Gland Pharma Limited (GLAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Gland Pharma Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Runjhun Jain. Thank you, and over to you, ma'am.

Thank you, Sagar. Good evening, everyone. Today, we have Mr. Srinivas Sadu, Executive Chairman; Mr. Shyamakant Giri, Chief Executive Officer; Mr. Ravi Mitra, Chief Financial Officer from India Office; and Mr. Alain, CEO of Cenexi, who's connected virtually. Before we proceed, I would like to remind everyone that certain statements made today are forward-looking and based on management's current estimates. These should be considered in the context of risks inherent to our business. Please note that this call is being recorded, and a playback transcript will be available on our website shortly. With that, I hand over the call to Mr. Sadu for his opening remarks. Over to you, sir.

Thank you, Runjhun. Good evening, everyone, and thank you for joining us today. On behalf of Gland Pharma, I welcome you to our earnings call for the first quarter of FY '26. I will begin by highlighting our strategic priorities and the progress we are making. Shyamakant, Alain and Ravi will then provide operational insights that led to the performance we are reporting today. The year has begun on a positive note, driven by improved profitability margins in Gland's base business. It is particularly encouraging that after a challenging period, Cenexi has turned the corner and returned to profitability with a breakeven EBITDA. The injectables and broader pharmaceutical space continues to evolve, presenting both challenges and strong opportunities. Despite ongoing uncertainties around tariffs, our established capabilities and disciplined approach position us well to navigate and respond effectively. This quarter's performance reinforces our confidence that the strategic building blocks we have put in place are starting to yield results and positive financial outcome. Let me now update you on the progress we are making on each of our key strategic priorities. We are advancing the expansion of our core business beyond the U.S. by deepening our presence in emerging markets, although contributions from these markets will take time to build, we believe the distinct value of our portfolio will serve as a key growth catalyst over the medium term. Moving forward, our focus remains on capacity enhancement and strengthening our industry-leading capabilities. Gland has historically led the way in adopting innovative technologies and formats for injectables, consistently offering competitive large-scale solutions. Our current capacity enhancements now include capabilities for suspensions, hormonal products, microsphere bulk, microsphere powder filling. We're also making strategic push into RTU formats such as dual and triple chamber bags. We continue to make significant progress in our CDMO program particularly in key areas like oncology, RTU bags, ophthalmics, PFS and GLP-1s. These advanced capabilities give us a unique position in the industry, and we are committed to leading with innovative initiatives. Our GLP-1 strategy gained momentum last quarter with the launch of liraglutide. The product has now also been launched in the U.K. and Australian markets. We are excited about other programs that will benefit from our expanded pen and cartridge capacity, which we are aggressively increasing from 40 million units to over 140 million units with the factory acceptance test scheduled to be completed by September '25. Turning to our R&D and portfolio expansion initiatives. Our strategy is anchored on three core pillars: in-house research, complex products and co-dev-collaborations. In-house R&D continues to be a strong driver with 9 approved alongside 1,751 global registrations in the quarter. During Q1 FY '26, we launched 9 new products in the U.S. and are confident of sustaining this momentum. We also filed one RTU infusion bag this quarter, which brings our total to 20 such products filed in the U.S., of which 14 are already approved. An additional 10 RTU bag products are currently under development. This RTU bag portfolio addresses a market opportunity of approximately $750 million in the U.S. In the area of complex injectables, we have already launched 6 products with 3 more in line for approval. We expect complex injectables to remain a central pillar of our long-term growth with more products being added to the pipeline. Within our co-development model, our portfolio now comprises 15 products, including seven 505(b)(2) submissions and eight ANDAs. These products are strategically aligned to high potential therapeutic areas such as immunology, chemo adjuvants, mineral supplements, pain management, endocrinology and radio contrast agents. On Cenexi, we have addressed the challenges head on and have kept you closely informed on the steady progress of our turnaround plan. I'm pleased to report that as of Q1 FY '26, Cenexi has turned EBITDA breakeven, and we are confident of continued improvement. While it has taken slightly longer than anticipated to fully achieve our acquisition objectives, Cenexi is now firmly on the path to sustainable growth and profitability. This momentum is being driven by a strategic shift away from low-value, high-volume segments towards high-value offerings such as prefilled syringes, lyophilised vials and ophthalmic gels. In conclusion, we believe this has been a strong start, and we look forward to building on this momentum to deliver an even stronger performance in FY '26. We are confident that the actions underway across our strategic pillars will create a meaningful positive impact, supporting Gland's long-term success and sustainability. Thank you for your continued confidence in Gland. With this, I will now hand the call to our CEO, Mr. Shyamakant to share his thoughts. Thank you.

