Glenmark Pharmaceuticals Limited (GLENMARK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '21 Earning Conference Call of Glenmark Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Jason D'souza. Thank you, and over to you, sir.

Thank you, Janice. Apologies for the delay in the earnings call. We had a problem with the audio bridge. We'll begin Glenmark's Q1 Earnings Call. Before we start the review of the operations for the quarter ended June 30, 2020. For the first quarter FY '21, Glenmark's consolidated revenue was at INR 23,447 million, recording an increase of 0.94%. Business update on account of the COVID situation. The COVID-19 pandemic had a significant impact in India, as the entire country was under lockdown in April and most part of May. While the pharmaceutical plants being essential services were allowed to operate, it was challenging to run our production facilities in the month of March and April. By the middle of May, things started to settle down. Glenmark's manufacturing units managed to stabilize. Production and logistics were also in place to ensure uninterrupted supplies. Across all our markets, the operating environment, demand improved in June compared to April, May as the lockdown was lifted in many countries. From June till date, India has seen a significant surge in COVID-19 cases. This is leading to increasing number of COVID-19 cases at our manufacturing facilities. At Glenmark, we have a strong commitment and robust processes to ensure employee safety in these challenging times. We have instituted stringent SOPs to protect employees and their families. At the same time, we remain committed to our patients across the world and have put in place contingency plans to prevent medicine shortages for our patients. Over to the business. GPL India: Sales from the formulation business in India for the first quarter FY '21 was INR 7,798 million, recording growth of 3.68%. The Indian business continued to outperform the industry growth as per IQVIA Q1 FY '21, recording growth of 5.5% as compared to the IPM de-growth of 1.8%. In terms of market share, Glenmark's India business strengthened its position in its core therapy areas such as cardiac, diabetes and respiratory. In a landmark development for COVID-19 patients in India, after successfully conducting Phase III clinical trials, Glenmark became the first company to develop and launch an antiviral drug, Favipiravir, brand name FabiFlu, for the treatment of mild to moderate COVID-19 patients in June 2020. Glenmark received manufacturing and marketing approval from India's drug regulator as part of the accelerated approval process considering the emergency situation of the COVID-19 outbreak in India. The approval's restricted use entails responsible medication use where every patient must have signed informed consent before treatment initiation. Till date, Glenmark is the only company to have conducted a Phase III clinical trials on Indian patients with Favipiravir. Glenmark is also conducting another combination study along with Umifenovir, and those results also will be there shortly. Glenmark also recently introduced a 400 mg version of oral anti Favipiravir, FabiFlu, for the treatment of mild to moderate COVID-19 in India. The higher strength will improve patient compliance and experience by effectively reducing the number of tablets that patients require per day. During the quarter, Glenmark introduced a 3-in-1 inhaler therapy, AIRZ-FF, for COPD in India promising reduced risk of severe attacks and improvement in lung function. Glenmark's novel, patent-protected, globally researched SGLT2 remogliflozin etabonate continues to do well in India. Glenmark is the first company in the world to launch remogliflozin, and the response from KOLs has been extremely encouraging. Glenmark's consumer care business. The FMCG industry faced headwinds in the first quarter of the financial year, with a 17% decline in sales. And the GCC business also reflected a similar trend. The business delivered an overall top line value of INR 310.8 million in the first quarter with a decline of 15%, excluding VWash sales. The U.S. business. Glenmark Pharmaceuticals U.S. revenue was INR 7,426 million, USD 98.51 million, for the quarter ended, recording growth of 1.61%. In the first quarter of the financial year, Glenmark was granted final approval and launched chlorzoxazone tablets 375 mg and 750 mg. In addition, Glenmark launched further 2 tablets. 1 additional tablet -- 1 additional approval was obtained for fingolimod capsules 0.5 mg. The company filed 3 ANDA applications with the U.S. FDA and plans to file additional 3 applications in the forthcoming quarter. As part of its investigation into various generic pharmaceutical companies regarding antitrust violations, the United States Department of Justice filed an indictment in the United States District Court for the Eastern District of Pennsylvania which charges the company with one count of conspiracy to restrain trade. The indictment asserts that Glenmark engaged in a conspiracy to suppress and eliminate competition by agreeing to increase and maintain prices of pravastatin and other generic drugs sold in the United States. These charges run contrary to the very essence of Glenmark to drive down drug prices and improve patient access to medications. We strongly disagree with the false