Welcome to Aurobindo Pharma Q2 FY 2024 earnings call. Please note that all participant line will be in listen-only mode, and there will be an opportunity for you to ask questions after the opening remarks. Please note that this conference is being recorded. I now hand the conference over to management for opening remarks. Thank you, and over to you, Sir.
Good morning, and a warm welcome to our second quarter FY 2024 earnings call. I'm Shriniwas Dange from the investor relations team. We hope you have received Q2 FY 2024 financials and the press release that was sent out yesterday. These are also available on our website. I would now like to introduce my senior management team on the call with us, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines, and Peptide Businesses, and Director of Aurobindo Pharma Limited, Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited, Mr. Sanjeev Dani, COO and Head of Formulations, Aurobindo Pharma Limited, Mr. Swami Iyer, CEO, Aurobindo Pharma U.S.A., and Mr. S. Subramanian, CFO. We will begin the call with summary highlights from the management, followed by an interactive Q&A session.
Please note that some of the matters we will discuss today are forward-looking, including, and without limitations, statements relating to the implementation of strategic actions and other affirmations on our future business, business development, and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties, and other important factors may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, Sir.
Thank you, Shriniwas. Good morning, and a warm welcome to our Q2 FY 2024 earnings call. I'm extremely delighted to inform it has been yet another quarter with highest ever sales. The sales growth was seen across the market and businesses. This is further augmented by the highest EBITDA in the past 12 quarters. Now let me take you through the details of the results for the second quarter of FY 2024, declared by the company. For Q2, the company registered a revenue of INR 7,219 crore, with an increase of 25.8% year-on-year. The EBITDA before Forex and other income grew by 67.7% year-on-year, and by about 21.9% quarter-on-quarter to INR 1,403 crore.
EBITDA margin for the quarter was at 19.4%, against 16.8% for the last quarter. Net profit increased by 83.6% year-on-year, and by 31.7% quarter-on-quarter to INR 752 crore. In terms of the business breakdown, formulation business excluding Puerto Rico in Q2 FY 2024 witnessed a growth of 29% year-on-year to INR 5,968 crore, and contributed around 82.7% to the total revenue. API business contributed around 16.2% and clocked a revenue of INR 1,166 crore for the quarter, registering a growth of 20.3% on a year-on-year basis. The growth is mainly driven by higher volumes on account of the improved asset utilization and debottlenecking.
For the quarter, the revenue from U.S. formulations without Puerto Rico increased by 35.7% year-on-year to INR 3,385 crore. On a constant currency basis, U.S. revenue increased by 30.7% year-on-year to $409 million. Please note that these numbers are without gRevlimid, which has started to contribute during Q3 FY 2024. The growth was mainly driven by volume gains, stable demand, and new product launches. Price erosion has moderated and continues to be neutral. Our wide range of approved basket has helped us optimally manage the price erosion. We have received final approval for 15 ANDAs, and launched 19 products in Q2 FY 2024. We have filed 10 ANDAs during the quarter.
Revenue of Aurobindo Pharma U.S.A., the company marketing oral products in U.S.A., has increased by 23.3% year-on-year to $212 million in Q2 FY 2024. Revenue of Eugia Pharma Specialities Limited in the U.S. increased by 64.2% year-on-year. The year-on-year growth was driven by improved volumes of existing products and new product launches. This was coupled with a stable pricing scenario in this product, with a low single-digit price erosion. The total Eugia Specialities sales in U.S., including the specialty OSD, amounted to $91 million. During the quarter, the Eugia performance in various financial performance are better than the last quarter.
As informed by my colleague during the previous quarter earnings call, we are on track to achieve $560 million globally for the Eugia Specialities for FY 2024. We have a total of 169 injectable ANDA filings on 30th of September, out of which 133 received final approval and the remaining 36 are under review or have tentative approval. The company as on September 30th, 2023, has 817 ANDAs filed with the U.S. FDA on a cumulative basis, out of which 628 have final approval and 32 tentative approvals, including six ANDAs, which are tentatively approved under PEPFAR, and the remaining 157 ANDAs are under review. For the quarter, the European formulation clocked a revenue of INR 1,769 crore, an increase of 16.7% year-on-year growth.
In constant currency terms, Europe revenue was EUR 197 million, against EUR 189 million of last year Q2. For the quarter, growth market revenue increased by 24.7% year-on-year to INR 564 crore. In U.S. dollar terms, revenue grew to $68 million in Q2 from $58 million in Q1. For the quarter, ARV formulation business revenue increased by 52.1% year-on-year to INR 250 crore or $30 million. During the quarter, the raw material cost and price cost have improved, further aiding our gross margin contribution, which stood at INR 3,983 crore. Gross margin for the quarter was higher at 55.2% against 53.9% last quarter, mainly due to low material cost and favorable product business mix.
