Ladies and gentlemen, welcome to quarter two FY 2022 earnings conference call of Aurobindo Pharma Limited. All participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. In order to ask a question, please click on the Raise Hand option on the bottom of your screen. I now hand the conference over to Mr. Arvind Bothra. Thank you, and over to you, sir.
Thank you, Aditya. Good morning and warm welcome to our second quarter FY 2022 earnings call. I am Arvind Bothra from the Investor Relations team of Aurobindo Pharma Limited. We hope you have received the FY 2022 financials and the press release that we sent out yesterday. The same is available on our website as well. With me, we have our senior management team, represented by Mr. PV Ramprasad Reddy, Chairman, Aurobindo Pharma USA, Mr. N Govindarajan, Managing Director, Aurobindo Pharma Limited, Mr. Sanjeev Dani, COO and Head of Formulations, Mr. Santhanam Subramanian, CFO, Group CFO, and Mr. Swami Iyer, CFO, Aurobindo Pharma USA. 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 development and results to differ materially from our expectations. Aurobindo Pharma Limited undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. With that, I will hand over the call to Mr. Santhanam Subramanian for the highlights. Over to you, Subbu.
Thank you, Arvind. Good morning, everyone. We will discuss the results for the second quarter of fiscal year FY 2021 as reviewed and declared by the company. We will be discussing FX-neutral numbers throughout the call. For Q2, the company registered a revenue of INR 5,942 crores, an increase of 4.2% quarter-on-quarter. Most of the businesses registered a healthy growth on a sequential basis. The EBITDA before ForEx and other income declined by 8.3% year-on-year to INR 1,187 crores. EBITDA margin for the quarter was at 20%. Net profit decreased by 2.1% year-on-year to INR 697 crores. Increase in some of the key raw material prices and logistic cost weighed on the profitability for the quarter.
Increase in R&D spend by about 0.4% quarter-on-quarter led to decrease in EBITDA margin during the quarter. We started focusing on optimizing end-to-end inventory, which has resulted in reduced capacity utilization across our facilities. This in turn increased the overhead, thereby affecting the profitability. However, this will release cash flows which will continue to benefit over the coming quarters and position us as an agile player. During the quarter itself, we were able to reduce the working capital by about $62 million, mainly due to reduction in the inventory. In terms of the business breakdown, formulation business in Q2 FY 2022 witnessed a growth of 5.6% quarter-on-quarter to INR 5,161 crores and contributed around 87% of the total revenue.
API business contributed around 13% and clocked a revenue of INR 781 crores for the year, registering a degrowth of 5.8% year-on-year and 3.9% quarter-on-quarter respectively. For the quarter, the revenue from the U.S. market increased by 6.9% year-on-year to INR 2,968 crores. On a constant currency basis, U.S. revenue increased by 7.3% year-on-year basis to $401 million. On a sequential basis, U.S. revenues grew by 10% in U.S. dollar terms and 10.7% on reported currency basis. We have received final approval of 7 ANDAs, 1 NDA, and launched six products in the quarter under review. We have filed 27 ANDAs, including five injectables, during the quarter.
Revenue for Aurobindo Pharma USA, the company marketing oral products in the U.S., increased by 9.6% year-over-year for the quarter. On a quarter-over-quarter basis, Aurobindo Pharma USA revenues grew by 13% in reported currency. Revenue of the U.S. injectable business increased by 5% year-over-year to $68 million for the quarter. Revenue quarter-over-quarter have increased by 10.3%. We have filed a total of 155 ANDAs as on 30 September, out of which 101 have received final approval and balance 54 are under review.
The company also, as on 30th September has filed 681 ANDAs on a cumulative basis, out of which 456 have final approval and 29 have tentative approval, including 8 ANDAs which are tentatively approved under PEPFAR, and the balance 196 ANDAs are under review. For the quarter, European formulations revenue clocked at INR 1,662 crore, an increase of 9.7% year-on-year. On a quarter-on-quarter basis, Euro formulations increased by 5%. On base currency, the corresponding year-on-year and quarter-on-quarter stood at 9.1% and 6.9% respectively. For the quarter, growth market witnessed a degrowth of 13.5% year-on-year to INR 386.3 crore. On a quarter-on-quarter, the growth market business grew by 17.3%.
