Glenmark plans to divest non-core global assets to reduce debt by Rs 800 cr

Innovation-focussed drug major Glenmark Pharmaceuticals has indicated that it is looking at divesting some of its non-core global assets, besides getting a minority investor in Glenmark Life Sciences, its bulk drug arm, in an attempt to reduce its net debt levels. The company looks to reduce Rs 700-800 crore of debt during the financial year. 

Mumbai-based Glenmark has also guided for lower research and development (R&D) spend during FY20. Its R&D spend in FY19 was Rs 1,350 crore. 

Its stock prices on Wednesday hit a seven-year low during intraday trade on the BSE, ending the day’s trade at Rs 383.9, down 8 per cent from previous close. The firm posted its first quarter results on Tuesday. Its consolidated net profit came in at Rs 109.28 crore for the first quarter ended June 30, 2019, versus Rs 232.99 crore in the same period of previous year.

The figures are not comparable as the last financial year included a one-time forex gain of Rs 138.21 crore. Barring Latin America, the company’s revenues from the other geographies grew during the first quarter, with the India business posting 13.41 per cent year-on-year growth.

Compiled by BS Research Bureau

In its investor presentation, Glenmark said that its objective for FY20 included a target revenue growth in the range of 10-15 per cent. It also added that the company's manpower costs (as percentage of sales) to trend lower compared to 2018-19. The firm has been one of the highest spenders in R&D among its peers in terms of percentage of sales (12-13 per cent). However, Glenmark said the total R&D spend would lower in FY20 (in absolute value) as compared to FY19. 

Source: Capitaline

Apart from rationalising costs, the company is also aiming to divest some of its non-core global assets as well as bring in a minority investor in to Glenmark Life Sciences. Moreover, Glenmark would look to conclude at least one partnership on the innovative or specialty assets this financial year. The company refused to divulge more details around the plan. 

Its net debt as on March 2019 stands at Rs 2,939 crore or 1.5 times its earnings before interest, tax, depreciation and amortization (Ebitda). Data from Capitaline shows Glenmark’s net debt saw a reduction of Rs 465 crore from Rs 3,404 crore in FY18. It sold its orthopaedic and pain-management business in India and Nepal to True North Enterprise in 2018, which helped the company to reduce debt by a couple of hundred crores. Its adjusted profit after tax (PAT) margins, too, showed signs of improvement in FY19 at 9.5 per cent from 8.8 per cent in the previous year. The company's net sales have clocked a 10 per cent compounded annual growth rate (CAGR) over the past five years. 

Earlier in January, Glenmark transferred its active pharmaceutical ingredients (API) business to a wholly-owned subsidiary Glenmark Life Sciences. It appointed Yasir Rawjee, a new chief executive officer, who headed the global API business for Mylan earlier. Glenmark’s API business has clocked a 15 per cent or so CAGR over the past five years and the company is looking to unlock value in the business. 

Then in February, Glenmark spun off its innovation R&D business under a new company that would be based out of New York and headed by former Gilead Sciences Executive Alessandro Riva. 

Glenmark plans to unlock value from its innovation business in the long run, and this may include bringing in investors or finding partners for its innovative pipeline. It aims to use the expertise of Riva to fast track its oncology programme. Currently, there is a provision for accelerated approval if a drug gets a breakthrough therapy designation.

Glenmark is also looking at out-licensing opportunities for its innovative molecules that are in different stages of development. It has had eight out-licensing deals, generating $250 million.

Glenmark’s spend on R&D has been mostly towards its innovation pipeline. It has eight assets that are in various stages of development - from new chemical entities to new biologic entities in the areas of oncology, auto-immune disorders and pain management. It has been looking at closing out-licensing deals for some of these assets, which have finished phase II of clinical trials. 

For example, for its GBR 310, used for respiratory or allergic diseases, Glenmark is in active discussions with potential partners and is targeting to conclude a deal before initiating phase III studies. Its big bet is on GBR 830, which is targeted at Atopic Dermatitis (an auto-immune disorder), and has a market potential of $3 billion, has entered phase 2b of trials that is expected to conclude by the second half of calendar year 2020.