allegations being advanced by the justice department and do not believe the evidence supports the case. We will continue to vigorously defend against these charges, and we are confident that the overwhelming evidence will make that clear. Glenmark's marketing portfolio through June 30, 2020, consists of 164 generic products authorized for distribution in the U.S. Africa, Asia and CIS region. For the first quarter, revenue from Africa, Asia and CIS region was INR 2,120 million, recording a de-growth of minus 18.05%. In the first quarter of the financial year, secondary sales for the Russian subsidiary showed 23.2% de-growth in value. The Russia business continued to be subdued in the first quarter, and currency devaluation further impacted the business. In the first quarter of the financial year, most of the Asian markets observed lockdown due to COVID-19, which has -- which impacted patient flows to the clinic or hospital OPD. Due to this, the Asia region continued to be under pressure, registering secondary de-growth, sales de-growth, of minus 9% for the first quarter of the financial year. The Philippines subsidiary, which is the largest, was impacted severely in terms of sales. The Africa region was also impacted due to the pandemic. Glenmark's Europe operations for the first quarter recorded growth of 12.77%. The Western European business recorded good growth in the first quarter on account of the growth in the U.S. -- U.K. subsidiary and the Nordic region. The U.K. subsidiary managed to gain some good business opportunities presented due to competition being unable to service the market. The Nordic region performed well with the launch of Salmex across most Nordic markets. The U.K. and German subsidiary launched 3 products during the quarter. Latin America. Glenmark's revenue from Latin America was at INR 658 million, recording de-growth of minus 18.89%. The Brazilian subsidiary recorded good growth in constant currency on account of the 3 in-licensed products. However, due to the lockdown, the Mexico subsidiary de-grew by 33%, which impacted the performance in the region. Further, the performance in the region was impacted due to all currencies weakening in the quarter. Ryaltris nasal spray is the company's respiratory pipeline asset and is currently under review in the U.S. FDA as a treatment for seasonal allergic rhinitis in the U.S. During the first quarter, Glenmark's partner Seqirus enabled the commercial launch of Ryaltris in Australia. Glenmark plans to initiate commercial launch in South Africa and Namibia in the second quarter of the financial year. Glenmark is also supporting its partner in South Korea, Yuhan Corporation, to launch Ryaltris in early 2021. So far, Glenmark has received approval for Ryaltris in Australia, South Korea, Cambodia, Ukraine, Uzbekistan, Namibia and South Africa. Glenmark's partner in China, Grand pharmaceuticals, plans to submit an IND in the third quarter of this financial year. A pre-IND meeting application was submitted to the CDE in the first quarter of the year. GBR 310. The company is in discussions with potential partners and is targeting to conclude a deal before initiating Phase III studies. GRC 39815: This compound is currently in preclinical development, and the company plans to initiate a Phase I study shortly. Glenmark Life Sciences Limited, GLS. For the first quarter, external sales from Glenmark Life Sciences was at INR 2,348 million, recording growth of 1.83%. The growth for the first quarter remained almost flat due to the initial impact on supplies due to COVID-19. The Indian market experienced strong growth at 19%, while the other regions had muted growth. Ichnos Sciences. For the first quarter ended June 30, Glenmark invested INR 1,734 million, as compared to INR 1,900 million invested in the corresponding quarter of the previous year. For further updates on the pipeline and the organization, please log on to www.ichnossciences.com. The pipeline for the first quarter of the financial year is published on the site. Just some notes before we open the Q&A. R&D expenditure for the quarter was INR 254 crores, at 10.84% of sales. ForEx gain and other income was to the extent of INR 40 crores in the first quarter. Gross debt was at INR 4,851 crores as on June 30, 2020, as compared to INR 4,868 crores as on March 31, 2020. Net cash was at INR 1,249 crores as on June 30, 2020. Net debt was at INR 3,602 crores as on June 30, 2020, as compared to INR 3,758 crores as on March 31, 2020. In constant currency, net debt was down by INR 180 crores, as compared to March 31, 2020. Inventory was at INR 2,185 crores as on June 30, 2020, as compared to INR 2,136 crores as on March 31. Receivables was at INR 2,455 crores, as compared to INR 2,409 crores on March 31. Payables was at INR 2,055 crores as on June 30, as compared to INR 2,126 crores as on March 31. Total asset addition for the quarter was at INR 130 crores for the first quarter of this financial year. Before we open the floor for Q&A, I would like to introduce the members of Glenmark management. We have Glenn Saldanha, Chairman and Managing Director, Glenmark Pharmaceuticals; V. S. Mani, Executive Director and CFO, Glenmark Pharmaceuticals; and Robert Crockart, Chief Commercial Officer, Glenmark Pharmaceuticals Limited. With that, we would like to open the floor for Q&A. Over to you, moderator.