The quarter's performance was led by strong growth in Canada, Brazil and other markets. For the quarter, ARV formulation business stood at INR 145 crore, a degrowth of 71% year-on-year on a high base of last year. The corresponding degrowth in ARV's formulation on a quarter-on-quarter basis was 51.1%. R&D expenditure is INR 399 crore during the quarter, which is 6.7% of the revenue, compared to 6.3% in Q1 FY 2022. Net organic FX for the quarter is at $98 million. The average FX rate was 73.94 in September 2021, and rupee 73.68 in June 2021. Net cash including investments at the end of September 2021 was $34.7 million.
The average finance cost is at 0.6%, mainly due to availing multiple currency loans. The Board of Directors constituted a committee of independent directors for comprehensive evaluation of various alternatives for options, including demerger for restructuring of Company's wholly-owned subsidiary, Eugia Pharma Specialities Limited, focused on sterile oncology and hormonal products, and recommended to the group board by the ensuing meeting for further discussion and closure. This is all from our end, and we are happy to take your questions now. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may use the Raise Hand icon on the bottom of the screen. Once your name has been announced, you will be unmuted and you can ask the question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Damayanti Kerai.
Hello. Am I audible?
Yes.
Okay. Thank you for the opportunity. My first question is on succession plan for Govind. As per your earlier update, he'll be stepping down. What are plans for his replacement?
The board is meeting again in early December, and we will let you know after that board meeting the final succession plan.
We'll get update in December after your board meeting, right?
Yes. Yes. Yes, please.
Okay. Thank you. My second question is on your U.S. performance. Very good performance I'll say, compared to what we are seeing in terms of price erosion and all. What has led to this notable performance in the base business? Because I see like injectable has also picked up, but more of the growth is driven by the oral part. What kind of price erosion you are facing in your portfolio, and how do you see this moving ahead?
Biren Shah.
This is Biren Shah here. I work as a CFO for Aurobindo USA. Thank you for the question, Damayanti. The U.S. business has grown largely with the oral solids registering significant progress in terms of volume. However, like you said, there has been price erosion, and we have had fairly good growth across all the therapeutic segments. You know, it's on the back of certain shortfall in demand in the previous quarters. This quarter has been good, and we are looking forward to similar growth going forward. However, as you mentioned, pricing pressure was there during the quarter. We expect that this would stabilize over a period of next one or two quarters.
Okay. Right now, erosion must be in double digit, right? Which you expect to moderate.
No, I didn't say moderate.
High single digit is the present one, and we don't know where we are going on next one or two quarters. We'll have more clarity on this. This is not only once the price falls are there, and automatically the stock adjustments also will be there. It is a double effect will happen.
Okay. Okay, sir. Thank you. That's very helpful. My last question will be on your plans for Eugia. What kind of alternatives you are assessing, and when do you expect this process to complete?
I think as already Subbu had explained, Damayanti, I think the subcommittee of the board has been already formed with independent directors, and they will be evaluating everything and they'll be getting back in the forthcoming meeting. I would not like to at this juncture second-guess anything, Damayanti.
Okay. Thank you. Govind, all the best.
Thank you.
Thank you, yeah.
Thank you, Damayanti. Bye.
Yeah.
Thank you. Next question is from Tarang Aggarwal.
Hello, sir. Good morning. Couple of questions from me. Firstly on the injectables business, at about $68 million, it's still about 15% behind the $75 million-$77 million run rate which we reached pre-COVID. What's driving this and how should we see this moving forward? I ask this because, you know, you've had about 23 approvals in the trailing twelve months, and still the current run rate is not close to pre-COVID levels. How should I s ee this moving forward?
Swamy, I'll take this. I think, if you remember, we have clearly said that we are confident about our medium-term aspirations of reaching the US $650 million-$700 million revenues by FY 2024. Obviously this will be backed by our pipeline and continued efforts to improve our market share. What I would suggest is, Tarang, not to measure it on a quarter-to-quarter basis. On an annualized basis, if you go through this particular period, definitely we are confident about achieving what all we have already mentioned.
Got it. Thank you. You know, there's a line item in the cash flow which talks about amount paid for business acquisitions to the extent of INR 5,925 million. What would this be regarding? Because if I recall, your OTC brands and that acquisition was for about $104 million in last quarter.
Subbu? Subbu, go ahead.
