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Edited Transcript of GLEN.NS earnings conference call or presentation 29-Jun-20 3:00am GMT

Full Year 2020 Glenmark Pharmaceuticals Ltd Earnings Call

Mumbai Jun 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Glenmark Pharmaceuticals Ltd earnings conference call or presentation Monday, June 29, 2020 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Glenn Mario Saldanha

Glenmark Pharmaceuticals Limited - Chairman, MD & CEO

* Jason D'souza

Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy

* V. S. Mani

Glenmark Pharmaceuticals Limited - Global CFO & Executive Director

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Conference Call Participants

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* Aditya Khemka

DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare

* Alankar Garude

Macquarie Research - Analyst

* Chirag Dagli

HDFC Asset Management Company Limited - Senior Equity Analyst

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Saion Mukherjee

Nomura Securities Co. Ltd., Research Division - Head of India Equity Research

* Shyam Srinivasan

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Tarang Agrawal

Old Bridge Capital Management Private Limited - Investment Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Vikas Sharda

NTAsset (Thailand) Co., Ltd - Senior Analyst

* Vishal Manchanda

Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Q4 FY '20 Earnings 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.

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [2]

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Thank you, moderator. Welcome to Glenmark's Q4 Earnings Call. Before I start the call, I would like to introduce the members at Glenmark. We have Glenn Saldanha, Chairman and Managing Director, Glenmark Pharmaceuticals; V. S. Mani, Executive Director and CFO, Glenmark Pharmaceuticals; and Robert Matsuk, President, North America.

First, the review of operations for the fourth quarter ended March 31, 2020. For the fourth quarter, Glenmark's consolidated revenue was at INR 27,674 million, recording an increase of INR 796 million (sic) [7.96%]. For the year ended, Glenmark's consolidated revenue was INR 106,406.69 million (sic) [INR 106,409.69 million], recording an increase of 7.86%.

Business update on account of the COVID situation. The COVID-19 pandemic and the subsequent lockdown across India affected Glenmark's production facilities in the months of March and April. However, by the end of April, Glenmark's manufacturing units managed to stabilize production and logistics were also in place in order to ensure uninterrupted supplies to all our markets. As of now, all of Glenmark's manufacturing facilities are operational, and the supply of raw materials has also improved significantly. Further, internal logistics within India were stabilized by end April, and exports to all markets resumed to a significant extent by the first week of May.

Since the start of the outbreak, Glenmark's employees across operations around the world have worked round-the-clock to formulate and adopt best practices that adhere to the highest standards of safety. Glenmark employees have also facilitated the uninterrupted supply of medicines to every market it services. The company has made significant efforts to reduce the burden on the community on account of COVID-19 across its operational countries and manufacturing locations. The details are available on the company's website.

In a landmark development for COVID-19 patients in India, Glenmark announced the launch of antidrug -- anti-viral drug Favipiravir, brand named FabiFlu, for the treatment of mild to moderate COVID-19 patients. Glenmark received manufacturing and marketing approval from India's 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 an informed consent before treatment indication. Glenmark's approvals from India's regulators make FabiFlu the first oral Favipiravir-approved medication in India for the treatment of COVID-19.

Glenmark would be conducting a postmarketing study as recommended by the Indian regulator on Favipiravir on 1,000 patients of mild to moderate COVID-19 for further evaluation of safety and efficacy.

Further, Glenmark also recently announced a new randomized, open-label study to test the combined efficacy of two antiviral drugs, Favipiravir and Umifenovir, as a potential COVID-19 treatment strategy. The two antiviral drugs have different mechanism of action, and their combination may demonstrate improved treatment efficacy by effectively tackling high viral loads in patients during early stage of the disease. Early administration of a combination of the antiviral medications acted by different mechanism is still desirable for the treatment of COVID-19 since the viral load of SARS-CoV-2 peaks around the time of symptom onset.

The new combination trial will be called FAITH. 158 hospitalized patients of moderate COVID-19 infections will be enrolled in the combination study and randomized in two groups, one group receiving Favipiravir and Umifenovir with standard supportive care; and one group receiving Favipiravir, along with standard supportive care.

The business. First, the India business. Sales for the formulation business in India for the fourth quarter was INR 7,647.53 million, recording a growth of 14.52%. The India business continued to outperform the industry growth as per IQVIA.

Glenmark's India business recorded growth of 15.90% as compared to IPM growth of 9.68%. As per IPM MAT -- IQVIA MAT March '20, Glenmark's India business recorded growth of 14.22% as compared to IPM growth of 10.55%.

In terms of market shares, Glenmark's India business further strengthened in its core therapy areas such as cardiac, diabetes and respiratory.

In April 2019, Glenmark announced the launch of its novel, patent-protected, globally-researched SGLT2 inhibitor, Remogliflozin etabonate, in India. Glenmark is the first company in the world to launch Remogliflozin, and the response from KOLs has been extremely positive. As per IQVIA of March '20 data, the sales for the Remogliflozin franchise is tracking at INR 53 million per month. Glenmark has attained 7.34% market share in March '20 in terms of value in the overall SGLT2 market in India.

Glenmark has also launched the combination of Remogliflozin etabonate and metformin hydrochloride for adults with Type 2 diabetes. The combination of the product has also received a good response from the market, with sales crossing INR 10 million in the month of March '20 itself.

During the fourth quarter, Glenmark announced the partnership of its gynecology division with Integrace Limited, a True North company. Thus, under this arrangement, the gynecology business of Glen India and Nepal was transferred to Integrace, along with the employees of that division. The gynecology division revenue is insignificant to the overall India business and is part of Glenmark's noncore business. The transaction was signed and closed in the fourth quarter of the financial year.

