Good morning, welcome to Aurobindo Pharma Q4 FY 2023 earnings call. Please note that all participants' lines will be on 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 the management for opening remarks. Thank you, and over to you.
Thank you, Vandit. Good morning, a warm welcome to our fourth quarter FY 2023 earnings call. I'm Deepti Thakur from the investor relations team. We hope you have received the quarter four FY 2023 financials and the press release that was sent out on Saturday. These are also available on our website. I would like to introduce my senior management team today on the call with us, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide Businesses, Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialties Limited, Mr. Sanjeev Dani, CEO and Head Formulation, Aurobindo Pharma Limited, Mr. Swami Iyer, CEO, Aurobindo Pharma USA, Mr. S. Subramaniam, 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 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 development and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligations to publicly revise any forward-looking statements to reflect on future events or circumstances. With that, I will hand over the call to Mr. S. Subramaniam for the highlights. Over to you, sir.
Thank you, Deepti. Good morning, and welcome to all of you for joining this earnings call. This year has been very challenging due to various factors, namely challenging macro environment and competitive industry landscape, et cetera. Despite these issues, we have delivered a good result in this fiscal year. We'll now discuss the results for the fourth quarter of fiscal year FY 2022, 2023, declared by the company. For Q4, the company registered a revenue of INR 6,473 crores, with an increase of 11.4% year-on-year. The EBITDA before forex and other income grew by 2.8% year-on-year and by 5% quarter-on-quarter to INR 1,002.2 crores. EBITDA margin for the quarter was at 15.5%, and for the FY 2023 was 15.1%.
Net profit increased by 3% quarter-on-quarter to INR 505.9 crores. EBITDA margin before RMD is 21.8% for the quarter, against 21.4% of the last quarter. In terms of the business breakdown, formulation business in Q4 FY 2023 witnessed a growth of 11.4% year-on-year to INR 5,455 crores and contributed around 84.3% of the total revenue. API business contributed around 15.7% and clocked a revenue of INR 1,017 crore for the quarter, registering a growth of 11.4% on a year-on-year basis, led by improved demand for some of our key products. For the quarter, the revenue from the U.S. formulation increased by 11.6% year-on-year to INR 3,045 crores.
On a constant currency basis, U.S. revenue increased by 2% year-on-year basis to $370 million. We have received final approval of 26 ANDAs and launched 10 products during the quarter under review. We have filed 12 ANDAs, including three injectable, during the quarter. Revenue for Aurobindo Pharma USA, the company making oral products in U.S.A., has increased by 1% quarter-on-quarter. Revenue of U.S. injectable business in U.S. increased by 3% year-on-year and 18% quarter-on-quarter to $71.9 million in Q4 FY 2023. The total Eugia specialty sales in U.S., including the specialty OSD, amounted to $81 million during the quarter. During the quarter, the Eugia performance in various financial parameters are better than that of last quarter.
We had a total 171 injectable ANDA filed as on March 31, 2023, out of which 126 have been received in final approval and remaining 45 are under review or have tentative approval. The company, as on March 31, 2023, has 774 ANDAs filed with the U.S. FDA on a cumulative basis, out of which 565 have final approval and 34 having tentative approval, including eight ANDAs, which are tentatively approved under PEPFAR and balance 175 ANDAs are under review. For the quarter, U.S. formulation clocked a revenues of INR 1,660 crores, an increase of 7.7% year-on-year growth. In constant currency terms, Europe business clocked a revenue of EUR 188 million, against EUR 183 million of last year for Q4.
For the quarter, growth market revenue increased by 18.6% quarter-on-quarter and witnessing a growth of 51.2% year-on-year to INR 592 crores. This includes PLI incentive of INR 48 crores against INR 8 crores of the last quarter due to improved sales of eligible products during the quarter. For the quarter, ARV formulation business clocked a revenue of INR 159.3 crores year as a whole. We reached an amount of $119 million, against an estimate of $120 million. R&D expenditure is at INR 411.7 crore during the quarter, which is 6.3% of the revenue. This is similar to last quarter R&D expenditure of INR 415 crores.
The average raw material cost remained flat, marginal decrease during the quarter, and the freight cost also decreased, reduced during the quarter. Net CapEx for the quarter is around $105 million, of which CapEx for existing business is $62 million, including $14 million for ANDA purchases. PLI CapEx of $31 million, and CapEx for new business for new markets amounts to $12 million. The PLI cumulative CapEx till date, till March 2023, amounts to $121 million. The average FX rate was 82.1936 in Q4 FY 2023, against 82.10 of Q3 FY 2023. The average finance cost for FY 2023 was at 4%, mainly due to availing multiple currency loans.
We have clocked an income out from investment of INR 74 crore for the quarter, and cumulatively it is INR 148 crore for the year. This is accounted in other income. This needs to be read in conjunction along with the finance charges. The business generated a free cash flow of $61 million during the quarter. As a result of strong cash flow generated during the quarter, the net cash position, including investments at the end of March 2023, was at $194 million. The gross debt is $591.7 million. Our endeavor is to bring down the debt going forward. The high cash was due to some good collections in the month of March 2023 by the U.S. business. Board Composition.
