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Last Updated : Aug 16, 2019 08:58 PM IST | Source: Moneycontrol.com

Glenmark Pharma pins hope on sale of non-core assets, stake sale in spun-off R&D unit to pare debt

Glenmark is struggling with high debt, lack of meaningful approvals to shore-up declining US sales and delays in commercialization of specialty anti-allergy nasal spray Ryaltris.

Viswanath Pilla @viswanath_pilla
 
 
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Drug maker Glenmark Pharmaceuticals said it is planning to sell non-core assets and complete a stake sale of its R&D spun-off unit to raise capital and pare down debt by FY20-end.

“We are also in discussions for a minority investor in the active pharmaceutical ingredient (API) unit. But the way to look at it is that we do have a backup plan there. We are divesting a number of non-core assets,” Glenmark’s Chairman & Managing Director Glenn Saldanha told analysts at the company's recent earnings call.

Saldanha didn’t specify what he meant by non-core assets, but when asked repeatedly by analysts, he said he is looking to sell assets other than dermatology, respiratory, diabetes, anti-infectives, oncology and cardiovascular therapies. Apart from these segments, the company also has a presence in gastro-intestinal and gynaecological.

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The company is struggling with high debt and there is lack of approvals of products that could shore-up declining US sales. It is also facing delays in commercialisation of specialty anti-allergy nasal spray Ryaltris.

All these problems are having an impact on the company.

Shares of Glenmark hit an eight-year low on August 16 after several global brokerages cut the price target on account of weak Q1 financials, its inability to reduce debt through asset sales and continuous incurring of high R&D spends eating into its operating margin. Also read: Glenmark Pharma hits 8-yr low after global brokerages cut price target on weak Q1 result

Given its high spend on drug development and investment on capex over the years, Glenmark had amassed huge debt. Its net debt as of June 30  stood at Rs 3,545 crore, while gross debt was Rs 4,568 crore. Finance cost jumped 18 percent in Q1 FY19 to around Rs 93 crore, even as the sales grew 7.26 percent YoY to Rs 2,322.9 crore.

Interest Coverage Ratio

Source: AceEquity

R&D expenditure for the quarter gone by was Rs 295 crore, or 12.7 percent of net sales. The company's net debt-to-equity ratio stood around 2.2 percent, the highest in the industry.

Delays in debt reduction

Glenmark’s debt reduction plan, beyond the sale of its orthopaedic and pain-management businesses, hasn’t gained much pace. It sold its orthopaedic and pain-management businesses in India and Nepal to private equity firm True North Enterprise in 2018, for a couple of hundred crore rupees.

Sources told Moneycontrol that discussions with True North to sell a minority stake in the API business got stuck due to mismatch in valuation expectations.

Glenmark had demerged its API division into a separate entity called Glenmark Life Sciences in January, with an intent was to raise money to repay debt.

Analysts were expecting sale of the API business to generate Rs 800-1,000 crore.

With API deal taking its own time, Saldanha is pinning his hopes on a successful capital raise from his R&D spun-off.

R&D business

The company in February spun-off its innovation R&D business under a new company with the aim to explore divestment of its innovation subsidiary or licence out its pipeline under development.

The new company, based in New York, is being headed by Alessandro Riva, a former Gilead Sciences executive. “This year, we have set an objective of lowering our debt by about Rs 700-800 crore,” Saldanha said, adding that the plan going forward is to cut the same by a similar amount each year.

Meanwhile, the company is targeting revenue growth in the range of 10-15 percent, led by the successful launch of its diabetic drug Remogliflozin in India. The management is also planning to deploy cost optimisation measures that includes reducing the manpower cost as percentage to sales. The company has not yet offered specific details on how much it wants to lower manpower costs.

Update: A previous version of this story erroneously mentioned that Glenmark Pharma was planning to carry out an IPO of its spun-off R&D unit, when in fact it was looking to carry out a stake sale in said unit. The error is highly regretted.

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First Published on Aug 16, 2019 03:43 pm
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