[Operator Instructions] We take the first question from the line of Neha Manpuria from JPMorgan.

My first question is on the U.S. business. After the -- could you give a little more color on the quarter-on-quarter decline? And what are the trends you are seeing in July and August in terms of recovery.

Neha, this is Robert here. So first of all, I think it's fair to say that we had some challenges in quarter 1 in the U.S. and it's due to several reasons, right? We've had some challenges around the price erosion in the derma section and also on the competition on mupirocin. We do actually have seen that this has now stabilized; and we expect from this quarter, quarter 2, onwards to get quarter-on-quarter growth.

And this growth will be driven by -- are new launches contributing? Because we've not seen a very sharp pickup in our new launches or any limited competition launches come through.

So I think, Neha, we are expecting some launches in this quarter. So hopefully, that should come through and you should see some growth coming out of the new launches.

Okay, understood. How many launches are we targeting for this year, Glenn?

Typically, 8 to 10 is what we think we will achieve this year in terms of new launches.

And you mentioned derma price erosion. What is the level of price erosion that we saw, if you could give some color on that? We are still continuing to see -- I mean it's been close to a year of very sharp price erosion even if I were to exclude mupirocin. Do you think we are close to the bottom? Or could this continue for some more time, particularly for derma?

Neha, we've seen at pretty much as high as 15%, right? And so however, we have seen this -- we believe that this has now stabilized, and we won't see it as aggressive moving forward.

And the 15%, I'm assuming, obviously is year-on-year.

Exactly, year-on-year.

Okay, okay, understood. And my second question is on the reduction in other expenses. If I were to strip out our R&D, obviously there is a very large reduction largely because of lower spending, I'm assuming, in a branded market. How should we look at our cost optimization efforts, keeping aside the sort of onetime savings that we have seen in the first quarter?

So Neha, this is Mani here. So I think, I mean, if we look at it broadly, the SG&A expenses have come down quite substantially, but then again, over the last couple of years, we've been working a lot on the other expenses. So I think, a substantial amount of this reduction, we should see it continuing into the coming quarters in the current year. So I think, in a way, we've been working on this for some time in terms of our indirect costs and our SG&A and et cetera, and now it's all the more focused and more driven towards being pretty lean and mean in terms of those expenses, okay? So it's pretty much across the board, okay, if we look at it.

When you say substantial portion of this should continue -- or could you quantify that? I mean 20%, 50%. What proportion, in your view...

Rather, Neha, the other way to put that is, see, we could look at our EBITDA as being close to 19% to 20%. So that's the better way to put it. So we see that, at least a -- good previous years or last quarter, we used to be at about 16%, 17%. So we have seen a good expansion of 2% to 3% coming out of all this, okay? So that's how I look at it.

Okay, okay. So you think on a sustainable basis we can still do 19%, 20% EBITDA in terms of...

We feel very much -- I mean we feel very strongly about that, yes.

[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC Securities.

Glenn, on the U.S. business, we've got now a pipeline, as you mentioned, of 44 ANDAs pending approval. Now this is a reasonably thin pipeline, if you're looking at about 10 new approvals sort of coming through every year and especially in the context of how -- where most of our peer set is sort of positioned right now. So where do you guys sort of view U.S. generics fit in the overall scheme of things for Glenmark when you take a 3- to 5-year view of business?

I think, Nitin, it continues to be an attractive business. It's not that we are taking our foot off the pedal or anything of that type. So we still see U.S. generics as an important piece of Glenmark going forward. I think, the pipeline, specifically we've just become much more focused on products which are differentiated and which make a difference, right? I think it's more important to get the right products approved than file a host of products every year. So our view is a little different on how we look at the U.S. business and how we want to play in the U.S. going forward.

And in terms of growth on this business, we've been stuck in this INR 100 million plus-or-minus range for a while now on a quarterly basis. Where does this thing really end up? I mean, do we see a meaningful accretion on it? Or it's going to be, I mean, softer products which are getting eroded, getting replaced on a consistent basis, but you more or less stay around these levels. Is that a fair way to look at it?

I think, Q1, we have seen the bottom, Nitin. So from Q2 onwards, as Robert mentioned, you should see Q-over-Q growth in the U.S. business. And then I think, on a sustained basis, a lot will depend on the new product approvals that we'll get to drive growth longer term. Yes, go ahead.

Okay -- sorry. On the other part of the tri which are earlier discussed around cost reductions. So how should we look at R&D now? This is, I mean, a first quarter where -- I don't know -- again. So 2 things. One is on the R&D cost reductions. Were it partly influenced by the COVID sort of disruptions in terms of clinical trials and all not really going through? Or -- and so -- and how should we look at R&D, both innovation and generics, for the year and going forward?

So Nitin, just to address it. Even in the last call, we had said that we'll continue to, I mean, focus on R&D, but we'll be very careful about the way we spend. So we've talked about 11-odd percent, so we'll be somewhere there. We will not try and let it go up too much, okay? So -- and obviously, the proportion, what we normally do, 6%, 7% of basically the innovation and 4%, 5% of generics, that will continue. So I mean you might see a little bit here and there, but broadly we'll be there. And in terms of amount of spend, obviously, as the quarters go and the turnover goes up, there'll be little extra spend, but we'll try and keep this pretty much well within these levels, okay? We won't let it go beyond this.

