ET NowIn an interview with ET Now, Glenn Saldanha, Chairman and Managing Director, Glenmark Pharmaceuticals Ltd, talks about his views on business in the US and other geographies. Excerpts:
ET Now: How many products were launched in the US market during the quarter, and what according to you was their performance like?
Glenn Saldanha: We ended up launching, getting six or seven approvals over the last three or four months, and most of them were launched in the quarter. We have done pretty well in terms of getting market share, and a lot of that will reflect in some of the Q2 numbers and the Q2 results as we go forward. All in all, we continue to see strong growth coming out of the US market.
ET Now: That is good to hear. Most of your peers, be it large or the same-size, are actually sighting slower approvals in the US, which will impact their topline performance for the current year. FY17 is a different ballgame altogether. You do not think that that will be the case for your company?
Glenn Saldanha: Last year, we had rough time in the US, where we got very few approvals. A lot of our peers got a number of approvals. If you have seen what has happened in the last three or four months, a lot of that lag has now come through.
So, we have had seven or eight approvals that came through in the last three or four months. We think from here on, the approval rate will continue to stay pretty consistent, although it is hard to predict.
We are seeing there is a significant improvement in the approval rate and we think that will stay for the rest of the year.
ET Now: Are these large products that will hit in quarter two? If you can also give us a flavour of which are these products and what is the kind of revenue uptick... if I can use that term loosely that could come in by these US launches in particular?
Glenn Saldanha: Quarter two will be impacted by the launches we have already done, that is the seven-eight launches which happened towards the end of quarter one.
The bulk of ramp-up that you will see will happen in quarter two, which will reflect in the numbers. The bulk of the launches are in the areas of oral contraceptives and dermatology.
It is a mix of both these segments which will help quarter two going forward. In terms of further approvals, there is a lot of uncertainty as to which products will get approved going forward, and in what timeframe.
ET Now: In a market scenario like now, till the time it is not a guidance cut from you, we are okay with you not naming those products. But what about your R&D cost during the quarter, and any significant forex loss or gain that you incurred?
Glenn Saldanha: On the R&D side, we continue to invest between 10 per cent and 11 per cent of sales on research. We think that will continue for the rest of the year.
As far as forex loss or gain on a consolidated basis is concerned, we had no loss or gain. We had some gains coming out of the rupee depreciation and some losses from our international currency. On overall picture, we see no loss or gain in the quarter.
ET Now: How do you see the business in Russia and CIS going ahead because of the currency fluctuations right now? Is that bound to hamper growth?
Glenn Saldanha: Russia, on a constant currency basis, we continue to see strong growth. On a full-year basis, that business will grow at 20 plus per cent.
The biggest challenge is obviously the volatility that you are seeing in all emerging market currencies, Russia being the prime one. That volatility is very hard to predict; what happens in terms of currency fluctuations.
A lot of our performance got impacted last year and Q1 primarily on account of the volatility in the currency, as far as the Russian ruble goes. The rest of CIS also continues to deteriorate, particularly Ukraine, and some of the neighbouring countries.
It is a challenging environment. However, constant-currency growth in Russia looks to be strong.
ET Now: Some other concerns that the Street has right now, and it is the risk in Venezuela, because 10 per cent to 15 per cent of your EBITDA come from that region. Analysts are worried about the falling country reserves and adverse devaluation situation. Do you agree with these concerns?
Glenn Saldanha: Venezuela Q1 has been a good quarter for us. We have been able to remit it back almost $12 million of cash out of Venezuela, which is a big number.
Over and above, we have been pretty conservative in terms of our accounting policies in Venezuela. There will definitely be a currency devaluation at some point in Venezuela, but we do not see a major impact coming out of that currency devaluation because we have already taken adequate measures to control our exposure to Venezuela.
ET Now: Not now, and not even till FY17?
Glenn Saldanha: We have taken adequate measures. There will definitely be a devaluation, as I said. There will be some impact, but we do not see that as being significant because we have already taken measures to control the exposure in the market.
ET Now: Irrespective of what happens to the currency, I read reports about how Colombians actually buy stuff from Venezuela or otherwise, because of the devalued currency there. So Venezuelan people definitely do not have the power, or the economic prosperity to actually go out and do things the way they would want to do. You think that impacted sales at large in terms of volumes?
Glenn Saldanha: The biggest challenge is not sales in Venezuela. It is actually getting your money out of Venezuela. From an in-market sales, you have strong sales. That has been the experience that we have had.
Whatever product is available, just flies off the shelf very quickly because of virtually no product being available in the market.
