Gland Pharma Limited (GLAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q3 FY 2021, '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Corporate Finance and Investor Relations. Thank you, and over to you, sir.

Thank you, Abida. Wish you all a very happy New Year, and a warm welcome to Gland Pharma's Earnings Call for Third Quarter Financial Year 2022. We will begin this call with business highlights and overview by Mr. Srinivas Sadu, Managing Director and Chief Executive Officer; followed by financial overview by Mr. Ravi Shekhar Mitra our Chief Financial Officer. After that, after the opening remarks of management, operator will open the bridge for Q&A session. 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's current expectations and this must be viewed in conjunction with 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 our website shortly after the call. The transcript of this call will be submitted to the stock exchanges and made available on our website. I will now hand the call over to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.

Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for third quarter of fiscal '22. I would like to start by wishing you and your families a very happy new year. Every year that passes, teaches us something afresh. The last year has given a greater sense of purpose, which was [indiscernible]. Our employees understand the impact, their work is making in supporting the healthcare infrastructure globally. We are starting this new year with renewed optimism to accomplish many more milestones together. We would like to wish good health to our investors and analysts. We have seen the Omicron variant of COVID-19 virus spreading across the globe recently. While in most cases, the symptoms are mild, following the COVID-19 protocols and vaccination must remain the key priorities. As planned, we continue to follow all COVID-19 protocols to ensure safety of our employees. Almost all of our employees are vaccinated with 2 doses of vaccine. While there were some material supply delays experienced during the quarter, there are significant delays from [indiscernible] suppliers. Our teams are constantly communicating with our vendors to address the issue. Looking at our business. We continue to maintain the growth momentum this quarter, Q3 FY '22 with a revenue of INR 10,633 million. That is an year-on-year revenue growth of 24% for the quarter Q3 FY '22, which is also a growth of 28% for the 9-month period FY '22 over 9-month period FY '21. With a PAT of INR 2,730 million, we saw year-on-year PAT growth of 34% for the quarter Q3 FY '22, resulting in also a growth of 26% for the 9-month period FY '22 over a 9-month period FY '21. We have generated INR 6,127 million of cash flow from operations for the 9 months FY '22. Our emphasis on life cycle management of products and continued focus on revenue diversification across geographies is helping us move forward with a strong footing. I'm glad about our R&D team's ability to ensure timely completion of development to projects despite the ongoing pandemic. In terms of our R&D progress, we have completed ANDA filings for the 4 complex injectables, targeted to be filed in this financial year during the past quarter. The other development projects are also progressing in line with the project plan. We made 18 ANDA filings during the quarter and also filed 3 DMFs during the same period. We have filed a total of 27 ANDA filings during the 9-month FY '22 quarter, a period as compared to 19 ANDA filings during 9 months FY '21. We also received 4 ANDA approvals during the quarter. Our R&D expenditure for Q3 FY '22 was to INR 699 million, which is nearly 6.6% of our revenue from operations. For 9-month period upon excluding capital R&D expenditure, the R&D expenditure stands at 4.5% of our revenue for the period. Full fiscal year '22, R&D expenditure as a percentage of revenue is expected to be in line with our historical trend. As of 31st December 2021, we, along with our partners have 309 ANDA filings in the U.S. and [ 1,552 ] product registrations globally. We have completed technology transfer and submission batches for Sputnik Light. After successful clearance of samples from Kasauli and joint inspection of our drug substance and drug product facilities at CDSCO and DCA during the quarter, we just received the export NOC for 50 million doses from CDSCO. We hope to receive the manufacturing assets soon to initiated manufacturing of Sputnik Light vaccine. Let me take you through the business highlights across various geographies. With respect to our rest of the world markets, our strategy of expanding our product portfolio in identified geographies have shown good results. We have further strengthened our presence by gaining new tenders in our markets. This business accounted for 19% of our Q3 FY '22 revenue as against 13% of our Q3 FY '21 revenues. We have seen 88% year-on-year growth in revenues for the quarter. Our key markets continue to remain MENA, LatAm and APAC. Among our key products, enoxaparin sodium was the biggest contributor to growth for the residual markets. Our ability to manage our supply chain efficiently has helped us to meet the shorter delivery times required for residual markets. Our strategy for our key markets, namely U.S., Canada, Europe and Australia has shown good results with a focus on ensuring timely commercialization of pipeline and life cycle management of existing products to ensure market competitiveness. Our key markets accounted for 63% of our revenue during Q3 FY '22 as against 70% during Q3 FY '21. The new variant of COVID-19 impacted offtake of our core portfolio in the regulated markets. We have seen 10% year-on-year growth in revenues for the quarter. On including India sales for our core markets, the year-on-year growth is at 18%, which is a function of our strong execution capabilities despite the pandemic. The U.S. market has registered a year-on-year growth of 23% for quarter 3 FY '22. The key products helping us achieve this growth include micafungin, ketorolac and heparin sodium. In line with our growth targets from new launches, we launched 6 molecules during the last quarter. India market accounts for 18% of our Q3 FY '22 revenue, out of which domestic market accounts at 6% of sales and Indian sales for export markets account for 12% of our sales. We have seen 31% year-on-year growth in revenues for the quarter on account of volume growth of existing products. Ertapenem, which is a new launch this year in the U.S., has shown strong demand from end market. As we continue to scale our operations, our quality and regulatory teams have ensured our quality systems and standards are replicated across [indiscernible] capacities being established. There were times during the last year when we were operating with less than optimal manpower as the quality systems stood the test and ensured compliance. All our plans continue to remain approved by U.S. FDA. Our customers are conducting audits regularly, and our team continues to remain prepared for any audit. As you can see from the progress on R&D, our near-term focus on establishing a strong portfolio of complex injectables is progressing in a timely manner. We're also looking at acquisition opportunities to help expedite the development process. At the same time, we're also working towards charting down the road map to establish the biosimilar CDMO vertical. Collaboration with established biosimilar players and acquisitions can help us accelerate the push in this regard. We remain optimistic on the prospects for this year and hope to continue the growth momentum for all our stakeholders. I once again wish everyone good health. On that note, I would like to hand over the call to our CFO, Mr. Ravi Mitra, who will share some more insights about our financial performance for the quarter. Thank you very much.

Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our third quarter earnings call. Let me start by sharing the financials of third quarter and 9 months period of current financial year. Revenue from operations for the quarter 3 financial year '22 stood at INR 10,633 million, a year-on-year increase of 24%. We achieved steady growth of 10% across our core markets of the U.S., Canada, Europe and Australia. ROW market continues to record a robust growth of 88%. Our India market, which also includes ultimate sales for U.S., witnessed a growth of [ 31% ]. Revenue from operations for the 9 months of fiscal '22 stood at INR 32,977 million, a year-on-year increase of 28%. Other income for the third quarter was INR 457 million, which includes interest on fixed deposit of INR 342 million and foreign exchange gains on operations of INR 86 million. For the 9 months FY '22, the other income was INR 1,587 million, of which interest on fixed deposit of INR 1,033 million and foreign exchange gains on operations of INR 520 million. We have reported an EBITDA of INR 3,946 million in quarter 3 FY '22, compared to INR 2,994 million, which is an increase of 32% compared to same period last financial year. EBITDA margin for Q3 FY '22 stood at 36% as compared to 33% for the same period of previous financial year. EBITDA for the 9 months ended December 2021 was INR 13,205 million compared to INR 10,621 million for the same period last financial year, a growth of 24%. We have reported EBITDA margin of 9 months FY '22 at 38%. Our net profit for the third quarter was INR 2,730 million, a growth of 34% compared to Q3 FY '21. During the quarter, we have recorded PAT margin of 25%, which is an improvement of 180 basis points compared to same quarter previous financial year. During the 9-month period of current financial year, our PAT was INR 9,258 million, which is an increase of 26% as compared to same period last year. The total R&D expense for the third quarter were INR 699 million and stands at 6.6% of the revenue. As mentioned before by Mr. Sadu, during third quarter, we have filed 18 ANDAs as compared to total 9 ANDAs during the first 6 months of the year. In third quarter, we have incurred higher filing fees due to increased number of ANDA filings and that has resulted in higher R&D revenue expenses as compared to first 2 quarters' average R&D expense by INR 299 million. The total R&D expense for the 9-month period was INR 1,714 million compared to INR 916 million during the same period of the previous financial year. It stands at 5.2% of the revenue. Our effective tax rate remains at about 25% in third quarter and for the 9-month period of the current fiscal year. Cash flow from operations during 9 months period was INR 6,127 million. Cash flow from operation has improved during third quarter due to reduced inventory level and receivable position. Net working capital has reduced to INR 19,227 million as on December 31 compared to INR 20,334 million on September 30, 2021. Average cash conversion cycle stood at 190 days for the 9 months ending December 2021, which is in line with the same period last financial year. Inventory level has reduced compared to previous quarter end and hence, has enabled us to improve overall cash conversion cycle. All our planned CapEx are progressing well. Total CapEx, including routine maintenance CapEx incurred during the year till December 2021 was INR 4,547 million. Our ROCE [indiscernible] cash basis was at 34% on an annualized basis for the 9-month period [indiscernible]. Our fixed assets turnover stood at 3.2x for a 9-month period of current financials. On an annualized basis, which has increased from 2.9x for the same period last year due to increased capacity utilization. As of December 2021, we had total INR 32,846 million of cash, which we intend to utilize for CapEx and to fund our inorganic growth strategies. With this, I would request the moderator to open the lines for questions. Thank you.

