There is relief on the US generic front. Are you getting a sense that if the pricing pressure has not improved, at least it has stopped contracting?
We are still seeing pricing pressure, they have come off a little bit so right now the price declines are about in the 8-10% range. They were much higher from last quarter and so they have started to retract a little bit.
City Research is saying that Glenmark’s US revenue has been sluggish over the last few years. With delays in approvals for key products, what are you doing for the company to improve execution as well as approvals in the US?
If you look at the approvals, we have got a reasonably good number of approvals. We are up to about 15-17% approvals this year. It is a pretty decent number. As far as execution goes, we are able to get a decent market share. We have 20-30% market share on most of the products that we sell. Of course, the overall pricing environment on the base portfolio continues to erode and that is impacting the overall growth. Going forward, it is just the new product launches which will continue to drive growth.
What is the growth outlook going forward. In the recent JPMorgan conference, the company said that over the next three years or so, growth is going to be driven by speciality products. Does that mean your spend in R&D is going to increase?
On the speciality side, we bought a small portfolio from a company called Exeltis of derm products and we have two other product launches going on the derm side. In FY20, the specialty portfolio should start contributing to the overall revenues both in the derm and the respiratory segments. In FY20, besides generic growth, the speciality business should kick in and start contributing quite significantly.
As far as R&D spends go, we continue to spend about 13% of total revenues on R&D front and that includes innovative R&D and as you probably read, we are now looking at spinning out our innovative R&D into the US company. All in all, we spend about 13% across the board in R&D.
You have a strong presence and brand recall in India in dermatology, respiratory as well as cardiac products. Are you looking at expanding your OTC business where brand recall is high?
As a company, strategically we focus heavily on derm, respiratory and in India cardiovascular and metabolic and oncology products. These are the five segments where we are pretty dominant as a company, particularly in India. Our strategy in OTC is basically RX to OTC switches that we do which has worked pretty well for us. We have up to about Rs 200 crore in sales on three OTC brands that we sell. Going forward, the OTC segment should continue to see strong growth and further scaling up of this franchise.
You have an ANDA for generic Renagel. What is the size of the opportunity and will it be a high margin product now that you have got the approval for it?
It is almost a $100-120-million market and right now it is the authorised generic. We should be able to get some decent market share on the product and it should be a good product for us. Again, a lot will depend on how many more competitors get approved and in what timeframe but as we speak, it is a pretty good product with high margins and decent market share that we have been able to pick up.
High market share and high margin product — could you just quantify that?
Well it is very hard to give you a number.
What would be the guidance on your debt reduction? Is that something which has been of immense market curiosity, something which has been of market concern also?
Last year, we did a good job in reducing debt. This year, again we will reduce debt compared to where we were last year. So every year we will continue to bring down the leverage. If next year we were between one and a half times EBITDA, we will be comfortable with those kinds of debt levels going forward.
In order to reduce debt, your cash flows have to improve or you have to look at monetising some of your non-core assets or bet on some degree of pricing power. What could be the key differentiator for you?
We did some amount of monetisation with our ortho franchise in India where we brought True North as a partner this year. In addition, we continue to work on various cost-cutting initiatives which will drive our margins and improve the cash flows from the business. Clearly, we are looking at operating efficiencies driving the business going forward.
Right now, the Ayushman Insurance scheme has seen a successful rollout. It will change the way healthcare cost in India will be calculated. If Ayushman scheme becomes more popular, could that have an impact on India portfolio for the Indian pharma companies per se?
The Ayushman scheme is positive for the industry because it brings another lever of growth.
In terms of a pricing challenge, you do not think there could be a serious pricing challenge in the domestic business for you and for others?
Near term, the branded business in India is pretty solid for all Indian companies. We do not see a big shift happening from this.
We understand that within the Chinese API market, the dynamics have changed. How will that help a company like Glenmark?
In FY19, we saw an increase in API cost coming out of China. In FY20, there will be some easing. We have started to see some easing in terms of the cost of API coming out of China. From that perspective, margins will get better on account of lower cost of goods from here on, particularly in FY20.