Glenmark's Consumer Care business in India continued to maintain a strong growth momentum of 31% in the fourth quarter, setting a new milestone of sales of INR 2,038 million, INR 203 crores in this financial year. The strong growth in the fourth quarter was led by Candid dusting powder with the highest ever growth of 38%. Modern trade channel led to the growth agenda for Consumer Care portfolio with 34% growth during the year.

During the quarter, the company announced that it entered into an agreement with Hindustan Unilever Limited for the divestment of its VWash brand and other extension. Under this agreement, the brand and other trademarks, copyrights, know-how associated with Glenmark's VWash business will be transferred to HUL. Glenmark will receive an upfront payment and a certain percentage of sales for 3 years. No employees will be transferred as part of this agreement. The transaction was completed on June 25, 2020.

U.S.A. Glenmark Pharmaceuticals recorded revenue of finished dosage of INR 7,619 million, USD 105.11 million, recording degrowth of minus 1%. In the fiscal year '19-'20, Glenmark was given 14 ANDAs, comprising of 12 final and 2 tentative approvals. Additionally, Glenmark was also granted approvals on a PAS to make an over-the-counter version of adapalene gel, 0.1% available.

Notable approvals during the year include: Fulvestrant Injection, Pimecrolimus Cream, Deferasirox tablets for oral suspension. The company filed a total of 8 ANDA applications with the U.S. FDA throughout the fiscal year. The generic industry continues to be subdued with the overall generic topical dermatology market continuing to witness price erosion on a Q-on-Q basis. On a YTD basis, the overall generic topical dermatology market is estimated to have witnessed price erosion of around 20% for the entire financial year.

During the financial year, the U.S. business was significantly impacted in terms of accounts of 3 products: mupirocin cream, atomoxetine and calcipotriene cream, Further, the sales was also impacted in the year due to ranitidine. Glenmark completed the successful launch of 16 products during the financial year.

Africa, Asia and CIS region. For the fourth quarter, the revenue from this region was INR 3,365 million, recording de-growth of 12.65%. In the fourth quarter of the financial year, secondary sales for the Russian subsidiary showed 3.8% growth in value. The Russia business continued to be subdued in the fourth quarter and currency devaluation further impacted the business.

The Asia region's performance in the fourth quarter was average and secondary sales of only 1% reported for the region. Sales continue to be -- continues to remain subdued across all major Asian markets for Glenmark. The African region recorded secondary sales growth in the fourth quarter. The secondary sales growth was on account of the performance of the Kenya subsidiary.

Europe. Glenmark's Europe operations revenue was -- for the fourth quarter was INR 4,115 million, recording growth of 29.26%. Glenmark's Europe operations performed well in the fourth quarter, recording growth in excess of 20% in constant currency. The Western European business recorded growth of 23% in the quarter on account of good growth rewarded by the German subsidiary. The Central Eastern European business grew well in the fourth quarter.

During the quarter, Glenmark Poland announced the partnership of its CNS portfolio to Neuraxpharm, a leading European pharma company. Following the transaction, the Glenmark CNS commercial team in Poland will join Neuraxpharm Polska's existing sales and marketing organization to create a strong player in the polish CNS market with excellent access to psychiatrists, neurologists and pharmacies.

Latin America. Glenmark's revenue from its Latin American and Caribbean operations was at INR 1,768 million, recording an increase of 46.9%. The strong growth recorded by the subsidiary was on account of the Brazil subsidiary, which continues to benefit from the launch of 3 respiratory products licensed from Novartis.

During the quarter, the Brazilian subsidiary announced the partnership of a set of dermatology brands with a leading Brazilian pharmaceutical company, Hypera. The transaction was signed in the fourth quarter of the financial year.

GPL specialty and innovative pipeline. Ryaltris. Ryaltris nasal spray is the company's respiratory pipeline and is currently under review with the U.S. FDA as a treatment of seasonal allergic rhinitis in the U.S.A. During the fourth quarter, Glenmark and Hikma entered into an exclusive licensing arrangement for the commercialization of Ryaltris seasonal allergic rhinitis nasal spray in U.S. Under the terms of the agreement, Glenmark will be responsible for the continued development and regulatory approval of Ryaltris for U.S. FDA, while Hikma will be responsible for the commercialization of Ryaltris in the U.S. Glenmark will receive an upfront payment and on regulatory approval also. Glenmark will also receive commercial milestone payments as well as royalties from Hikma for Ryaltris.

Besides the U.S. deal, Glenmark has also already signed licensing deals for commercializing Ryaltris in China, Australia, New Zealand and Korea.

Glenmark is working close -- to close a partnership for Ryaltris in various other markets, including the EU. The company has already filed an application for Ryaltris approval in the European Union.

During the first quarter FY '19-'20, the U.S. FDA had issued a CRL pertaining to the New Drug Application for Ryaltris. We continue to work with the agency to resolve the issue raised in the CRL. The CRL's response is currently on track for submission shortly. We are in communication with the FDA, and all deficiencies, except facility clearances, are minor in nature and have already been addressed.

During the third quarter of the financial year, Glenmark announced that its partner Seqirus Australia has received marketing approval for Ryaltris from TGA Australia. We have already dispatched launch quantities to Seqirus in this month, and they are planning for the launch of Ryaltris in Australia in Q2 FY '21.

Recently, the company's approval -- company's partner in South Korea, Yuhan Corporation, also received regulatory approval, which paves the way for the launch of Ryaltris in South Korea.

Further in the last few months, Ryaltris has been approved in Cambodia, Uzbekistan, Namibia and South Africa. Also, Ryaltris clinical trials in Russia have been completed and the subsidiary will shortly seek regulatory approval from the regulator.

GBR 310. During FY '19, Glenmark announced Phase I results that suggest similarity in pharmacokinetics, pharmacodynamics, safety and immunogenicity profiles between GBR 310 and the reference product, omalizumab. 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 preclinical development, and the company plans to initiate a Phase I study shortly.