During the quarter, we have inducted one new Independent Director in the parent company and one new Independent Director in Apitoria Pharma, the API arm of the company. With this, the total number of Independent Directors in the company is now five out of total 10 directors. We have appointed CEO for the API arm, Apitoria. We will be appointing one more new independent director in Apitoria. Facility status. Out of the total eight U.S. FDA-regulated API unit, six units have VAI status. One unit recently got inspected. Earlier, it was in VAI status, and the balance one is under warning letter. We are putting our efforts to get it clear. All the total 11 U.S. FDA-approved FDA units are under VAI status as on date. Major plans under commissioning. We have three plans, including one Eugia plant under commissioning in U.S.
Of this, part of the Raleigh facility was commissioned in March 2023. The balance is expected to get commissioned by FY 2023 end or during FY 2025. The China plant is fully installed and is expected to be commissioned in Q1 FY 2025. We are in the process of manufacturing the exhibit batches. The Lyfius plant, which will produce the Pen-G, is expected to be commissioned by 2023. It is our endeavor to complete ahead of the schedule. We are conducting clinical research study phase III for biosimilar product, and the biosimilar plant is expected to commission by FY 2023. So far, including the R&D revenue expenditure in biosimilars, we have invested more than INR 1,900 crores on biosimilars till date. Outlook.
While our financial performance FY 2023 indicates our resilience to withstand economic adversity on the back of our strong fundamentals, we remain focused on continuing our growth, and we are cautiously optimistic on the business growth going forward. We are committed to deliver good performance in the coming quarters while adhering to the regulatory and quality standards. Some of the key focus area for the coming quarters are summarized as below. PLI implementation will be as per schedule, as informed earlier. Post-PLI implementation by March 2024, most of the major CapEx will be done. To improve the capacity utilization across the plants, we may be doing some debottlenecking on the maintenance gap. We will continue to acquire ANDAs, stroke, market authorizations to leverage the existing capacity and our resources. Our differentiated business, biosimilar, is expected to contribute to margin enhancement from FY 2025.
New pipeline of approvals will include new, high-margin, new generation product categories like the peptide biosimilars, et cetera. Pricing have stabilized in the U.S., and there is price normalcy in the market in U.S. Both the RM cost and logistic cost are reduced during the quarter, overall resulting in emanating a better business situation for the coming year. Eugia continues to do well and achieve various financial parameters, which are better than those of the last quarter. We expect to continue this. We expect to see some good cash generation from FY 2027 onwards, after capitalizing all the assets which have been enumerated above. This is all from our end, my colleagues will give a better clarity more on it in our Q&A session. We are happy to take your questions now. Thank you.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask questions may raise your hand from the Participant tab on your screen. Participants are requested to use headphones or earphones while asking a question. The first question is from Damayanti Kerai.
Hi, good morning, everyone. Thank you for the opportunity. My first question is on your generic injectable portfolio. For the U.S., we have been seeing sales hovering in somewhere $70 million-$75 million a quarter. Similarly, branded oncology sales is hovering somewhere around $30 million in last few quarters. How do you see these injectable sales picking up ahead, given the approval rate is very healthy? If you can say, like, you'll be achieving your guidance provided earlier, with this kind of run rate, or you see pick up ahead?
Hi, hi, Damayanti. Yeah, in fact, like I stick to my earlier guidance of double-digit growth, as you rightly said, we are doing as per our plan, and we will be continuing our journey with a double-digit growth. On back of healthy approvals, we feel that it is achievable. That's on the generic injectable side. In case, Swami, if you want to address on branded injectables.
Sure. Damayanti, this is Swami Iyer from U.S. On the branded injectables, that's Acrotech. You know, this is an asset that we acquired from Spectrum, we have a larger plan here to market other products, too. We are in the process of I mean, we have got into business development deals with couple of other companies, this could take some time. Right now we are looking at maintaining this kind of revenue line at about $25 million-$30 million a quarter.
Okay. You already have some products which you have identified, which will be part of a portfolio ahead, and then you might see pick up from current run rate?
Yes, but that could take little time. Yeah.
Okay. If you can also update on status of Vizag plant, which was, I think, mainly intended for European supplies.
Damayanti, like, we started doing the exit batches in Vizag plant as per plan. The first filing is expected to be in September 2023. It is not only for European markets and emerging markets, and we have identified multiple products even for U.S. filing. Because this plant is big, and we have a lot of scope for expansion, we wanted to use this as a global plant rather than a specific market plant. It's on track, and as per the project timelines, because it's almost all the lines are up and running, and we started doing the products.
Okay, thank you. My last question is, if you can comment on your R&D spend ahead, how do you see moving it ahead in coming quarters?
Damayanti, the R&D spend for the year was something like for the quarter was something like 6.3%, and the year was around 5.7%. We will be having around something like 6% to 6.5% anywhere, but more than that, I would say we'll be incurring around INR 400 crore per quarter is very likely, irrespective of how the turnover is moving.
INR 400 crore, R&D spend?
Per quarter.
Okay. Okay, sir. Thank you. I'll get back in the queue.
Thank you. The next question is from Kunal Dhamesha.
Hi, good morning. Thank you for taking my question. First on the Pen-G PLI scheme, would you provide some update as to, you know, how cost competitive we would be versus, let's say, the Chinese players? What kind of scenarios you would have assumed while going for this plant in terms of pricing? Right now, it kind of remains high, but do we expect it to, you know, become more competitive once you enter the market?
Kunal, I think this question has been raised in the last quarter, wherein I clearly said we'll be able to give a picture only in the month of November. There is no point in guessing a price which is going to happen in the month of April 2024, right, now.
Mm-hmm.