R&D expenditure stood at INR 300 crore during the quarter, which is 4.2% of the revenue. Previous quarter expenditure was high on account of clinical trial expenses for multiple projects. Capacity utilization has gone up well this quarter, driving the operating leverage. Consequently, EBITDA has improved to INR 1,403 crore, reflecting a margin of 19.4%. As on date, out of 18 U.S. FDA-regulated units, 15 units have classification of VAI, two units have received one observation each, and one unit is under warning letter. Net CapEx for the quarter is INR 154 million, which mainly includes INR 48 million towards acquisition of marketing authorization in Indonesia and $52.42 million towards PLI CapEx. Cumulative CapEx for Pen-G PLI project till September 30th amounts to $188 million.
The average USD/INR exchange rate is 82.68 in Q2, against 82.15. The average finance cost is 5.3%, mainly due to our having multiple currency loans. The business generated a free cash flow of $48 million during this quarter, before the PLI investment and the investments in new markets. Right. Our API business was transferred to the new subsidiary, Apitoria Pharma Private Limited, effective October 1st, 2023. Outlook. Our financial performance in Q2 was on the back of a positive business environment across our market, as well as our continued focus on driving growth and efficiency. We are confident of growing the growth trajectory across the top line and bottom line, fueled by new launches, cost efficiencies, healthy product pipeline, and new business opportunities. We remain committed to strong execution.
Our structural strength through the significant volumes and pricing are the underpinnings of the U.S. generic growth. Some of the key highlights for the coming quarters are summarized below. We launched gRevlimid in October 2023. In Q2, U.S. continued to improve, price erosion remained neutral. All raw material costs, logistics are continued. We remain optimistic in Q3 in terms of the margins. We are on track to achieve the 20%+ EBITDA margin target set internally for the year. We have the following plants under commissioning. China plant is fully installed and have received the EU GMP approval. It is expected to start revenue generation, I mean, end of Q4 or early Q1, FY 2025. The Pen-G plant and the 6- APA plant are under installation and are expected to be operational by from Q4, FY 2024 or Q1, FY 2025, Q4, I mean, end of Q4.
Further, we are conducting clinical studies for our biosimilar products, and the plant is expected to be commissioned by FY 2025 or early FY 2026. With the above actions, including commercialization of Pen-G and other projects over a period of time and stabilization of the manufacturing processes, the EBITDA margin is expected to improve considering the current market conditions. This margin be without considering the margin for biosimilars, etc. We are strongly focused on biosimilars and peptides, and these are significant levers for the future. Strategic partnerships like Merck, announced recently, will continue to fuel growth and margin for the future beyond FY 2025. My colleague, Satakarni, will provide more insight. We will continue to explore opportunities for any bolt-on acquisition aligned with our company strategy, especially acquisition of ANDAs and market authorization based on market opportunities, thereby reducing the gestation period. Indonesia opportunity is one such.
Sanjeev will talk about it. The CapEx of generic for the near to medium term, except towards the major plants as mentioned earlier, which will be more focused towards the debottlenecking some additional lines and maintenance, thereby increasing the manufacturing capacity and the efficiency. This is all for me, and, and my colleagues in the panel will give more clarity on any specific aspects in our Q&A session. We are happy to take your questions now. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question, may raise your hand from the participant tab on your screen. Participants are requested to use headphones or earphone while asking the question. Requesting everyone to refrain to two questions at a time. The first question is from Kunal Dhamesha.
Hi, good morning. Thank you for the opportunity, and congratulations on a good set of numbers. So first one on the LOI that we have signed with MSD, right? I just wanted to understand what's the kind of investment that we could be looking here, as well as, you know, what kind of capacities that we would be putting? And I mean, what is our right to win versus already established players, I mean, regionally or even globally, like Lonza, Samsung Bio? That would be the first question.
Hey, Kunal, this is Satakarni. So to answer your question, I'll provide you some context into it. The limited Letter of Intent that we signed with MSD entity allows us to create infrastructure for contract manufacturing of innovator biologics. Now, the market for the originator biologics right now is about $300 billion-$350 billion. With more biologics approvals and their success that we are seeing in treating debilitating diseases worldwide, the need for reliable manufacturing, improving lead time efficiencies, and reducing supply chain lengths is becoming more relevant than ever in this industry. Personally, I believe biologics contract manufacturing industry is growing immensely and is poised to grow to about $30 billion-$40 billion by 2030.
Now, if you look at the landscape of that Part B of your question, the landscape of competition, most of these innovator biologics or innovator companies, opt for contract manufacturing in the West. You have, contract manufacturers like the Lonza, like the Boehringer Ingelheim, like the Patheon, etc. In Asia, you have companies like the WuXi Biologics, the LG Life Sciences, and the Samsung . Now, the kind of capacities that we are installing for mammalian cell culture manufacturing are over 15 KL bioreactor scales. Now, this is way, way higher than the capacities that you see in India in contract manufacturing. So the ideation here is to essentially have a large mammalian cell culture drug substance manufacturing facility with a series of 15 KL bioreactors, and which is also complete with fill and finish capabilities.
