Welcome to Aurobindo Pharma Q3 FY 2023 earnings call. Please note that all participants 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.
Thank you, Vandit. Good morning and a warm welcome to our third quarter FY 2023 earnings call. I am Deepti Thakur from the investor relations team. We hope you have received the quarter three FY 2023 financials and the press release that was sent out yesterday. These are also available on our website. I would like to introduce my senior management team today on the call with us. They're presented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide Businesses, Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited, Mr. Sanjeev Dani, CEO and Head Formulations, Aurobindo Pharma Limited, Mr. Swami Iyer, CEO, Aurobindo Pharma USA, 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 limitation, 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 developments and result to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect any future events or circumstances. With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, sir.
Good morning, everyone. I wish you all a very happy and prosperous New Year. We are here to discuss the results for the third quarter of the fiscal year FY 2023 declared by the company. For Q3 FY 2023, the company registered a revenue of INR 6,407 crores, an increase of 6.7% over Q3 of last year and 11.6% over the previous quarter. The EBITDA before Forex and other income stood at INR 954 crores. EBITDA margin for the quarter was 14.9%, an improvement of 30 basis points over the previous quarter. The margins improved on a quarter-on-quarter despite increased R&D spend during this quarter by INR 140 crores over previous quarter. The additional R&D spend amount to 1.7% on the EBITDA margin.
The net profit stood at INR 491 crores, increased by 19% over previous quarter. In terms of the business breakdown, formulation business in Q3 FY 2023 witnessed a growth of 9.2% year-on-year to INR 5,452 crores and 14.3% quarter-on-quarter and contributed around 85% of the total revenue. API business contributed around 15% and clocked a revenue of INR 955 crores for the quarter. For the quarter, the revenue from US market has improved by 9.3% year-on-year to INR 3,001.2 crores. On a constant currency basis, US revenue was flat year-on-year and improved by 10.3% quarter-on-quarter to $366 million.
We have received final approval for 15 ANDAs and launched 11 products in the quarter under review. We have filed 11 ANDAs, including six injectables during the quarter. Revenue for Aurobindo Pharma USA, the company making oral products in the U.S., has increased 2.5% year-on-year for the quarter in rupee terms. Revenue for U.S. specialty business in the U.S. increased by 6.1% year-on-year to INR 501.5 crore for the quarter. Including the direct sales, the overall oral sales amount to $252 million against $230 million of previous quarter, i.e. a growth of 9.5%.
The company as on 31st December 2022 has filed 767 ANDA on cumulative basis, of which 542 has a final approval and 38 having tentative approval, including eight ANDA which are tentatively approved under the PEPFAR and the balance 187 ANDAs under review. For the quarter, European formulation revenue clocked to INR 1,701 crores, marginal increase of 4% year-on-year growth and increase of 12.2% quarter-on-quarter. On a constant currency basis, Europe tax revenue touches EUR 203 million against EUR 189 million of last quarter. For the quarter, the growth market witnessed a growth of 26% to INR 499 crores. The quarter performance was led by a strong growth in Canada business.
For the quarter, ARV business stood at INR 251 crores, growth of 61% year-over-year. Growth in dollar terms, the growth was 47%. R&D expenditure is at INR 450 crores during the quarter, which is 6.5% of the revenue against 4.8% of the previous quarter. Net organic CapEx during the quarter is $82 million. This include normal CapEx of $43 million, Penicillin G project $23 million, and third-party development expenditure around $16 million. The cumulative CapEx capital expenditure is $89 million, against the estimated expenditure of $250 million as on 31st of December. The average Forex rate was 82.1075 in December 2022, against 79.6123 in September 2022. Net cash including investments at the end of September was $200 million.
The average finance cost is 4%, mainly due to earning multiple currency loan. With the increase in the Fed rate, the interest cost has gone up. Against the total finance cost of $45 million, we earned INR 42 crores as investment income from our investment. Net, net our net finance cost is around INR 3 crores. Gross debt remains at $495 million. The gross cash reduced from $831 million to $700 million at the end of the quarter. This is all from our end. We are happy to take your questions now. Thank you.
Thank you very much. We will now begin question and answer session. Anyone who wishes to ask questions may do so from the participant tab on your screen. Attendees are requested to use headphones or earphones while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Damayanti Kerai.
Hi. Good morning. I hope I'm audible.
Yeah.
Okay. Hi, everyone. Thank you for the opportunity. My first question is on U.S. Quarter-on-quarter you have seen good recovery. How should we see U.S. trending ahead, and which are your focus segments? We understand injectable is one which is picking up well, but if you can just talk about U.S. outlook in coming quarters or so.
Yeah. Thank you, Damayanti. This has been a good quarter for us. We witnessed a relatively better quarter on all major parameters like demand, volume, net sales, and we had stable pricing. There have been higher demand for some of the product, partly due to seasonal factors. We also anticipate that the present trend would continue going into the next quarter and next fiscal year.
Okay. You mentioned stable pricing. This is for your portfolio or you are observing in general, similar trend for the industry?
We can talk about our portfolio because that's something we have first-hand knowledge. We really can't say beyond that. Some of our products. See, this is on a net basis. We have some prices. There's always some price which goes down, some prices which goes up. We have seen in the past that mostly it has been going down.