[Operator Instructions] The first question is from the line of Nithya Balasubramanian from Bernstein Research.

Thank you. Congratulations on another good quarter. My first question is on the complex injectables. Can you tell us what these products are? You have told us what the addressable market is, but can you throw a bit more color?

Yes. They are 3 hormonal products and 1 complex peptide. The addressable market is around $1 billion for these 4 products.

Are you willing to talk about what these molecules are?

No, we can't [indiscernible]. Sorry.

Okay. Are these Gland's own ANDA or partnered products?

Gland's own ANDA.

Got it. So my next question is on the biosimilar/vaccine investment. If I heard you right, you have the export permission now for up to 50 million doses. However, you're still awaiting some additional manufacturing license to start exporting. There is still a hurdle to start exporting?

No. So the process is, initially, we have to -- once we make batches then we submit samples to Kasauli. And then finally submit an NOC, that triggers some inspection. And that's what happened. And both [indiscernible] got inspected, the report went, and then we got issued, actually NOC this [ morning ]. Now, along with this NOC, we have to submit for license, which is more a documentary protocol, I would say, then the license would be issued. Then we have to go and discuss with RDIF on supplies and where to supply. So hopefully, we should start manufacturing as soon as we get [indiscernible].

So over what time frame do you expect to supply these 50 million doses? And do you have commitment from RDIF that there is demand for 50 million doses of Sputnik Light?

Yes. So we have a contract in place now that we are waiting for the NOC to get so that we'll initiate the discussion. So since it's just come up only today, we're going to initiate dialogue, but I'm sure -- we are positive that it might happen in the next 4 to 5 months. And there is a demand, what we've been discussing [indiscernible] the demand in some Asian regions where access to the vaccines is not there for some other vaccines.

Got it. If I might squeeze just one more in. I think, if your eventual intent is to repurpose this facility for biosimilars or a biologic CDMO and the tech transfer process obviously takes, depending on the product, 12 to 15 months. Have you already started conversations with biosimilar players? And is there anything you can talk about it as of now?

Yes, we do. And I know this good interest we are seeing, not just outside India, even some of the Indian players who want to enter in this space are discussing with us, and some of our subsidiaries of parent company as well.

Any deals that have been signed so far?

No, not yet. It's just because we're still waiting for a clear cut idea on the vaccine production and how much demand. So unless that is there, we don't want to enter a deal so that this will not impact the timeline.

The next question is from the line of Ashish Thakkar from Motilal Oswal Asset Management.

So just -- could you reiterate our progress on the biosimilar front in terms of, like, say, where we are in terms of mAbs, insulin, the cell therapies, [indiscernible] technologies, probably also some virus manufacturing technologies? And so if you could just give us an update where we are in that entire journey.

Yes, Ashish, as we reiterated earlier, we are not into the development of products, right? We are only doing the development work for other companies. While we have created R&D team and a manufacturing team to address all the technologies, we will not be developing on our own, any product portfolio. So we'll be doing a service for the biosimilar companies. Unlike the generic injectables, where we're also developing products.

But any timelines -- so like, this is the question which is asked always in the con call. But any timelines you would like to share to when can we see that first dollar revenue coming in for us?

We want to have a wrap-up of vaccine projects by end of this year at least third quarter or so, and then start working on the biosimilar end of this year. So hopefully, in the first quarter of next year, we should see something happening in the same.

Okay. Sir, one last question on this narcotics. Any update -- like, how are we planning to take our sales ahead, whether it could be through M&As, acquisition of technologies? Anything on those fronts would be helpful.

Could you repeat that, Ashish, sorry?

Anything on the narcotic space in the U.S., which is obviously a complex area, and we are willing to take ourselves there. So any progress? And how are we planning to take our sales into the U.S. market probably?

Yes, narcotics more than a [indiscernible], because it has to be done locally in U.S. That's the key issue. So we will likely be looking at assets. COVID didn't help us because of travel restrictions. But still, it's -- I would say, we're actually looking at assets in U.S. to address this market.

The next question is from the line of Saion Mukherjee from Nomura.

Sir, on the ROW markets, we have seen steady performance around INR 200 crores to INR 250 crores over the last 3 quarters. When do you expect a step-up in sales in ROW going forward?