Glenmark Life Sciences. For the fourth quarter, external sales of Glenmark Life Sciences was at INR 2,613 million as against INR 2,487 million, recording growth of 5.07%. For the entire year, external sales of Glenmark Life Sciences recorded revenue of INR 10,239 million as against INR 9,493 million, recording growth of 7.86%.

Ichnos Sciences. For the 9 months ended December 31, 2020, Glenmark invested INR 5,943 million, USD 85.03 million. And in the fourth quarter of the financial year, the company invested approximately INR 2,250 million. Thus, for the entire financial year, Glenmark invested INR 8,193 million equivalent of USD 115.73 million in Ichnos Sciences.

Ichnos Sciences initiated the process to raise capital in the U.S. in the current month to fund the development of its pipeline and for future growth plans. For further updates on the pipeline and the organization, please log on to ichnossciences.com. The pipeline update for the fourth quarter is published.

Update on the Chief Commercial Officer for Glenmark Pharmaceuticals Limited. Glenmark recently announced the appointment of Mr. Robert Crockart as Chief Commercial Officer, Glenmark Pharmaceuticals Limited. Mr. Crockart will be based at Glenmark's head office in Mumbai and will report directly to the Chairman and Managing Director. Mr. Crockart comes with 26 years of end-to-end experience across various industries, including pharmaceutical industries, consumer, health, retail, pharmaceutical wholesale and outsourcing. He has successfully completed and transformed businesses for growth across multiple geographies in Europe, Asia, Latin America, Middle East and Africa.

Prior to Glenmark, Mr. Crockart was Divisional Vice President, Asia Pacific for Abbott. He was instrumental in expanding the MEAP region for Abbott year-on-year for over 5 years as DVP. He also established the EPD sales and strategy globally across all emerging markets and contribute consistently to the overachievements of the business. All the business heads at Glenmark will report into Mr. Crockart. He will be responsible for the entire formulations business of Glenmark Pharmaceuticals.

Before we open the floor for question and answers, a few notes. The R&D expenditure for the quarter was INR 350 crores, which was around 12.6% of sales. R&D expenditure for the year was INR 1,352 crores, which was 12.7% of sales. Innovation expenditure was at INR 819 crores, which constitutes 60% of the overall R&D expenditure. Generic R&D expenditure was INR 533 crores, which is -- which contributes around 40% of the total R&D expenditure.

Forex gains and other income was INR 35 crores in Q4 and was INR 115 crores in the full year. This is recorded in other income.

Inventory was INR 2,136 crores at 73 days in FY '20 as compared to INR 2,252 crores at 83 days in FY '19. Receivables was INR 2,409 crores at 83 days in FY '20 as compared to INR 2,195 crore at 81 days in FY '19.

Payables was INR 2,126 crores at 73 days in FY '20 as compared to INR 2,221 crores at 82 days in FY '19. Net working capital was at INR 2,419 crores at 83 days in FY '20 as compared to INR 2,226 crores at 82 days in FY '19.

Gross debt was INR 4,868 crores as on March 31, 2020. Net debt was at INR 3,758 crores as on March 31, 2020. Net debt at constant currency has come down by USD 14 million as compared to the quarter ended December 31, 2020, where it stood at $513 million as compared to presently where it is at $499 million.

Impact on currency on gross debt was over INR 375 crores for the year. Total asset additions during the year was INR 931 crores, down from INR 1,237 crores in FY '19.

With this, moderator, we would like to open the floor for question and answers. Over to you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take the first question from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [2]

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Glenn, first question for you in terms of, one, understanding the revenue that we have clogged in, in India and Europe. Are there any COVID-related one-offs stocking? Or how should we think about fiscal '21 across your major revenue items, U.S., India, Europe, et cetera?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [3]

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So, Prakash, in -- if I look at India, in Q4 itself, because there were some patient stocking we saw, we got some positive benefit, right, coming on account in -- particularly in the last 2, 3 weeks of the quarter. As far as Europe goes, I think because of the Italian situation, one of our competitors was not able to supply, and we were able to get some good business out of that in the last month of the quarter. I mean the run rate for both India and Europe, obviously, we cannot sustain this run rate in this current year, given the COVID situation, right, and Q1 being a challenging quarter on account of COVID.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [4]

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Any guidance you are giving on overall top line...

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [5]

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We aren't giving any guidance this year, Prakash.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [6]

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Okay. And any color on U.S., sir? I mean in terms of, like you said, India and Europe. U.S., since we had a softer base given the amount of pressure -- pricing pressure, now how does it look fiscal '21 in terms of launches and in terms of growing on that base?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [7]

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So the U.S. continues to be a challenging environment. But our view is we have some good launches coming up. So there could be some benefits we see out of the U.S.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [8]

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Okay. And my second question on the cost front. So you have seen significant improvement on the cost side. So are we like 50% done on the cost side or there is more to go in the Q1?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [9]

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Yes, Prakash. Mani here. So that is on the cost front. On the other expenses, you can actually see that all the efforts we put over the last 1, 2 years has really borne fruit. So going forward, we also look at reducing or keeping some of our costs under check, both on the manpower cost front as well as on the R&D front, okay? So both of those will subsequently also tie in and bring down the cost position there.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [10]

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So there is more room, you are saying?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [11]

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Yes, definitely. There is some more room.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [12]

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Perfect. And my last question on Favipiravir. So congrats on that. Just trying to understand how has been the initial pickup since it's the only oral for mild to moderate. And what is the expectation in terms of patient penetration? And has the health ministry or ICMR approved the drug?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [13]

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So look, Favi, it's a good launch for the company. However, obviously, this is a drug which is approved under emergency authorization and has to be prescribed by the doctor. So there are quite a lot of restrictions in terms of usage of the drug. But it's a good launch. It will help patients. In these COVID times where there is hardly any therapy out there, we think it can really benefit patients, and it will help in the longer term as far as the company goes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [14]

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Understood. And last one, if I may squeeze in, on the -- follow-up on Favipiravir. The combination looks more promising. And what are the time lines to that?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [15]

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So the combination, we have initiated the trials. I can't give a definitive time line, but it will take 2, 3 months, I'm guessing.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [16]

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For the launch or for you completing the trials?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [17]

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Completing the trials.