ET Now: Is a certain bit of concern on the balance sheet? The matrix for Glenmark has worsened a bit... the receivables days high at 140 days, net debt is increasing. Why is this happening? What are you doing to resurrect this, if you are looking to resurrect this in the first place?
Glenn Saldanha: Receivable days have come down in Q1, and continue to come down. We think over the course of the year, the receivable days will continue to improve overall.
As far as net debt is concerned, after Temasek has invested in us, the net debt number also is down to something like Rs 2300 crore. We see that further improving as we go forward.
We think we will finish the year at Rs 2100 crore of net debt, which is not significant given the fact that we are guiding to a Rs 1750 crore EBITDA for the year. Overall, it looks pretty strong.
ET Now: Do you have any immediate plans to retire the balance debt, would you?
Glenn Saldanha: No, we have no plans of any further fundraising to retire the debt.
ET Now: You are saying that the receivable days have come down, so they are not at 140, they would be sub 135 or…
Glenn Saldanha: They are much lower than 140 now. They are continuing to come down.
ET Now: The other concern is the adverse ruling on the Panacea patent litigation case. What is the future plan there?
Glenn Saldanha: Very clearly, we are going to go into appeal on Panacea. We think we have a pretty strong case overall, and we will see how it plays out in the appeal score.
ET Now: You have discussed the American Continent at large. You give me a brief about Russia and Scandinavia as well. Do you believe that the growth run rate confidence that you expressed for US would stand for the other geographies as well? Quite contrary to what some of your other peers have stated, do you reckon that your growth rate numbers could match or better than what you did in FY15 or FY14?
Glenn Saldanha: Absolutely, we are seeing strong growth coming out of India. We are seeing strong growth in Europe as a whole on a combined basis. These two geographies look very good for us.
In emerging markets, the challenge is currently to do with Russia and Latin America. Latin America, primarily Venezuela, and of course some of the depreciation that we are seeing in the Brazilian context.
Asia, Africa look pretty strong for us, where you are seeing good growth numbers. Of course, the US business continues to be strong. Overall, we are pretty much on course as a company to achieving what we need to do for the year, and achieving our guidance.
ET Now: What about US in particular, because there are some analysts who believe that the US business is going to double over FY15 to FY18. Are they on the right track when they project so?
Glenn Saldanha: We have some very interesting launches coming up, so Zetia is one of them where we have the sole 180-day exclusivity where we have got final approval from the FDA. We have already settled with Merck, so that is a big launch for us.
In addition to that, we have a couple of other good launches coming out of the US business. The US clearly will be a strong driver for the company in the next few years.
ET Now: How many products were launched in the US market during the quarter, and what according to you was their performance like?
Glenn Saldanha: We ended up launching, getting six or seven approvals over the last three or four months, and most of them were launched in the quarter. We have done pretty well in terms of getting market share, and a lot of that will reflect in some of the Q2 numbers and the Q2 results as we go forward. All in all, we continue to see strong growth coming out of the US market.
ET Now: That is good to hear. Most of your peers, be it large or the same-size, are actually sighting slower approvals in the US, which will impact their topline performance for the current year. FY17 is a different ballgame altogether. You do not think that that will be the case for your company?
Glenn Saldanha: Last year, we had rough time in the US, where we got very few approvals. A lot of our peers got a number of approvals. If you have seen what has happened in the last three or four months, a lot of that lag has now come through.
So, we have had seven or eight approvals that came through in the last three or four months. We think from here on, the approval rate will continue to stay pretty consistent, although it is hard to predict.
We are seeing there is a significant improvement in the approval rate and we think that will stay for the rest of the year.
ET Now: Are these large products that will hit in quarter two? If you can also give us a flavour of which are these products and what is the kind of revenue uptick... if I can use that term loosely that could come in by these US launches in particular?
Glenn Saldanha: Quarter two will be impacted by the launches we have already done, that is the seven-eight launches which happened towards the end of quarter one.
The bulk of ramp-up that you will see will happen in quarter two, which will reflect in the numbers. The bulk of the launches are in the areas of oral contraceptives and dermatology.
It is a mix of both these segments which will help quarter two going forward. In terms of further approvals, there is a lot of uncertainty as to which products will get approved going forward, and in what timeframe.
ET Now: In a market scenario like now, till the time it is not a guidance cut from you, we are okay with you not naming those products. But what about your R&D cost during the quarter, and any significant forex loss or gain that you incurred?
Glenn Saldanha: On the R&D side, we continue to invest between 10 per cent and 11 per cent of sales on research. We think that will continue for the rest of the year.
As far as forex loss or gain on a consolidated basis is concerned, we had no loss or gain. We had some gains coming out of the rupee depreciation and some losses from our international currency. On overall picture, we see no loss or gain in the quarter.