Mm-hmm.
Now we see, if you ask me net, I think we are pretty neutral.
Okay. My second question is on your R&D. Obviously I understand due to some, progress in clinical trials, et cetera, we have seen sharp jump. In general, how should we again, look at this part moving ahead?
The overall R&D cost, we had INR 415 million, INR 415 crores for the quarter against INR 276 crores in the previous quarter. The main constituents of the R&D cost is the CuraTeQ biosimilar. I suggest, Satakarni, would like to elaborate on the biosimilar?
Yeah. Thanks, Subbu. Damayanti, as Subbu had mentioned, the contribution towards the R&D expenditure primarily, is because of the advancing phase 3 portfolio, of our programs. As we talk now, we have three products in phase 3 clinical trials. One of them, reaching the closure of the clinical trial, and two of them, actually in clinical trials now with about 30%-40% of the recruitment done. We forecast the clinical expenditure to continue for at least another six-seven quarters time from biosimilars because the pipeline is maturing, which is good news for the organization. Yeah, that's my guidance on this subject.
Okay. My last question. Last quarter, we obviously heard lot of, I think issues due to, what we saw on the, like, what was there with the management team, et cetera. In terms of government's improvement, what steps you have taken, so far, say compared to, previous few quarters?
Okay, in terms of... What is that you said? In terms of?
Like previous quarter, obviously I think we had seen some development.
Okay. Okay.
Yeah. Yeah.
You're talking about that.
Yeah.
In terms of during the quarter, what we have done is based on the discussion which was going on with the investors in the last one year, et cetera. We have increased our independent, I mean, directorate by about one number, and The board of directors have appointed Mr. Shantanu Mukherjee, who was the ex-managing director of State Bank, one of the subsidiaries of State Bank of India. As an independent director, he came with a rich experience of about 30+ years. This is one significant step which we have taken, and he will be forming part of the governance board for the company. That is a very significant step we have taken.
Okay. Okay, sir. Yeah.
Yeah, please.
This, like, we have plus one, like, independent director now, and you think, like, this is a major improvement?
No, I think now the number of independent directors in our company, is five out of 10.
Almost 50% are now independent.
Yeah, 50% is independent directorate. We have three executive directors and two promoter directors.
Okay, sir. Okay, thank you.
Thank you. The next question is from Raunak. Raunak, please unmute. Yeah.
Yeah. Hello?
Yeah.
Hi. Hi. Good morning. I just want to understand, recently, you got a USFDA approval for linaclotide. Can you just throw some light on that what's the expected revenue you are envisaging for the next few quarters?
You mean? This is not an injectable product. Which product are you referring to, Raunak?
No, no. I can take that. I can take that.
Yeah, please go ahead.
Yeah. Subbu, shall I go ahead?
Yeah, yeah. Please.
We got a recent approval, but the issue there is we've also got a settlement on that, and we are not able to launch it now. I think you're talking about linaclotide.
Yeah.
Capsules. Yeah.
Yeah.
That we can't do the... I mean, we can't commercialize it because we have a settlement on it. It's sometime beyond the immediate future.
Okay, thank you.
Thank you. The next question is from N. Jayakumar.
Hi. Good morning. Can you hear me?
Yeah, very much, sir. Morning, Jayakumar.
Yeah, good morning. In line with, you know, shareholder value and everything else, I think governance you've addressed.
Yeah.
One of the things that, you know, for a company that's trading at 5.5x EV/EBITDA and, you know, almost single-digit PE multiples, it's almost logical when you have net cash to look at, buyback as a way of rewarding shareholders and reducing the undervaluation, if you will, especially in you know, in comparison with other, you know, peer group pharma players. Any steps towards that? Because I noticed certain changes in articles that you've talked about. Anything to do with this that can, you can throw some light on?
Yeah. I'll address it in two parts. The first part is this question came up in the last quarter itself, and we have addressed it. The buyback, this will be addressed in the May board meeting. If at all it will be addressed, it will be addressed in the May board meeting because we have taken a very huge task of accelerating the Penicillin G project, which is one of the future potential for the company, and that involves quite a significant money to the tune of around $250 million, right? We said we will be addressing that.
In terms of the second part of the question, which is an article, yes, you are right to some extent because the articles which you are having is, it's a pretty old one, and it is not in full compliance with the Companies Act. What we have done is We have reviewed the entire clauses, and we have replaced wherever it is not in congruence with Table F, Schedule I of the Companies Act. We replaced it, which involves the buyback provisions also, apart from the other provisions.
Could you be more specific? I've not understood the...
Yeah, because our existing articles of association will not permit to, for the board directly to approve any buyback if it is less than 10% of the net worth, right? We need to go to shareholders, which means another 50 days. What we have done is first we want to amend the articles in line with the Companies Act Table F of Schedule I. That is what we have done. Which means the board will be at liberty as and when they decide to move ahead with the buyback, it can be implemented quite fast.
Understood. I have in fact a second question, which is I don't know if I missed the this thing and it has been addressed earlier, which is the pricing pressures in the US and logistics costs. I understand from other this thing that the logistics costs in general have come down, which has been a cause of some margin compression in earlier quarters. Is that the case with us as well and in terms of pricing pressures have they eased significantly?