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Operator [18]

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(Operator Instructions) We take the next question from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [19]

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Really, just a couple of things. On the CapEx at INR 900 crores, that still stays reasonably high versus most of industry peers, who is pretty much seem to be in a consolidating mode for the last 2, 3 years now. I mean for us now, how are we [supposed to be] looking at this -- for CapEx spend situation going forward?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [20]

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So Nitin, this is Mani here. So I think it will come down even more, yes. So we expect it to be around INR 700 crores or a little higher than that. So -- I mean as we have guided you the last time, you're -- because we had some expenses in Monroe, et cetera, et cetera, that is why it was a little bit higher. But going forward, we will see it lower, okay? So on the -- both on the regulatory, whatever we do, the routine CapEx as well as any growth or all that, all put together, it should all be well below -- I mean much lower than INR 800 crores.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [21]

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So maybe on -- is it still where -- so which -- how will you split it to -- roughly between tangibles and intangibles, the INR 700 crores to INR 800 crores going forward, roughly?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [22]

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It should be about -- the max, about INR 200 crores for the in-licensing, whatever we do, and the rest will all be towards -- actually largely growth CapEx and routine CapEx. So we will definitely try to bring it down, yes.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [23]

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And so this INR 500 crores, INR 600 crores on the tangible CapEx, do you think that's going to stay at these levels? It's not going to come down below that?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [24]

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It will come down a little below that as well, yes. We'll see how much we can push it. We'll definitely try to bring it below that level.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [25]

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Okay. Secondly, Glenn, on the Fabi, I mean how do you look at the export opportunity for Fabi? Or how should one look at export opportunity for this product?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [26]

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Well, Nitin, there are opportunities. Fabi is already approved for emergency authorization in a host of countries, right, Russia, China, Japan, Italy, Saudi Arabia, Bangladesh, so many countries. So there is an export opportunity going forward. But our first goal is to try and make it available to Indian patients, so Indian patients get the maximum benefit.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [27]

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And in terms of capacity, is there a constraint to capacity that we have for that product, assuming there is a pickup on the drug as for the trials and all go through?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [28]

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No, we don't have any constraints. We have adequate capacities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [29]

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Okay. And lastly on R&D. I mean the breakup that you've provided us, I mean INR the 500-odd crores of generic spend. R&D spend is a little [up trend] versus the size of the business, right? So are we at the risk of underinvesting in certain parts of businesses over the last couple of years and is probably affecting the way our U.S. has grown? I mean how should one look at that number in terms of how it's been in the recent past and how it is going to be going forward?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [30]

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I think R&D as a percent of sales will come down substantially on account of just reducing overall R&D cost. Even Ichnos spend Y-o-Y is coming down this year compared to last year. Additionally, I think it's important to keep in mind that Ichnos' capital raised this year. So that will further take up that -- it will improve our cash flows there. So I think R&D, there is substantial scope for improvement overall as a percent of sales.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [31]

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And what time line should we work for Ichnos fundraise?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [32]

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So we've initiated the process. We'll see when it gets done.

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Operator [33]

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(Operator Instructions) Next question is from the line of Shyam Srinivasan from Goldman Sachs.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [34]

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My first one is on the efficacy for Favipiravir as COVID-19 treatment, with lots of literature around the world, including from Japan. So just want to understand how effective is this drug? And have we completed our trials that we initiated? Or are we just in the process of completing the trials for Favipiravir? I'm not talking about the combination. So that's my first question.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [35]

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So I think Favipiravir has several -- keep in mind that COVID is only a 4- to 6-month event, okay? So all trials -- I mean there are tons and tons of trials going on globally on Favipiravir, right? And over 5,000 patients have been treated with Favipiravir. So there's a sufficient safety database there.

As far as efficacy, there are several trials globally, which have shown the drug is actually working mainly in mild and moderate. I mean there are studies coming out of multiple geographies. Because it's been so -- it's only been 4 to 6 months, right, many of these trials are now beginning to report. As far as Glenmark goes, we have -- now we've completed the randomization, and we are still -- some of the patients are still completing the trial. So we are hoping that the trial should complete shortly, and then we will unlock the database and give -- get the data. So that's kind of where we stand.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [36]

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Got it. So Glenn, you will make the data public, right, all the trial data at some point of time?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [37]

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Absolutely. Absolutely.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [38]

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Got it. Got it. My second question is on Ryaltris. I think the MD&A talks about the next steps. But I think critical in that is the plant resolution. So if you can update us on the plant resolution for [Favi].

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [39]

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So we are still working on that, right, on resolving the open items for [Favi].

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [40]

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Are there any time lines? Because we have seen a host of Indian plants getting cleared. Is there something that -- does it require an inspection that -- can it be done through a virtual audit? If you can help us just understand some time line.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [41]

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I can't comment on that. I can't give any more visibility other than to say that we are working on it, and it should happen soon.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [42]

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Got it. And the last follow-up on that one is, if it will be contingent. I think the Ryaltris approval for the U.S. will be contingent on that clearance, right?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [43]

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We have an alternate site also under qualification. So hopefully, that should further help.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [44]

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Got it. And so my last question is on the Latin American business. You talked about Europe and India being not sustainable. But do you think the run rate that you have seen in the Latin American business, is that something -- or does it also have some one-offs for the fourth quarter?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [45]

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So Latin America, by and large, had no one-offs, okay, in the fourth quarter. But keep in mind, because of COVID, right, I think Q1 is going to be challenging for most geographies around the world, right, particularly countries in Latin America.