So Mani, when you say at these levels, you mean 11% of revenues, or in absolute terms around that...

Yes, about 11% of the revenue. It's not absolute terms. I mean this first quarter is a little lower, but otherwise, in absolute terms we'll try and keep it around 11%, yes.

[Operator Instructions] Next question is from the line of Prakash Agarwal from Axis Capital.

Just on Ichnos. You mentioned that -- the expectation of fundraising by second half of the year, yes. So on these assets, we've been looking to raise some capital in the past as well. What is giving us confidence that we'll be able to close by end of this year? Are we already in talks? Or what is the progress here, please?

Look, Prakash, this is a capital raise and it's the first time we are attempting it, okay? So we have not tried to do anything in the past, but just to -- so we've now appointed a banker, right, who is -- who will help us with the capital raise in the U.S. And that's -- so we are hoping to close it in the second half of this financial year.

Yes. When I meant in the past molecule level, we've been looking to out-license, right? So...

That still continues, Prakash, and we still continue to have various partnering discussions with a number of companies, but that's besides the capital raise. So there are 2 elements to Ichnos. One is the partnerships, and the second is raising equity capital, right? We are working on both angles.

Okay. So this -- so the earlier one was at molecule level. This is at entity level, raising of...

Absolutely.

Money in the U.S. markets is what you mean?

Absolutely.

Okay. And what is the size we are looking at?

So we can't comment on that, Prakash.

Okay. And secondly, if I look at your other income and the statement you made on VWash income. So I understand that's only the gain part of it which you have that -- reported on the other income side. So looking at net debt, the -- because of maybe rupee-dollar, it is flat, but on dollar terms, how were that moved? Could you give us some color, please?

Well, in terms of dollar terms, we've told now that on a constant currency or otherwise it will be about INR 180 crores. So with the dollar thing, it is still 150. So I mean even if there was about a 30 crore move in the debt because of the rupee having depreciated in this quarter. Last quarter, it was something like [ 74 74 ]. This quarter, it ended at [ 75 22 ]. So there was a move on that.

So INR 150 crores is then CC terms debt reduction.

Yes, INR 150 crores is there. And if you were to take it, strip out the currency impact, it will be almost 180.

Right. I understand. And lastly, on the margin front, I think something was covered on the cost side, how -- going forward, what is the cost, how will cost increase, but if you could just give us some color on how the margin trajectory should be. We are now stable at 16% base business? And how should we look at it going forward given the statement you made that U.S. could start growing, a? And I think your domestic business is growing well. So what is the outlook on margins?

So that's the reason why it gives us confidence. There are 2, 3 things. One, we look at the markets improving. Secondly, also our realization is improving. Secondly, also on the costs side, if you recollect, even over the years, we've got some good handle on that side. So we took 30%. Now it came down to 28%. Of course, this quarter is much lower, but on an overall basis we look at an EBITDA margin of close to 19%, 20%. That's where we are very confident and we strongly about that.

[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

First one is on the India business. I think, 4Q, we had the benefit of stocking up. We have seen slight soft-ish trends in the June quarter. I just want to understand, on the path forward on the India business, how is, say, July, August kind of trending for you.

So in quarter 1, we did -- the growth was, in fact, [Technical Difficulty] expect to outperform the market. And also again [Technical Difficulty].

Robert, I think...

Robert, your line is a little distorted. So I'll take that question. So Shyam, second quarter, obviously with the launch of FabiFlu, we are seeing a good run in the India business, right? And we think that will help Q2 onwards.

Yes. So Glenn, just on this favi, we have seen a lot of competitors also put in their offering to the market and prices which have kind of sharply come. I know you've launched also a better compliance version, but just can you walk us through how large could this opportunity be? What's -- anything that you could share on favi would be helpful just to understand the addressable opportunity.

Would you let me maybe give it a shot...

So I think -- go ahead, Robert. Try. Let's start again, yes. Go ahead.

All right. If it doesn't work, just stop me, okay?

Okay.

So again, I think we are truly excited about FabiFlu, right? And it's doing really well and it's been a great story for Glenmark. And it's -- at this stage, from a top line perspective, we are not 100% exactly sure it takes us, but for sure, we are very, very optimistic in terms of the year ahead.

Okay. And my second question is on Ryaltris. I believe we have responded to the CRL, right? The MD&A says that is currently under review. Is that understanding right? This is for the year.

No, we've -- no. You said -- we have responded to the CRL is what you're saying.

Yes, that's the question, Jason, yes.

So Shyam, we have collected all the information. We have not yet -- we are awaiting to hear from the FDA. We are all ready with it, but we are still awaiting to hear from the FDA.