The, as far as the logistics cost is concerned, Subbu can corroborate this because India sends the product to us. We have seen better pricing in terms of logistics. That's one. As far as the US pricing on our products is concerned, I had mentioned earlier that we see some kind of stability. There'll always be some price changes. There'll be some downs, and there'll be ups. In the past, few quarters, it has been mostly down. Now we see fairly stable prices. That's what I would like to say.
Yeah. In terms of the freight cost, which Swami has mentioned, we are seeing a significant freight cost reduction between last quarter, I mean, Q2 as well as Q3. Right? Overall, there has been a improved freight cost. I mean, a reduced freight cost between last quarter to this quarter. I'm sorry, Q1 to Q2, as well as Q2 to Q3. Does it answer your query?
Yeah. Thank you. Thank you very much, and all the best.
Thank you.
Thank you. The next question is from Aishwarya.
Aishwarya, you have to unmute yourself, I think. You can speak now.
I think some mic issues. The next question is from Neelam. He was back in line. We'll take next as Nitin Agarwal.
Thanks for taking my questions. I just have two, three questions. One is, A, on the, on the U.S. business, have you started to see a pickup in new business orders again, you know, given the fact there have been a recent round of FDA regulatory action on certain companies, and that has led to increase in NBOs in the past. Have you seen the trend happening all over again?
Swami?
Sorry about that. Okay. We have seen better demand, better volume growth in this quarter. We believe that this is, this will sustain. This could be various factors. One was seasonal, the other could be some other competitor or some other company not being able to supply. Whatever, we have seen definitely a better growth, we are confident that this is sustained going forward.
Swami, just on that, you know, through the last maybe three or four months, say as we've been through, for example, October to January and now, have you seen this trend improving or it's been sort of steady? How would you qualitatively assess that?
Have the what improving?
The demand-
Improving what?
I mean, the demand trend or the volume growth trend, has it been improving through the months over the last three or four months? Is it getting better?
I would believe so. you know, see, part of this could be seasonal, but, I think on overall basis, even other than the antibiotics and seasonal product, we have seen some amount of surge. Yeah.
Okay. sir, secondly, on the U.S. business, apart from the base, now in terms of the new product launches, can we look forward to? How many launches and how many potential launches that in your assessment could be more than $20 million a year?
Um, so last, uh, in the last, uh, quarterly, uh, earnings call, uh, we had, uh, mentioned that we are looking at some new ANDAs being, uh, commercialized over the next twelve months. Uh, I think we talked about forty ANDAs being commercialized. We still hold that view. In fact, we have got some approvals, and we are in the process of launching in the current quarter. Um, in terms of, uh, top line, I would say that, uh, conservatively we would expect about fifty million, uh, on an annual basis, maybe a little higher, but that's what we'd expect. Uh, obviously, it's not going to happen next quarter, next month. It's going to be over a period of time. I'm talking about the next twelve months we would see some kind of, uh, increase.
Okay. If I can on that, given that on the injectable business we've seen a pretty strong recovery, I think this is probably one of the better quarters we've had in the injectable business in some time. How should we look at this business now on a next few quarter basis?
We are quite positive, Nitin, in terms of the way we have weathered the storm. First two quarters were not great. Third quarter we have seen stable pricing and increased volumes. With the new products, in fact, like we are launching almost five new products every quarter. Some of the new products and sustainable pricing and volume recovery, we feel like going forward into quarter four and quarter one of next year, we do feel that it could be a double-digit growth quarter-on-quarter. That's what we feel. We already launched Amphotericin B in January, and we do have some interesting launches coming forward.
Sorry, just to reconfirm, you said we are about $74 million this quarter, and you're talking about quarter-over-quarter growth in Q4 and Q1 on this number?
That's right.
Okay, thanks. That's very helpful. Lastly, on the U.S., you know, in terms of the non-orals presentations, non-injectables, you've had some filings for inhalers, transdermals, and some of the other new presentation formats. Any of those, do you see getting commercialized this year?
When you say this year, by March, no, we don't see that happening.
No, no. March 2024, I meant. FY 2024. I'm sorry.
I think that would be a very aggressive timeframe. It could possibly little later. We have got oral solution now from one of the facilities. Obviously we are looking forward to other introductions. This could take a while.
If you excuse me, one last one. Subbu, sir, on the Pen-G project, if you can give us some sense on the project size, the commissioning time, and what can it really entail in terms of possible revenues at the current levels of Pen-G prices?
Regarding the Pen-G project, the size of the project we are working is around $250 million, plus or minus 5% contingency. Right? So far we have spent around $89 million. The deadline for the Pen-G project is 1st April 2024. While the deadline is 1st April 2024, it is always our endeavor to advance it. That's what we are working on. As on date, the installation is expected to be over by September, October of this year. We will be doing the pilot batches between November, December, and I mean, till the time it succeeds we will do it, but in any case it will not be later than March. If the pilot batches succeeded in the 1st iteration itself, it can be advanced also.