That's true, Tarang. We have paid around INR 104 million last quarter, which you rightly said. Plus also this quarter we paid something around INR 70 million, which has been explained in the earnings call presentation. That is the total we have paid during this year.
$104 million will translate about INR 1,050 crores.
Yeah.
There's still a difference.
No, no. There are certain things.
Pharmaceutical brands as well as the ANDAs and some other smaller assets and three different types of entries are happened. For all these things is 82 plus another 17 and another 22.5. These three entries are happened in the overall in these last two quarters.
Got it. That'll be captured in acquisitions plus, payments for intangibles, correct?
Yeah. It will be in the balance sheet, something will be reflected in the net block, something will be reflected in the Capital CWIP, and something will be in the capital advances. You will not be able to reconcile directly.
Got it. The last one from my side, you know, if you could give us some sense on, you know, what's driving this heightened pricing pressure in North America, because we've seen it across your domestic peers as well as global peers. While you've mentioned that, it had to do with the, you know, channel filling last year, is that the only reason or there's incremental supply and competition that's suddenly come in?
Okay, Swamy. I'll take it, Swamy. Basically, Tarang, it's a cascading effect. I think it started with that and then, so obviously, like I think what we had mentioned about is the stocking because of the more demand during the COVID period. That particular when we are talking about stocking is across the entire value chain. It starts from the pharmacist to the distributor to the manufacturer. As you'll appreciate the fact that they have to sell the product within a certain shelf life, because anything less than one year, I think the distributor would not buy it and sell it in the pharmacist level. Obviously there is a heightened pressure in terms of everybody trying to liquidate, and that is the predominant reason.
It also has a cascading effect because when people are not able to sell it, they would like to go much lower in terms of the pricing to ensure that there is some value rather than destroying the product. That is the main reason we clearly say. We have used this opportunity to relook at our end-to-end inventory, and as Subbu has mentioned in the opening call itself, we already improved to the extent of INR 64 million, and we would like to continue our effort for another quarter or two minimum to ensure that we are able to further improve our time.
Okay. Thank you. Thank you and all the best.
Thank you, Tarang
Thank you. Next question is from Anubhav Agarwal.
Yeah, hi. Just one clarity on the U.S. business. Is this a new base that on which we should only grow from here in the sense that there are multiple tailwinds for us, injectables are yet to normalize, Cyclophosphamide yet to contribute, yet to get full contribution from several ANDAs. This $400 million, I know difficult to say, but what's your confidence level? Is this a new base for us?
I think I would [crosstalk]. Go ahead, sir. Go ahead, sir.
We cannot tell this is the base, but we want to see one more quarter as a safe side. We can tell where is the base in this whole thing. As you told, the price erosion and channel stock adjustment both in orals and ARV. ARV side also a lot of stocks are piled up in various levels. Injectable etanercept or something. There is a lot of things that happened last one or two quarters other than the expenses increased by the utility expense like coal or other than the raw material and whatnot. Everything came in one or two quarters.
No, I appreciate that. My question was only on the U.S.
Yes, we can tell you after one quarter.
Yeah, Anubhav, I'll put it this way to just add to whatever Mr. Reddy said. I think as he previously explained, I think, to add to your point that injectable and other divisions would start. Like I think you can consider that as a base. Then for overall, as Mr. Reddy rightly said, we may need to wait for another one or two quarter to see whether this is the bottom or it would even go down a bit more. That is the reason we are trying to be cautious, Anubhav.
That cautious outlook is coming because, you still think that there is a lot of inventory left with other players, they still want to liquidate it? As you would appreciate, Anubhav, it would be extremely difficult to judge how much who's holding and how long they would like to, I think, take to liquidate, as you would appreciate, because, it won't be more than, at least couple of quarters is what our assumption-
Definitely we are the near end, Govind. Near end, that's what we are telling, one quarter more.
One quarter, I think. Yeah. One quarter or maximum another, instead of three months, it could be four or 4.5 and 5.months think.
Yeah, not more than because the product expiry generally 24-30 months. Average you take it 24-30 months. It already started from 20th 2020 June or sometime, and it ending now in next one and a quarter month.
Okay.
Afterwards, the product can never be sold if it is less than nine months or so.
Okay, that's helpful. Second, what was the global injectable sales in this quarter across all geographies?