Now, in contract manufacturing space, either you see drug substance manufacturing capabilities in biologics or the fill and finish capabilities, and it is very rare for a customer to come in and do both drug substance and the finished product in one site. So in this regard, I believe this is a unique proposition vis-a-vis the competition. It is being positioned to supply the product commercially, right from day one to the collaborators or the partners. So we are positioning this to compete with the CMOs, the large CMOs in Asia and outside over a period of time. But the objective and the intent is that.
Now, in terms of investments, as we have made a press release and disclosure to the exchanges, we have signed a limited Letter of Intent, and we are continuing to negotiate the final terms with the partner. We hope to conclude these negotiations by 31st of March 2024, which is when we will have a clear idea of the sort of investments that we are going to have in this plant. But right now we are going ahead with some investments. The final investments that we'll be making to complete this plant, there are a few items which are still to be sorted out between us, and I'll be able to provide a clear picture four to five months from now. I hope this answers your question.
Yes, Sir. This answers my question to a great extent. So we are saying that unique USP is drug substance plus drug product. At some point we are also.
And the scale.
And the scale.
Because if you look at the Indian contract manufacturing space, Kunal, I'm sure you have checked it. There is no one with the scale in biologics.
Right.
We are positioning it and trying to call in the. See, we need an anchor industry here, right? I mean, India needs a WuXi sort of a moment, to make sure that we have a contract manufacturing setup that can compete globally. And for us, I think we have done, to a great extent, the right steps. We have a good anchor who is a partner. And then we are investing in good scales and we are planning to get into commercial space right from the first supplies. So let's see how this unfolds. I am thoroughly excited by it. Aurobindo is excited by it.
It's now the time for execution of this project in the next two to two and a half years, and we'll keep you posted on the progress that we make with this, with this project.
Sure, Sir. Thank you. One for the Subbu, Sir. If I see gross debt has gone up, you know, by almost around $160 million, and I see that we have done, you know, some acquisition in Indonesia as well. So could you throw some light as to what that acquisition, how that fits into our number, and, where do we see the, gross debt number, by the year end?
See the net cash we are having, we had end of June was around $179 million, if I'm right, or say $180 million around. And today, we are having around $130 million net cash. Predominantly, that $50 million has gone for the acquisition finance, right? That is the thing. So in terms of the, cash generated from the business, et cetera, we have effectively plowed back into the PLI project, which is in the back end of the completion of the project. We need to complete the project by March. Before that, everything, will be expended, and, accruals of the existing accrual which is happening will be spent towards the PLI projects and other things.
So the gross debt predominantly will remain maybe between gross and net, gross and cash put together, probably by end of the year, we will be, anywhere between $0-$50 million. That's what I think. Because after that, once the PLI project has been commissioned, that is the biggest project, and, from next year, first quarter onwards, we'll start able to generate the profit. Once again, it will help us to take the net cash back to $200 million over a period of maybe in a year's time or maybe six to nine months' time. Okay?
Sure, sure. And yeah, yeah, and just one clarification: This 20% gross EBITDA margin guidance for FY 2024 includes gRevlimid contribution?
Absolutely. Today, we are having 18.2% is YTD gross I mean, YTD EBITDA margin.
Mm.
So, thanks to gRevlimid and the entire Eugia team, we should be able to make it 20% year as a whole. That's what we are working on.
Great. Great. Thank you, and all the best, and happy Diwali.
Thank you. Wish you the same.
Thank you. The next question is from Neha.
Yeah, thanks for taking my question. So on the U.S. business, you know, if I were to strip out, you know, the Puerto Rico, there seems to be very strong traction that we've seen in the oral solid business. So one, you know, is there any, you know, one-off sale which is there in this number, or should we assume the gRevlimid build happens on the existing base of U.S. sales? And what happened in oral solid? And secondly, we haven't seen any improvement in the injectable business quarter-over-quarter. You know, the generic injectable business in the U.S. So, you know, what's our expectation in the second half of that business? Is this the new base for injectable? Will we get any large approval? You know, color there would help.
Swami, and then.
Yeah, Subbu. Okay, so let me handle the oral solids. Thanks, Neha. We had earlier talked about in the early call, we talked about the introduction of new products, launching of the new products and our surge in volumes generally in the oral solids area. We have been having steady improvement in terms of volume growth, and we've been able to leverage our large manufacturing capabilities, and our demand has also been very steady. You know, we have a very broad portfolio, so we continue to grow and surge with volumes across our broad and diverse portfolio. And this is driven by new launches, plus the base business. We have also seen some positive outcome in new opportunities. Thus, I think we are fairly positioned for a steady performance in future.
There isn't any one-off in this number, right? That's the right way to.
No.
So we build on the existing base as we launch new products?
That's correct.
I think in the opening remarks, Sir mentioned that oral solid pricing was neutral for the quarter.
Yeah.
Okay. On the injectable business, if Yugandhar Sir can help.
Yeah, Yugandhar will take the question.
Hi, Neha. So yeah, you're right. In fact, injectable business from year-on-year, it is a significant growth, but quarter-on-quarter, it is single digit growth. And from a base level of overall injectables, we have gone from a $100 million run rate to $120+ million run rate, and we expect the same trend to continue. So it'll be a if you compare quarter one to quarter two, it's $122 million-$127 million at a global level, but if you compare year-on-year, it is 60+% growth. And this is, this is.