In terms of the execution, et cetera, a lot of people working and things are moving pretty fast. We are looking forward to this project, really speaking. I think, I'm sure, government being the major sponsor for the project by way of the PLI incentive system, they are also looking at it. Every one of us are looking forward for that.
Okay. Thank you very much.
Thank you. The next question is from Bino.
Hi. Good morning to all of you. Subbu, could you please explain a bit on this sale of non-antibiotic API business to the subsidiary? What's the rationale? What's the thought process?
The thought process is, API business today we are having around, including antibiotic and non-antibiotic, et cetera, we are having around 10 units. What we are planning to do is bring all the regulatory units under one, all regulatory API units under one, wherever the major contribution is the regulatory in nature, we'll try to bring it under one umbrella. This is to have ensured that mitigate the risk factors like regulatory risk, margin risk, everything we want to bring it under and give a massive focus into the overall value creation for the stakeholders. That is the whole idea. This also will help in terms of improving the operational efficiency. Today if you really see the regulatory units, what we have been majorly around more than 75% is supplying internally and about 20% external.
By creating under the one umbrella with a new management, can we able to focus more on the external also? Like that we are looking to all possible options by which we can create value for the shareholders. That is the overall idea. At the end of the day, you know, if we can have any strategic tie-up, et cetera, we can always look into that. Like what we have been trying to do for UGM, we will try to bring under a separate professional management, all these things, we are trying to do that.
Okay. Does this have any tax implication?
There is no tax implication. It is a 100% subsidiary. Any 100% subsidiary, you know, it is exempted under the, I mean, no transfer, no tax on the transfer of the assets. It is exempted as per the income tax law. Not an issue.
Understood. My last question on generic Revlimid. Now that the market has formed, a lot of your competitors have entered, and you also have a settlement, would you be able to give some timeline about your launch? Would it be FY 2024 or FY 2025?
It's Q3 FY 2024.
Oh, great. Thank you. Thank you very much.
Thank you. The next question is from Tushar. Tushar? Looks like he is not there. We'll move to the next. The next question is from Aishwarya.
Yeah. Can you hear me?
Yeah, Aishwarya.
Yeah. Thank you very much. Sir, I have two, three questions. One is that, how we should see the compliance, especially when you guided that there should be increase in the revenue number by $50 million in the next 12 months. Which are the key two, three plans which are associated with this revenue growth, and how is the compliance level over there in terms of FDA inspection and any 483s resolution?
You, Aishwarya, this question is two parts if I'm right, no? One is relating to the increase, which Swami can address.
Mm.
In terms of the compliance, I think, today if you really see the formulation, all the units are under VAI. Apart from that, couple of units, I mean, one unit has been inspected recently or two units, APL Healthcare unit 1 and 3. That has been inspected, and that is also. We have informed to the exchanges, if you have noticed. As on date, in the formulation business, we don't have any issue in terms of the regulatory compliance. In terms of capacity, there is enough capacity to augment the supplies, et cetera. In terms of the growth percentage, Soumi can explain that.
Yeah. In terms of, you know, with regard to the what Gadis was saying about 40 products that's likely to come over the next 12 months, we have factored in any compliance issue that could be there as that's known as on date. If an API plant has a problem, we have considered those factors in while deciding what are these 40 odd products that we are going to commercialize. We believe at this point of time, this is realistic. Going forward, obviously, we if there is any inspection, we need to see the outcome of it. You know, we have factored in this compliance matter.
Sure. Thank you, sir. One more question from my side is, how we should see the free cash flow generation going forward in next two years, where, we need to factor in how much you spend on R&D, how much is CapEx?
Sir, with the Ashwin to put it, with this maximum we have achieved, INR 415 crores per quarter is the maximum R&D spend we have done in any quarter, if, to the best of my memory, right? Even if you continue with that, I don't think we'll be continuing INR 450 crores, probably it may be slightly lower, right? With the Penghi project and some of the projects going to take place next year, this will we will be able to achieve the good free cash flow coming from the project. Even the biosimilar also, as Satakarni says, we have already said in the past meeting, earnings calls, et cetera, we have filed two products. One more product also we are going to file it, et cetera. This is expected to generate cash flows starting FY 2025 onwards.
I can clearly see FY 2025 Penghi project will generate cash and, I mean our biosimilars will generate cash. Various projects are in the process of commissioning, et cetera. If one or two of them have been successfully commissioned, apart from what I mentioned, that also will generate the cash flow. Going forward I can see very clearly cash flow generation will be very good starting FY 20 25 onwards.
Sure. How about 2024, sir?
2024 also, I think we should be able to generate the cash flow because apart from the existing this one, we have not undertaken any new project, no new project except the one which I've announced recently, that biosimilar one, CMO facility we are thinking of putting it. Other than that, I don't see any new major greenfield projects are being thought of. If any decision taken, et cetera, we'll be informing the normal earnings call.
Sure. Sure, sir.
Most of the projects are either 40%, 50% completed. Like biosimilars, CapEx is over. It's only the clinical trial, which is forming part of the R&D cost, which has been factored as part of the P&L. If you really see the U.S. CapEx, most of the projects have been completed. They're waiting for the exhibit batches and the final approval. You take China plant. China plant is installation is over, and we are doing the exhibit batches. Like that so on so. We don't see a major stress on the cash flow on account of the projects. Business is also doing well, and we expect to do a good cash flow.