Global injectable sales during the quarter is around $105 million.
Can you detail some plan on China because I think at the start of this calendar year, you talked about getting eight to 10 approvals, but how many approvals have you got and what is the total filings you have made in China so far?
We have filed around 28 products, and two products are approved. We launched two, one we got the bid in the tender bid. Another one is a retail product, and we are expecting another five, six products approval in the next three to four months.
Sir, wasn't this the same status that we filed 28 ANDAs at the start of this calendar year itself, so we haven't made any incremental filing in China so far?
No, the ultimate filing from India and then goes to China office and China filing, maybe last, call it may not be 28. Now, how much, Subbu? Correct exact number? China filings.
Arvind, do you have the numbers already?
I'll reach out to you and I think.
We have filed in this quarter around three to four p roducts. This is all filings are happened from Aurobindo India. We started our production in the new plant in China plant. One product we have taken exhibits, and we are taking every month two products from early next year onwards.
Around 30 products, Anubhav.
Yeah.
Okay. Sure. Just the last clarity on this ARV contract. When is the next contract negotiation due for TLD for us? I think, it was a three-year contract for us. When is that coming for next renegotiation?
You're specifically talking about probably South Africa. That already like I think they have asked for the bid, and we have given the bid also. Like it might take another six months for us to finalize that I would say. The procurement will start nine months from now or so. That is South Africa. Other agencies will keep continuing to ask for the bid whenever I think they liquidate their stock, Anubhav.
What is the sense you're getting? Is this getting more competitive now more players have come in the TLD market? Because you were the [crosstalk].
More than the number of players, Anubhav. See, one thing we have to remember is whenever people come under pressure and when they reduce the price and the price are not likely to immediately improve, I think that would become the new base. It's not more because of the new players entering it. It's more because of the stock people are having, which they are trying to liquidate in terms of going aggressive on the pricing. That is a challenge.
Okay. Thank you, guys.
Thanks.
Thank you. In order to ask a question, please click on the Raise Hand option on the bottom of your screen. Next question is from Prakash Agarwal.
Yeah. Am I audible?
Yes.
Yeah. Hi, good morning. My first question is a little clarification. Just wanted to understand, you know, the sales of that OTC basket that we bought. Has that also been clocked in? I missed that comment.
Yes, please.
How much would be the contribution, sir?
I think Subbu mentioned INR 9 million.
Yeah.
Okay. Sorry. Thank you for the [crosstalk].
Total this year run rate for 11 months is approximately INR 35 million-INR 38 million.
Okay, that is helpful. Thank you. The second question is on the receivables which have gone up. Just trying to understand, you also mentioned there would be a self-stock adjustment. How do we see the receivables unwinding, or have we pushed enough sales, given the pricing pressure was there, but still, you know, we've done good sales number. How should we see this receivables unwinding?
Prakash, the receivables during the quarter have not gone up. Actually, overall, if you really see the receivables has come down by about $5 million, right? Maybe regarding the question how you see it for future, Swamy can explain.
What is that?
How the receivables going to look in this scenario? That's what he was asking.
More or less same, Subbu.
More, yeah.
I can see receivables have gone up by 20% over the last six months.
No, you compare between June to September. June to September it has come down. March was the lowest actually. We have explained in the last quarter itself there was an increase in the trade receivable by about INR 69, 68 million. Last quarter we explained it, and that's what the overall working capital has gone up last quarter by INR 86 million. This quarter, conscious attempts have been made by the company in all fronts, both the inventory and trade receivables, and it has been reduced actually. Between June to September, there is a reduction in the receivables.
You are saying this is the base, unlikely to see a [crosstalk]
Unless you see a major change, unless the sales is increasing, I mean, more than the normal.
Perfect. Lastly, on the margin outlook front, I mean, definitely, as Mr. Reddy also mentioned, there has been significant cost pressures, solvent prices and power and all those things have gone up. How do we see our gross margins and EBITDA margins for the next 12 to 24 months, given that, you know, the portfolio, as one of the participants said, there is enough headroom for growth in terms of U.S. sales increasing share?
The cost will come back to normalcy, you know, like coal or like solvent prices, everything. After the Winter Olympics, then we are hoping in the first quarter, last quarter, January to March quarter end also. Costs we are assuming it will come near to the normal. As far as one more quarter, as we told we want to see that, then we want to see where we stand in the pricing pressure. We are not expecting much bigger upside, you know. We want to test it the way it is the base. This quarter is the base, next quarter is the base.