So Tushar, what's the -- I'm sorry. Sorry, Saion, what's your question again?

No, sir, I was asking on the ROW markets. You have a quarterly revenue run rate of around INR 200 crores to INR 250 crores. It's been steady for the last 3 quarters. When do we expect any step-up in ROW revenues?

So if you see, year-on-year, we are growing very well. And this business is that -- we need to -- we want tenders and just start supplying in different quarters. And there are countries where we have tendered for 2 years, 3 years. So where we have just started in, say, last quarter. So it's a cycle. So you'll be seeing the step-up from April quarter because normally, it's a year-on-year growth you see for our kind of business.

Okay. Sir, on the U.S. market, in your commentary, you didn't talk about enoxaparin as a growth driver because I understand you had some supply for [ 15 ] years. Sir, if you can just take us through what's happening in the U.S. overall. I mean, the exports from India part has also sort of good [ letups ]. So if you can give some more color as to what is sort of driving growth, what is dragging down? Any commentary on the U.S., any details would be helpful.

So we -- even in my last con call, earnings call, I did mention some of the contracts that we won for some of products. Micafungin is going really well. And if you see, year-on-year, it's almost 200% growth. We have 2 major contracts in place. Enoxaparin, again is driving growth because of the large contract we have. And we have several launches. If you see the growth of U.S., 23% year-on-year, majority has come from these products, right? And products, if you see, like [indiscernible] we have a few good contracts with [indiscernible]. That has gone very well. Ertapenem, we got contracts. That is doing very well. So 4 or 5 products, which are large are going extremely well, and that has contributed to the growth of 23% from the U.S. market. And given the bad products where we were having the capacity utilization of 25%, 30%. Today, we're almost hitting on a full capacity. We got contracts in some of [indiscernible] product as well. So we have really contributed to the growth. And we have 7 launches coming in next few months as well. The market size of that itself is around INR 1.3 billion, INR 1.4 billion in the next 9 months in terms of launches.

Okay. Sir, if I can ask one more question on gross margin. It's been pretty steady. Any comment on raw material price pressure, how should we think about gross margins in the quarters ahead?

For Gland, even -- I think, talking about this earlier, gross margin is a little irrelevant because of our model. Because we have what we call a varied model where we do contract manufacturing, where the gross margin is 100%. We do -- we have a licensing income, which is 100%, where we have [ tech transfer ] projects where it's a different set of gross margin and our own products. So whenever the mix changes, the gross margin looks different. It doesn't mean that there's a pressure on gross margin. Unlike other companies, where 100% of the business comes from the product sales. So we normally have to give more above EBITDA and PAT. And if you see that, it is steady and considering the 18 ANDAs we filed in this quarter, which is almost, the financing itself costed around INR 30 crores, okay? Our normal run rate per quarter for the filing fees is around 5 to 6 crores. But this quarter been heavy in terms of that. Which will help in the growth of the business, like you said. So if you see last year, entire year, we have filed 21 ANDAs. This year we went for about 28, 29 ANDAs. So there's an increase of 7 to 8 ANDAs. And the bulk of it has happened in this quarter. If you consider the expenditure made on the ANDA filings, we -- adding that to the PAT and EBITDA, it's in line with the historical trend.

The next question is from the line of Amit Kadam from Canara Robeco.

I have 2 questions. One is on the enoxaparin, maybe 10 days back, we had this news from the Indian government issuing some kind of a notice on the -- like a banning that particular export. So does it impact us in that particular thing? Do we come under that particular gamut under that notification? And the second question is that we had guided earlier that our China commercialization, the first product launches could happen by the end of FY '22 or the start of FY '23. Does that timeline remains steady?

So on the enoxaparin, there are 2 things. One is prohibited and the other is restricted. What this product has fallen in, is restricted category. Because of the COVID situation, just as a precautionary measure, government has put that under restricted category. So we have to file a document to get an approval for an export. But as of now, they are not really restricting any shipments. And with the amount of number of suppliers in India, we don't foresee any shortage happen in Indian market. So the impact on that won't be that much, I would think. So as of now, it's normal, normal business. Only if some shortages happen in Indian market, that's when I think they will look at restricting it. As of now, there's no restriction to export.

So does it happen on like every shipment, then we have to take an approval because it's in to restricted category then?

No, not every shipment. We -- whenever we import components or materials to export, we get it done with advance license. So they actually approve the advanced license. And whenever you file for shipping, you have to mention that advance license number and that will clear at the customs. So it could be 40 batches or 50 batches at one shot. Once they have given advance license approval, then we can ship whatever covered under the [indiscernible].