Certainly, we believe with our financial metrics, et cetera, we believe we are very cost competitive, and we will be able to withstand any of the price erosion also. We will see it only at that time. Let's not count chicken before it hatches.
Sure. You know, on the U.S. price erosion, you said in your opening remark it has kind of stabilized, you know, normalcy has returned. Would you be able to quantify what kind of price erosion we saw in the quarter, you know, on a sequential basis or a year-on-year basis? That would be helpful.
Yeah. Hi, hi, Kunal. On the U.S. price erosion, if you ask for year-on-year basis, you know, first three quarters, we had fair amount of price erosion, and then, the fourth quarter was somewhat stable, and we see the continuity. We are right now doing. I think we are pretty stable, I would say. If you talk about year-on-year, yes, it was, first three quarters were fairly high, and I don't want to hazard a guess exactly how it is, because, we had some changes in the fourth quarters, and then we had requested some changes. Overall, net-net, I would think we are in a better position today. That's what I would like to say, and today we are pretty stable.
Let's say, the trend that you saw in quarter four, would that have continued in April and May as well?
Yes.
Sure. Perfect. I have more question. I'll join back to you.
Sure.
Thank you. The next question is from Neha Manpuria.
Thanks for taking my question. Swami, sir, on the U.S. oral solid business, you know, despite the fact that pricing erosion has normalized, you know, stabilized, as you mentioned, we have seen launches. Data shows that Aurobindo is gaining share in a lot of the disrupted products. We haven't seen the commensurate increase in revenue in oral solids. You know, could you give us some color there? Do we expect more of this to reflect going forward? You know, because it's pretty much flat. I think it is up 1% quarter-on-quarter.
Sure. Yeah. Yes, Neha. The, you know, the fourth quarter was. That's when we got some of the awards, and we have ramped up some of the supplies. I think we would see more of this starting this Q1, and I think the impact would be more in the Q2's time frame. The, you know, the quick, even if we got the awards, we do your quick turnaround, it'd be a little difficult for us for the kind of product that we got. We did see some surge in terms of sales, but it's not, you know, it's not completely reflected, I would say, based on the award that we received.
Do you think the bulk of the benefit of the incremental volumes that we have been awarded will be seen in the second quarter, not even in the first quarter?
First quarter, we would have some.
Okay.
Then it would continue from there. That's what I would say.
Okay.
If you recall, in the last two earnings call also, we mentioned that we're also launching some of the newer products. The new products should also contribute to our top line...
Mm.
in the next 12 months.
Got it. Sir, overall, on the market environment in the U.S., you know, do you think, you know, this, the, these NBO opportunities, as we call them, is more short term, or do you see this being, you know, slightly more part of the base business and not necessarily a one-time opportunity? How would you see the environment?
you know, the one-time opportunities are one-time opportunities that I will keep apart from the NBOs. NBOs have been pretty decent, I would not assume that these are short term. I would assume that these are medium term. I think the customers are looking for stable supplies, we have been able to provide them that.
Got it. Got it. Thank you so much. Subbu, on the gross margins, you know, despite the fact that price erosion has stabilized, you know, the ARV sales are lower, injectable sales are higher, we didn't see a gross margin improvement in the quarter, you know, and we had the PLI benefit. Was there any factor impacting gross margins?
We had certain one-off items which has reflected, reduced the top-line item because of some clawback taxes in some of the European countries, which has really reduced the overall gross margin, sales as well as the gross margin. This is also one of the reasons. From a EBITA margin perspective also, we have taken some one-off write-off around INR 20 crores. That also taken. Overall, if you really see around INR 45 crores-INR 50 crores is the thing, one-off items we have taken during the quarter.
Sorry, sir, I missed the number. INR 40 crores-INR 45 crores?
INR 45 crores-INR 50 crores is the one-off items we have taken during the quarter.
This is both on the cost and the revenue?
Yeah, both on the cost and on the revenue, maybe in equal proportion, not 30/20 type.
Okay, got it. Thank you so much, sir.
Thank you. The next question is from Prakash Agarwal.
Yeah. Hi, good morning. Just question on outlook, actually. I mean, last two years, obviously, I mean, a lot has happened. Growth has come down, gross margins have come down, and so have the EBITDA margins. Multiple factors, so U.S. pricing pressure, some U.S. FDA issues, you know. How do you think the, you know, next couple of years will shape up? What are the big building blocks? You know, if you can share which segment in your differentiated R&D assets will start coming out first, and how do you see the margin trajectory?
I'll give the broad direction, and my colleagues will be able to explain in the detail. Swami has already explained sales is expected to move in the first quarter, followed by second quarter also. If you really first quarter and second quarter, there is the sales are going to increase, right? If you go into third quarter, fourth quarter, I, Mr. Yugandhar has already said in the last meeting itself, that we will be launching Revlimid, which is also going to contribute to that. Next year, if you really see, starting April onwards, this is Q3 and Q4, and probably Q4, some biosimilar product maybe get launched. Next year, by April quarter onwards, you can start seeing the Pen-G started delivering, right? That is also there.
Plus, we are also started seeing the biosimilar some more, I mean, it's a full year impact started coming rather than some one or two quarters, I mean, one quarter impact of this year. I would request Yugandhar and other team colleagues to explain in detail.
I think, Subbu, you covered it, most of the things. From a generic injectables, which is under the Eugia, we will continue to grow, and our endeavor is to grow, double digit. We will keep Revlimid as one-off, and that we will count as over and above the base business for the next three years.