Understood. No, follow-up is on the cost, operating cost front. We have seen significant cost savings and cost optimization. How much headroom we have, given the fact that, you know, the raw material cost is still increasing, and September was the first month probably.
Yeah.
Companies saw significant rise, and now we're gonna see the full quarter. I'm saying, what is the position we have on operating cost side, which we have demonstrated very well in the last quarter? I mean, is there further scope for cost savings?
Yeah. We are working across the company in various models are working very effectively. This is the time we have to save the next one or two quarters, then we can maintain the cost neutral.
Okay, perfect. What is the CapEx guidance, sir, for the next two years, this year, next year?
Subbu, you want to tell?
Prakash, we have incurred a CapEx. On the normal CapEx, we incurred $122 million in the off year and $60 million in the current quarter. Right? As has been said, this year we'll expect to do around $200 million against this because we have $80 million leftover, and we will try to control the CapEx within this. Apart from that, we have two other CapEx, which is the acquisition of ANDAs and the brands, which is over and above your M&A acquisition costs. The PLI project as and when we take up, this also will get incurred.
No more new CapEx in the next two years.
Next two years? Yeah. That's it.
No more. Almost negligible, zero CapEx other than already approved and ongoing projects.
Which is about [crosstalk].
Okay. This is, we have mentioned in the past, it's about $200 million per year, right?
Yeah.
What I've been saying, yeah.
Okay. Thank you. Okay, sir. Thank you so much, and all the best.
Thank you. Next question is from Shyam Srinivasan.
Morning. Thank you for taking my question. First one is on R&D. It's gone up this quarter, and I also see quite a lot of filings, about 27 filings at least in the U.S. What are we filing? The frequency has picked up, so which is what I'm trying to understand. Did it get bunched up, or have we moved to a different level of R&D filings?
No, I think we are still maintaining the same level of filing what we have committed earlier, like I think around 40-50 filings per year. Like, I think sometimes you cannot measure it on a quarter-to-quarter basis, Shyam.
Got it. Govind, just the quality of the filings as well. I know I can see five injectables, but if you could share any color on, you know, or is it the regular stuff that you've been updating us on, the different kind of filings we have?
No, I think as we move forward, it will be more skewed towards—I mean, our injectable and complex would be like more as we move forward. Like, currently, like I think I would say, as you rightly said, around 20%, 22% is like more in terms of injectable. As we move forward, like, I think it will be more skewed towards complex in the futur.
Got it. The second question is just on, you know, capital allocation. We have paid a dividend this quarter. Just want to understand how should we look at, you know, capital allocation. What are some of the priorities that we have? You know, we are a little bit net cash, but maybe we'll generate more cash. You made the comments around CapEx. There is no incremental CapEx other than what's going on. How should we look at, you know, capital allocation?
No, I think the capital allocation has already been as we have defined in the past also. Our objective is not, we are not looking for any large ticket acquisition, and our acquisition strategy is revolving around the two bullets that we are always maintaining. One is in terms of, like, market penetration, and the second is in terms of any new platforms or any new set of products or ANDAs or any. We'll also be looking at some in-licensing opportunity in AccurMedTech as well. These are something which are very clearly defined, but obviously we are not looking at any large ticket acquisition at all. As you would appreciate, like I think over the last decade, we have grown our top line by 8x and have consistently generated cash flows.
However, in the past, like, the cash was utilized to service the debt, and now that the debt has been completely removed, and then, like, we are generating cash. Our objective is, I mean, to look at like I think there is committing more pay out to the shareholders in the future. I think that is something which will be articulated by the board as well.
Yeah. It's right.
Got it. Last question from my end is, Govind, any update on the PLI, what are CapEx status there? Any update in when is the earliest commercialization possible? If you could share something. Thanks.
As far as the PLI one is concerned, Shyam, the discussions have been initiated with the government, and they are also looking at various options and we are in discussion. We will have clarity in the next, probably like in the next two weeks or before the end of the year is what I would say, Shyam. Because our objective is before we start investing, major CapEx, we wanted to ensure complete clarity. That's what we are discussing. Another four to six weeks, we should have complete clarity, or maximum by year-end.