Yes, uh.
All these are without any one-offs.
Mm-hmm.
Obviously, like, we have launched gRevlimid in October, and we expect gRevlimid to continue to give us good revenues from quarter three and quarter four. But base business will continue to be in the range of $120 million+ globally.
Yes, Yugandhar, I understand the Eugia number and gRevlimid contribution. I'm talking about generic injectable business, right? Because, you know, we had guided to that base improving as we are launching more products, you know, pricing there is also improved. So the $81 million that you've quoted for the generic injectable business, not the Eugia number, can that improve as we go ahead, or is this the new base where we get some large product approval?
So at this juncture, it is generic injectable business has stabilized around $80 million per quarter for the U.S. market, and we expect that it can go up to $90 million. But as you see, like, we are getting significant number of approvals, and we expect that this run rate can go up from $80 million to $85 million and $90 million.
Understood. And Subbu, Sir, on the, you know, margin number that you've mentioned, I think that our R&D spend is trending below what we saw in the second half, you know, last year. So, should the R&D be at the current level, you know, for five years?
No.
That we've done in the first half?
See, our R&D spend, approximately in a quarter will be around INR 375 crore. This quarter is INR 300 crore, because, some of the major, clinical trial studies which has happened, has been completed in the month of June. Before the next phase, starts, which may take place starting, October, and some of the threshold milestones are being met in October, November only. So we'll be back to around anywhere between INR 350 crore-INR 400 crore in the third quarter.
Okay, got it. And your 20% gross margin guidance is after assuming the higher R&D?
Yeah. Yeah, obviously.
Okay. Yeah.
It is not guidance. That is our internal target, set ourselves, and we'll be working on that.
Got it. Thank you so much, Sir.
Thank you. The next question is from Surya Patra.
Hello. Yeah, thank you, Sir. Congratulations for the great set of numbers and the broad-based performance across segments and across line items. My first question is on the strong double-digit growth what we are witnessing in the U.S. oral solid business.
Yeah.
Whether this is a kind of a temporary momentum, as you mentioned, that you are witnessing volume growth as well as new product launches and all that. But is it a temporary momentum that you're witnessing, or it is kind of a sustainable run rate that we are now having? And can we maintain near double-digit growth consistently in the near future for the oral solid business, Sir?
I'll take this question, Subbu. Thanks, Surya. This, you know, there are a couple of questions that you asked, whether our growth is temporary. I think that's a question Neha had also asked. We don't have, i n a different way, we don't have a one-off in this. This is the actual demand, and this is actual sale. Based on that, these are the numbers that we achieved. And we have been talking about this in each of the earnings calls, that we expect growth in the U.S. market, because we were expecting approvals, and we did mention that we'll be launching 40 new products, I mean, 40 launches, 40 products.
Right.
Over the next 12 months. We are on track with that. So this is one, which is the new product launches. Apart from that, even in our existing business, we have been, you know, wherever we have, there are new opportunities, there have been some positive outcomes, and then this is positioned as well for the current quarter, and I believe that in future, too. But, you know, these are markets which you can never say, as more people come into the market, there could be competition, and then we have to meet this competition. We believe we are well positioned, because we have got that kind of manufacturing capability, and we have a very broad portfolio.
Somewhere you lose, somewhere you win, net, net, I think we are in a better shape, with a broader portfolio. That's all I would like to say.
Okay. Okay. Thank you, Sir. And, secondly, on the injectable front, basically the gRevlimid. Sir, you have launched the gRevlimid this quarter, but any sense at whether our volume share are likely to be kind of average of the existing players or and the pricings are similar to the existing players? Some sense, if you can give.
It is, frankly, like it is, we can't disclose in terms of the settlement terms.
Yeah.
I will leave that there, but the pricing seems to be almost similar.
Okay. And do you think that it will be a kind of streamlined revenue, I mean, even a distributed revenue stream for you, or it would be a kind of lumpy one, within the year?
No, in fact, we are planning to do. It is going, not going to be lumpy. It will be distributed across quarters throughout the settlement period.
Okay. And, in fact, my next question is about this PLI project. Now we are inching ahead towards the completion of the project, and we should be positioning ourselves also commercially. So, Subbu, Sir, if you can give some more clarity at this juncture, what you have about that? And whether you have mentioned in the opening remark that you will get the payback in the first year itself for the project.
I never said we'll get the payback in the first year.
Okay.
What I said is, we are likely to complete the entire project, and, we will commercialize on 1st April, as planned, and, we will be starting the project, phase by phase, the project, in a time where the project starting will take place from next week onwards.
Okay. Okay. In terms of utilization, volume, any, any sense that you can provide, Sir, because you would be possibly making arrangements for commercial launch and all that?