Sure. Here, sir, like we know that the U.S. business is turning a bit more difficult because of the competition. With that into consideration, we have less control on the revenue side. Anyway, we are doing extremely well. Despite that, we don't see very meaningful growth coming on the top line. The levers left out how to control the cost side or the CapEx side. Do you see any levers which are visible in say 2024, 2025, which have not been discussed so far?
See, Ashwin, if you really see the annual report dated 31st March 2022, we have identified the five levers, and one is the biosimilars, second is the API Penghi plant, third is the API business, and fourth is the UGR, which earnings call in the last time it was given. There has given a clear roadmap for the UGR business. Fifth is the India business. India business, because of the other priorities, is going I mean, not taken off, but other things have taken off and going in a accelerated pace.
Yeah. As talking more on the... I mean, absolute numbers in terms of cost side, or the CapEx side.
You are right. It's the right. One of the significant step which I've taken is carving out the API business to achieve the operating efficiency, to improve the capacity utilization and service the market. We have already carving out and we are in the process of doing, and this will take with effect from first April. We are working on that. That also will contribute. We can see a improved performance from the API business, which means which is the main cost base for the entire company. You can see improved performance. On the antibiotic side, you know Penghi is coming, which is another major cost saver because we have been buying all the related KSM and the intermediates, et cetera. These are all the steps being taken by the company.
Sure. Sure, sir. I'll connect you offline.
Yeah.
Thank you very much for these details.
Thank you. The next question is from Nikhil.
Yeah. Hi. I'm audible?
Yes, Nikhil. Please go ahead.
Yeah, sure. I wanted to first check on the R&D side. Now there's a pretty sharp jump on a quarter-on-quarter basis. I understand that there are few clinical trials that are ongoing, but I also wanted to check, is there some change on the R&D front, strategy front that has happened in the last quarter or so? Is it that the US output seems a bit improved and because of that there's a step jump in the R&D spend x of biosimilars as well?
No. I think the key contributor to the R&D spend this quarter is the biosimilar. Compared to INR 75 crores expenditure of last quarter, this is INR 180 crores this quarter. We had explained in the last quarter itself our R&D spend for the year will be somewhere between 6% - 6.5%. The first half has now taken place and we will be focusing, we will be incurring more cost because the timing of the clinical trial, et cetera, also required, et cetera. Because of that, these two quarters there will be a good R&D spend that will happen, which has been already informed with the earnings for last earnings call.
Okay. This quarter the R&D to sales at around 6.5%.
Yeah.
Do you see a gradual moderation in this number in the coming quarters or year?
Ideally we should take around 6% - 6.25%. 6.5% will be outer limit, but I am talking from an absolute amount. It's a function of the turnover also. 6%- 6.25% on the existing turnover, I mean, achieved turnover is the norm which we are looking at.
Okay. if the revenue goes up, this number will come down.
Yeah, because we are talking about the absolute number only.
Current. Okay. Okay, understood. And also Subbu sir, I just wanted to revisit the CWIP number. I think at around September, this was INR 3,200 odd crore. What is the capital work in progress today?
The capital work in progress today is something like, if I'm right it's around INR 4,000 crores. It is around, exact amount if you really see it is INR 4,200 crores. Tangible and the intangible are around INR 800 crores, right? The major CapEx is the China plant, which more or less, it's completed INR 600 crores. As I told you, its installation is over. Eurotype, we have already incurred the cost. It is a question of clinical trials only, which I explained, right? We are putting on Eugia manufacturing plant in Vizag. That is, that expenditure is still going on. Like that, some of the projects, either it has been installation level, it is more or less 90% over, or it may be in the process of 40%, 50% is over.
As I said, these are all expected to start commissioning by 31/3/2024 onwards.
Okay. It will take up still a year for the expensing out of these-
No.
Of this CWIP to happen.
No, this will get capitalized with on or I mean, at least some of them will get capitalized on or before 31st March 2024.
Okay. Understood. Also sir, in this CWIP number, how much is the pre-operating expenses that has been capitalized, whether R&D or whether other plant related expenses?
I will get that data separately, Nikhil. I don't have it right now with me. I have the overall WAP number only.
Is it a sizable number? Because I mean that directly impacts your-
It might be sizable. Any project, if I'm talking INR 4,200 crore is the tangible, no, you can take, something like, 10% will be the pre-operating including all, that is a guess, but I will get the exact number later.
Okay. Understood. Also sir, I mean, revisiting the PLI project as well. Ninety million dollars incurred out of budgeted $250 million. The timeline seems pretty tight. I mean, you have only five, six months, to incur the remainder CapEx. Wanted to understand, is the entire $250 million needs to be spent to commence the project, or you can commence the project partly as well? Maybe, I mean.
I think, Nikhil, what we need to look at it, in the case of the projects, it is. When we said $90 million is the cash spent, it doesn't mean we are going to start some of the work now. We have issued the purchase orders long time back. These, all the projects will have a gestation time in terms of completing the work and then installation. The payments will be on successful implementation, on successful dispatch of the material. Most of the material will start coming between April - June, and it'll get commissioned, I mean installed, not. Commissioned is not the right word. Installed between July- September. That's the way you have to look at it.