Okay.
We'll talk specifically about the CapEx.
Got it. Thank you, and all the best.
Thank you, Shyam.
Thank you. Next question is from Neha Manturia.
Kiin terms of filing papers for Europe. Second, on the complex injectables, particularly the long-acting injectables.
Okay. Shall I take it, sir, or?
Yeah. Okay.
Okay. At this stage, we have concluded a successful licensure clinical trial for our second oncology biosimilar, and we are in the process of engaging with EMA and filing a product in this financial year itself. We are also having three more biosimilars at different stages in our licensure clinical trials, out of which a biosimilar monoclonal antibody that is currently being evaluated in a large Phase 3 efficacy and safety trial, which will be potentially filed by next financial year. Our development efforts with our second wave of biosimilars are also entering into an important stage, with one product advancing into phase III clinical trials in the last quarter of the current financial year and also another in next financial year. As you might be aware of it, like already one product has been filed with EMA.
That is the status, Neha. On the complex injectables, particularly on depot injection, I think by next year we should be at least filing one or two products.
Thank you, sir.
Is the clinical trial going on in the complex injectable? Just started the clinical trial. Mm-hmm.
Thank you, sir.
Thank you. Next question is from Nitin Agarwal.
Hi, thanks for taking the question. Govind, just getting forward on the PLI scheme that you mentioned now. This delay which is there, so what was the expectation, how does it change your arrangement for us for incentive structure and everything?
Nitin, I presume your question is on PLI.
Yes.
What I understand from your question is, like I think, since there is a shift in terms of the timeline, would your overall scheme also would get shifted? Is that the question, Nitin, if I understood it right?
Yes. I mean, how does it impact our economics in this whole thing now?
Yeah. I think that is also another point of discussion, which is being considered by the government, Nitin, at this juncture.
Okay.
As you would appreciate, we need complete clarity to start the project, and that is also part of the discussion which is ongoing.
I guess, just to sort of rewind, from the time you start the CapEx on this project, it will be what, 18-24-month construction period, or what kind of construction period do you foresee on this?
It would be 18-24 months is for sure minimum, Nitin. Again, what is more important is, like I think for the scheme as well as for us is also the starting date is important of having clarity and committing ourselves for the larger CapEx.
Like the vaccine portfolio [audio distortion].
Nitin, your voice is not clear, Nitin.
Is this better?
Far better, Nitin.
Yeah, sure. Thanks. Sorry for that. On the vaccine portfolio, both on the bacterial and on the viral side, can you just give us an update on where we are on both the schemes?
On the bacterial, as you might be aware of it, like I think, our pneumococcal is in Phase, a nd we expect to launch it in India at least by Q3 next financial year. Obviously we will start with India, because after that, after six months only we can pursue the approval for the WHO, which can also push us into the UNICEF. That is as far as pneumococcal is concerned. There are one or two products additionally being pursued on the bacterial. On the viral, unfortunately, like there are no major changes in the scenario in terms of the vaccine product and, so obviously currently this facility would wait for the COVID vaccine product to get into that particular facility over the next three years or so.
Till then, it will be running more of clinical batches supporting the COVID vaccine submission.
Second, just to follow up on the bacterial vaccine you talked about, launch in India in the second half of next year. This is gonna be what, we expect it to be a part of the government immunization program by the second half of next year?
It all depends on, like, I think what scheme is open by then, Nitin, because it all, if they had called it, earlier than that time, then we may not be able to participate in that. But I mean, we will still participate, but they will not clear it until and unless the approval comes, right, Nitin?
Right. The WHO opportunity you said you can apply after six months. When does it start to become relevant for us from an overall export opportunity perspective for this product?
From the subsequent year onwards, Nitin. Because in the interim, like the facility also has to be inspected by WHO for them to get this product qualified in their listing as well.
If we can squeeze in a last one. On the acquisitions that you've done on R&D and brands this year, we spent almost $125 million odd. Two things. One is, what is the thought process behind committing such large investment behind these products? And two, what kind of payback or opportunity do we see in these in this portfolio that you acquired?
Swami?