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Operator [46]

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We take the next question from the line of Saion Mukherjee from Nomura.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [47]

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Yes. My first question is on the cost related to the Monroe site. How much has already come in? Can you quantify the number below -- above EBITDA and also on the depreciation because of commissioning of the site?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [48]

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So Saion, in this quarter, I mean it just got commercialized only at the end of the quarter. So obviously, there's not too much on that. On the depreciation also, there's not a very, very significant amount, okay? So I think you'll see the full impact of that in the next quarter.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [49]

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Yes. So can you just quantify the number that you will see on expense and on depreciation?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [50]

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It's not much as of now. But going forward, you will definitely see at least a INR 10 million added to the expenses, which should be absorbed by the products we manufacture there.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [51]

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So this is annualized number, you're saying?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [52]

--------------------------------------------------------------------------------

Exactly. On the royalty side, yes.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [53]

--------------------------------------------------------------------------------

Okay. So basically, it seems to be a mixed bag. So how do you read on commercial liability at this stage, given that the secondary endpoint was not met? And how do you think about the results? And any comments there?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [54]

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This question was on 830, right?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [55]

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Can you just repeat your question?

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [56]

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Yes. So I was -- my question is on IBR 830 (sic) [GBR 830], your comments on that. Given the Phase IIb results, which came out, it seems to be a mixed bag with the higher benchmark, secondary endpoint not being met, and you're looking for a higher dose there. So in this backdrop, how do you see this product and commercial viability and potential out-licensing deal there?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [57]

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So I think from this study, right, we can just conclude that the drug worked, right, at the top dose, and we are waiting for the Part 2 data. And hopefully, the Part 2, we will need primary and secondary endpoints, so that should help the drug. But you're right. I mean it is what it is at this point.

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Operator [58]

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(Operator Instructions) We will take the next question is from the line of Vishal Manchanda from Nirmal Bang.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [59]

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On ISB 830, whether the secondary endpoints were not met even for the highest dose or the secondary endpoint was not met for the [comparable] effects of all the doses.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [60]

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So for the highest dose, the secondary endpoints, there was the numerical change in the secondary endpoints, even at the highest dose. However, it was not statistically significant.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [61]

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Okay, right. And next one on your R&D strength in FY '21. Would there be an absolute reduction since there are no large Phase II trials that are ongoing? So last year, you had a couple of Phase II trials.

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [62]

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Yes. So on an absolute number, it will be lower, yes.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [63]

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Okay. And some sense on how much lower, maybe like 5%, 10% number?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [64]

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No. [You're right], I wouldn't like to throw a number. But definitely, I mean, current year also, it is kind of lower than the last year. I mean next year also, it should be lower than the current year, yes.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [65]

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Right. And just on the debt, what part of your long-term debt is falling due in FY '21?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [66]

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So we have around INR 400-odd crores that is falling due in the next year, and we have tied up all these. So there is no issues on those.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [67]

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So these would be refinanced is what you mean?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [68]

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Yes, I'm saying refinanced, yes. But some of those could also be repaid based on how the thing goes along. So we definitely see some reduction in the debt because of reduction in CapEx, reduction in expenses, reduction in R&D. All this should go down to -- reduce our debt and also some of the noncore assets that we have divested. So all this should go down to reduce it. Wouldn't like to give a number, but it definitely will go down.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [69]

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Okay. And with Q1 finally now over, could you give a sense on what kind of a decline should we anticipate over last year?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [70]

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No, I wouldn't like to give a review and not -- break it out, yes.

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Operator [71]

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(Operator Instructions) Next question is from the line of Vikas Sharda from NTAsset Management.

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Vikas Sharda, NTAsset (Thailand) Co., Ltd - Senior Analyst [72]

--------------------------------------------------------------------------------

Yes. Could you spell out the increase in the intangibles for the year? I mean what are the key items there?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [73]

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So basically, these are in-licensing, what we do across the geographies. It's about a little in excess of INR 300 crores.

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Vikas Sharda, NTAsset (Thailand) Co., Ltd - Senior Analyst [74]

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And so primarily in Europe, is it?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [75]

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Europe and maybe a little bit in North America as well, yes.

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Operator [76]

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(Operator Instructions) Next question is from the line of Chirag Dagli from HDFC Mutual Fund.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [77]

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Sir, beyond GBR 830, what are the key data readouts for the rest of FY '21?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [78]

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So we have a lot of data coming out on Ichnos, right? We have 1342, which is clearly the most exciting asset in the portfolio, right, for multiple myeloma. We have some of the 1302 also. I mean there is a host of data readouts and inflection points in FY '21. And I think from here on, you'll see every year multiple inflection points in terms of Ichnos and some of the data coming out.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [79]

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Do you think 830 sets you back in terms of capital raising at Ichnos?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [80]

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Not at all. Not at all. See, Ichnos' main value proposition is its oncology franchise, bispecific, the technology. That's the main value proposition for Ichnos, right? And the focus for the company is more oncology than immunology going forward. And we have a number of assets in preclinical, which we believe is the next generation in oncology in multiple myeloma and various other indications.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [81]

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Okay, sir. And sir, can you split the capital work-in-progress? What are the key elements? We've been running a very high [CV] for the last 2, 3 years. What are the key points here? We were -- will you split it?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [82]

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So as you would see, this year itself would have come down. So now it's about INR 1,000 crores. So of which most of it, a large portion on that is basically Monroe, okay? I mean right now, we could only capitalize the OSD side. We still have the injectables and the nebulizers and a couple of other projects work-in-progress in India. So broadly, it's more of Monroe and a few small parts in India.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [83]

