New products, regulatory approvals to drive growth for Glenmark

Mumbai-based Glenmark reported strong first quarter numbers with consolidated profit rising 24 percent to Rs 226.8 crore year-on-year and revenue growing 18 percent to Rs 1,943 crore in Q1. The company is expecting strong growth to come both from India and US in the current fiscal. Major approvals are expected to drive growth for Glenmark, says Chairman and Managing Director Glenn Saldanha. US business is expected to exceed 20-percent topline growth in FY17 on back of 10-12 product launches, he says. Pricing pressure in the US, however, continues to play spoilsport with company facing 10-percent erosion on base portfolio.Margins will be supported by change in product mix. “Glenmark has a clear compliance record,” he says adding that growth will continue as long as approvals continue. India, which contributes about 25 percent to revenues, is expected to see 15 percent plus topline growth despite some products under price control.Below is the verbatim transcript of Glenn Saldanha’s interview to Ekta Batra & Prashant Nair on CNBC-TV18.Ekta: To start with the US business -- now that Q1 is out of the way can you give us a way what exactly the guidance for the US business would be? Going forward how much you are projecting in terms of growth and what kind of launches are we expecting as well from the US business?A: The US business continues to look pretty strong for us and we have a major launch coming up, which is generic Ezetimibe which happens in December but even outside of Ezetimibe we anticipate the business will grow 15-20 percent in terms of topline growth. For the full year we will exceed 10-12 launches. The exciting launches coming up are mainly in the areas of dermatology which is we are hoping to launch this quarter.Prashant: And you put up a guidance as well 20 percent growth for FY17 from the US business?A: The US business clearly will exceed that if you take generic Ezetimibe.Prashant: Excluding that.A: Excluding that the business will also grow in excess of 20 percent.Ekta: What are you doing right in the US business that the other companies aren't because everybody we speak about or speak to says that there is this definitive pricing pressure that we are facing in the US. Are you seeing growth in the US only limited to FY17 simply because of your launch pipeline, which includes Zetia generic in December or is it something that you possibly envisage in FY18-19 as well?A: There is a significant amount of pricing pressure in the US market on the base portfolio. All companies are facing it including Glenmark Pharmaceuticals. We are seeing almost close to 10 percent price erosion on base portfolio. But for Glenmark given the fact that we continue to have a clean compliance track record and on account of which we continue to get a number of approvals, that is the new product approvals, which is driving the growth for this year. As long as we continue to maintain a good compliance record we think the approvals will keep coming. So, clearly the US business looks pretty strong for the company and you will continue to see further traction coming out of the US.Prashant: Could you talk about margins from the US market as well, the US business margins, this year and in financial year 2018 will the profile itself move upwards?A: Clearly given the fact that every extra product that we launch the incremental margins go straight to the bottom-line because our costs are pretty much fixed in a generic business model. So, margins will clearly get better. One is on account of Ezetimibe, but even without generic Ezetimibe the core business margins will improve purely because of also the changing product mix where we anticipate a significant amount of drug launches coming up this year as well as next year, which will clearly be the key driver to the margin profile for the company.Ekta: You are expecting a recovery to come through. How much do you think would be your exit growth in FY17 for the India business and the National List of Essential Medicines (NLEM) issues plus the fixed dose combination (FDC) ban do you expect all of that to even out?A: The India business we continue to outperform in terms of our growth in India and on a full year basis we will finish north of 15 percent in terms of topline growth for this year. Despite having some products come under price control as well as some of these FDC issues. So, India continues to remain strong. Next year also looks an exciting year for India primarily because we have one very solid launch coming up in India of a novel product. So, that will drive India growth.So, overall India is growing at about 15 percent this year and we will continue to sustain that or grow that next year.Ekta: You did touch upon compliance which is going to aid the US business. Any update with regards to your Goa plant? We understand that is still pending an inspection soon enough. Can we have a date or any update on that?A: It is impossible to predict as to when inspections happen. So, we don't guide to inspections and clearly as on today we have a clean compliance record with the agency.Prashant: Net debt stands at about Rs 3,400 crore and many analysts are kind of complaining about Glenmark's inability to generate free cash flows. How would you address that point? What should we expect, Zetia will generate strong cash flows, including that, excluding that will could you give us some sort of guidance on free cash flows in 2017?A: Our view is that excluding generic Zetia, we think the core business will pretty much be free cash flow positive and obviously with Zetia cash you should see some pretty decent cash flows coming into the business this year.Ekta: GBR 1302, one of your drugs which are under development, I understand that there is a strong out-licensing opportunity at least in the second half of this fiscal. Is that something that we can assume could possibly happen in FY17 or FY18?A: We don't guide to specific out-licensing timelines but all we can say is right now the work we are doing in biologics particularly and the pipeline looks pretty solid. So, you should see out-licensing happening over the next 12-18 months, that is our typical timeline for the molecules.