Okay. And is there any time lines that you would attribute to the Ryaltris in the U.S.?

I mean it's a next calendar year event, Shyam, mostly second half of next year, calendar year.

Got it. And my last question is on the life sciences business. Given the kind of trends we have seen to some of the rest of the business, 2 fronts, right? One is what's the outlook for this business. Is it that we are doing a lot of insourcing for Glenmark Pharmaceuticals only? Or how are you seeing third-party sales? And two, is there a possibility of the capital raise that was kind of probably put on the back burner? Will that come back to -- on the life sciences side?

Sorry. Can you just -- so yes. I mean, as far as Glenmark Life Sciences, I think there is no current plan to go out and raise any capital, right? That's been on the back burner and will continue to stay in the back burner. The second part of your question, I think we -- I couldn't pick up. Can you just repeat that?

Yes, yes. So Glenn, just in terms of the API trends for the industries have been quite strong, yes. So I just want to see what you're seeing on third-party sales. Maybe many of them we are using for our own consumption, Glenmark pharma consumption.

Correct.

I just wanted to understand how you're seeing your therapy areas on the API side. How are they kind of...

Yes. I think the -- on the API side, see, Q1 was a soft quarter because -- on external sales primarily because of a lot of our capacity has got utilized in manufacturing of favi, right, for the launch, but I think Q2 should -- we should be back in terms of seeing good growth coming out of the API side of the business.

[Operator Instructions] Next question is from the line of Saion Mukherjee from Nomura.

So basically, can you -- I just missed the inventory number, if you can share that. And secondly, it seems that receivables have gone up. Or working capital seems to have gone up despite there is a meaningful slowdown this quarter. Can you just explain that? Are there any stresses in receivables, et cetera?

No. I don't see any stress or anything. It's just quarter-to-quarter kind of thing. So I don't see it as such a big issue. And also, inventory, across the industry everybody have seen some rises, okay? So it's not like -- in fact, ours is a little lower. So I wouldn't put it beyond that. There's no stressing. And normally, our receivables have always been pretty clean, and we've never had many issues.

And what is the inventory number, sir?

INR 2,185 crores.

Okay. And secondly, can you give some detail on this VWash sale to Unilever in the quarter? I'm slightly confused in terms of the consumer number that you've shared at INR 31 crores, right, in this quarter. That seems to be a lot down year-on-year, like around 40% down, and correct me if that number is right. So I thought like VWash will happen only towards the end of quarter. So am I missing something here?

I think the transition, Saion, and -- during the transition, right because -- and because of the lockdown, right? There were sales which were slowed down in the quarter, right, because it was a transition to HUL, right? But I think, going forward, sales will come back, right, on the GCC business.

Okay. So this INR 31 crore number that we have from this quarter, do you think this will sustain? Or like adjusted now, next quarter, VWash will not be there at all. Or it will be more or less, like how should we think about it?

I mean the portfolio without VWash is about a 140 crore, 150 crore portfolio this year, right? So you should expect growth from next quarter.

Absolutely.

And can you share the amount of money we got from the sale of this -- VWash in this quarter?

No. Actually, Saion, as per the agreement, we are not supposed to disclose the amount. So that's the reason why.

Okay, but have you received all of it this quarter? Or how is it? Or is this staggered...

Some of the portion, we'll receive later, okay? So it happens. And also we're also receiving monies in terms of supply of goods, in terms of percentage of sales. So those are also there. And some portion of the upfront is still there. These are all there.

Okay. But you would say most of -- it has been received, or most of it will come later. I mean in terms of...

So a decent amount has been already received, yes.

Okay. And is there any other transaction which was there which helped cash flow this quarter, other than...

No. Other than that, it's purely the business that's actually helping, and the way we manage our cost side and overall. That's helped us.

[Operator Instructions] The next question is from the line of Alankar Garude from Macquarie.

Glenn, the first question is on ROW and Lat Am. Both these geographies were pretty impacted in the first quarter not just on a year-on-year basis but particularly on a sequential basis. There was a very sharp fall, but yes, maybe a sequential comparison might not make sense. So -- but going ahead, can you comment on what is the base kind of run rate for these geographies, these segments excluding the currency impacts?

[Technical Difficulty]

Robert, sorry. We can't hear you. I don't know whether...

There is some distortion in your line, Robert.

Alankar, can you hear him?

No, I can't.

Okay, so I think it was -- Glenn, you can...

Okay. So Alankar -- Robert, I'll just take it because I think your line is a little distorted. I don't know why. But I think, Alankar, just to answer your question on Lat Am and ROW: See, in Q1, there were 2 major impacts, okay, that we saw in Lat Am and ROW. One is the whole COVID situation, right. Was -- because of the lockdowns, it was pretty severe in terms of sales drops in these geographies. Second is currency, right? So it was 2 hits that we took. From Q2 onwards, we see both these geographies coming back. So you will see growth coming back from Q2 onwards, right, Y-o-Y growth, right, and sequential growth in both Latin America as well as in Europe.

