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Awaiting $45 million from Venezuelan govt: Glenmark Pharma

Glenmark Pharmaceuticals posted a good set of topline numbers and strong margins in FY16 and Glenn Saldanha, Chairman & MD of the pharma major expects the core business growth in FY17 to around 15 percent.

He said that with its big product launch of Ezetimibe (a cholesterol-lowering drug), the topline revenue can cross 25 percent, where over 45 percent will be contributed by the US and 20-25 percent by the Indian business.

He also expects the FY17 margins to be around 20-21 percent, driven by the sales of Ezetimibe at USD 2 million.

Glenmark has already launched its generic asthma drug Seretide in many European markets and expects a sale of USD 700-800 million in early FY17, he added.

Saldanha said that the overall growth of the Indian pharma companies will be muted on account of FDC (fixed-dose combination) products banned in India.

He also said that the Glenmark has stopped sending products to Venezuela and still awaits USD 45 million cash to be repatriated by the Venezuelan government.  

Below is the verbatim transcript of Glenn Saldanha’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.

Sonia: Very good set of numbers on the topline, but my colleague was listening to the conference call and she didn’t hear anything about any guidance as far as the margins are concerned. So, just wanted to get more clarity on that. This time you had someone off expenses because of Venezuela but going ahead do you expect some more pressure on margins?

A: We had a very strong year in FY16. We grew topline revenues in excess of 15 percent at about Rs 7,600 crore in terms of topline sales. FY17 also we expect to be a very strong year. Our core burins we think will grow at about 15 percent. In addition we have a big product launch, Ezetimibe in the US where we have the sole 180 day exclusivity. So, that will help. So, overall we think we will grow in excess of 25 percent plus in terms of topline revenues for the year.

On the margin front overall if you take into account Ezetimibe our margins will look huge in FY17. So, it should be a strong year for the company as a whole.

Latha: This split of 25 percent revenue guidance that you are giving how much would US bring, how little would India bring?

A: If you include Ezetimibe in the sales US could be as high as 45 percent plus of total revenues. So, India will be about 20-25 percent of total revenue. So, that is the split in terms of total revenues.

Latha: I mean the growth in the US because we understand that the other companies also highlighted that there are pricing pressures seen in the US as well. So, what is the rate of growth you see from US revenues and whether these pricing pressures would be a kind of negative headwind.

A: On our core business keeping aside Ezetimibe we will grow our core business about 15-20 percent in terms of topline sales. If you add Ezetimibe to it that number will be very big because that is a one off, the way we look at it, the way we have six months exclusivity. But the core business even keeping Ezetimibe aside should grow at about 15-20 percent, the US core business.

Sonia: But you made a statement saying that the margins will look huge in FY17. Could you just quantify that for us because this time around you did about 13 percent margins. Going ahead what is the expectation?

A: If you look at the earnings before interest, taxes, depreciation and amortisation (EBITDA) margins current year and if you adjust for all the exchange losses that we have on account of Venezuela in the current year, I am talking about FY16, we finished at like about 20-21 percent EBITDA margin. FY17 again the core business margins should be 20-21 percent range on the core business. If you add Ezetimibe to it as I said the number will be substantial.

Ezetimibe is a USD 2 billion drug where we have the sole 180 days exclusivity and it needs to be shared between us on par. So, you are looking at anywhere from USD 200 million plus of revenues and profits coming to the firm in the six months period if all goes well.

Latha: Can you update us on your asthma drug Seretide, what will be the potential sales from it, from what date?

A: We have launched generic Seretide in a number of markets, in emerging markets (EM). In Europe we have recently tied up with a company called Celon. Celon is a polish company where they are probably among the first guys to have developed a generic Seretide multi-dose device and they have launched the product in Poland. We have rights to 15 different countries. We have already filed in seven of these 15 countries and the remaining eight we hope to file in the current year. So, that could get launched, we could start launching in various markets as early as FY17 and that could be again transformational for European operations.

Generic Seretide currently has about USD 7-8 million sales in the European region. So, it could be a good opportunity for the firm.

Sonia: On the call you did mention that India is likely to be muted in FY17 for the sector as a whole because of the government fixing prices and banning a lot of drugs etc. Is this a big issue that the street has to worry about and you give us the estimate for FY17 but over the next couple of years because of this reason how much could the growth slow down to?

A: It is more a near term issue as far as the Indian industry goes because of some of these FDC products getting banned as well as some National List of Essential Medicines (NLEM) actions in terms of price controls in the Indian market. So, it is more near term. This year the growth will be muted for India for – I would guess – most companies on account of these two aspects. But next year things will recover, so this is more a onetime effect particularly on the FDC issues which the industry will have to go through.

Latha: You don’t think fixed dose combination is a perennial overhang?

A: The government has taken whatever necessary actions they needed to take on the fixed dose combination. So, I don’t see this happening over and over again.

Latha: Can we get around the numbers in the Venezuela issue as well. Is everything that needs to be written off, written off or should we expect some repatriation because of inventory sales, how should we look at the Venezuela impact in FY17?

A: Currently the situation in Venezuela is we have stopped sending products from India to Venezuela. We have some product locally which we are in the process of liquidating. So, you may have some small sales in FY17 to the extent of USD 10-15 million coming out of Venezuela in FY17 which is a huge reduction from where we are today. But the key thing from Venezuela is we have USD 45 million roughly of cash sitting in Venezuela which we are not able to repatriate and we are hoping now that the Indian government has got involved and trying to get the industry get its money back we are hoping we will be able to repatriate some of that money because of the Indian government helping.

Sonia: You were saying, so Venezuela what might be the repatriation or money that one can count into the revenues this year?

A: We have USD 45 million of cash sitting in Venezuela which we need to repatriate back over time and we are hoping that the government will – with the recent move from the Indian government tried to try and set off some of the oil payables to Venezuela. We are hoping that we will be able to get our money over the course of FY17.

Latha: A lot of analysts have been talking about the possibility of more licensing deals and value unlocking in the innovation research segment and that is a big possibility being spoken about over the next 18 months or so. Can you just quantify for us what the scope looks like over there?

A: Historically we have done this huge licensing deals where we have got USD 200-250 million cash by licensing our own intellectual property. The last deal we did was – the big one was with Sanofi where we had got a USD 50 million payment as an upfront payment.

We are currently in the process of furthering some of our innovation products in terms of development. So, many of them are in clinical development. So, we hope over the next 18 odd months we will be able to monetise some of these by partnering them out and getting upfront payments and milestones as we go forward.

Sonia: So, could we go with a figure of around USD 250 million itself, is that a fair estimate?

A: I don’t think so. It is fair to say that typical upfront payments should be in the range of maybe USD 50 million but the deal size over the course of the life of the partnership could go up to USD 500-600 million and thereabouts.

Latha: The last uncomfortable issue with the pharmaceutical industries, US Food and Drug Administration (FDA), 483s, we have got used to all these four letter words. Anything that we should worry about in your plant, Pithampur, Goa. Pithampur you have even got approvals. So, is it an all clear there, anything that the US FDA has written to you?

A: Currently we have no outstanding issues in any of our facilities as far as the FDA goes.