Glenn Saldanha – Glenmark: Environment challenging, see 20% growth in FY14

Glenn Saldanha – Glenmark: Environment challenging, see 20% growth in FY14

Pharma major Glenmark says the operating environment is challenging given the slowdown in India and longer time taken by the US drug regulator for product approvals. It is expecting a 20 percent revenue growth in FY14.

Glenmark Pharmaceuticals expects 20 percent sales growth in the current financial year, amid what it feels is a challenging operating environment.

There is a clear slowdown in India and so the pharma major expects only 18-20 percent growth here in FY2014, Glenn Saldanha, CEO & MD told CNBC-TV18.

In the US market, there has been a slowdown in drug approvals from US Food and Drugs Administration. Currently it is taking over 30 months to get products approved and so there is a lack of visibility on approvals, he added.

Glenmark on Tuesday reported a better-than-expected 11 percent year-on-year rise in fourth quarter consolidated net profit at Rs 167 crore, helped by growth across specialty formulation and US generics business. Consolidated net sales were up 25 percent to Rs 1,335 crore.

For the full year, its net profit climbed 34 percent to Rs 615 crore, while revenue gained 25 percent to Rs 5,012 crore.

Below is the verbatim transcript of Glenn Saldanha’s interview on CNBC-TV18

Q: Your guidance for next year is 20 percent growth, you did about 25 percent growth this quarter. Are you being conservative about what the next year can throw up? What are you concluding from your three categories in terms of generics, Active Pharmaceutical Ingredients (API) and does that contributes to that 20 percent figure?

A: The operating environment currently is pretty challenging. It is hard to give visibility beyond a 20 percent top-line growth. There is slowdown in terms of the Indian pharmaceutical market and hence we are not taking more than 18-20 percent growth coming out of India. We are not sure about the kind of filings and approvals that we will get in the current year in the US market because there is a huge slowdown in terms of FDA approval processes. So for the US, we are anticipating 18 percent growth and then the rest of the markets are growing faster than that. We feel pretty comfortable at this point with a 20 percent top-line growth number.

Q: Can you give us more clarity on what the upcoming first-to-file (FTF) opportunities of the company are?

A: We have announced just one FTF that we have filed recently which is Azelaic Acid where we have been sued by the innovator company. It is the new one as far as FTF goes. This year we launched one FTF, Hydrocortisone, which we have already settled on and will be launched in this financial year. In addition, every year we will file at least one FTF which is our internal target. I am talking about sole FTFs and not about the ones where we have multiple players. These are sole FTFs where we are only the sole filer on the product.

Q: There is a little bit of disappointment on what happened with US as a market this time around and the fact that revenue contribution slipped sequentially. What can you do in the next two quarters specifically from the US market?

A: The US growth is linked to new product approvals. If we get the new product approvals on time and in the estimates that we have taken, then you should see Quarter-on-Quarter growth being pretty strong out of the US. If those do not come and we have very little control on that given where the FDA is at, current new product approvals are taking almost 30 plus months.

A lot depends on when those approvals come. That is why we are guiding to an 18 percent full year growth for the US market, because we do not have visibility on those new product approvals. If we do get them faster and if we do get the right ones, you will see a substantial upside coming out of the US business.

Q: Could you update us on what is happening with products like Crofelemer?

A: We continue to file in most of the emerging markets for Crofelemer. We have initiated filings in various markets and the filing process will continue. We hope in FY15 we will initiate launching Crofelemer in several emerging markets and that is the launch for the product. We will initiate supplies to Salix for its commercial launch in the current financial year and that should give a revenue upside to the company on Crofelemer.

Q: You expect to see further milestones from Forest. What kind of estimates are you expecting at this point if any and when do you expect that to flow-through in the course of FY14?

A: We have signed an mPGES-I deal with Forest where we have got a USD 6 million plus USD 3 million upfront payment. There will be further payments coming to us in the current financial year. We have not provided any visibility on the timeline or the quantum of payments, but you will see additional payments coming out of Forest out of that deal.

Q: Will that happen in the course of FY14 itself?

A: That is what we believe at this point.

Q: The revenue growth has been strong, but there has been a bit of pressure in terms of what you have done on your margin profile. You were talking about how the operating environment is still quite tough. Will that be a greater challenge going into next year, revenue growth is looking fairly comfortable but margins maybe a bit of an uphill task?

A: Margins, we are doing okay. The forex impact on the core business is 20.5 percent EBITDA margin which is pretty solid. We are expecting margins to remain more or less flat because we are incurring higher R&D spends. This year we have scaled up our R&D to about little under 8 percent of total revenues. Next year we see that number going to about 8.5 percent plus of total revenues. So almost 0.5-1 percent delta that we are gaining in terms of EBITDA margins, we are giving back by increased R&D spends.

Overall, the margin profile looks pretty solid for the company. The challenge is how fast can we grow this business and given the visibility, we feel 20 percent is a reasonable number.

Q: You have been through a couple of rough quarters with regards to what happened on the debt side of the company. Are you comfortable in terms of where debt positions are for Glenmark? Are you confident enough to put out a reworked debt-equity ratio through FY14?

A: We have done a very good job over the last three-four years in bringing down our debt to EBITDA ratio and currently it stands at somewhere around 2 times. Every year from hereon you will see an improvement in the debt to EBITDA ratio. Debt-equity will keep coming off. It currently stands at around 0.8 percent and that will keep coming off as you go forward.

From hereon, you should see further cash generation coming out of the company on a consistent basis over the next three years which will help improve both these ratios.

Q: On the FTFs that you were talking about earlier, anything that you expect to come through within the first two quarters of next year?

A: We have several things going on in terms of FTF opportunities. It is hard to give any visibility as to when these will actually pan out and translate into tangible revenues coming to the company. There are too many unknowns in terms of when these products get approved, how the legal cases go, whether there is a settlement or we do a risk launch, so there are too many unknowns at this point. Therefore, we do not give any visibility to when these FTF opportunities actually come to fruition.



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