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And those, you'll be capitalizing all in FY '21, all of it?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [84]

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Not all of it, at least a good portion. I mean at least the injectables would get capitalized in. So you would see corresponding, like the current year, there will be a reduction again in the next year. It will come down.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [85]

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Understood. And again, going back to an earlier question. CapEx for your size of business, we are seeing much larger companies cut CapEx. What is it that you're spending -- going to spend the INR 700 crores on?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [86]

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So as I said already, we have reduced in the current year. We expect to reduce it further in the coming year also, okay? So as we said, we guided to a number of a little excess of INR 700 crores, so of which about INR 200 crores would be for in-licensing, whatever we do, as everybody does that also. So the balance would be towards routine CapEx, any growth CapEx that you would need. But the endeavor would always be to reduce it further as well.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [87]

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So the INR 500 crores that you will do on tangible assets does not have any large ticket item. It's just basically run-of-the-mill kind of [CapEx]?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [88]

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Most of them, yes. Even as we progress further on Monroe, we require a few additions here and there. Those also would come in, yes.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [89]

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So how are we thinking about encashing on or getting the return of the Monroe's pipeline? Because that's a large capital expenditure.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [90]

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So I think -- I mean, Chirag, this year, we've got Fulvestrant, which is commercialized. We've got Chlorzoxazone, we commercialized, right? Two products, one oral solid, one injectable. We anticipate a few more injectable approvals this year. We have a couple of good nebulizer launches coming up early next year, right? So I think overall, the viability of the site and the quality of the launches, which all come out of Monroe will continue to stay pretty exciting.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [91]

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Understood. And then last question, if I can, on working capital. What are your thoughts? We've seen some shrinkage. Is it sustainable? Can they improve?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [92]

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We'll keep it tight here, Chirag, to -- I mean number of days would be as much as it is. So with growth in business, obviously, there could be some little growth. But broadly, we'll try and keep it very tight.

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Operator [93]

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(Operator Instructions) Next question is from the line of Alankar Garude from Macquarie.

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Alankar Garude, Macquarie Research - Analyst [94]

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Glenn, when you say statistically significant improvement from the base line for ISB 830, what was the [ESI score] achieved at week [16]? I wanted to say more than 50 or less than 50. Any color on that?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [95]

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So Alankar, we can't give any more data. This is only part of the -- we will put the full data out once we get the Part 2, right, for both Part 1 and Part 2.

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Alankar Garude, Macquarie Research - Analyst [96]

--------------------------------------------------------------------------------

Okay. So that will be in the first half of FY '21 then?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [97]

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Correct.

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Alankar Garude, Macquarie Research - Analyst [98]

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Okay. So on that, Glenn, is it now safer to assume that we'll look to do any out-licensing deal for ISB 830 only after the Part 2 data comes out? Until then, basically, this -- the focus would be just on the fund raise of Ichnos?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [99]

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Not really. So partnerships is a big priority for Ichnos. And in the current year, we will target to try and close at least one partnership deal in FY '21.

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Alankar Garude, Macquarie Research - Analyst [100]

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Okay. And that will be 830 as well?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [101]

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Not necessarily, Alankar. There are -- we have multiple levers, right? I mean we've publicly stated that on the pain side, we are looking at partnering our pain assets. So 17536 remains very exciting Immunology is another area where we will do partnerships. And even oncology, there's a possibility that we may partner or co-commercialize, co-partnership with -- on some oncology assets. So there are multiple levers in Ichnos, which we'll use in FY '21.

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Alankar Garude, Macquarie Research - Analyst [102]

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Understood. And my second question, Glenn, is if you could elaborate on the on-the-ground situation in the domestic business. Broadly, how has been the impact on prescriptions over the last 3 months, MR interactions? Anything on that would be very helpful.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [103]

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I mean April and May were tough months, right, in the domestic market for obvious reasons, right? Sales reps not being able to call on doctors. I think most lockdowns in many places. So these were difficult months for the domestic market. I think June, we may see some recovery. But I think overall, the quarter as a whole, Q1 will be a tough quarter for the domestic market.

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Operator [104]

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Next question is from the line of Neha Manpuria from JPMorgan. (Operator Instructions)

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [105]

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My first question is on the U.S. business. Glenn, you mentioned that you have a good number of launches coming up. Is it fair to assume that most of these good launches would be from Monroe, basically the injectable launches that you indicated to the previous question?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [106]

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I think the bulk of it will be from Monroe, but there will be some from India also.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [107]

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And how many launches are you expecting based on your submissions to the FDA? How many should we expect this year?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [108]

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Typically, we would expect maybe about 10-odd launches this year.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [109]

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Understood. And my second question is on the cost. Now on the manpower cost, when you say you should see a reduction, is it as a percentage of sales, the number should decline? Or that number also should see an absolute reduction?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [110]

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No. You'll see that as a decline in the percentage of sales.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [111]

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Okay. Fair enough. And do we want to quantify that number?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [112]

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No, I wouldn't, Neha. I would not. As you can see, even in other expenses, we have done some decent work. We brought it down by a percentage or 2. So similarly, we'll try our best to bring it down, but we don't like to state a number.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [113]

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Understood. Understood. And my third question is on the net debt. Now that we'll have [proceeds] coming in from the Poland divestment and also the consumer business, is it fair to assume that some net debt reductions would be seen in the first half itself?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [114]

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Yes, Neha. You will see some reduction in the net debt in the first half. So basically, one is obviously some of these noncore asset divestments, plus, as we already stated, our R&D will prune down. Our expenses, we'll keep under control. We'll also take care of our CapEx as well. So all this should contribute to some reduction in the net debt on constant currency.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [115]

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Yes. And besides Ichnos stake sales or fundraising, whenever that was -- that is supposed to happen, is there any other noncore assets that we have in our portfolio for divestment or a large part of it is done with the 3 or 4 deals that we have announced?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [116]

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So there is one more asset, which we may do during the course of this year. I can't talk about it, but there is one more, which is possible.