As and when they start dispatching, no, we need to make the payment or based on the successful assembly it has to be paid, something like that. You got it?
Okay. Civil works have been done.
Civil works more or less, I would say around 75%-80% is already completed. Even the mechanical and I mean, mechanical and electrical is also purchase orders have been issued more than INR 1,500 crores already. I think the last earnings call itself, if I'm right, we have issued more than INR 1,500 crore purchases. Probably this time they would have issued the balance also. Could be another INR 200 crores-INR 300 crores.
Right. Also finally on this one, 15,000 tons was the planned capacity, and there was a captive and a merchant share. Can you also again share those numbers, please?
No, no. 15,000 tons is the total fermentation capacity, and, as we said in some of the previous calls, our captive consumption equivalent fermentation is something like 6,000 tons, around 7,000 tons, right? That is the thing. The balance will be for external sales.
Okay. Sir, what is the pricing scenario today? I mean, when the project was envisaged versus now, how has the prices moved?
Today, the prices are very high because of various reasons, but we'll not guess anything now because the project is at least one year away, and I don't like to guess any number right now.
Sir, with China opening up, I mean, my limited understanding of what's happening in other commodities, I think normalization can happen. Do you think that, or would you mind sharing some ballpark sensitivities around, if pricing despite this much % you will still be making good economic value? Can you share?
Yeah, yeah. We will make economic value, that much I can say. I will not like you have here, with all your contacts and interaction with the international, you are limited. We don't have that much of interactions with anybody. I can say one thing, even if the price goes to pre-COVID levels, et cetera, also we will be well within the selling price, or cost will be well within the selling price.
Okay, understood. Sir, one final question on the biosimilars front. Can you share some quantitative guidance on what absolute sales you are targeting from biosimilars in two years, three years timeframe? And also in the U.S., how many field force strength is there from the Spectrum acquisition, and would that be leveraged to commercialize the initial biosimilars? Would there be any incremental spend required initially to commercialize the biosimilars especially in the U.S.?
Yeah. Satakarni?
Yeah. I will answer your question in two parts, Nikhil. With respect to biosimilars for the next two years, as you know that, we have two products filed right now, with EMEA. We have filed a monoclonal antibody in oncology with MHRA. With the antibody in oncology segment, we have completed the necessary regulatory procedure with MHRA, with one major pending action, which is the GMP inspection. The required on-site inspection is hindered by the availability of inspectors at this time, and our regulatory team is continuing to work with MHRA on this subject. At this time, the agency and we have agreed to take a clock stop until April and are hoping to have GMP inspection announced within this timeframe.
Once that happens, then, I probably think we'll have at least one quarter of sales in this year, provided, I'll be able to obtain an approval for this antibody by Q2 of the next fiscal. With the biosimilars filed with European Medicines Agency, I have provided an extensive guidance in the last earnings call, that owing to the COVID-19 workload and paucity of inspectors, we are stuck at day 180 of the clock. On the advice of European Medicines Agency, we have taken a clock stop until June 2023. The agency had mentioned that the situation will change as and when inspectors become available to travel and audit us. At this point, I am pleased to state that auditors have indicated end March as the dates for on-site GMP inspection.
In the last week of March, we are having a GMP inspection announced. With this development, we are reasonably confident that the post-audit regulatory process will conclude at least for one of these products, and we shall be able to initiate the commercial activities in EMEA or the European region for at least one product before the end of next fiscal. For the second product, probably in the first quarter or the second quarter of the next fiscal. I am hoping for a continuing engagement with the agency and kick in necessary regulatory formalities at this point of time. Additionally, we have also started filing with Health Canada. Health Canada also had acknowledged the receipt of our file and started the review procedure. We have an audit announced with Health Canada in the first week of May.
I believe if things go well, we will also have the commercial sales kick in either in Q4 of the next fiscal or the early Q1 of the following fiscal, which is FY 20 25, in Canada as well. I think overall we are looking at at least two biosimilars to be commercialized in EMEA, Health Canada and MHRA. Importantly, as you know that we have concluded, we are concluding a large metastatic breast cancer trial in 690 subjects. We will start the filing process of this monoclonal antibody in India and emerging markets in July of the next fiscal. By September, we'll file it with European Medicines Agency, and by December it is our intent to file with the USFDA. I'm optimistic that in 2025 we'll have this product approved with EMEA.
Hopefully, if things go well, we'll also be approved with FDA. I see 2025 as an inflection point with this antibody kicking in in the commercial markets, both in EMEA and FDA. I expect at least one quarter of sales in this antibody in India to start with in the next fiscal, with EMEA being 2024/2025. That's the guidance on biosimilars, which is part one of your question. The second one is about the spectrum, or the commercial field force that we have in the U.S. with Acrotech Biopharma. We have a presence in oncology segment. We are going to leverage the commercial front sales team or the team that we have with Acrotech, who will also be the front end for biosimilars in U.S.