Understood. That's helpful, Glenn. And second question is on -- so last quarter, we had mentioned that we will be signing at least one out-licensing deal in the U.S. in this fiscal. So are we on track, as far as that is concerned?

We still maintain that we're trying our best to close at least 1 out-licensing this year.

[Operator Instructions] The next question is from the line of Harith Mohammed from Spark Capital.

So when you talk about the parent company's investment in Ichnos this quarter, so INR 175 crores for this quarter. Trying to understand the cash flows a little better. Is this investment corresponding to the R&D spend right now? Or is there a component of SG&A that is being funded?

No. There's no SG&A or anything. It's purely the R&D effort. That's it.

Okay. And then on Glenmark Life Sciences, the external sales growth of 2% this quarter. Quite a few API players have commented on later demand as customers [indiscernible] on China. Did we see some of that queries on account of that? And do you think this China Plus One strategy will be a driver for the API business?

So I think -- can you just repeat the question again, please?

So a lot of API players have commented that their customers are trying to diversify their sourcing away from China to some extent. Are we seeing some of that? And do you think this can be a driver for Glenmark Life Sciences?

Sure, absolutely. I think, going forward -- I mean, even otherwise, also people and those who are backward integrated have always looked at it, and now there is a good opportunity. So I think all of us look at it that way, okay?

And any update on the warning letter at Baddi? Have we received any communication from the FDA on the inspection.

We are still working on a resolution, yes.

[Operator Instructions] The next question is from the line of Jigar Shah from Maybank.

Congratulations for a good set of numbers. My question pertains to the Ichnos life sciences -- sorry, Ichnos and research activity. The position generally Glenmark has taken over the years is, fairly, if I may say, contrarian in terms of lot of NCE expenditure. Now given this COVID situation, suddenly everybody has realized that basic research will be very important. So do you think that really helps our plan to better capitalize this activity?

Well, look, see, Ichnos is a cutting-edge biotech company, right, which is doing cutting-edge research in the U.S., Switzerland and various geographies. It has a huge technology advantage with the bispecifics, trispecific antibody platforms, right, which is world class, right? So our investment into Ichnos over the years, we think, is a very valuable investment. And I think, with the capital raise, it will unlock a lot of value and actually ascribe a value for Ichnos, right, and our -- and whatever investments we've made in that entity. So Glenmark will still, in the near term at least, be a majority shareholder. So I think it will help the company actually get exposure to a great innovative platform and an innovative franchise, which clearly not too many Indian companies have, right? So it's an exciting portfolio for us.

[Operator Instructions] The next question is from the line of Chirag Dagli from HDFC Mutual Fund.

This EBITDA margin guidance, is this like a long-term aspiration, or is this something that we'll see immediately in FY '21?

So we see it in FY '21. And obviously that's always an aspiration for every company, to improve. And we were there at that level. And we will -- and again, we have shown over the last couple of quarters that we are able to improve our efficiencies and as the sales growth also comes into play and we are more efficient in the way we use our resources. I think it's something that is doable.

Understood. Sir, there is a very sharp dip in stock-in-trade purchases, and there is a commensurate increase in owned raw material consumed. It's a fairly sharp number. What used to be 10%, 11% of sales is down to 2%. Can you just sort of clarify what's happening there?

So we see it detailed. I mean, from quarter to quarter, you can't really plan it that way. So sometimes, you buy inventory a little in advance. So obviously, when the COVID thing started, people would have gone ahead and bought a few things. So I mean you can't -- I mean yearly is the best way to look at it rather than quarter to quarter, yes.

So this will unwind in the rest of the 3 quarters is what you are saying.

Yes, it will unwind. And obviously, I mean, the aspiration is always to make materials yourself, but always all companies have a policy of make or buy, okay? And we go by that.

Understood. And did you in the call indicate Ryaltris is a 2H calendar year '21 approval expectation, Glenn?

Yes. So I think that's our goal, right, to try and get it approved in second half of next year.

Understood. And...

In the U.S. So Chirag, just to clarify: Look, Ryaltris is -- will contribute in FY '22 quite substantially because of all the approvals that we've got already, right? So be it Australia, South Africa and various geographies. We also expect Europe to be filed, right? So end of this year or FY '21, we will start seeing European approvals coming through. So FY '22 should be a good year for Ryaltris overall. But the U.S. approval, we anticipate, will get pushed out to second half of calendar '22. Calendar -- sorry.

When we -- understood. So when we look at all these other markets, Europe included, ex U.S., can this pot be as large as the U.S. on a sustainable basis, say, a couple of years out?