So, Surya, actually we have said in the past also, we are out of the 15,000-ton capacity which we are having, 45%-50% will be self-consumed, okay? And to that extent, we are better positioned to take up the project. And it is too early for us to talk about it. I mean, we'll talk about how we are going to do that, which are all the parties, how the commercials for external parties will take place, et cetera. We'll get a better clarity once the trial runs are completed successfully in the month of January and February for the fermentation process.
Okay. Okay. My last question is on the European markets. See, in the previous quarter, we had got a kind of very positive remark that the business which used to hover around 12-odd% kind of margin, it has already surpassed kind of mid-teens levels. So if you can update about the European business in terms of growth, growth outlook, where from that we are seeing this double-digit kind of growth, and what is the margin levels that we are currently at, and what outlook that we are having, let's say, for next year, driven by the injectable launches, what is in plan for it?
Yeah, hi, good morning, Surya. European business, on the top line has grown by 4.2% on constant currency, but if you discount the discontinued business in a couple of markets last year, then it will improve by about 1%. And, you know, the margins are growing faster than the top line. And, our focus is because we are lower than the average company's EBITDA, our focus mainly is on improving the margins. And, our EBITDA remains in the mid-teens percentage. So even though this quarter is, seasonality is lower in Europe.
Mm-hmm.
But still we have with the fixed cost that we have also, we have maintained the EBITDA margins. So that has been the, you know, performance. And obviously, the margins are growing in double digits. Top line growing double digit is not expected in a market which is growing 2%-3% per annum.
Mm-hmm.
We are fine with that, unless, you know, some different dynamics happen, like withdrawal of some products from a major competitor or otherwise, there will not be such opportunity. Going forward, I think that our focus is to grow profit EBITDA margin in double digits. That is what our main objective is.
Sir, but is it ever possible to achieve the company level margins for our European business, Sir?
Yeah, that is our desire and the goal. 20% is what we should be looking at, and the scale will allow that to happen. We are looking at, I mean, as you know, for biosimilar as well as oncology, the distribution platform is these European companies that we have. So we hope that with.
Okay.
Specialty product launch, we will further improve the top line.
Sure, Sir.
There are a lot of people in the queue. Vandit, a lot of people in the queue. I would suggest only two questions are allowed, because.
Yeah.
Many people are waiting.
Requesting Surya to call back in line.
Of course, Sir. Yes.
Thank you. The next question is from Tarang. Requesting everyone to please introduce themselves and limit to two questions at a time.
Hi, good morning. Couple of questions on Europe and Indonesia, and then probably one more on Eugia, particularly with respect to the Vizag plant coming in. Sanjeev Sir, and hopefully China coming through, how do you see this business evolving, say, from FY 2025 onwards? Because it does take care of a lot of bottlenecks that were there in the system.
Yes, that is true. Actually, our top line would have been better if we had more stocks available. That is true. So demand was higher than what the P&L will reflect. And we are very hopeful. In fact, the Unit 15 expansion is also getting over in December, January. Plus, we are sourcing, Europe is sourcing from Unit 3 and Unit 7. So actually there is some declogging, and expansion is happening in those areas also. So we think that our stock situation in oral solids should improve in next two to four months. And of course, China facility is back up, but we are taking one at a time, and the facility is already approved for European Union.
Injectables, Vizag will definitely allow us to supply some of the products which are already approved in Europe, and plus, the new filings will happen.
Okay. Yugandhar, Sir, you know, how are you seeing FY 2025 when you, you know, d o you see Vizag contributing meaningfully to the business, to the bottom line?
I don't think FY 2025 will have a meaningful impact, but I think it will be FY 2026.
Okay, and just the last on Indonesia, if you could give us a sense on the market, and how does this acquisition help you, and how should we see this business evolving?
Yeah. So, Tarang, I'll just answer very briefly, but if you have more question, I can answer that. So Indonesia, you know, is the fourth largest populous country, and it is economy is doing well and expected to do well, has a lot of other opportunities. And it is having a universal, you know, health insurance scheme. But the acquisition that we have made is the branded products of Pfizer, and they are sold in a private market through the medical representatives and the patients, they purchase from the pharmacies. And these are 16 products, and there are quite a well-known brand like Lipitor, Norvasc, Viagra, Lyrica, Neurontin, et cetera. And there are people strength is about 160. The top line is $31 million and with a very good margin.
We expect to close the acquisition in this quarter.
Okay, I'll join back the queue . Thank you.
Thank you. The next question is from Marcel Lewis.
Hello. Yeah, my question is that, currently, how many sites are under U.S. FDA restriction, and what's our, like, roadmap to get it through?
See, there is no units under restriction, there only.
Sorry, please speak loudly, Sir.
There is no restriction on any of the units. Only one unit is having a warning letter, but still we are supplying the material, and there are no major filings in that. And the two units have been having VAI, have been inspected, and one observation each has been given. We are yet to get the EIR. So there are no major issues for us in terms of the compliance, and we look forward to resolve all the issues in consultation with the FDA, and we look forward to resolve all the issues.
Okay. I'd like, regarding our power brands. So, like, what kind of growth prospect do we look in the current quarter from the power brands coming from the, like, special territory or about any new launches or about any 180 days, for example, exclusive display rights?