So in just these last 10 days, as a regular shipment, nothing has impacted our regular flow of shipments to our respect to customs?

No, no. Not -- no impact yet.

And on my second question?

On the China piece, we are still waiting for the first approval. There's one piece which still deliberation is, normally NMPA does inspect [ featured committee ] first time when they approve a product. So it's under that deliberation whether it has to be a virtual audit or a visit. Visit could be a problem. So I think, that stage, probably if that gets cleared then this product will [indiscernible] an approval.

So the timelines could get a little deferment?

Yes, it might differ. But we did say that the first quarter of next year could be the time when you commercialize. So we all will get more clarity, it might happen or it might be pushed by a few months, but we'll give a better clarity in the next earnings call.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Just on your 4 complex injectables for which you have done the filing. The total combined size of the addressable market is $1 billion. Is that correct? And that's a gross number by IQVIA, so net number would be what? 25%, 30% lower?

Yes, I think that could be correct. But most of the time, these products have lesser, discounted. So it's closer to the IQVIA number, especially products which are single source.

Okay. Got it. And are all 4 of them without any generic or there are some players there in the market?

No, this is not generic yet.

Excellent. And what could be the approval cycle timeline for this?

Normally, for complex, internally, we are assuming 2 years. It depends on the response we get from the agency.

Okay. And sir, how do you see the competitive outlook for these 4 products? Like do you -- when you reach the market, would it be 1 to 2 play market? Or you think there are more people in the queue?

It's very difficult to say because a lot of people are talking about complex injectables. We have started this program a few years ago. So while we have filed for this year, next year we have [indiscernible] filing 8 complex products. So it's very difficult to say because the companies are working on products. If you look at the total portfolio, there are about 35, 40 complex injectables. So we don't know who are actually working on which products. So it's -- I can't really comment on how many players are in there.

Okay. That's very clear, sir. Sir, one last one from my side. And that is for your base business, all the injectables in the regulated markets. Some 250-odd approved ANDAs. So as more and more Indian players broaden their portfolios, are you seeing competitive pressures over there in the market? Are you seeing a higher price erosion? Your thoughts on this would be great. Thanks.

So there is very [indiscernible] price pressure for any new product you want to get genericized. But because of the business model, our impact of the prices is lower. If you see our growth has come almost 17%, 18% from the volume growth and the new launches growth has given around 6%. So majority of the growth has come from either new launches or volumes. The price has remained same or it's 1% down, right? So the impact is lower for us because of the business model what we have because we are protected by the transitive model we have, and the profit share component for a smaller part of the entire business is about 10%. So even the impact is lower. And because of multiple players, we have partnerships with such [indiscernible] products. We kind of average out the price pressure.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Just clarification again on the Sputnik, in terms of the timeline for starting the exports? Like 3, 4 weeks timeline or can be faster than that?

I wish I could do it tomorrow, Tushar. So once we get a manufacturing license, then in parallel, we are discussing with RDIF on countries to which we have to start exporting. Then we have to start manufacturing. The manufacturing process, from the minute we start with [indiscernible] substance to the finish product itself is about 45, 50 days. And then the samples are to be released by Kasauli and also Gamaleya, Russia. So that's kind of 30 days or so. The dispatch of the [ shipment ] may not or may happen actually the first part of next quarter than this quarter. But I think the manufacturing will happen this quarter.

Understood. And just coming back to the complex generics filing, are these products into the shortage list, which can compel U.S. FDA for inspection or early approval if at all the filing is more or less appropriate?

No, because these products are filed from same lines and approved facility. So this doesn't trigger an inspection as such. Anyway, it all depends on when they want to inspect because, of course, we have one of the key [ ingredient ] supplies to the U.S. market and a lot of product go from the sites. We got inspected in 2019 last [indiscernible]. So we had to be ready whenever they want to come. But this pressure will not trigger an inspection but normal course of business there might be an inspection this year.

And lastly, on enoxaparin, where on 4Q onwards, you have to start the incremental order flow on this product in terms of gaining the market share from, let's say, the previous supplier? So is that on track? Or -- I mean, on account of COVID-related hiccups, is that getting pushed or kind of preponed [indiscernible]?

No. And in fact, if you see our numbers we shared this quarter, even enoxaparin for U.S. has gone up. So we already started catering to that demand as soon as demand for the new contract what we have. More will come in the next quarter, but the impact has already started. We start supplying from last quarter, more quantities to U.S.

