Glenmark Pharmaceuticals shareholders may get higher dividend in FY21

Monetisation of API, innovative business units planned this year

Glenmark Pharmaceuticals is set to reward its shareholders after monetisation of its innovative and bulk drug business units, in a year, the company said. 

The stock has plunged in recent months, despite efforts by the pharma major to pare net debt. The share price has declined 52 per cent on the BSE since January.
 

In February, the board gave an in-principle nod to hive off its innovation business into a new company in the US — a move expected to bring down debt, de-risk its investments, and improve focus on its base business. 
 

The innovation subsidiary (yet to be named) will house both biologic and conventional molecules, the research and development centres, along with 400 employees. It is expected to start operations as an independent entity in during FY20, and may engage strategic or financial investors to fund the research programme. 
 

Speaking at the annual general meeting, Glenn Saldanha, chairman and managing director, said: "As the new company goes out and raises capital, we will increase the dividend." 
 

Analysts believe the reinvestment of cash flows from the base business in the high-risk innovation programme is a drag on shareholder value. Glenmark spends close to $120 million annually on research and development (R&D). 
 

"Even as many pharmaceutical players have cut down on R&D spend, we continue to spend 12-13 per cent of our revenues on R&D. The new company (innovation business) will look at monetisation by way of raising capital or through partnerships," said Saldanha. 
 

Glenmark’s spend on R&D has mostly been on 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.  
 

Its net debt stood at around Rs 3,500 crore as of FY19. 
 

The drugmaker has appointed Alessandro Riva, a Gilead and Novartis veteran, as chief executive officer (CEO) of the innovation firm that will be based out of New Jersey. At present, there is a provision for getting accelerated approval if a drug gets a breakthrough therapy designation. 
 

Glenmark is also considering out-licensing opportunities for its innovative molecules that are in different stages of development. It has had eight out-licensing deals so far (prior to FY12), generating around $250 million. However, in the last seven years, it has not met with much success. 
 

In January, Glenmark transferred its active pharmaceutical ingredients (API) business to a wholly-owned subsidiary — Glenmark Life Sciences. It appointed Yasir Rawjee as CEO, who had helmed the global API business for Mylan earlier. Glenmark’s API business has clocked close to 15 per cent CAGR over the past five years. 
 

It is planning to launch more respiratory products in Europe, where it is clocking robust growth. Revenue from Europe grew over 23 per cent in FY19. Saldanha said: "We expect our European business to grow 10-15 per cent this financial year. Our revenue in the Rest of the World (RoW) markets increased by 16 per cent to Rs 1,276 crore. RoW markets like Russia and Africa remain a good opportunity, and we expect them to continue to grow 15-20 per cent."