We expect the first biosimilar in the U.S. to be approved in 2025. We will leverage on the field force that we have with Acrotech Biopharma to take this product into the market. We are also planning to bring an immunology biosimilar by 2025-2026 in the U.S., which is used in dermatology indication. Again, as you see, if you have followed Acrotech Biopharma, they are investing in dermatology products and brands. Essentially the idea is that Acrotech Biopharma will position our biosimilar brands in the U.S. market. I stop here and I ask if I have answered your query or if there is any further follow-up query.
Yes, yes, Dr. Satakarni, I think it's very clear and I think it's very helpful and all the best for this initiative for the company.
Thanks, Nikhil.
Thank you. The next question is from Tarang.
Hi. Good morning. Am I audible?
Yes.
Okay. Three questions from me. First one is on Europe. I think, it's good to see that, you know, you've come to a EUR 200 million quarterly run rate. The last time this happened, if I recall, was in March 20. What I understand was there was some bunch up of sales that happened then. From here on, is this a base that we can expect you to maintain? If you could give us some sense on what's happening in Europe, and how should we look at it going forward from here?
Yes. We had a good quarter in Europe in the third quarter, and you have seen that actually in quarter two, we were at EUR 190 million and this quarter we have exceeded EUR 200 million. Quarter three is always strongest for us. On a year-on-year, we have a 7% growth and even on a quarter-on-quarter, as I said, that is a seasonality 2% growth. Considering the discontinued business, the quarter-on-quarter was a 5% growth. I guess that about EUR 185-EUR 190 is the base line. Actually, based on the seasonality and some of the opportunities which come up, we may grow at a middle level of a single-digit growth.
Okay. Thanks. That's helpful. Second is on Eugia or Yogendra. When should we see the Vizag plant revenues starting in? My sense is you'll commercialize it, there'll be exhibit batches approval from the regulators. If you could just give us an updated timeline on this. Second, you know, last quarter at least the commentary that we received that was that especially in injectables, there was heightened competitive intensity which was showing up in your numbers and also in the numbers of the peers. That seems to, at least, from a number basis for Eugia, that seems to have reduced. If you could just give us some sense on what's happening in the injectables market space.
The first thing is on Vizag plant. We will be starting exhibit batches from this month onwards. We already requested European authorities to inspect the plant in November of this calendar year, which is November 2023. We expect that in the best case scenario, it might be a quarter four of FY 2024 commercialization. Worst case it might be quarter one. We are also going to file some of the shortest products of U.S. to trigger an early audit for the plant. That's on the Vizag plant. You can take it as FY 2025 is the commercialization for Vizag plant, and this entire fiscal year will go into various exhibit batches, inspections and all that stuff.
On the U.S. front, in terms of what we have seen, first two quarters there was a significant pricing pressure for a variety of reasons. Quarter three and quarter four, how we are observing is the pricing has stabilized. The volumes are improving significantly. I think probably regulatory action on some of the other competitors is giving some minor tickling business at this point of time. We will see, like, how it goes. What I'm very confident of and very hopeful of is.
My team can generate a double-digit growth going forward.
Okay. How much was nine months FY 2023 revenues for Eugia, and what was the similar number for nine months FY 20 22?
It is flat because we don't give a separate thing in the our PNL because it's on a pro forma level. As you can see, it is just flat from FY 2022- FY 2023.
Okay. That's helpful. Thank you. The next is on biosimilars. Dr. Satakarni, you spoke about, you know, doing some filings in Canada. Is it one of the products that you've already filed in Europe or MHRA or is it a different product?
Essentially the same product we have filed in Europe and MHRA. One of them is filed in Health Canada. We are planning to file the second one with, also with Health Canada.
Okay. That's helpful. Second, I mean, I noticed that in Q2 of FY 2023 there is a biosimilar subsidiary that was incorporated. If you would give us some sense, what was the purpose? Second, some update on what's happening on vaccines specifically. You did get some regulatory pathway in your PCV vaccine this quarter.
Yep, Tarang. On the vaccine front, we are encouraged by the fact that the Subject Expert Committee panel, operating under the aegis of CDSCO or DCGI has reviewed our phase III pediatric data for the pneumococcal 15-valent vaccine. The data suggests that our 15-valent pneumococcal vaccine would be anticipated to help protect against the serotypes covered by Pfizer's Prevnar 13 and also expand coverage to include two additional pneumococcal serotypes causing potentially a serious disease in infants. How do we view at this SEC recommendation? The SEC recommendation should be viewed in the sense that they have granted a recommendation for manufacturing and marketing of the PCV 15 vaccine to our JV company.
At this stage, we are going through the regulatory process of obtaining a manufacturing license, which is a normal course of regulatory procedure. I am optimistic that this procedure will conclude in the next few weeks, probably around six-eight weeks' time. Since the 15 serotypes included in our vaccine are responsible for a good majority of global pneumococcal disease cases, I'm excited by the potential, the broader coverage we can offer with the PCV 15 vaccine. I plan to commercialize it two quarters from now, provided we will receive the manufacturing license in April/May. Two quarters from now, we would commercialize this PCV vaccine. That's part two of your question on the vaccines front. What was your part one of the question, Tarang?
There's a biosimilar subsidiary that's been incorporated.