The base business with the slew of launches and filings, we expect quarter on quarter, we should have at least five approvals and five launches. We just wanted to do 20 launches a year going forward every year, and that should provide us that double-digit growth. We will keep Revlimid as a one-off opportunity.
You're saying base business, U.S., you're expecting double-digit growth?
That's right.
Fiscal 2024 and 2025 on.
That's right.
On a large base.
That's right. That is for the Eugia business, which is the generic injectable business. Yeah.
The U.S. generic business, I was asking.
That's right. That is for the injectables, and the specialty products.
Which is $81 million for this quarter, which I explained in the script.
Yeah, yeah. No, I just little color on the U.S. generic business, ex injectable will also help, sir.
Sure. Swami, would you like to take it?
Yeah, I'm just going to do that. Prakash, we talked about new products coming, being commercialized during the current fiscal. All that I can say is that we would have steady growth. We anticipate about 40 ANDAs to be commercialized during the year. That's a fairly conservative number, and that would add decent amount of dollars to the top line. I think we would consistently, at least for the next few quarters, we would see this kind of product being commercialized from after the recent approvals that we are expected to receive.
You know, approvals, we are still getting a lot, sir. I'm just trying to understand little quantitative idea also, that with this high base, can we expect high single digit or at least mid-single digit growth on the U.S. generic base business? Or given the erosion and the state, the U.S. generic market is, that will be difficult, or with the R&D pipeline, we can manage?
All that I can say is, prices are stabilized. We are able to ramp up volume. There's a good demand. On a overall basis, I think we should see a pretty decent demand. I don't want to put a number to it, but I think it will be, fairly decent. It could be probably in the, higher single digits. That's something we expect. We don't, we are very optimistic about it.
Okay, thank you. Subbu, sir, for you on the margins, if you could give some qualitative-?
I think, before that, if I request Satakarni to talk about his launches, et cetera, because that is also going to make an impact on the overall margin profile improving in the coming years.
Sure.
Over to Satakarni.
Yeah. Hi, hi, Prakash. Continuing our journey to build on a differentiated portfolio, one of the key elements to us to achieve margin enhancement in future, and also sustainable growth, is bringing in biosimilars into the regulated market. We are fairly confident that towards the end of this year, we will have at least one product in the market. Next year, we see at least two to three products in the European market, with our first filing happening in the U.S. market. I really see the inflection point for biosimilars to start from 2025, 2026. The amount of effort that had gone into conducting these clinical trials for biosimilars, we have a robust portfolio of biosimilars.
As we talk now, we have two product filings which were already made with European Medicines Agency. We had three product filings made with the MHRA in the U.K., and we have two product filings with Health Canada. I expect the regulatory procedures and the procedural advances to conclude any time between Q2 of this year to the Q2 of the next year. That will bring in a series of launches in regulated markets.
Staying on the same subject, and continuing my guidance for the last three quarters in the earnings calls to now, I'm happy to state that we have completed the treatment phase of trial in six monthly metastatic breast cancer subjects of a Trastuzumab biosimilar, a biosimilar Herceptin, where our test product was tested for efficacy, safety, and immunogenicity versus the innovator's Herceptin. After the completion of treatment phase and after initial read of the raw data, we are confident that the study, which is a three-year-long study, has achieved similar objective response rate to that of the innovator's product, in women with positive, HER2- positive metastatic breast cancer. We are confident that the filing process in emerging markets will begin in June, July. The first filing will happen in India.
We will file with European Medicines Agency by September, and we will file with the U.S. FDA by quarter four. We are prioritizing the filing of this very important life-saving biologic biosimilar in India, with an aspiration to launch it in our country this year. We believe that more women will benefit from this life-saving oncology therapy on the back of such extensive clinical data in 690 patients, usually not heard of in submissions that are done domestically. We believe this will give the oncologists and the patients an access to a good and reliable cancer therapy option for treating our women, mothers and sisters. This is my update on Trastuzumab.
Likewise, as the discussions on differentiated portfolio, as the filing process for our oncology biosimilar across markets is slated to begin, we are showing signs of advancing our differentiated portfolio to various autoimmune diseases. Autoimmune diseases is a huge market in the U.S. I am pleased to state that a full-fledged global phase III clinical trial of a biosimilar to Xolair, we are announcing the name of the biosimilar for the first time. The phase III clinical trial of biosimilar to Xolair, which is Omalizumab, has begun as our trial sites are being readied now, and our subjects recruitment is ongoing. The patent expires in U.S. in November 2025. We have followed the due process of submitting the clinical trial plan and application for our biosimilar candidate.
We hope that this phase III clinical trial, which is a comparative study on the efficacy, pharmacokinetics, pharmacodynamics, safety, and immunogenicity, which is being conducted in 600 subjects with chronic spontaneous urticaria. The reason why I bring this up is to tie in this discussion with what Swami is saying. Acrotech Biopharma, which is our brand business in the U.S., is investing in dermatology. If you look at our biosimilars and how we are positioning them in immunology and autoimmune diseases, this adds to our commercial front end and the business that we are establishing and nurturing in the U.S. with a long-term view to increase margins and to sustain our margins in this business.