Thank you, Mr. Sadu. Good evening, everyone. Thank you for joining today. We have had a strong start to the year. Gland's base business met expectations, and we are pleased that Cenexi achieved breakeven EBITDA after several quarters. First, I will highlight our consolidated performance. Our consolidated revenue stood at INR 15,056 million, showing a growth of 7% over last year's quarter 1. Our consolidated EBITDA touched INR 3,678 million, marking a strong 39% increase year-over-year. A substantial portion of this growth was driven by EBITDA expansion in our base business, complemented by breakeven EBITDA from Cenexi, a significant turnaround. Consequently, our consolidated EBITDA margin grew from 19% to 24% this quarter. Next, I will outline the performance of our base business and plan, excluding Sanofi. Breaking down our performance by market. We had a strong quarter in the U.S. with successful launch of 9 new molecules during quarter 1 FY '26. This includes important products like epinephrine, acetaminophen bags and 3 new strengths of vancomycin. The U.S. reported INR 7,443 million in revenues, contributing to 49% of our business. Our other regulated markets, including Europe, Canada, Australia and New Zealand showed good growth, increasing 34% year-on-year, led by portfolio maximization initiatives across our partners. These markets now make up significant 27% of our total revenue. The rest of the world market contributed to INR 2,978 million in quarter 1 FY '26, representing 20% of our revenue. We saw a modest 5% increase in this market largely due to a softer order intake in some key regions. Lastly, the Indian market generated INR 594 million, accounting for 4% of our quarter 1 FY '26 revenue. Moving on to the R&D. Our total expenditure for quarter 1 FY '26 was INR 460 million, which is 4.4% of our base business revenue. During the quarter, we filed 1 product and received 9 new approvals. R&D remains a cornerstone of our strategy, and we are confident that our new product portfolio will drive growth and profitability in both near and long term. On the operations front, all our units are compliant with various regulatory guidelines, maintaining a strong commitment to high quality. We also focus on monitoring our cost base to ensure our business remains highly competitive and ahead of curve. Cenexi has been the highlight of the quarter. Our strategic initiatives over recent quarters are now delivering tangible financial results. After several quarters of negative EBITDA, Cenexi reached breakeven this quarter. In quarter 1 FY '26, Cenexi revenue was EUR 48 million and gross margin improved to 80% from 78% last year, EBITDA was EUR 0.9 million. We are confident Cenexi's performance will continue to improve. Alain will provide a detailed update shortly. We remain committed to enhancing Cenexi's financial performance and achieving our strategic objectives for this acquisition. Before concluding, I will provide a brief update on our key demand and supply priorities outlined when I became CEO 2 quarters ago. We remain committed to building capabilities and expanding our global reach to drive long-term value. On the demand side, our focus remains on enhancing our footprint and launching new products in high-value, high-growth rest of the world markets. We are also leveraging our strength in specific therapeutic areas and actively exploring inorganic opportunities to achieve significant growth in India. In the U.S., our primary goal is to add new customers and grow our share of business with existing partners, all of this backed by an accelerated portfolio strategy that emphasizes co-development, in-licensing and strategic partnership in newer modalities. On the supply side, our priorities are focused on maintaining quality and cost leadership. We are continuously focused on competitiveness and upholding our industry-leading quality and compliance record. We are continuing to strengthen our leadership team with new hires and building capabilities across all functions. With this, I would like to hand over the call to Alain for main -- for more detailed update on Cenexi's performance. Over to you, Alain.