Swami?
Hold it, hold on.
Sorry. Shall I repeat?
Yeah.
We don't have specifically power brands, but if you can put it, Swami can reply.
So, but like, do we have any? Like, did you have any 180-day exclusivity, like, in the last quarter or, like, quarter to come by, like, do we like, are we going to have any 180-day exclusivity, like, selling right for any off-patent thing?
No. When you say exclusivity right, we will have something called CGT, right? So that, that's for about 180 days. So we'll have for that, you know, that kind of, approval will be there for maybe few products, three, four products. At least in the last few quarters we've been having it. Otherwise, brands-wise, we have some brands in the U.S. for the oncology division, branded injectables, and then we have a small, branded consumer division. That was a acquisition in the last two years. Other than that, we don't have anything with the brand. And, exclusivity-wise, at least from the U.S. side, there is nothing else other than some CGT items.
Sorry, what kind of turnover growth and a bit of growth do we see in the current quarter and the next quarter as compared to September two, September quarter?
Subbu?
See, Mr. Lewis, if you have seen, Swami has been telling you no, they, they are working on a [crosstalk].
Sir, your voice is not audible. Can you please speak loudly, or can you please, like, come closer to the microphone?
Yeah, we have been working on growing the business on a high single digit in U.S. continuously, and that is what has been said in the last earnings call, and we continue to maintain that. Having said that, it is not that we are looking, we are, restricting ourselves to single, high single digit growth. Wherever there is an opportunity, the sales team will be looking for more growth. Okay?
Okay, Sir. Thank you.
Thank you. Thank you. The next question is from Bino.
Hi. Good morning. Subbu, this Puerto Rico revenue, I, a s I understand, was reported earlier as part of U.S. sales. Is it, and why have you separated that out now? And has it got something to do with the restructuring you are doing in Puerto Rico?
Yeah, we have said, you know, in the last, you know, we are shutting down the operation to do the restructuring and modifying the plant and other things. We are planning to put CapEx in a couple of years' time. We are tearing down the operations and then bringing it to a close. That is the reason we don't, we don't want to club it, because this is a revenue which has been done, you know, as a contract manufacturing for the producers, Viatris. That is the reason. Now, having completed all our commitments, et cetera, we may not be doing that, hence we are showing separate.
Okay, so this particular sales will not be there from next quarter onwards?
That is what, yeah.
Okay.
Okay?
Just on two products in the U.S., mirabegron and macitentan, on which I believe you have first-to-file status. Are these products which we can expect in the next 12-18 months or so?
You know, I think this question you had raised last time also, and I did mention that, these are under settlement, and we don't expect a launch in the short term. When I say short term, anything below 12 months or 12 months is short term. We don't expect to launch it.
Understood. And Subbu, just a bookkeeping question. The depreciation number seems to have jumped, quite a bit from the previous few quarters. What has led to that, and is this a new level of depreciation we'll see going forward?
No, and see, we periodically do the impairment assessment in consultation with the statutory auditor, and the statutory auditors have advised us to make some impairment provision for some of the assets, so we have done the provision.
Okay, so is this level going to continue, or this was just for this one quarter?
It is like this, the base depreciation will be around INR 350 crore, and whatever is the extra is the impairment, and we'll continue to have INR 350 crore every quarter. And if there are any suggestions or advice given by the auditors, we'll stick on to it.
Understood. Thank you very much.
Thank you. The next question is from Nitin Agarwal.
Hi, thanks for taking my question. Sir, you know, my question is: we have about INR 6,000 crore of CWIP, which is there on the books as of September. Can you give us some sense on the phasing of the capitalization of this CWIP over the next over what period of time some of this will get capitalized?
The INR 6,000 crore is tantamount to around $700 million capital work in progress. Out of that, if you really see, the Pen-G project itself is nearing $185 million as on this date, which will get capitalized by March quarter, right?
Right.
Probably China also part of it, where if we are able to successfully start the operations by Q4, probably we may capitalize some of the portion of China. I mean, the number of lines which we will be capitalizing, using it will be capitalized like that. And the other projects, I don't think, like Vizag, you just said you will do it only in, FY 2025 end or FY 2026. And, biosimilar will be in FY 2026, right? And, then you have the Eugia manufacturing. I mean, Aurolife and the Eugia manufacturing in U.S. will be done in FY 2026. Part of it has been capitalized in Aurolife, that is the, Raleigh plant. Part of it has been capitalized, and the balance whatever, maybe it will be capitalized either by end FY 2025 or FY 2026. So that is the broad thing.
The main thing is around $ 185 million is for the Pen-G project, which will get capitalized by Q1, I mean, I'm sorry, Q4.
Okay, Sir. And Sir, secondly, on the, you know, the biologics CDMO business that we talked about, so what is the date of, you know, commissioning of this business, in terms of when do we start revenues coming through? And at what stage do we onboard clients barring MSD, in this business, in our assessment?