That's right. That's right. There is this subsidiary called TheraNym Biologics, which you are talking about, right?
Yes. Yes.
Subsidiary being incorporated, and we talked about it, in the earnings call, I think the last quarter or the previous quarter. The idea is to expand on the capacities to support any CMO opportunities.
Okay.
In biologics space. At the same time, with our oncology biosimilar coming in, we would like to scale it up to an extent where we become extremely cost competitive in the low and middle-income countries. That's the idea.
Got it.
Right now, we are still discussing on how to shape up this project in the next fiscal year. I'll provide guidance as things evolve. The idea is to become a CMO and also use additional capacities to make it more cost effective for our biosimilars to go into low and middle-income countries. That's the vision behind this.
Got it. That's very helpful. Thank you.
Thank you.
Thank you. The next question is from Sriram Rathi. Seems like he's not here. The next question is from Abdul Kalim.
Hello. Hello?
You are audible now.
Hello there.
Hello.
Sir, I just wanted to get a clarification on this one. You told that there is some process that is going on for making the buybacks easier for this one. I technically did not understand what exactly that was, but I just wanted to know whether the management is seriously thinking about the buybacks at least in the near future, and what will be the timeline for that one, sir?
See, we are not averse to buyback. Okay? At the same time, the buyback management, it is the decision of the board, keeping in mind and board will decide, keeping in mind various financial commitments on various projects and other things. Board will take the decision at the appropriate time.
Okay. You can't give any timeline for that one.
Management cannot give a timeline for that. Okay. There is a thought process that is going on that-
Yeah, there is a thought.
At least we can sense in that one.
There is a thought process going on.
Yeah.
That's the reason why we have been trying to make comment the Articles and other things.
Okay. Sir, another last thing, sir, because it is repeatedly coming in the social media, so that if the clarification come from your side, it will be helpful for the shareholders. What is the formal relation between Aurobindo Pharma and Aurobindo Realty, sir? If you can just enlighten on that one, sir.
Aurobindo Pharma.
Aurobindo Pharma and Aurobindo Realty, sir.
Aurobindo Pharma and Aurobindo Realty are totally independent. They are no way connected except-
Okay.
Both are having a common promoter.
Okay. there is no formal connection.
No connection between Aurobindo Realty and Aurobindo Pharma. The only, if at all, there is a small connectivity is the Galaxy building where we are.
Okay.
That is held by a company called Raidurgam Developers, where Aurobindo Pharma is having a 40% stake and the promoter group is having 60%. Aurobindo Realty is no way directly connected.
Okay. That is very helpful, sir. Thank you, sir. Thanks. Okay.
Thank you. We will take the last question as Shyam Srinivasan.
Yeah. Hi. Good morning, thank you for taking my question. Sir, Subbu, sir, just on margins, just going back, I know R&D has gone up. Historically we used to be a 20% EBITDA margin company. Just want your thoughts on, you know, when we can look forward to those kind of margins. We have now started growing and it's looking from the commentary on this call seems to suggest that growth can be sustained. Just want some of the levers of, say, reaching historical margins. You know, is there any timeline or any specific product mix that you would like to highlight that will help us reach there or is just ongoing growth?
One is ongoing growth and second is one of the key thing which the management is taking, embarking on the action plan is to increase the capacity utilization. That is also one of the reason which he has said, we will bring a more focus on the API. That's the reason why we are carving out into a separate subsidiary company. That 20%, if you ask me, while we may not able to give you a guidance, but certainly with the Penghi project being successful, we may able to reach that. It's my feeling at this point of time.
Subbu, sir, Penghi project will start 1st April, right? 1st April 2024.
1st April 2024. That is the thing because it will add some more topline as well as it can reduce some cost like that. This is, I mean, we don't want to guess at this point of time. Nearer the date, probably in the November earnings call, we may able to give clarity on these aspects.
Sir, just following up on this. From a cost perspective, you talked about logistic costs, you also talked about input cost inflation. Those you are now having a better visibility.
Yeah.
The only thing that
Yeah. We have been tracking all the freight costs, et cetera. We are trying to optimize all the costs from a overall leveraging the capacities, overall operational leverage. We are doing everything. Whatever possible we want to do, we have been doing that. At the end of the day, all are a function of the top line, which there is some improvement started taking place, which Swami has clearly explained with the new products coming, what is the new launches he's planning, everything. He's clearly explained. With that, hopefully we'll also move towards that goal of 20%.
Got it, sir. Just my last question is on injectables again. you know, I think $73 million, I'm just calculating it, from the $366 million at least for the US business. What is the global injectable size? I think you rather mentioned it's flat YOY, but, is it closer to the $100 million still? What are aspirations for $650 million? I think we pushed it out by a year, but just want, if some of those aspirational targets can be, reiterated, please. Thank you.
Yes, Shyam, I think you said it right. We are $100 million plus for quarter and we want to go towards $120 million-$125 million next financial year. Yeah, we are still quite hopeful that even after pushing by one year, like FY 2025, we should be around the numbers what we indicated in the past.
Got it, sir. Thank you and all the best.
Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for the closing remarks.
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 the website www.aurobindo.com in due course. Thank you and have a good 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.