We believe that this biosimilar presents a sizable opportunity in a potential market of $4 billion with very limited biosimilars competition. It is our intent to file this product in 2025, just in time, maybe two quarters ahead of the formulation patent that expires in U.S. in 2025. Further, to stay on the differentiated portfolio, we are strengthening our immunology pipeline competitiveness in the autoimmune therapy segment by kicking off a phase I three-arm PK/PD safety study of another biosimilar aimed at treating osteoporosis. This is also immunology biosimilar. This will also fit very well into the portfolio in both our U.S. and European commercial front end teams.
A phase III clinical trial application for this product is being submitted as we talk this week to European Medicines Agency, and we are gearing up to initiate a phase III trial by Q3 of this year. Likewise, a third immunology biosimilar, again, a strong focus of the entire company on differentiated portfolio, has already begun a phase III clinical trial, where we completed around 40% of the recruitment already. We plan to file this product in the next fiscal year in India and emerging markets to start with. To answer your question, overall, as a company and as biosimilars, we are nurturing our R&D so that we can sustain our business in the future, especially with an eye on the regulated markets, Europe and U.S., Prakash. I hope this answers.
This is very elaborate. Thank you so much, and some color on the margins will also help.
It will be too early to.
The overall company level, sir.
Subbu would answer that. Subbu?
The overall company level, because if you have really seen last quarter, we ended with around 15.5. Certainly, we will not be limping, but certainly we will go in an incremental fashion. Probably, I don't think a step jump approach will happen this year, right? Incrementally, probably we may be mid between, I mean, we may not touch 20, but could be midpoint in this year, is my feeling.
Okay. Okay, thank you very much, and all the best.
Thank you. The next question is from Shyam Srinivasan.
Good morning, and thank you for taking my question. Just the first one on the Eugia, what is the full year number now for the revenue? I think $81 million per quarter, also has some global part, which is non-U.S., I assume, and that is for the quarter. What's the full year number? Did I miss it in terms of the guidance that we are talking about double digit growth? The $650 million-$700 million, would that come with the generic Revlimid on top? Is that how? Sorry, if you can help us reconcile with the past on how we were thinking about this business.
Even though, like, we don't give specific numbers on Eugia, I'll just give you a proper guidance in terms of we closed around 3,300 crores of top line. This is roughly around $411 million this year. This is a flat growth compared to FY 2022, we didn't decline. Okay? In fact, in a challenging environment, we could able to grow a single digit. Going forward, I'm guiding based on the current pipeline, what we have, that we will continue on this 3,300 crores of base. We will continue our journey of double digit growth. On top of it, Revlimid will get added. That's how it is here.
Got it, Mr. Yugandhar. Just help us understand, on the base business, you're talking about launches, like you said, 20 launches, I think, in your previous comment.
That's right.
Just want to understand how is the... I think we have got a lot of questions on the oral solid side of things on price erosion, but what is happening on generic injectables? Anything that you can comment? What explains the flattish growth, right? I'm still assuming OSD is a very small percentage of your overall thing and largely injectable. Just help us understand pricing environment on the generic injectable side.
Yeah, like first two quarters of FY 2023 were really, like, challenging. I think, the first time when the market opened up post-COVID, in the Q1, Q2 of last financial year, which is FY 2023, we had almost a double-digit price decline, which was unseen, unheard in a injectable and a specialty business. From quarter three onwards, things have stabilized, and right now, the competitive environment is, I think, let me put it this way, that we are in a good footing with respect to the competitive environment is concerned. Last two quarters, the pricing has been almost, decline has been almost negligible.
That is what we feel that going forward. Also, one more thing which is helping us is in terms of, like unfortunately, the drug shortages in U.S. are at the highest level in its history.
Mm-hmm.
All these things, and on top of it, a slew of launches will help us grow the business. As guided earlier, our gross margins in new year should be between 60%-70%, and EBITDA levels will be around 25%-35%. It's a broad range. Okay, one quarter we might be here, one quarter we might be there, depending on how launches will shape up.
Got it, sir. Just a follow-up on Revlimid. You know, is there anything that you have disclosed in terms of the timeline for the launch? How large it is, will likely be for you in terms of... Because it's a crowded space, you know. Is there still elbow room for everyone? Six, seven, eight players now, right? Just want to understand your thoughts on generic Revlimid.
In generic Revlimid, we already secured the final approval. As per the settlement, we'll be launching in October, we cannot disclose the percentage of settlement, so I will leave it there. It won't be a significant part of my revenue. It will be like a pretty good bottom line for my business. as it is, as you know, that like this is going to be limited share for multiple players, so we expect the pricing to be stable, and it doesn't matter before January 2026, whoever a number of launches happen, might happen, only thing is we don't expect because each player is, will be restricted by the percentage of share what we settled for, and we expect the pricing to be stable up to January 2026.
Got it, sir. Last question, is on growth markets. I think we have seen a good bump up there, 18%-19% year, quarter-on-quarter growth. What is driving some of this growth? Is it sustainable? I think 9% now is domestic formulations in India, so some qualitative color on that business. Thank you.
I have already said in the opening remarks itself, Shyam. This quarter, we have got a good PLI, I mean, incentive for around INR 48 crore against last INR 48 crore. Basically, the incentive is depending upon the eligible product, which has been approved by the ministry, and this quarter, the sales of the eligible products have picked up a lot, and because of that, we got this, INR 40 crore and which has helped to take it. Still, we are in line with the overall number of around, what would be the number agreed with the ministry, and it is the number which has been reckoned, achieved.
Subbu sir, you classify the PLI income as domestic formula? Is that? Sorry, I.