Understood. And just lastly, this -- there has been a good increase in the ANDA filings after maybe almost 2, 3 quarters. So is that kind of -- kind of pent up into this quarter itself? Or with the production bit easing on account of COVID? Or how do we look at this, the pace of filing?

No, no. So we never try to postpone any India filings. Whenever it has to happen, we do that. Because of 4 complex injectables, the development took longer time. If you see last year, it was only 21 ANDAs. Normal our target is around 24. We did 21 last year. So [ contracting ] that it will take longer time to develop. So these were in pipeline, and we've got ready to file this quarter, so there were additional filings which have happen. And depending on when the stability gets over and the ANDAs process happens, that's when we file it. It just instantly happened this quarter. And that's why it like a bulk up in one quarter, 18 ANDAs and 3 DMFs.

The next question is from the line of Vivek Agarwal from Citigroup.

The question is related to complex peptide that you have filed this quarter. Are you developing the API on your own or you are posing it from a third party?

No, these are outsourced, Vivek.

So basically, is it fair to assume that as far as API, as far as peptide filings are concerned, for more [ stock ] products, for example, APIs are outsourced?

I'm sorry, Vivek, it is breaking up. Can you repeat that?

So for all the peptide filings, so are you basically depending on the third-party APIs? Is that assumption correct?

Not all peptides. Some of the peptides, we -- we do have -- we'll buy intermediates and then do our final steps. But more critical APIs, yes, we do. We are dependent on external sources. That's one of the areas we're also looking at some acquisition perspective in the long term.

The next question is from the line of Kunal Dhamesha Emkay Global.

Sir, if you can provide some color on what was our profit share this quarter?

You want just the number -- profit share number or you want the percentage?

Percentage. Percentage is fine.

8% contribution for the revenue.

Okay. That's for this quarter. And for the 9 months also, it would be similar?

No. For the quarter, it's about 10%. For 9 months it was 8%.

Okay. Okay. And the second question is on the -- again on the biosimilar side. So obviously, we have cited some timeline, but I think there is also -- and you are also in the discussion with various companies. But I think there is also another aspect in terms of regulatory clearance of the facility, right? And it also takes time. So the current conversations you are having with prospective clients, whether these are for the ROW markets or for, let's say, Europe market or U.S. market?

So facilities are design for regulated markets, so it will be good enough for all markets, from a regulatory inspection perspective. Local instruction perspective, we already got approval clearance from the inspectors [indiscernible], it's just that we need to give a cleaning -- [ air ] handling for a month, and then we can start the biosimilar production. But the design of the plant is as per regulatory requirements for the regulated markets.

Sure. And these regulated market inspection would be triggered after you have certain products which get manufactured or certain contracts in place? Or this can happen before as well?

So the 2 things, right? One is mostly, the customer approval you need once you sign a contract. It depends on the type of work you do. If you want to take a pilot skill batches, which the product has to be given to humans, then you need a regulatory approval. But otherwise, any development you do in R&D or batches for animal studies, we don't need a regulatory approval for this. The approval from the client should [indiscernible].

Thank you. The next question is from the line of Rahul Jeewani from IIFL.

Now, with respect to the biosimilar CDMO business, you indicated that we would not be involved in product development, and these products would essentially be tech transferred products, where we will be providing fill/finish services to some of the other players. So because this will be a tech transferred portfolio where you will be providing fill/finish services, do you think that the biologic CDMO portfolio would be a lower margin business for us and hence, it will be margin dilutive for us?

Yes. So there's 2 or 3 different asset here, right? One is the products which are already generic, I would say, [indiscernible] call it. The [indiscernible] kind of products. Doing work for them, whether it's a tech transfer and you try to get fill lines from the client and then do a scale up on the substance and then do a fill/finish. But the other key aspect is the new drugs, not the generic products. That's where the focus is now. So all the companies who are developing new drugs, they look at the development work to be done at a smaller companies like us, and they'll give -- we act as a service provider for that. And whether it could be fill line development or whether it could be scale up patches or sometimes, they have done already fill line where we do the drug [indiscernible] scale up or we do the pilot scale batches. So several dimensions of business. But mostly, what we are looking at is working with companies who are working on their new drugs, and less than on the genericized biosimilar, I would say.

Okay. So that essentially means you would be targeting some of the wave 2 biosimilars, which we'll go off patent, but you also indicated that the revenue accretion from this project could start in 12 to 18 months' time. So how do you time that given that some of these products which you might be targeting will be going off patent only post '24, '25 time frames?

