, I don't remember the numbers, but the one strength what we have, we're still holding the contract, the 30 mL, which is in discussion. At least we are not seeing the product going away. Which means that you will get part of it back, not fully? I can't comment on, that's what I'm saying. So the contract still is in place and the orders and the forecast is there. So we got to see by the time we enter, we just supplied the product. So it's moving well. So we have to wait and watch how much we can get or can we get the entire market. And for Enoxaparin it looks like you have done 44 milli
Q
So just again on this Biosimilar, how much capex, new capex you are using up for Biosimilar CDMO facility?
Ravi Shekhar Mitra
The Biosimilar CDMO facility, we have more or less spent about INR 300 crores. And now we are in evaluation stage with the customer how much more we need. It could not be a very significant near term. But overall capex plan is about going to be INR 200 crores to INR 250 crores for this year and next year to be around INR 300 crores. This is overall. Already spent INR 3 billion, INR 250 crores for FY '23 and another INR 200 crores, INR 250 crores for FY '24, that's all right? No. So first Biosimilar, we have already spent INR 300 crores. And now on an overall basis, company as a whole, we will
Q
Sir, just wanted to get some color on the complex filing that we've been making. We've mentioned this a few in the last year, and 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?
Srinivas Sadu
These four products, market value perspective, it's, I think, about INR 2 billion. And these are in two peptides and one we're going to file, I think, next quarter on a suspension product. So it's a combination of hormonal peptides and suspensions. And at least we should see some coming one or two products getting approvals in FY '24 and the rest post that. Yes. Just a follow-up, the filings that we made in FY '22, we've seen a fair bit of pickup then. Those should also start seeing approval during the next few quarters, right, sir? GLAND Yes, that's correct. Yes. And out of that, how many wou
Q
Just one clarification first. You mentioned $50 million of Enoxaparin sales that is for the US market, if I'm right?
Srinivas Sadu
That's correct. And you're looking to launch around 14-odd products in the Chinese market that is for CY '23 or this goes still over to the next year also? No, those are the filings I mentioned about, not launches. The launches could be post that, yes. So in total, we're looking at one near-term launch in FY '24 and any more launches in the China side in a very... Yes, maybe a couple of more launches might happen in FY '24 when the rest post that. So lastly, on the R&D spend, so do you see this increasing as you move into more complex product filings in the near... I think from an absolute num
Q
So first one, basically now that most low-cost Indian players entering the Injectable market, are we seeing more shift from the likes of Hospira, Hikma to us, for their older product, maybe where they might not be as competitive as Indian share because still the generic injectable market is still dominated by Hospira, Hikma and Fresenius Kabi. So has there been any acceleration in the shift from their own manufacturing to people like us big companies like Gland or any other company? GLAND
Srinivas Sadu
So we have seen few Indian players actually getting into this space as well in the manufacturing side. So I would say, the virtual companies in the US are going down, which also contributed significantly for launching newer products. That's going down a bit. But yes, true, from Pfizer perspective or those companies' perspective, we are hearing some product transfers happening to Indian manufacturers. And if the pressure continues, I think that will only increase, hopefully. So you are suggesting that there are similar Indian companies as well offering similar services to the like Pfizer and th
Q
My question on the working capital side. One side, we are saying that we had the supply side issue for a few of our products. On the other side, our inventory base has gone up significantly. So would you say that product where we don't have any supply chain issue, the inventory actually have drastically beyond 217 days which we have reported? That's the one. And the second is, again, when our customers are cutting down on the inventory, obviously, their cash flow would have been improved. But at the same time, our debtor’s day also went up. So is it that we are pushing inventory to the custome
Srinivas Sadu
So Ravi will address the second part. The one on the inventory. Just take an example of Heparin. We are sitting on the API. We are sitting on other components and we just don't have stopper. So still the rest of the inventory we're sitting on a high value. They are not able to sell the product, but still have to hold the inventory waiting for the one component to come. So likewise, there will be products where one is missing, but I have the rest of the materials. So I have to sit on that inventory. So that's one reason why we have this situation. Yes. So receivable, to your question. This is a
Q
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. And in another situation, you said we are still pretty far away from any visibility of revenues. So is there a mismatch there? Will you do the capex in anticipation of something earlier? Can we have some clarity on that?
Srinivas Sadu
In fact, not just Biosimilar, side. Even when you start a plant, it will take a couple of years to start generating revenue. So it's just that now we are in the -- when adding lines to the same facility, you'll feel that. When we had started the Pashamylaram plant, for first two years, it's not even commercialized by the time we invested INR 400 crores. So that's the nature of the business we are in. So by the time you install, validate, apply for an approval, it takes so much time and also we have to generate business. So in a normal injectable business, if you go back to 20 years back, we ta
Q
I have a simple question in that you'll have such good products and looking at certain, so that's your supply gets hampers. So why can't you all put up a plan where, I mean you all feel where it is routing to the in-house plant where you all can manufacturer in-house, like stoppers, syringes, whatever raw material, which is very much crucial for your sales. Would that help you all to get over the supply constraint?
Srinivas Sadu
But we do work on key APIs. For example, for most of our key APIs, we do manufacture. Through the asset technology or R&D, we can do. But for stoppers and the others, that's not the area where we have expertise. They are completely different technologies. So we can't really enter those markets now. But then still the sales have been affected because of the small things. And this is not such a big product where you don't have the expertise to manufacture, I assume because for stoppers, syringes... Stopper manufacturing and glass manufacturing is not our area of expertise, so we can't really man
Speaking time
Srinivas Sadu
54
Moderator
16
Prakash Agarwal
8
Ravi Shekhar Mitra
7
Sameer Baisiwala
6
Tushar Manudhane
5
Neha Manpuria
5
Kunal Dhamesha
5
Saion Mukherjee
4
Tarun Shetty
4
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Opening remarks
Sumanta Bajpayee
Thank you, Faizan. Warm welcome to Gland Pharma's Earnings Conference Call for third quarter financial year '23. 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. This must be viewed in conjunction with the risks 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
Srinivas Sadu
Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for the third quarter of fiscal 2023. I wish a happy new year to all our shareholders, analysts and the families. We entered into a Put Option agreement in the last quarter and subsequently signed a 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 needle less injectors. We are well prepared to focus on integrating the business going forward. GLAND We have already received EIR from USFDA post the audit conducted at our Dundigal facility. We have been at the forefront of maintai
Ravi Shekhar Mitra
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 9 months ended December 31, 2022. Revenue from operations for the Q3 FY '23 stood at INR 9,383 million, a reduction of 12% on a year-on-year basis. Revenue from operations for the 9 months period of fiscal '23 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 deposits and foreign exchange gains on operations. For the 9 months FY '23, the other income was INR 2,015 million, of which interest on fixed deposit was INR 1,314 million and foreign exchange gains and operation was INR 665 mill
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