Gland Pharma Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. Our first question is from the line of Saion Mukherjee from Nomura. Please go ahead.

I just have one question about U.S. business. There seems to be some slowdown or a drop in the U.S. revenues, except Cenexi quarter -on-quarter. So, can you just explain the dynamics there? And how should we think about it in the subsequent quarters?

I think the major difference is, I would say, on the milestone, if you saw last quarter, we had licensed some complex products, which gave a larger revenue. So, I would say the decline of U.S. about 14% from the previous quarter, 8% is attributed to that. And if you look at the quantity, it's 2% lower. And also, I would say, it's a product mix. We launched heparin back to one of the GPOs, which is a low value, I would say, high volume. And because of the large quantities, we have to supply a lot more quantities, which substituted the other products. So, that kind of, I would say, small impact, but it will normalise over a period of time. So, we would still continue to, I think, over the next few quarters, it's normalised number. So, it's more of a quarter impact.

Okay. Sir, my second question is about your comment on the domestic business, your plans around that, and also acquisitions. If you can throw some light on it , what are you thinking on both these fronts?

Saion, this is Ankit. So, on the domestic business, as you would understand, most of our facilities are designed to supply for the global markets and predominantly U.S. When we supply in India, we use the same facility, and somehow, it compromises our overall economics of the business. We don't intend to scale that up unless we have found the solution to have a facility which is more dedicated to the India business. So, I think that addresses that point. On the acquisitions, I think there are two areas wherein we are largely focused. One is to look at opportunities on the complex injectable side, which has more to do with high R&D-focused investments. The second part, which we are very keenly evaluating, is building capabilities on the manufacturing side. Today, most of our capacities and capabilities are on the small molecule side. But even there, we feel that we have the ability to go further and see if we can do more difficult -to-make products. So, this is the large near-term focus. Obviously, in the long term, we will have to think through whether we need more organic capacity to cater to our current growth, which is coming from the U.S. and RoW markets. However, in the short term, these are the two focus areas for investments.

And just one last question, if I can. Of the 61 ANDAs which are pending, is there a split available between Gland's on India and partner in India?

I can give you an exact number, but most of it will be Gland India's because lately everything is filed by Gland.

Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

So, just to continue on this milestone income, is that the reason for the quarter -on-quarter drop in the gross margins for the base business?

Yes. So, I mean basically trying to understand the dip in the gross margin as well, both quarter- to-quarter as well as year -over-year when we had good relaunches or certain complex product launches as well in the quarter.

So, if you see, it's basically what I have given as an answer for the first one; we kind of supplied more of heparin because of the new GPO contract we got. The contribution margin on heparin is lower compared to that. So, the margin is, I think, around 25%, 30%. So, the volumes that were supplied for last quarter have almost doubled. So, that kind of diluted the overall margin, but it will normalise over the period because when you start your contract, you supply four months of stock. So, that's not taken away from our capacity, which is a low-margin product. But that will be fine starting next quarter.

Understood, sir. On the biologics side, while the facility was from a specific vaccine point of view and since the facility has been available , i t's taking quite a long time to get the new contracts, that is one so, if you could share further there. This collaboration involves large-scale contract manufacturing. So, here we are not sharing too much detail, but what can be the timeline to understand the commercial benefit of this collaboration?

While we can't name the company, it's probably a quarter. I would say some clarity will come up on how this happened. However, the discussion is around investment in a large -scale production compared to what we have for some of the biologics that are filed and somewhat in the commercial stage. In parallel, we are also licensing some of the molecules for our other markets, 3 or 4 biologics products. So, it's a combination of a CDMO business to expand; as you know, a lot more attractions come in recent months for Indian companies. So, I would say it's a good sign. So, this is, I would say, in that direction. Combination of CDMO business for some of the commercialised and yet-to-be-launched products and in -licensing of some of the molecules, which have gone into clinical. So, it's a combination of that. So, we can give you more clarity in a quarter or so.

Understood, sir. I am just explaining to this as an industry phenomena of this Biosecure Act , is that also sort of benefiting us or and sort of being Chinese promoter company, you are not partner to that?

Yes. For sure, I just mentioned, I think that also is result of this, I would say, because I think we are seeing more inbounds than compared to before. And they're looking India as a second base for a lot of companies to have to derisk themselves. So, I would say that it would benefit CDMOs in this space.

Sir, we saw Fosun sold a pretty large stake in the quarter. Have you had any discussions about how they are thinking about the ownership in Gland? Do we think it goes down further? And over the longer term, we have talked about evaluating the front end in the U.S. How should we think about that?

Yes. From Fosun's perspective, we don't really discuss the shareholding. We only talk more about the synergies and how to expand businesses in different geographies with their network. But there's no communication around the equity and how they sell. We only know the post factor, I would say. What's the other question, Neha?

On the long -term strategy for the U.S. because , I think last year, we were considering or evaluating a hybrid model of possibly going front end on our own. So, is that still on the table?