Sorry, [indiscernible]. I thought -- I think you missed one point. So what we're saying is we're not worried about the commercial production yet for these products, right? We are looking at development scale up. And then some might -- not every product you do development work at the CDMO will actually get commercialized. It's a little different than the generic business. Some will pass through the animal studies, some will pass through the human studies, and some may not. And only the products where it will get through all this, then it can get to commercialize production. So it's mostly working on the development side, scale-up side of the business. And whichever product is successful, that's when it gets to the commercial phase.

Sure, sir. And with respect to the U.S. business, if we look at the U.S. business, which is booked as part of our developed markets business, the U.S. business has been flat quarter-on-quarter despite the incremental supplies which you have done on enoxaparin for the additional contract. So what has led to sequentially the U.S. business being flat?

So the quarter-on-quarter, we really should not compare because it really depends on what kind of products got dispatched that particular quarter. Are there any launches during the quarter. So it all depends on how many product gets launched during the quarter. So we should always look at on an annual basis that which gets averaged out, whether it's India filings or whether it is [indiscernible]. Some of the high-value product might not dispatch during a particular quarter, may not get dispatched and the [indiscernible] also might vary. It all depends on the timing [indiscernible].

Sure, sir, one last question from my end. So this is more of a bookkeeping question. Now, over the last 2 quarters, you have started calling out the sales, which is being booked from India for the export markets and specifically the U.S. business. So the growth numbers, which you are reporting for U.S. is including the proportion of sales, which is being booked from India, and we have seen this that you have started doing this only over the past 2 quarters. So has anything changed with respect to how you account for these sales, which has led to some sort of disclosure being made in this way?

So if you see 2, 3 years ago, the business, what has happened to Indian companies to the U.S. was minimal, not that much. Few products got sold by [indiscernible] that market. But we have done a lot of contracts with different companies -- Indian companies over the last 7 years, that kind of started to sell. So it's only fair to say that because the products are ultimately sold in the U.S., and that is also generating the growth in the product. For example, ertapenem, it's licensed to an Indian company. And that is selling well. And we should not take that away from the U.S. business because now there are several products which we don't license to U.S. companies, only to Indian companies. And that should not curtail that. And because the volume of business is a set of products, volume is growing in a large way. So we thought the investors should know how much actual domestic product, it goes to the U.S. market. Because there will be an ambiguity around how we're growing 30% in Indian market, no, it's only a smaller portion of our business. Most of the business what we're doing today, shown as India, actually is going to the U.S. market but build as our [indiscernible].

Okay. So just one clarification on that point. So the U.S. market sales, which we are booking as part of the developed market portfolio, does that mean you don't book any sales to the Indian companies as part of that developed market portfolio? So all your sales, which is happening to Indian companies is getting booked as part of the India sales only?

Correct. Correct.

Sure. Sure.

It's always booked as India. We're only saying that part of that India, x amount, so much percentage and so much quantity is for the U.S. market. That's what we are saying.

The next question is from the line of Vivek Gautam from GS Investment.

Congratulations from yet another set of good numbers. Recently, we have been getting good numbers post the IPO. That's great, Sir. Keep up the good work. And sir, one thing I just wanted to know about was the -- what is the compliance status of our because I believe, and we have a stellar track record of maintaining great compliance since 2003, if I'm not wrong. And what are the factors behind it? And any inspection and offing in post-pandemic FDA approval -- FDA deal coming up?

Yes. So it's -- all our sites are FDA approved. Many of them are approved by other regulatory agencies as well, and it's intact. In fact, just today, we have just finished our building or the main plant inspection from [indiscernible], visiting inspection. This is the first inspection post-pandemic, I would say. We had Russian inspection but were more virtual and some of that inspection is virtually. FDA does have inspection. We did receive some questionnaires for some of our APIs, which are due for inspection, last year, and that was submitted. And other than that, I think everything is in compliance and even the inspection with [indiscernible], so that gives us confidence that in spite of no inspections from regulatory authorities for last 2 years, we are in line with our compliance record.

Great, sir. And sir, what has been the forcing contribution to our growth ever since we took over our company? And what has changed since then? And how is their growth mindset? And any entry in China, or rest of the world market, they're opening doors for us of any positive development?

Yes. So I know, [indiscernible]. It's not just before at listing even before listing, we been growing for 3 years, it's a...

[indiscernible]

Yes, correct. So the investments we want to manage, whether it's infrastructure, in the portfolio and the plan we made for long term, that's all come into fruition. And post [indiscernible] helped us in some of the markets because if you see the sales in some African markets has gone up very well. [indiscernible] network, we have been trying to sell our products to. China market, we never looked at that market actively before. Currently, we're looking at it because, like you said, 1/3 of global impact of the market comes from that market. So that's a great help in that sense. And M&A, we don't have much experience in that side as well. So we get a lot of help from that looking at the different assets and evaluating and during business activities. So the several areas where we cooperate and we get help from them.