Thank you, Mr. Giri, and good evening, everyone. As emphasized by Mr. Sadu and Ms. Giri in their remarks, we are pleased to report that Cenexi reported a breakeven EBITDA this quarter. This achievement reflects our continuous efforts to streamline operations and optimize costs. While we are still working toward our desired financial performance, this marks a strong beginning and emphasizes both our strategic intent and the progress we are making. To provide a more granular perspective, let me walk you through key updates at the site level. Production at our Fontenay facility has been on track with the plan. We were able to improve our order shipments and reduce downtime. The transfer of products to our new ampoule line is progressing well, thus increasing our production output. Our results this quarter also reflected the benefits of price increases negotiated last year with our customers. As we had reported, we have also concluded the required actions pertaining to the Q3 FY '25 ANSM inspection. A new inspection took place in July to monitor the progress of our CAPA plan. We remain focused on streamlining operations on the site and adding further volumes. The operations at Hérouville-Saint-Clair have remained on track with our recovery plan, and we continue to see steady progress with the ongoing tech transfer projects under development. The installation of a new prefilled syringe line, which is projected to be operational at the beginning of calendar year 2026 remains on track and will substantially increase our capacity in the high-demand PFS segment. The business from Braine-l'Alleud and Osny remained robust and delivered a solid performance this quarter. As updated previously, our 2 new lyophilizers are being installed at Braine-l'Alleud, and their qualifications will be concluded by the end of the calendar year 2025. In parallel, engineering studies for the installation of a new vial line under isolator with automatic loading and unloading of the lyophilizers are progressing well. The long-term prospects for this business remain robust with high-value projects in our tech transfer program. Besides, our pipeline of new leads in Braine-l'Alleud is growing fast with new projects under study in hormones, blood derivates, biologics and, of course, cytotoxics. Q1 FY '26 has marked the beginning of a meaningful turnaround. We remain firmly focused on our previous commitment, it has to deliver a positive EBITDA in Q3 FY 2026 after to be expected low Q2 FY 2026 due to our summer shutdown. Thank you for your time. I will now turn the call over to Ravi to discuss our financial performance. Ravi, over to you.

Thank you, Alain. Good evening, and thank you for being with us on the call today as we review our financial performance for the first quarter of the fiscal year 2026. We are pleased with the steady growth in consolidated profitability year-on-year, driven by improvement in our gross margin, which has reflected a strong positive momentum, improving to 65% from 60% in Q1 FY '25. This enhancement was largely on account of higher contribution from favorable raw material costs for several key products at base business. Excluding Cenexi, our base business gross margin stood at 59% in Q1 FY '26, up from 53% in the same quarter of previous year. The consolidated EBITDA margin also improved significantly, reaching 24% from 19% in the corresponding period of FY '25. This uplift was driven primarily by a strong gross margin and various cost controls initiatives across our base business. At Cenexi, EBITDA breakeven was achieved, supported by higher volumes alongside stable operating expenses. Excluding Cenexi, our base business delivered an EBITDA margin of 35% for Q1 FY '26 compared to 29% in the same period last year. It is worth mentioning that the company launched ESOP 2025 scheme in May 2025 to motivate key employees and also to align with the interest of investors. On ESOP grant of 8,43,685 options, a noncash expense amounting to INR 59.48 million was included in this quarter's employee benefit cost. Adjusted for this expense, our base business adjusted EBITDA stood at INR 3,651 million. Our net profit for the quarter reported a strong 50% year-on-year growth to INR 2,155 million compared to Q1 FY '25. During the quarter, we achieved a PAT margin of 14% compared to 10% in Q1 FY '25. Other income, primarily consisting of interest earned from bank deposits and foreign exchange gains amounted to INR 575 million in Q1 FY '23. This is higher than the INR 440 million reported in Q4 FY '25. Our R&D expense for the quarter were INR 460 million, declined from INR 489 million in the same period last fiscal year, largely due to timing of the expenses, while all our R&D programs remain on track. This quarter's R&D expense represents 4.4% of our revenue on an ex-Cenexi basis. On a stand-alone level, our effective tax rate was 25.7% for the quarter. As of June 30, 2025, our total cash and equivalents at the group level stood at INR 30,139 million, including non-callable deposit of INR 3,960 million. Debt at Cenexi level stood at INR 3,145 million. Cash flow from operations during Q1 FY '26 was INR 2,620 million. Our average cash conversion cycle was 161 days for the first quarter compared to 172 days at the end of FY '25, largely on account of better receivable and payable management. Total CapEx during the quarter amounted to INR 786 million, mainly deployed in Cenexi BLA for the new projects and other replacement and maintenance spending. With that, I would now like to request the moderator to open the lines for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Saion Mukherjee from Nomura Securities.

Sir, can you provide the profit share and milestone number for this quarter, please.

Yes. The milestone revenue is about 9% and the profit share is 12%.

And the second question on the pen and cartridge capacity of 40 million, which is available and 140 million that you're planning to go. If you can share the time line and how much of this capacity given the GLP-1 demand do you expect to sort of come through this year in FY '27 and '28. If you can sort of give some color as to how you see this capacity getting filled up.