Because it is only for the Indian subsidiary. They don't give it achieved by the Indian subsidiary, they don't give it for the U.S. or any other foreign countries. Sales achieved in other foreign countries, only for domestic.
Got it, sir. Last follow-up, sorry, if I may quickly. When you're talking about mid-teens margin, are we talking exit quarter or full year fiscal 2024? Thank you.
You are asking it is the?
No, no, I'm asking you, sir. When you talk about between 15.5% and 20%, you talked about the margins being that. Are we looking at it on a quarterly exit basis? Are we looking at full year fiscal 2024 EBITDA margins? Thank you.
I think, I have taken it only a quarterly basis because, we do not know at this stage, as Yugandhar clearly pointed out, the Revlimid will happen only in the quarter Q3, which will have a significant addition to the bottom line. At this stage, I'm not talking about, I'm saying moving on, excluding the Revlimid, et cetera, we should be in midpoint between current and 20%. That's what I feel at this stage. We will previsit next quarter.
Yeah.
Every quarter, we will previsit.
Thank you. The next question is from Tarang.
Hi, good morning. I have three questions. One, Subbu sir, you, in your opening commentary, you suggested that The free cash generation for the business would perhaps begin from FY 2027. I was just curious in terms of.
I said FY 2025, not FY 2027, okay?
Oh, my bad.
Yeah, yeah.
My bad.
Yeah, Pen-G plan will be completed by March 2024, by the time we would have incurred most of the CapEx. There is no big project which we are thinking of as on date, of this size or magnitude to incur in the couple of years, right? The Pen-G should give good cash generation, right? Because of various factors, I feel there will be a good cash generation starting next year onwards.
I understand. I misheard it for FY 2027. Apologies. Dr. Satakarni, on biosimilars and peptides, one, if you could give us a sense on the status of regulatory inspections, and second, some sense on what's happening on peptides.
Tarang, hi. On the regulatory inspections, I gave you guidance in the last earnings call that we are. The two filings that we had with EMEA, we are expecting a regulatory inspection, which had happened, and we are waiting for a formal report of the pre-commercial audit or the inspection from EMEA. We believe this will become part of the day 80 clock stop procedure and response from EMEA, so we are expecting that. With the delay in the audit, let me also give you a guidance because we have submitted this file last year. We are close to exhausting the time on the procedural clock stop that EMEA or CHMP allows us. We have a clock stop until June 20th.
Once we receive the draft observations of 180 GMP inspection from the agency, we will have to work with CHMP on the way forward, and how can we provide any additional data if they require within the time frame allowed by the clock stop for the procedure. This is the guidance on EMEA inspection. With Health Canada, I told you last time that we are expecting a Health Canada inspection. The review process of our products had begun, so we were expecting an on-site evaluation as communicated by Health Canada. Because of the paucity of the auditors, the auditors have pushed the dates back. We are expecting now the Health Canada audit inspection to coincide with the review procedure, which is around November. That's my expectation, but again, I am preempting.
I need to talk with Health Canada over a period of next two, three months, engage with them as the review procedure unfolds, to see when I can have the inspection from Health Canada. With MHRA, unfortunately, with all the three filings that we had, for example, with one of our monoclonal antibody filing, we have concluded day 150, which is at the point of approval, and we still did not get any inspection date from MHRA. We are following it up with them. This is about the update on the inspections. What was your second question, Tarang?
Status on peptides.
On the peptides, as I told you, we are now focusing on two majority segments in peptides API development, which is essentially oncology peptides and antidiabetology peptides. Last October, if I did not give this guidance earlier, we have filed a Drug Master File for liraglutide, which is now active, the DMF. We are hoping to file a DMF for another GLP-1 analog by the end of this year also. I'm reasonably pleased with how the peptides business is shaping up. It is also contributing to, say, Eugia injectables. I think we have two ANDAs approved this year. Yugandhar may correct it, may give you the right picture.
We are... I'm convinced about how we are working on peptides and the focus that we have on diabetology and oncology segments in peptides, Tarang.
That's helpful. Thank you. The third question to Swami Sir. Sir, just wanted to get a sense of today about 774 ANDAs filed. I mean, in your view, what will be Aurobindo's coverage for the generic market in the U.S.? Just to get a sense, because my sense is, by volumes, you're probably the largest dispenser. I just wanted to get a sense on how big the uncovered market is for you, and how should we see this number moving forward over the next two, three years?
If you talk about approvals, if you talk about the potential, yes, there is a fair amount of uncovered market. Today, we are covered the market to the extent we can, and we are launching new products. The priorities change depending on the profitability of the product and then how quickly we can do this product. I think there is a lot of scope for coverage. That's all I would like to say at this point. Even today, we have number of approvals that we are in the process of launching. Month after month, we have launches. It would be at this point, I can only tell you that we have a fair amount of market that we have not covered yet.
Would it be more than 50%, the uncovered market?
I won't hazard a guess, but, you know, on the overall term, we, you know, we are the largest. I would not put such a high percentage. All that I can tell you is, we have uncovered market. Today, we are a large player. Obviously, being a large player, you cannot compound the growth with huge percentage, but I think we have a fair amount of market to recover.
Okay, that's helpful. Thank you for that.
I would request everyone to ask only one question, because quite a lot of people are waiting. Restrict to one question, please.
Thank you. Thanks, sir. The next question is from Nitin Agarwal.
Hi, thanks for taking my question. Sir, on the, if you can provide any more color on our plans and outlook for the Chinese business, given the fact that you said the plant should be in place by next year sometime?