Nitin, so we expect the plant to be fully commissioned by 2026, early 2026. And we expect the revenue stream to flow in, in the calendar year 2026 or the fiscal year 2027. The steady state of supplies, commercial supplies, I expect these to begin to the potential partner from 2027 onwards. The reason being that when you do a technology transfer into a new plant, you need to carry out the validation batches, which results in the filing in multiple territories. And the procedure unfolds anywhere between six to 15 months, depending on the markets that the partner would intend to file. So I expect a steady supply, steady revenues to come in from 2027 onwards. So that's one part of your question.
What was the other part of your question?
Sir, at what stage do we, in your assessment, begin to onboard more clients, or this is intended to be a, you know, single client business option?
No, no, it is not intended to be a single client endeavor at all. But as you know, when you wanted to leapfrog into the CMO ecosystem that has evolved in the West and that has not evolved in India to the levels that we see in the West or in, and here the anchor is our first strategic partner, which you know. So we would like to develop a client base over a period of time. But having said that, I would like to experience this partnership for at least three years before I go to bigger clients or similar clients.
To answer your question, it is, it is not going to be a single client endeavor at all.
Okay. Thank you, guys, and best of luck.
Thank you.
Thank you. The next question is from Damayanti.
Hi, thank you for the opportunity. So you have seen strong performance across segments. So I have a question on two segments, specifically, API and ARV. So in ARV, have you seen improvement in funding situation that has helped this quarter number? And also API, is it a sustainable number or it's some kind of seasonal benefit which has come in for second quarter?
See, Damayanti, this question I have answered in the past also, we repeat the same thing. The yearly business, we are looking at a sales on a quarter of around $25 million, plus or minus $5 million, and we don't see there is a huge growth. In case if you're not able to supply the material in a particular quarter, right, then probably it may hit the next quarter. That's the reason why you are seeing $30 million. But ideally, you should take the yearly sales around $25 million, probably ±$5 million. That's the way you have to take it.
Okay. On the API part?
API part, there is a continuous improvement has been taking place since April, and last quarter we have done around INR 1,033 crore or something like that, and this quarter we have grown to INR 1,166 crore . Our capacity utilization has been very good, and apart from that, they are also able to supply to the captive consumption for the formulation business, because the formulation business has been requiring more APIs in view of the improved demand in U.S., which Swami has explained earlier. So API business continue to do well.
Okay. My second question is, can you update us on some of the complex or differentiated opportunities in the injectable part, specifically, the anti-diabetic portfolio, which will open up, say, in next few years?
You go on.
No, in fact, Damayanti, like, it is obviously our endeavor is to continue to file significant products, and we have a big pipeline of 100+ products, and it is also anti-diabetic is part of that. So we are working on it. As and when, like, we file and as and when we get approvals, we'll keep informing all the investors.
Most likely these would be, say, more of medium-term opportunity, right? Rather than something in short term.
Yeah, obviously, nothing in short term.
Okay. Thank you. That's helpful.
Thank you. The next question is from Parth Shah.
Hi, this is Nithya Balasubramanian from Bernstein. Can you give us an update on your peg and filgrastim filings in Europe?
Hello, Nithya. So as you know that we had a technicality last time that the audit got delayed into day 180, where we were not left with more than two weeks. So we had to, in consultation with CHMP, we had to withdraw and resubmit the files. Now, we had our meetings with CHMP, and we have started the process of resubmission. In fact, we have submitted one product already to CHMP. And the second product, we are waiting for the assignment of rapporteurs, and the sooner the rapporteurs get assigned, it will be submitted as well.
I expect all three biosimilars, pegylated filgrastim, filgrastim, and the important product, the breast cancer drug that we have, trastuzumab, for which we have announced a successful completion of phase III clinical outcome. All three will be aligned and filed before the end of January 2024. Already one product had been filed, and the other two will also be filed in the next four to six weeks' time or eight weeks' time.
It's a 250-odd day cycle, and therefore these are FY 2026 revenue opportunities, right?
It's roughly going to be day 210. We expect things to move faster because we don't have for filgrastim and pegfilgrastim, I expect the clock to really move faster in terms of the time required for us to respond because these files are going through the second time, and I don't foresee. In our discussions with CHMP, we don't foresee any time more than two or three weeks for us to respond to their queries. So the only thing pending on filgrastim and pegfilgrastim will be the audit which we expect, and CHMP is intending to audit at some time in Q1 next year, as soon as we file within three to four months. That's the hope. The trastuzumab, 210 may be Q4.
But the other two I expect to be faster because there are absolutely no queries on those files that we foresee coming through. Trastuzumab being the first filing in Europe, we expect queries and some time that we take to respond to the queries within the, within the clock stop. So yeah, to answer your question, trastuzumab 210 could be Q3 and Q4. The other two can be at least a quarter faster than trastuzumab.
Got it. On the CDMO business, would Merck's product be occupying both your 15 KL bioreactors?
Absolutely.
Okay, thank you. Is Merck's product currently pre-commercial, or is that an asset that's already in the market?