So the 40 million capacity is already in place, and we have already filed and that line is already approved. And as you have heard in the commentary, we have launched liraglutide in a few markets from that line. The 100 million capacity facility is in September and installation in November. By March, I would say, March, April, it will be ready for main commercialization. There will be a few contracts that we are discussing with partners for that line. And anyway, Wegovy will come in '30. So most of the initial will be filing from that line. And then -- so that should be good enough for our launches post '28.

So sir, how much of this 140 -- so what is the amount of quantities you would be supplying, let's say, in this fiscal and '27 and '28. I know like some of this may be from a long-term perspective, but given the visibility on contracts that you have in place now.

Let's start with around 20 million in the first year and then the next few years depending on which markets you get approval.

So 20 million you're saying this fiscal, fiscal '26 or '27.

'27.

Our next question from the line of Neha Manpuria from Bank of America.

My first question is on Cenexi. Could you take us through a little bit on the breakeven that we have achieved? Is this because of certain plant where we see losses being lower? And why we think this will be sustainable? And based on this, what should be the margin that you think Cenexi can now achieve for next year? Is a low-teen margin possible? Or would it still be in the high single digit?

Alain, you want to take this? Okay. So Neha -- yes, Alain, please go ahead.

Yes. So in Q2, all sites have contributed to a strong performance. Of course, Braine-L’'Alleud and Osny that have had a long-term positive EBITDA continued on the trend, but we start to see a recovery both in Fontenay and in Hérouville, who have been the lower performing sites in the past 12 months. And that's driven mainly by an increase of volume as well as a much reduced downtime and also the result of all the actions that we have initiated in order to be more productive and more efficient.

Alain, if I may ask, out of the 3 facilities, which one of them probably is the largest drag on profitability? And what's the scope to improve margins there?

So if we look at Q2, as I mentioned, both Fontenay and Hérouville have sharply increased their results. Osny and Braine-L’'Alleud continue on a very positive trend, but most of the upside is coming from Fontenay and Hérouville that had been underperforming in the past 12 months.

So Neha, just to add, Fontenay site, I think we were struggling to deliver the demand and the line which we have added in March that kind of helped us to catch up with some of the back orders and also increase the capacity. So that was added in Fontenay and starting to pre. And from the HSC site, 2 products got launched, and ophthalmic gel vaccine product it is. So that -- those projects got commercialized and there was a volume increase. That kind of helped HSC also to increase the revenue. So these are -- and also, there were actions taken by Alain in terms of increasing the transfer prices for several products, and that also helped in increasing the profitability.

And next year, sir, do we think -- so next year can now comfortably do a low teen EBITDA margin? Would that be a fair assumption given the progress we've seen in this quarter, or probably still too early to call that?

So next quarter, because of the summer shutdown, the next quarter could be...

Next year sir, sorry.

Yes. But for the year, I think moving forward from October, I think it will be EBITDA positive and we'll ramp it up slowly to get to the high -- low teens or high single digits EBITDA.

Okay. Understood. And my second question is on the U.S. business. If I look at the performance in this quarter, obviously, there's lumpiness. One, as we think about that mid-teens growth that we talked about, when do you start seeing improvement in the U.S. business to get to that mid-teens growth? And what would drive -- you talked about the dry powder CMO. When does that start flowing through? When does those complex approvals actually start reflecting in the revenue numbers for U.S.

So we're still on track for the -- as per our budget. I would say we achieved our budget in the first quarter. We are on track to get to the mid-teens growth for the year. The CMS project, the lyo product just got launched last quarter. And you see that -- you see the numbers in Europe, while it has gone up, it's basically that product which got launched. The other one, the CMS dry powder, the Danish approval has come through line-wise. Now they'll be submitting the dossiers next quarter. So beginning of next year, those products will get launched in Europe and other markets. So that will be a big ticket item in terms of the CDMO business. The other big thing in the U.S. will be Dalbavancin launch. That will be the September quarter. That's on track again in terms of the approval and launch. So these are the two big events that will help this growth coming back. Otherwise, everything else are in line with our internal budgets.

Sorry, sir, which was the second one you mentioned in September, I missed that.

The Dalbavancin, the Dalbavancin launch in September.

[Operator Instructions] Our next question comes from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on Liraglutide how much overall business across the geographies you would have made this quarter?