Yes, it is. It's on the table. We are evaluating, but we can't comment. I think it's too early. But it's not like our core focus will be CDMO, and we are also getting into more complex CDMO with a focus on the company, with more and more companies approaching us on the b io side. For sure, that will be a key focus in terms of investment. At the same time, general business is key to our success. So, that will continue, but we have to see what different options are so that the base business will grow at least at a certain rate while we build the other part of the business.

Understood. And did I just get the previous comment right that the biosimilar discussions that are going on would require new investments in large batch manufacturing?

While we can take on the CDMO and the smaller scale batches, this also requires investment to increase the capacities that we have. And since it is backed up by CDMO contracts and also the commercial volumes, that evaluation is happening. So, it's backed up by that; then we will work on the investment plan for that as well.

Understood. And one housekeeping question. If you could just quantify the milestone in the profit share number for the quarter, please?

Profit share for this quarter is 10%. This is at Cenexi, and milestone is 9%.

Thank you. The next question is from the line of Karthik, who's an individual investor. Please go ahead.

Actually, is there any one-off from Cenexi in this quarter?

Where do we expect the next leg of growth to come from for Gland? Are we continuing the plasma project and biosimilars, which we are discussing in the previous quarters?

Yes, that's continued. And also, for the complex products, we have filed six products until now. So, a few are good products on that. And one suspension product we have filed last quarter out of the seven that we have filed. So, that's another growth lever, I would say. And, of course, the bio CDMO side where we are seeing good traction, including the plasma project.

Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.

Just a question on the U.S. market. In the last couple of quarters, your commentary was very positive in terms of customers coming back and inquiries going up, a lot of demand for products, etc. Is that pretty much as great as it is today? Or have you seen a bit of pulling off that tightened demand over the last couple of months?

No, I would say the policy is still there. I mean, it's no different than what we have seen. If you compared to the last year, the volume wise it's gone up by almost 30%. But if you see the previous quarter, the quantity, you can't really compare, it's almost the same, I think, gone down by 2% U.S., but it's more to do with how many batches can make on those lines. And it's more a capacity situation on a couple of brands, which impacted us a bit. But otherwise, the demand is there. And on an annual basis, it will still be a target to what we have envisaged at the beginning of the year.

Understood. So, last quarter, there was a high element of milestones. So, excluding that, this quarter, can you look at this quarter as a sort of maintainable base on which you will see some improvement as the quarters come by?

Yes, I would say so because like I said, the milestone income was almost, I think, 16% last quarter because of some complex products getting licensed out. And this is not like depends on which quarter you license these kind of products and not every quarter, you're filing the complex products. But on an annual basis, I think we still moderated, and this business should grow.

Sir my question is in Cenexi, you talked about three weeks, 4 weeks shutdown in Q 2. So, is it fair to assume that the Q2 revenue would be two-third of Q1 revenue level?

Yes, correct. So, that's correct. But at the same time, we are also using that time to install a new line, So which will help us actually to produce more volumes in the future. So, it's not that we are completely wasting that time, I would say. But at least utilizing that time to install a new high-speed line, which will increase the volumes in the future.

And besides that, every year, we have a shutdown of roughly two weeks in all our plants because of the server break and heavy maintenance. So, the actual impact is only 1 week more because of the installation of the new line.

Thank you. The next question is from the line of Rahul Agrawal from Himalaya Investment. Please go ahead.

Can you quantify the extent of the milestone and profit share component for last quarter versus this quarter?

Yes. So, by last quarter do you mean Q4 or Q1 of previous year?

Yes. Q4 of FY '24, yes.

Q4, profit share was same, 10% and milestone was 15%.

And this quarter, the profit share is 10%, the milestone is 9%. So, the gap of 6% on milestone.

That's correct.

And milestone. I am assuming all this is 100% gross margins, so it flows straight down. So, it affects both the gross margin and EBITDA margin?

Yes, it may not be 100% because there could be some costs related to the batches filed and all, but largely yes.

Got it. And putting it together, sir, from a full year perspective, what sort of growth do you see in your base business ex of Cenexi for the full year?

The mid-teens, that's what we guided.

And from a margin profile perspective?

So, EBITDA around 32%, 33%.

Thank you. Ladies and gentlemen as there are no further questions, I would now like to hand the conference over to Ankit for closing comments.

Yes. Thank you, everyone, for connecting today. We understand most of the questions are addressed, but if there are any follow -on questions, please do feel free to reach out to us. We will be available and happy to address. Looking forward to host you the next quarter soon. Thank you.

Thank you. On behalf of Gland Pharma Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. This transcript is provided without express or implied warranties of any kind and should be read in conjunction with the accompanying materials published by the company. The information contained in the transcript is a textual representation of the company's event and while efforts are made to provide an accurate transcription, there may be material errors, omissions, or inaccuracies in the reporting of the substance of the event. The transcript has been edited wherever required for clarity, correctness of data, or transcription error. The company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.