I would think this is a substantial opportunity for us, right? I mean I can't give you the specific numbers, but this will be a significant contributor to the company over the next 4, 5 years...

But when you think of the asset itself, a large -- a majority part of the monetization should happen in the U.S.

No, no. I -- not necessarily, Chirag. This is a -- I mean it's an allergic rhinitis product, right? So you can imagine there are many geographies like Russia and CIS, Latin America, Europe, for instance, right, where realizations are very good.

Understood -- and in the -- in our current Q1 base, if you can just sort of help us understand how big is mupirocin now. And how big is the dermatology portfolio in this space of INR 95 million?

Dermatology will be around 30% of sales now, about 30%, 35%, all put together.

35% of sales. And this includes mupirocin.

This is only a ballpark number, yes, and includes mupirocin.

Okay. And versus, say, 4 quarters back, Glenn, what would this have been?

My guess is around 45 -- at the peak, we were around 45%, trending around 45%, 50%.

[Operator Instructions] The next question is from the line of Vishal Manchanda from Nirmal Bang.

Basically, on Europe and Latin America, could you share what percentage of your sales will be from in-licensed products?

So if you take Europe, roughly about 40% or 45% will be all in-licensed products, yes.

And Latin America?

Latin America also -- it will not be that much. It will be...

25%.

It will be around 25% max.

Okay. And like we continue to spend on intangibles every year. Basically that is -- as I understand, is in-licensing of products, so basically I want to understand what will have been the cumulative investment into intangibles related to in-licensing of products opportunities.

So a substantial amount of our -- whatever intangibles we have, have gone into basically in-licensing of products. I mean on a yearly basis normally we'll do about INR 200-odd crores, and that's where we are. And that's how we have grown our business going there.

We have some exciting products like Salmex, tiotropium, DPI. So lots of exciting products getting launched this year and helping this year and next year, right, coming out of the in-license portfolio in Europe, plus other markets also.

Okay. And just one more, on the Monroe facility. Is all the cost into the structure now? Or there is yet -- there are still operational costs being capitalized.

Basically now the oral solids have gone online, so that's basically a write-down, so -- and the rest of them, the injectable will happen some time in the coming quarters, and only the nebulizer will be left out. That's it, but a large amount will get -- start getting operationalized in the current period.

Okay. And will you still be able to do the guided numbers on EBITDA margin around 18%, 19%?

Yes, definitely.

Okay. And then what was the CapEx during the quarter?

Total asset additions was INR 130 crores.

[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC.

Just coming back on Monroe. So you just mentioned you should be launching a large part of products this year, so we should expect costs breakeven to happen this fiscal year itself. Is that the correct assumption?

See, Damayanti, the way to look at it is we'll operationalize it completely. And we'll also look at how the products take off, et cetera. So I think normally, in the first year of any plant being launched, especially U.S., et cetera, you'll need to get a sense and a handle on that. We believe we have some decent products lined up. So as the year goes by, we'll be better positioned to -- really to give a fix how quickly we'll break even completely, but we are very excited about this opportunity, yes.

Okay. In terms of launches, we should be making substantial progress. That should we taken. And then as the sales pick up, we should look at the costs coming to start hold.

Exactly, yes.

Okay. And just a clarification on the U.S. generic pricing erosion. So are we seeing, I'll say, severe pricing pressure across the portfolio? Or it's more on the derma side. And then we have kind of stabilized pricing for OSD [indiscernible].

I think the rest of the portfolio is stabilized, okay, right? It's only the derm where we saw significant erosion. And I think that's -- that also was in Q1. From Q2 onwards, we think you should have stable price erosion going forward.

Okay. And I understand first quarter derm sales obviously were impacted due to COVID's lockdown and all. So in the U.S. now we should be seeing a pickup happening, right? And...

Yes.

Okay. So by second half, we should be broadly back on the normal course of operations.

Absolutely.

Okay. And a final comment on the debt reduction part, 180 crore in constant currency this quarter. So how should we look for the full year? And if you can talk about your targets in longer term.

So Damayanti, the way we look at it, we see a reduction quarter-on-quarter. So I mean we'll see -- and as the business also improves, we should see it. I mean, difficult to put numbers, but I think we definitely see a very positive way of looking at this overall.

Okay. So mostly debt reduction coming from the cash from our operations. Or there may be little contribution from some asset sale or from other opportunities.

Yes, going forward, definitely there -- it will be more from the business side and the cash that the business generates. That should help us to.

[Operator Instructions] The next question is from the line of Nitin Agarwal from IDFC Securities.

Just on CapEx, Mani, where -- how should we see CapEx for the year now and next year? Any broad guidance on that?

Yes. As we have guided, see, we are hoping to keep it at about -- all in all, I mean, the highest will be around INR 700 crores or so or a little more -- or thereabouts. I mean it will be much lower than the year that we went through. So we'll be somewhere there.