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Operator [117]

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(Operator Instructions) Next question is from the line of Tushar Manudhane from Motilal Oswal.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [118]

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So just from the API business side, if you could just highlight U.S., Europe forming what percent of the API sales.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [119]

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I would say it's almost 70%, 80% of the total sales. And when I say U.S., I include, of course, generic players based in India who are shipping product to the U.S., if you know what I mean.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [120]

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Yes, I guess.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [121]

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U.S. [balance sheet].

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [122]

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And in terms of number of products or, let's say, top 10 or top 5 products [emerging in the year that you see]?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [123]

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It's very diversified. The whole portfolio is very diversified.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [124]

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So [you're then actually] -- would not be more than [5%, 6%] of sales?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [125]

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No. No.

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Operator [126]

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(Operator Instructions) The next question is from the line of Vikas Sharda from NTAsset Management.

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Vikas Sharda, NTAsset (Thailand) Co., Ltd - Senior Analyst [127]

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Yes. Mani, just to follow up the previous question. So your guidance of CapEx, which includes in-licensing is -- for this year to be up INR 700 crores to INR 800 crores. What would be the comparable number for FY '20?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [128]

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For FY '20, it was about INR 900 crores, right? That's what we have shown.

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Vikas Sharda, NTAsset (Thailand) Co., Ltd - Senior Analyst [129]

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So that is for tangible assets or including intangibles?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [130]

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Both, all put together.

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Vikas Sharda, NTAsset (Thailand) Co., Ltd - Senior Analyst [131]

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All right. Perfect. And on the cost side, to clarify your guidance, so R&D will be lower in absolute number, and the staff should be lower as a percentage of sales, right?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [132]

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That's right.

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Operator [133]

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(Operator Instructions) Next question is from the line of Damayanti Kerai from HSBC Securities.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [134]

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My question is on the U.S. business. So in your opening comment, you mentioned the operating environment remains challenging there. So can you please elaborate what will be key factors, which should help you in -- going from current level? And if you can talk a bit about your non-oral, solid initiative, say, injectables for nebulizers for the U.S. market. How do you see a pickup there? And how many products for such opportunities have been filed so far? So something on that front.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [135]

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I think the key driver for the U.S. will be the new product approvals, right, going forward. The pricing environment seems to be stabilizing, but the new product approvals are going to be the key driver. And for Glenmark, I think injectables, nebulizers, some of the other dosage forms should start contributing in the current year, which will help the business.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [136]

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Okay. And on the derma portfolio, are we still seeing a price pressure or it's stabilizing there also?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [137]

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On the down side, as you know, mupirocin, we have one more competitor. So there is some pricing pressure, which is still there. For the most of the portfolio, we've already gone through all our price erosions last year, the bulk of it.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [138]

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Okay. And for this year, you are hoping for 10 new launches for the U.S. market, right?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [139]

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Approximately, yes.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [140]

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Okay. And on the European side, if you can talk about some progress on the inhalers portfolio, like the product that you have launched in the market so far. How these products are scaling up there?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [141]

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So our European respiratory portfolio continues to do exceedingly well, right? So we have beclomethasone, Salmex, now. We've settled the litigation with GSK. We have a couple of other products, which are in the works. So I think it's a nice franchise in terms of European respiratory.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [142]

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Any guidelines you would like to provide, like how do you want to scale up that business from current level, say, 2 years from now?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [143]

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So we can't give any visibility beyond this.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [144]

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Okay. And my last question, on the supply side, I think you mentioned like we have seen now since normalizing on all geographies. So if you can talk more about supply from API perspective. I understand most of the players have spoken about China supplies being now normal. So how do you see that front? And any perspective for bringing in more in-house capability to rely -- sorry, to reduce dependence on the Chinese supplies?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [145]

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I think we've already done that over the last one year, where a lot of -- some of the intermediates and some of the manufacturing, we already bought back to India, and we continue to do that, right?

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Operator [146]

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(Operator Instructions) Next question is from the line of Aditya Khemka from DSP Mutual Fund.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [147]

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Yes. Glenn, on the U.S. business, what part of your current revenue comes from [derma] market?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [148]

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So between now is -- on the revenue side, it has come down substantially, right? It's probably about kind of 25%, 30%, I'm guessing.

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [149]

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Yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [150]

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Yes. What was the comparable number at the beginning of last year?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [151]

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About 40%, 45%.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [152]

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Okay. Understood. And if you could speak about the price erosion on your [mupirocin] portfolio. I know it's better -- I mean better than the derma portfolio. But how much better? Like minus 2%, minus 5%? Is it flat? How is your [return of investment]?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [153]

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Now it's pretty much stabilized at about 5%, 6%, I'm guessing.

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [154]

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Yes.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [155]

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And -- sorry.

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [156]

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No, continue.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [157]

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Okay. And on Monroe facility, Glenn, so the general notion is that the cost of manufacturing in U.S. is definitely higher than what we do in India. So you spoke about injectables being launched from both locations in India and U.S., the Monroe and [the branches here].

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [158]

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Yes. No, no. Aditya, we don't have injectables in India. We only have in the U.S.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [159]

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You only have it in the US. Okay. Got it. So [then about the other sort of blocking] in Monroe and the other sort of blocks you have in India, what would be the difference in profitability from the 2 plants and [lead factors] between the 2 locations?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [160]

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The cost will be a little higher, Aditya, in Monroe compared to India, but then see the broader opportunity lies in injectables and nebulizers as we go ahead. And we have some good approvals there. So as you would also know, strategically, it's a big advantage to have a plant in the U.S., considering whatever it is. So it's much helpful to have a plant there, and so we've put one there. And purely, we are not put an [OSD] plant and looking at the profitability there. It's also there along with that. There's a line for that. We can use and make whatever we want.