We can't say specific, but I think we launched in U.K. and one other -- in Australia. U.K. and Australia got launched this quarter. Previous quarter, again, I think the two markets right? South Africa and ...

South Africa, Saudi Arabia.

Saudi Arabia, two markets. So till now, it's four markets this product got launched.

And how many more like sequential in the remaining quarters of '26?

It's a global deal. So I can't say because its a partners product, so it's a global agreement.

And sir, will this have cannibalizing impact once like in the next year when the other peptides gets as a business opportunity for Gland?

No, it has its own market, right? I mean Liraglutide has its own market .

No, from the capacity -- manufacturing capacity point of view.

No, no, we already -- we have enough capacity. We have currently 40 million, and that should suffice for the next few years because the major product Wegovy will only come early 30s, right, so...

So that is as far as U.S. market is concerned, that is for the semi-regulated market?

We will have the other lines ready by the first quarter of next year. So that should take care of the demand. Till that time, we have enough capacity.

Got it. And sir, I missed the name of the two potential products for U.S. market, which will drive sales, if you could repeat?

So one is Dalbavancin and the other, we already told the CMS contract, that's not just U.S., it's also European. Yes, the second one is a CDMO contract.

Okay. And sir, just lastly, considering 2Q sort of dip in profitability for Cenexi and then revising full year '26, sort of what kind of EBITDA margin one should think of?

Yes. Similar like this quarter, which has around 25% PAT, 24%, 25%.

No, for Cenexi?

You want EBITDA or...

EBITDA is...

So Tushar, Cenexi, we are estimating the EBITDA ramp-up happening in Q3 and then Q4 also. Q2 would be little lower because of the one month summer shutdown. So accordingly we'll have the full year Cenexi number.

So you were indicating like full year EBITDA margin of Gland per se as like 24% to be considered.

I think combined Gland and Cenexi would be around 24%, 25% level. This is the current quarter's EBITDA consolidated.

Our next question comes from the line of Bino Pathiparampil from Elara Capital.

Could you please elaborate a bit on the semaglutide manufacturing opportunity for you in the near term specifically for next financial year. How big can that be based on your capacity, your contracts and your outlook compared to the overall size of the company?

Binod, so as I said, we are today, 40 million cartridge up and running. We are composing 100 million again. So next year, FY '27, we'll be one of the top-tier cartridge capacity country, 140 million cartridges. We also have contracts on [indiscernible]. We are talking to 4 types of customers, Indian customers for global market, Indian customer for Indian market -- Indian customer for India market. Okay. And finally, we are talking to also some more players for global markets. So as we are doing this exercise, we are here to sell our capacity. The capacities are being lapped up. It will take some time for us to tell you exact capacity being sold by end of quarter 4 '26. So right now we don't have a number that how [ FY '25 ] looks like. But we are being approached by many customers who want to launch their GLP-1s in India and global market.

Understood. So did I hear it correctly that the entire 140, that is the new 100 as well, will be ready by the end of this financial year by March?

That's correct. 40 is already ready and another 100 by March to be commercialized -- ready for commercialization in March, April I think.

Understood. And I believe what you do is just the cartridge, getting the cartridge and the API and then filling the cartridge with the API, that is the only activity that you do. Am I correct?

It is a fill and finish CDMO line. So we are not developing our own sema. It is a fill and finish activity that we will do.

Okay. And if I may ask, the kind of contracts that you are getting, where does the API come from? Does the customer directly get the API and ask for a fill and finish or do you go to source the API as well?

No, no, these are all developed by partners and transferred to us. So API sourcing will be done by them and developed by them. So either it's internally developed by the partner or they outsource it from them. So we have currently agreements for liraglutide and semaglutide with partner and more are upcoming, but most of them are -- but we don't source for them.

Understood. And last one question. Given the so-called capacity shortage in the market for semaglutide, et cetera, et cetera, is this fill and finish activity going to be of a significantly higher margin profile than the other fill and finish lines that you run?

The contribution could be higher because of the volume you can produce in a batch per cartridges. But it all depends on how the market behaves and once you come closer to launches in various markets. So we can't really comment. But we can only comment on the contribution margins will be better than others because throughput you can give on a daily basis.

And the throughput is higher because of the nature of the cartridge or why is it? Is it because of a technical reason?

We have speed of the machine as well as the fill volume of it. So it can produce more units compared to a vial.

Our next question comes from the line of Nitin Agarwal from DAM Capital.