Sure. Thanks again for the question. One is there's a nutraceutical opportunity that I think, Subbu had explained and Mr. Reddy had also mentioned. It's on the nutraceutical We are fairly bullish on that, especially this is a branded nutraceutical. That's a major acquisition dollar wise. The others are, we also mentioned that we are looking for ANDAs, not for any big time acquisitions. These are ANDAs where we do not have and we wanted to add to our portfolio. As far as the payback is concerned, I would only say that, they are good and, we expect because we are yet to launch some of these products. They are discontinued, some of them are discontinued ANDAs that we hope to launch. We would get a better feel over the next few months.
We believe that we have reasons to be very optimistic about it. Yeah.
In this nutraceutical portfolio, the $35 millions-$38 million run rate that we talked about for the business.
That's correct.
It is captured in the orals business.
Subbu, you should explain where we capture.
Yes. Head of injectables business in the U.S. Nitin, you should take that.
Okay. Sure. Okay. Thank you.
Thank you. Next question is from Surya Patra.
Surya, you have to unmute.
Please unmute yourself and ask your question. Okay, next question is from Naga Sridhar. Please unmute yourself. We request you to please raise your hand from the bottom of your screen to ask a question.
Hello. Yeah, Naga Sridhar here. Good morning.
Yeah.
I just want to get an update on your plans for COVID portfolio, please, including vaccine.
I think, Mr. Naga Sridhar, we have already explained about the vaccine. Unfortunately.
Yeah, just joining late, I couldn't hear it properly.
No problem. I'll repeat it. The Vaxxinity product did not go as planned and obviously, like I think, they did not get approval with the FDA, which and they didn't move forward. That is where we stand as far as vaccine is concerned, even though we are pretty open in case if any opportunity occurs in terms of contract manufacturing, that is on the vaccine. As far as oral portfolio, like, I think as you might be aware, that we had licensed molnupiravir from Merck, and we are recently seeing that certain MHRA approval has happened, which facilitates us to export certain quantity of product. We are to wait on domestic market based on DCGI's approval.
Either whether DCGI would consider based on MHRA or as far as, like, U.S. approval is concerned, the AdCom meeting is scheduled on November thirteenth, and we are pretty much ramped up ourselves in terms of the potential opportunity. We already made certain quantum of product, and we are also keeping ourselves ready in case if the demand picks up.
That's fine. Just one more question, Subbu. This is with reference to this PLI scheme. Do you think it has been delayed more than what it should have been? Do you think it should have been already launched? The timeline should have been much faster from the government and the industry.
As for the scheme itself, like March 2023 end is when I think the facility was supposed to be commissioned. As you would appreciate, Naga Sridhar, the scale of these projects are much larger where it is very, very important for both the industry as well as the government to ensure that every aspect is cleared and concluded before you commit yourself for a large scale investment. That typically some time has to be assigned. I agree with you, it could have been done faster, but this is where we stand, and we are fairly confident this will get concluded in the near future and we'll move forward with this, Naga Sridhar.
Thank you, Mr. Subbu. Thank you all.
Thank you. Next question is from Abhishek Kapoor. Please unmute yourself and ask your question.
Hello.
Yes, you can ask.
Good morning, everyone. Sir, I appreciate the management's bandwidth on giving clarity with respect to various questions. The only one point I would like to make here is that last quarter we made some announcement with respect to veterinary API of some company's acquisition. After that, the price, share price collapsed and it has not recovered. Second point is pledging, de-pledging is happening very quickly and market is not liking, I believe. Can we think about some buyback once our CapEx is done?
Abhishek, this will be considered by the board is a simple answer I would give you at this juncture, Abhishek. As we had mentioned earlier that we would consider all options in terms of improving the overall aspects, including shareholders' wealth. I think definitely the board would consider it at appropriate time.
Thank you, sir.
Thank you. Next question is from Deepak Gupta. Please unmute yourself and ask your question. Okay, Deepak Gupta, yeah.
Deepak, are you able to hear us?
Okay, we'll go ahead. Next question is from Vishal Manchanda.
Thanks for the opportunity. Sir, my question is with respect to the injectables guidance, $650 million-$700 million. Just wanted to understand if you are also incorporating the upside from biosimilars and vaccine into this injectables sales guidance, and whether this is a guidance for the global sales number.
It is for the global sales number. As far as biosimilar and vaccine is concerned, they are not included in this as such. There can be always certain marketing arrangements, but the upside would be lying with the individual businesses.