And sir, lastly, sir, any -- what are the CapEx plan? And any concern on the increasing competition intensity in the injectable space for us, sir, from Indian companies and other companies also?

So Mr. Ravi will address the CapEx plan. But from a competition perspective, I've been saying, any new competitor is good for us because we get one more partner to who we can license our products to.

Okay.

On the CapEx plan, so we have spent about INR 450 crores in 9 months and would be spending another INR 100 crores in this quarter. So that would take care of the INR 550 crores initially indicated for this financial year CapEx plan. So mostly, it has been incurred on the vaccine facility in Pashamylaram and expansion. Next year, we are estimating about INR 300 crores of CapEx for further setting up the lines in Pashamylaram. And also, on the API side, we are adding capacity for more vertical integration. So that is the CapEx plan for this year and next year.

Dividend, any plan, sir? Giving dividend?

Dividend, I think the Board has to deliberately decide. I can not comment anything on that now.

The next question is from the line of Prakash Agarwal from Axis Capital.

Congrats on good numbers. Sir, just wanted to understand, a basic question that we've been doing great growth, and we have a good selection of products. But what we hear from the large Indian pharma companies also is that second half '23, they are also coming with complex injectables. Do you think from '23, '24 the competition level will increase and our long-term growth can taper a bit just from the base business, not the biosimilars?

I mean, competition is coming from last 3, 4 years. And like I've been saying, our model is different. We are not a front-end company. So we cater to different companies. So more competitors can come, we have products to license to this company. That's one. The portfolio buildup happens to any company over a long period of time. It took us so many years to build 300-odd ANDAs, right? So no company can build -- can develop so many ANDAs in a year. So they'll also take time to go through that stage. And the throughput we gave and the technologies which we have across different formats, it takes time for any competitor to do it. So we are not that worried about the growth. Of course, the base is increasing. So not just the portfolio will help us grow the way we've been growing. So we are looking at different avenues because -- and that's one of the reasons we've been focusing so much on geographic growth drivers and the areas where we have not touched upon yet, right? I mean, if you look at the products that we have launched, it's only about $5.9 billion worth of products, and it [indiscernible] across the globe. So there's a lot more to do, and I think, a lot of catching up to do even for us and even more for companies who are coming.

That was very elaborate answer. And secondly, on biosimilars. So I heard you saying that currently, we are adding capability of fill & finish. So what is the 3, 5-year plan? Are there any therapeutic focus, autoimmune or otherwise? And do we plan to do the complete DS and drug product as everything? Or we would carve out our specialty in part of the business?

No. In fact, we are doing both DS and fill/finish. Not just fill/finish to start with. The vaccine DS plan, what we have created, that will be converted to DS once the [indiscernible] gets over, that's the plan. So from the beginning itself, it's a combination of both DS and DP. And I think that's where also we have a little advantage over a lot of other companies with our track record we have on the fill/finished. So it's not just fill/finish we're looking at, both DS and DP.

The product selection, I mean, is there a therapeutic focus? Are we looking at large products already identified? Or we are looking at the second wave which are yet to see any biosimilar entry? How are we thinking about product selection and therapeutic selection?

And like I said, this -- we are not getting into the development of products. So which our clients want -- portion of that work, we'll be acting like a service provider for them. Unlike the business what we're doing today, where we do both. We do service as well as we do develop products. But for CDMO, biosimilars, the idea is to work as a service provider for other biosimilar companies.

Okay. Got it. And lastly, sir, on the free cash flow generation. how do we think to use the cash over the next 3 years? I mean, would it be largely for CapEx and part of a dividend? Or I mean, we are open to looking at large assets as well?

Yes. So we are -- primarily, what we to look at areas where we can fill gaps, what we have. There are several areas where we don't have capabilities yet in injectables. To build that it might take few years [indiscernible] that we have to acquire some assets. So there is a primary focus on that. Without putting too much pressure on the balance sheet, we are getting risk covers in terms of what we have to buy. Unless it fits perfectly into our long-term strategy and where we have gaps, that's where we're looking at the moment from an acquisition perspective. And also, the investments in the complex injectables is higher compared to normal injectables. So investments will go into that. But we'll evaluate on the dividend and all that when the time comes. And then the Board has to decide based on the cash flow we have.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments.

Thank you, everyone, for joining us today. We appreciate your participation during the call. I request you to get in touch with me if any of your queries still remain unanswered. Thank you. Good night.

Thank you. On behalf of Gland Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.