Including the intangibles.

Yes, yes, including all eventually. I think I've guided in the last call about INR 700 crores to INR 800 crores. We will try and keep it on the lower end, yes, and see...

And this is where it should stay in the coming years or in the next couple of years, also around these levels.

I would assume so, yes, Nitin, because we also want to be quite tight on the way we do things.

Okay. That's helpful. And secondly, Glenn, on the -- on FabiFlu, any perspectives on global supply opportunity on this product?

So right now, it's small, Nitin. We are looking at export opportunities, but it's relatively small.

And lastly, on EU. How should we look at -- so this has been a fairly steady performer over the last few quarters now. However, we have -- and so where are we on the whole inhaler scale-up there? And where -- how should we see this business out, say, this year or next year?

Europe. Robert, do you want to try again?

Sorry. I didn't -- yes, I can, but can I just get the question again, please?

Nitin?

Yes. So I was asking around the European outlook for -- the business outlook for the European business this year and next year. And how is the whole inhaler scale-up playing out for us?

Okay, okay. Thank you. Thanks for the question. So yes, I think, if you look at its coming quarter, quarter 2, we do expect the softer, potentially weaker quarter due to one of our products, atovaquone-proguanil, which has been impacted through the travel restrictions that we have across Europe. However, we are still optimistic that we will continue to grow in high single digits, potentially low double digits for the year ahead.

[Operator Instructions] The next question is from the line of Saion Mukherjee from Nomura.

So Glenn, I think on just continuing on the European business, particularly on inhalers. On Salmex, can you just take us through like what's the size and what kind of market share you have in some of these Nordic countries? And I understood it was a substitutable product. And what's happening for launches in the rest of the Europe given the litigation we had with Glaxo earlier in markets like Germany and others, if you can just update. And like how should we see Salmex like growing from the current levels?

I'll take that. Then maybe, Glenn, you can build on it. But we have now settled with GSK, and Salmex is doing well. And you -- we will continue to be pretty aggressive on the products. We have relaunched now in multiple markets, Czech, Slovakia, Germany. We are looking at launching in the Netherlands. And then also we will continue in the Nordics and the U.K. So all in all, we will continue to be aggressive. And we have high expectations, but since a lot of this is still in early stages of reentering and -- it's difficult to give you the extent of what this would be.

Okay, but currently the market share will be in single digit, I guess. Will that be a right assessment?

Yes, it will be low, Saion.

Yes. It depends on where -- yes.

Okay. And also, on tiotropium DPI, what is the time line? And how should we see? And what's the size, if we can -- indicators for Europe.

It's a big product, Saion -- okay, go ahead, Robert. Go ahead.

No, no, no. It's fine. No, I was also just going to say, yes, it will be a big product for us. And we're expecting in -- that the impact will be primarily in the next financial year. I mean, Glenn, you can build on that, yes.

So launch may be earlier, Saion, but the real impact will be next year instead.

And are there any patent issues there? Or -- and what is the competitive landscape?

So it's hard to comment on patent issues, Saion. Competitor landscape, obviously we are -- we probably will be first generic again, like Salmex, right, with the DPI version.

We take the last question from the line of Chirag Dagli from HDFC Mutual Fund.

So is there a time line that you want to share with us on the Ichnos capital raise?

So Chirag, we started the process. We've appointed a banker and we've just initiated talking to investors, right? And -- but we've clearly said that we're giving ourselves till the second half of this year, this financial year, to close it.

Okay. And what was the operating cash flow for the first quarter?

So in terms of operating cash flow, we've seen an EBITDA, right, INR 478 crores. And obviously, we had basically the interest costs of about INR 80 crores, cash tax of about INR 120 crores and some increase in basically the working capital and the CapEx of INR 180 crores.

Yes.

So broadly, it kind of trends towards the INR 180 crores of the improvement in the debt is what is there.

Okay. Is there a tax rate guidance, both P&L and cash flow, that you want to share for full year?

Broadly, it'll about 28%, 29%, yes.

And the cash tax will also remain similar?

Broadly, yes, give and take a percentage [indiscernible].

Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Jason D'souza for closing comments.

Thank you, moderator. We'll just read the disclaimer. The information, statement and analysis made during this call describing company's objectives, projections and estimates are forward-looking statements and projects -- and progressive within the meanings of applicable security laws and regulation. The analysis contained herein is based on numerous assumptions. Actual results may vary from those expressed or implied, depending upon economic conditions, government policies and other incidental factors. No representation of warranty either expressed or implied is provided in relation to this presentation. This presentation should not be regarded as -- by recipients as a substitute for the exercise of their own judgment. With this, we end Glenmark's Q1 Earnings Call. Thank you, everyone.

Thank you. On behalf of Glenmark Pharmaceuticals Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.