Yeah, we'll be doing initially, I think, as we said, we have more or less installed the plant, and we have been doing the exhibit batches. We have filed around five products from the China plant. We'll be starting with the European dispatcher, because it takes quite a lot of time to get the approval, regulatory approval from the Chinese regulators. We'll be starting with the European manufacturing since starting first quarter FY 2025, that is, April next year, followed with probably by third quarter or fourth quarter for the Chinese market. This is our plan for the Chinese plant.
Sir, on the products for that you're looking to file from this facility, are these injectables? These are inhalers or what is the-
No, as of now we are doing only the OSDs.
Okay. Okay. Thanks.
Thank you. The next question is from Bino.
Hi, good morning and good evening. Just a clarification on the CapEx. On PLI, so far you have spent about $120 million. How much of that would be for the Pen-G project?
Entirely for the Pen-G plant, no?
It's entirely Pen-G plant.
Yeah, yeah.
Okay, how much more will be done in this year for Pen-G?
I think this year means the FY 2024, if I'm right. Correct?
Correct, correct.
As I said, no, most of the CapEx will be done by FY 2024. Pen-G project, as on date, it is estimated around 250%-265% ± contingencies, right. That much of amount will be spent by end of the year. Another $130 million would be spent this year. $130 million-$140 million will be spent this year.
Understood. Okay. Any significant CapEx planned in biosimilars for this year?
No, there is. See, already the plan for biosimilar is in place already. As we informed to the exchange sometime back in October, we want to put one unit which we have already informed, but the timing-wise, certainly we'll decide when to start that plan. That may not be a very big plan, like INR 2,000 crores, and it must be around INR 300, INR 400 crores only, that is.
Understood. Okay. All put together, what would be the total CapEx for FY 2024?
See, as I said, no, the maintenance CapEx will be very less in terms, it will be around $125 million, $120 million to $130 million, the existing plans CapEx. Any new products, new market, et cetera, which is going to give a return in terms of the new turnover, new profits, everything, that will be depending upon what we close it by end of the year. That could be anywhere, maybe, I mean, I'm just guessing, anywhere between $75, $100, like that.
Understood.
We'll see, but I think it's too early, because our objective is to complete the existing projects, right?
Right. Right. Perfect. Perfect. Sounds good. Thank you. Thanks a lot.
Thank you. The next question is from Surya.
Thanks for the opportunity, sir. My specific question about, you know, this thing is that, it's about the Eugia, is that, after doing all this integration and all, what all means, what kind of benefit of integration that you have started witnessing, and how is that going to help you incrementally going ahead? That is one. Just if you can also clarify a bit on the Pen-G. See, having seen the kind of changed price dynamic, price as well as demand dynamic in recent past, how has that changed your potential as well as outlook for the project? Starting from which month or which quarter or which period that you are expecting contribution from the Pen-G project?
Sir, as I said, it is expected from Q1 20, I mean, FY 2025, that is April 24 onwards, we need to start generating the revenue from that project. How fast the ramp-up can take place, et cetera, we'll be able to tell only in the November or maybe in February quarter, right? It is in the process of installation. The installation is likely to complete only by October, November, then after that we will do some pilot batches and other thing to ensure the product is coming out successfully, right?
Yeah.
That is the thing. In terms of the demand forecast, et cetera, we don't need to guess for a product which is going to be launched down the line one year right now itself. Maybe we'll address it maybe at a later date. Okay?
Mm-hmm. Okay. Sure, sir. Regards, the integration benefits of this Eugia, putting all the assets, relevant assets into that, and the integration advantage, what is that you are trying to see going ahead, if you can talk about Yugandhar?
As he said in the stock exchange, it's a notification. It's the purpose of it to bring focused management to improve the performance, which Yugandhar has been explaining very nicely, what is his plan, double-digit growth and other things. Those are all the thing, also to have a control on the quality standards.
Mm-hmm.
That is the thing. Probably, Yugandhar, you may like to add more?
No.
Basically, sir, I just wanted to have a sense about the contribution at the margin level or the profitability level, because many of the asset would be also seeing developmental cost and all that, which is currently and may not be compensated by incremental revenue. That is one. Even the two injectable facility, what we have been building up, one in U.S., one in India, when are they likely to contribute incrementally? Say, this segment, how should it really be contributing to the overall profit or margin improvement of the company?
I think, Surya, the answer has already been given by Yugandhar very clearly. He said very clearly, he will grow the business, base business, existing business, by double digit.
Okay.
He also said development will be over in addition to that.
Right.
He said there is a significant addition in the profit will come from development. He said that.
Yes.
He also said that what are all the new projects on Vizag plant, et cetera, when he is going to launch. I think, all the questions which you have been asked, being answered already, very, in an informal way, Yugandhar has given you all answers. What is the EBITDA margin, et cetera, band also he has given, right?
Sir, specifically, if you can just indicate, let's say, what is the kind of a cash burn that we are seeing because of the kind of initial activities, developmental activities, one, and when incrementally this U.S. plant is likely to see the revenue, because that is currently possibly in the filing stage, right?
Yeah, that Yugandhar can answer it.
Yeah, it is in the filing stage. We already did first filing. We have plans to do around five, six filings from that plant during this fiscal. In case if FDA triggers the audit, it'll get commercialized in FY 2025.
Okay.
in case if the FDA delays the audit, we don't know. We, our anticipation at this point is that, in FY 2025, this, plant should get commercialized.