I am bound by my confidentiality norm, norms. I can't disclose it at this point of time, Nithya, unfortunately. But at an appropriate time, we will be making the disclosure.
Fair enough. Thank you so much.
Thank you. The next question is from Tushar Manudhane.
We have missed in the comment. So R&D for the quarter was lower at 4% of sales, or even at absolute basis, INR 300 crore. So how much R&D spend would be there in second half, FY 2024 and FY 2025?
So, Sir, as I said, we estimate around INR 700 crore-INR 750 crore, yeah, INR 750 crore-INR 800 crore in the second half. That's what we are estimating. But having said that, it depends upon how the things pan out in the next two quarters in terms of the clinical trial, CRO, CRO guys meeting the milestones.
Got it. That's it from me. Thank you.
Thank you. The next question is from Ritesh.
We can move on.
Uh, hi.
Hello? Hello. Am I audible?
Yes.
Can you guide on your organic CapEx, given first half you have already done $83 million kind of a number?
Yeah, this year, probably, I mean, specifically, we don't give the organic CapEx because it includes there are a lot of strategic, CapEx also. Many projects, nearly seven, eight plants are under installation, through commissioning. But if you ask what, for the existing plants, what is the capacity, et cetera, which we may be needing it, probably we have been doing it around $ 125 million-$ 150 million. Any new green plant, et cetera, I mean, greenfield plant, et cetera, is not included in that. But we are also embarking, as I said in my earlier one, we are also embarking on getting the, trying to acquire some market authorizations, et cetera, which is ANDAs market authorization, which is over and above this.
Yeah, which is why my, where my second question is, last year you spent $74 million in acquiring such for new business or business acquisitions or new markets. This year you have already, first half, you have done $95 million. So would this number be there continuing for FY 2025, FY 2026? Like you will keep doing this kind of, $80 million-$100 million annually to enter into new markets, new business, other over and above your organic CapEx?
If you really see, Ritesh, we have already new market includes China market, which we are already get clearly explained what is happening there. Indonesia is another market where we are not present, right? So we don't see any new major market, but we do not know if some good opportunity comes where it makes a lot of sense, either new market or new product, new business model, et cetera, which we can always look into that. So long it is allowing us to grow significantly over a period of time.
Okay. And this existing plant CapEx of $120 million-$150 million, that would sustain in FY 2025, FY 2026? Or there's a possibility of coming down?
May not be that much. As I explained, no, we are not embarking on any new major greenfield plant, right? We are trying to add new lines, debottlenecking. Like that, we are trying to do that by which we are trying to reduce the gestation period. If you put a greenfield, you know, whatever we say, no, it takes around five years, four to five years' time. So what we are trying to do is, we are trying to add new lines in the existing plant, provided we have adequate space. So that is the way we are going to put it. And also, China also, we are having, going to have around a significant capacity, right? That also will help us to serve various, U.S. market, Europe market.
May not be U.S. immediately, maybe over a period of time, later far, but immediately Europe and China will be doing that. And later, if the capacity is still available, we will take it to U.S. market. And Sanjeev has clearly explained, he's expanding the Unit 15, by which he will take out some of the capacity which has been occupied by Europe in Unit 3 and 7, which will be shifted to Unit 15, by which more capacity available for the U.S. market. So we have been continuously, depending upon the growth which Swami has been demonstrating, which we have been trying to increase the capacity to meet the demand. As on date, our capacity utilization for formulation is significantly high.
My question intent was, is there possibility of this coming down dramatically in FY 2025, FY 2026 if you.
Obviously, obviously will come because, the major CapEx which is taking place is on account of the greenfield, like, Eugia or Vizag, then we have the thing. But strategic CapEx will be there always. Strategic CapEx will always be there, $100 million-$150 million will be there. Like biosimilars, Satakarni has explained neatly what is going to happen in CMO, et cetera. These are all the CapEx which is meant for the future. But for the existing generic business, we will be adding lines, we may not be doing any major CapEx.
Okay, okay. That's it from my side. Thank you.
Thank you. The next question is from Ranjit.
Can we move to the next question?
Ayush.
Yeah, sure. The next question is from Ayush Bansari.
Hi, can you hear me?
Yes.
Yes.
Thank you. Thank you for taking the question. I just wanted to ask, what are the corporate governance initiatives that the company has taken up after the incidents which happened last year? Because even after the good performances that the company has kept up over the last three, four quarters, the valuation still seems to be a bit depressed compared to the other peer companies.
What is your question, Ayush?
So from last year, are there any corporate governance initiatives that the company has taken?
So, the corporate governance, we have inducted the new directors, et cetera. We have got CEOs in all the verticals, which is given effectively, and we have inducted Dr. Satakarni , who is a specialist chemistry, I mean, specialist in chemistry. He has got into the Board, by which Board is getting more information and the knowledge. So we have been doing continuously. This is a continuous process, no?
Okay. Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the investor relations team. The transcript of this call will be uploaded on our website, www.aurobindo.com, in due course. Thank you, and have a great day.
On behalf of Aurobindo Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar. Thank you.