ET Now: How do you see the business in Russia and CIS going ahead because of the currency fluctuations right now? Is that bound to hamper growth?
Glenn Saldanha: Russia, on a constant currency basis, we continue to see strong growth. On a full-year basis, that business will grow at 20 plus per cent.
The biggest challenge is obviously the volatility that you are seeing in all emerging market currencies, Russia being the prime one. That volatility is very hard to predict; what happens in terms of currency fluctuations.
A lot of our performance got impacted last year and Q1 primarily on account of the volatility in the currency, as far as the Russian ruble goes. The rest of CIS also continues to deteriorate, particularly Ukraine, and some of the neighbouring countries.
It is a challenging environment. However, constant-currency growth in Russia looks to be strong.
ET Now: Some other concerns that the Street has right now, and it is the risk in Venezuela, because 10 per cent to 15 per cent of your EBITDA come from that region. Analysts are worried about the falling country reserves and adverse devaluation situation. Do you agree with these concerns?
Glenn Saldanha: Venezuela Q1 has been a good quarter for us. We have been able to remit it back almost $12 million of cash out of Venezuela, which is a big number.
Over and above, we have been pretty conservative in terms of our accounting policies in Venezuela. There will definitely be a currency devaluation at some point in Venezuela, but we do not see a major impact coming out of that currency devaluation because we have already taken adequate measures to control our exposure to Venezuela.
ET Now: Not now, and not even till FY17?
Glenn Saldanha: We have taken adequate measures. There will definitely be a devaluation, as I said. There will be some impact, but we do not see that as being significant because we have already taken measures to control the exposure in the market.
ET Now: Irrespective of what happens to the currency, I read reports about how Colombians actually buy stuff from Venezuela or otherwise, because of the devalued currency there. So Venezuelan people definitely do not have the power, or the economic prosperity to actually go out and do things the way they would want to do. You think that impacted sales at large in terms of volumes?
Glenn Saldanha: The biggest challenge is not sales in Venezuela. It is actually getting your money out of Venezuela. From an in-market sales, you have strong sales. That has been the experience that we have had.
Whatever product is available, just flies off the shelf very quickly because of virtually no product being available in the market.
ET Now: Is a certain bit of concern on the balance sheet? The matrix for Glenmark has worsened a bit... the receivables days high at 140 days, net debt is increasing. Why is this happening? What are you doing to resurrect this, if you are looking to resurrect this in the first place?
Glenn Saldanha: Receivable days have come down in Q1, and continue to come down. We think over the course of the year, the receivable days will continue to improve overall.
As far as net debt is concerned, after Temasek has invested in us, the net debt number also is down to something like Rs 2300 crore. We see that further improving as we go forward.
We think we will finish the year at Rs 2100 crore of net debt, which is not significant given the fact that we are guiding to a Rs 1750 crore EBITDA for the year. Overall, it looks pretty strong.
Glenn Saldanha: No, we have no plans of any further fundraising to retire the debt.
ET Now: You are saying that the receivable days have come down, so they are not at 140, they would be sub 135 or…
Glenn Saldanha: They are much lower than 140 now. They are continuing to come down.
ET Now: The other concern is the adverse ruling on the Panacea patent litigation case. What is the future plan there?
Glenn Saldanha: Very clearly, we are going to go into appeal on Panacea. We think we have a pretty strong case overall, and we will see how it plays out in the appeal score.
ET Now: You have discussed the American Continent at large. You give me a brief about Russia and Scandinavia as well. Do you believe that the growth run rate confidence that you expressed for US would stand for the other geographies as well? Quite contrary to what some of your other peers have stated, do you reckon that your growth rate numbers could match or better than what you did in FY15 or FY14?
Glenn Saldanha: Absolutely, we are seeing strong growth coming out of India. We are seeing strong growth in Europe as a whole on a combined basis. These two geographies look very good for us.
In emerging markets, the challenge is currently to do with Russia and Latin America. Latin America, primarily Venezuela, and of course some of the depreciation that we are seeing in the Brazilian context.
Asia, Africa look pretty strong for us, where you are seeing good growth numbers. Of course, the US business continues to be strong. Overall, we are pretty much on course as a company to achieving what we need to do for the year, and achieving our guidance.
ET Now: What about US in particular, because there are some analysts who believe that the US business is going to double over FY15 to FY18. Are they on the right track when they project so?
Glenn Saldanha: We have some very interesting launches coming up, so Zetia is one of them where we have the sole 180-day exclusivity where we have got final approval from the FDA. We have already settled with Merck, so that is a big launch for us.
In addition to that, we have a couple of other good launches coming out of the US business. The US clearly will be a strong driver for the company in the next few years.
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