Okay. The India plant is a FY 2026 opportunity, sir? Injectable.
It is also will be FY 2025, not FY 2026. See, I have four commercial plants under Eugia.
Mm-hmm.
Two new plants. One plant is in Vizag, and one plant is in U.S. These are the two non-commercial plants.
Mm-hmm.
We expect both these two new plants to be delivering some revenue starting from FY 2025.
Okay. Yeah. Sure, sir.
Okay.
Yeah.
Thank you.
Next, yeah.
Thank you. The next question is from Vishal Manchanda.
He's not there. Mr. Punit Pujara.
Hello, am I audible? This is Vishal Manchanda.
Yeah.
Hi. My question is, have we witnessed any failure to supply penalties during the year?
Swami?
Failure to supply is normal commercial practice that we the suppliers generally get into failure to supply. As you know, there are several types. One is the service level penalty, other one is actual failure to supply. All this comes under the broad gamut of failure to supply. We do that have as a practice, and we do incur that.
Can you kind of share whether it was higher YoY or it was not, the trend is broadly similar on a YoY basis?
You see, it's too early to say how exactly it has panned out, because first and foremost, for the last year, there are many customers who did not, who gave some kind of leeway because it was post-COVID and there were other issues. It's not comparable, that's number one. Number two, if there's a failure to supply, it doesn't mean that you're actually going to pay that kind of money, because you are going to contest it. He will give you a failure to supply on a product that you don't supply to him at all, which you supplied two years back or, you know. These are all questions. It gets normally settled after a point of time. Yes, there could be failure to supply, and this is a normal commercial practice.
Our idea is to try and control it to the extent we can.
Got it. You provide for it in your numbers?
Yes, absolutely.
Got it.
Next, please.
Just one more.
There are another three people waiting, Mr. Vishal, if you don't mind.
Okay. Thank you. Thank you.
Thank you. The next question is from Punit Pujara.
Yeah, hi. Thanks for taking my question. My questions are for Dr. Satakarni. Now, I understand you are developing a global biosimilars portfolio, but my questions are just for the U.S. part of it. First question is, do you think it makes sense to incur additional cost for, say, interchangeability? Not for the currently filed products, but the products that you'll file later on. That's first. Second, what are your thoughts around, you know, the regulatory framework around the interchangeability converging with what we have in the European market? These are my questions.
Punit, it's a good question. It actually requires a huge discussion because the regulators, the policymakers, and the industry is engaged in a major debate across the regulated markets. I will try and give my perspective and Aurobindo's perspective on interchangeability. One, I think going by what is happening in other regulated markets, if you see what I have predicted before, interchangeability as a scientific norm doesn't make any sense for biosimilars, okay? It has been my policy that I would not invest in any interchangeability clinical trials for the time being, because I believe, as Europe and MHRA has shown the way, going forward, maybe towards the end of this decade, interchangeability as a concept for clinical, additional clinical trial will be nullified even at the U.S. FDA.
This is my personal opinion and the opinion on which CuraTeQ designs its clinical trial. What is interchangeability's relevance in biosimilars? There is a good debate, there is a bad debate around it. The good debate is that in chronic segment, when I say chronic segment, where a patient users has to use a drug for a longer period of time. Say, for example, in diabetes, you are using an insulin, the patient should be armed with an interchangeable data so that he can confidently switch from one drug to another drug. By definition, we don't agree it as scientists, because by definition, biosimilar is, in all means, is similar to an innovative biologic.
Again, after proving residual uncertainty, after proving that there is no residual uncertainty, and proving totality of evidence through a stage-wise development, that is, doing preclinical trials, analytical biosimilarity, phase I PK/PD, and phase III safety, efficacy, and immunogenicity trials, why is there an additional need to show interchangeability? Is the question that industry is asking. This has been widely accepted already, and you are seeing signs of it in countries like Canada, Europe, et cetera. I think U.S. will also follow suit. In a nutshell, at Aurobindo and CuraTeQ, I don't do any interchangeability trials for my biosimilars. I don't think it will significantly impact me in the market. Maybe in the first two, three years, because I have to always create a new customer base, and I will not be able to switch the old customers into my product.
Towards the end of this decade, I believe interchangeability as a definition, interchangeability as a concept, will die down from a requirement of doing an additional clinical trial. I hope that answers.
That's very helpful. Thanks. I'll join back with you.
Thank you.
Thank you. The next question is from Alankar.
Yeah, hi. Thank you for the opportunity. Just one question. Couple of quarters back, you had spoken about the possibility of some kind of buyback or higher dividend. Just wanted to check, are we still thinking on those lines? Any update on that please?
This is a good question. It is being we are discussing that, the timing-wise, it has not been decided because we are embarking on this Pen-G project accelerated this. Also we were looking into the possibility of moving the cash, which is available in various parts of the country, various parts of the globe. Especially Europe, we are sitting on around $200 million cash, the exchange rates are not very conducive to bring it at this stage. We are working on all these things so that we will be able to ensure that we are optimizing the entire thing. Probably we may do it at some point of time, when board only will know.
Got it, sir. Thank you.
Give me a second, this is Satakarni. I would go back to Punit and leave a punchline. Punit, by definition, we at Aurobindo CuraTeQ believe all biosimilars should be interchangeable. I will leave with that thought. Thank you.
As there are no further questions from the participants, I now hand the conference over to the management for the 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. 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.