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Aditya Khemka, DSP Investment Managers Pvt. Ltd. - Assistant VP Healthcare [161]

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Right. Mani, what I was trying to understand is in India, generally, there will be gross asset turn for a plant with [a little bit] solid, let's say, is 2x, right? So if it's INR 100 crore worth plant, you can expect (inaudible) of revenue. If I were to look at a similar -- or for a plant in U.S., if the plant costs $100 million, what would be the asset turn on the plant?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [162]

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Yes. In India, it also will take you 2, 3 years before -- 3 years, 4 years before you reach twice that turnover. So I believe that in the long run, we should be somewhere there, yes. Leaving the cost aside, in terms of turnover, you should be much better off as you go on that. Can't put a number to that, but definitely, it will be much, much higher, yes.

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Operator [163]

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(Operator Instructions) We take the next question from the line of Chirag Dagli from HDFC Mutual Fund.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [164]

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In your opening remarks, you mentioned dermatology pricing at about 20% year-on-year. Is this for your portfolio for the market?

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [165]

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This is for the market.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [166]

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Okay. This is the market, okay. And has the ranitidine sort of completely come in the base for Q1?

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [167]

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Yes. In Q4, it has come in the base.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [168]

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Okay. So from here on, we should think about the business as growing on this base of [105 million]?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [169]

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So Chirag, I think in theory, yes. Unfortunately, because of COVID, obviously, there could be some ups and downs in terms of the base also. But I think on a full year basis, this is the base.

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Operator [170]

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(Operator Instructions) Next question is from the line of Tarang Agrawal from Old Bridge Capital.

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Tarang Agrawal, Old Bridge Capital Management Private Limited - Investment Analyst [171]

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I have the following 3 questions. One, what proportion of your R&D would be in employee costs?

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [172]

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So yes, employee cost also is part of the R&D. We'll try and get back to you, but it should be around 42%, 45%.

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [173]

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Yes. It should be about 42%, 45%, [you see].

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Tarang Agrawal, Old Bridge Capital Management Private Limited - Investment Analyst [174]

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Got it. In case of Fabi, is Glenmark manufacturing the entire value chain, that is in terms of API and the formulation?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [175]

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Yes, we are.

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Tarang Agrawal, Old Bridge Capital Management Private Limited - Investment Analyst [176]

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And exactly how difficult is it to manufacture this molecule in terms of [chemistry]?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [177]

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So it's an 8-step process. I don't know all the details, but we have all the capabilities in-house.

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Tarang Agrawal, Old Bridge Capital Management Private Limited - Investment Analyst [178]

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Okay. And the last question, what is your blended cost of debt, including currency exposure?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [179]

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So roughly, you can say it will be about 5% to 6%, depending on how the currency moves, yes. You have to take it over a 2-, 3-year period. You can't take it like one-off like current year, yes.

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Operator [180]

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We take the next question from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [181]

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Just wanted to understand for Ichnos, what is the total balance sheet size in terms of investment done so far? And what is the kind of fundraise you are planning for the year?

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Glenn Mario Saldanha, Glenmark Pharmaceuticals Limited - Chairman, MD & CEO [182]

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So over the years, we've been investing, as you can see like current year also, at INR 100 million. So last 2, 3 years, we have invested some decent amount of money there. So definitely...

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [183]

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The capital raise, Prakash, we can't give any visibility at this point, the amount, the quantum.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [184]

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Yes. But any color on balance sheet size, please?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [185]

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Broadly around last 1, 2 years, whatever are the numbers, so those would broadly be figuring out there.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [186]

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So VWash is something which we will book in Q1 since that you will put a press release, and Ichnos the second one. What are the other levers in terms of debt reduction going forward?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [187]

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I told you there are 3 more. One is reduction in CapEx, pruning down R&D spend, reduction in [MPC] cost as a percentage to turnover. So that's also the divestment of noncore. So all these should go to reduce...

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [188]

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Yes. I mean my question was more from the noncore side. I mean are we seeing more such assets...

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [189]

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There is one more, which we can't -- we are not saying right now, but it should happen sometime during this year.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [190]

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But it's not API that we had planned earlier?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [191]

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No, no, no. That's off.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [192]

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That's off those, yes?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [193]

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Yes, that's off.

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Operator [194]

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(Operator Instructions) We take the last question from the line of Neha Manpuria from JPMorgan.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [195]

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Yes. On the gross margins, obviously, the derma pricing pressures reflected in the gross margin erosion that we've seen year-on-year. But if I were to look at the fourth quarter level of, let's say, 64%, 64.5%, 65%, should we be able to maintain this level of gross margin next year, particularly since we have good launches coming from Monroe? How should we look at the gross margins?

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V. S. Mani, Glenmark Pharmaceuticals Limited - Global CFO & Executive Director [196]

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We should see it very close to what it is. And I mean fourth quarter may not be the most ideal one, and on a [year-over-year] is a better indicator always. So if you also look at our -- overall, it will be around 64.5%, 65%, somewhere close to that, yes.

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Operator [197]

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

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Jason D'souza, Glenmark Pharmaceuticals Limited - Senior VP & Head of Corporate Strategy [198]

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Thank you, moderator. Before we close the call, I'd just like to read the disclaimer. The information and statement and analysis made during this call describing company's objectives, projections and estimates are forward-looking statements and progressive within the meaning of applicable security laws and regulations. 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 by recipients as a substitute for the exercise of their own judgment. With this, we end Glenmark's Q4 Earnings Call. Thank you, everyone.

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Operator [199]

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