Okay. Second, on the ARV sales, was this quarter kind of the base and it should move up from where it is, or there is scope for this to further go down?
I think Mr. Reddy has clearly articulated even for ARV. I think we need to wait for another couple of quarters, Vishal, because we don't want to assume that it has bottomed out. The consumption in the ARV has not come down at the consumer level. It is more in terms of the last mile connectivity and also because due to COVID, because of it, most of the agencies are holding stock. Once that gets liquidated. Right now, what is happening is small tender also people are extremely aggressive in terms of reducing the price because they want to liquidate their stock. I think we need to wait for those particular inventory to get completely liquidated. After that, the stability would come. Even though the stability and consumption would happen, the prices would be a bit more lower.
I mean, rather the bit, the prices will be lower compared to the past because once the prices have been lowered, it will take some time for it to come up.
Okay. Thank you. That is helpful.
Thank you. Once your name has been announced, we request you to please, before asking your question, please mention your company name and then ask your question. Next question is from Anubhav Agarwal.
Hi, this is Anubhav from Credit Suisse. One question on the respiratory filings, Govind. I think you guys have made one filing so far. Can you update when you are expecting the next filing on both MDI and the DPI side?
DPI work is going on, and that is with the alliance with some other company. One DPI product only we are working. Second one we are working with the, with some other partner. DPIs we are not developing on our own, and what we are developing is MDI. Second MDI, we are hoping in the first quarter of the next financial year, we are hoping if our PK study and clinical studies is just started in that, if that completes, then we can file it, second product. First product one, we have the queries raised by FDA. We have answered two weeks back, and that we hope that the inspection will happen in next one or two months, then maybe approval next year.
Totally six MDIs are being developed, just to add to what Mr. Reddy said. Totally 6+2=8 .
Eighth and seven yeah. Six MDIs and two DPIs. One has been already filed. Yeah.
Two DPIs is the partner agreement.
Out of these six MDIs, let's say, we have one we have filed. Out of the remaining five, Mr. Reddy talked about potentially filing one in quarter one next year.
Yes.
How would remaining four? Do we expect any more filing of MDI next year?
Next year, yeah. That is maybe end of next year, third one can be filed. That is the three we have clarity. Let us file this other two, then we'll let you know the other products.
Sure. Just getting some clarity on the PLI thing, what is the kind of clarity that you're seeking from the government? Is it more that the contours of the scheme I think were very clear? Is the clarity more the incentive structure, or is the clarity that you want to do a certain CapEx? Is it that you want to do more downfield CapEx? Does that qualify under the government scheme? Can you talk about what the points you're looking for clarity on?
Yeah, Anubhav. I'll make it very simple. When Pen-G, originally when the draft scheme was there, it was supposed to be Pen-G and 6-APA. In the final scheme, it was only Pen-G. We wanted to also like, manufacture 6-APA because the 15,000 tons of Pen-G when we had committed ourselves, like, I think we are very clear that majority of that would be converted into 6-APA. The process which in fact originally Aurobindo developed, where we don't need to isolate Pen-G to manufacture 6-APA. But since the scheme is only for Pen-G, like, I think we were raising the query in terms of like without isolating the Pen-G, whether it can be considered as part of the scheme. Otherwise, we'll be unnecessarily losing certain yields as well as commensurate costs. I think that is the reason.
That is as far as 6-APA and in terms of Pen-G scheme as well. Also in 7-ACA, there has been shift in terms of certain cephalosporins moving into these 7-ACA as a starting material. These are the major queries. Obviously also like related timeline is something which we had been raising about. These are the some major topics in terms of the discussion.
Yeah.
Okay. That's helpful. Last question is on the new facility that we were making for the injectable business in Vizag. In your guidance, when you talk about $650 million-$700 million, do you expect? You guys have talked about this facility coming online around June next year. Does that or the June timeline assume it to be cleared by the European regulators, or does this June timeline only talk about facility starting?
New facility starting at the end of next year, the inspections will be completed. That is what we are hoping. In next financial year.
The kind of delta that we're assuming in the injectable sales, effectively it will be first year of operation fiscal 2024 for the [crosstalk].
Yeah, right. Yeah, it's from January 2023 onwards.
Are we confident of that $615 million number? Because we need to generate the $250 million incremental data almost like two to 2.5 years from now.
We have, because our U.S. plant, we are already filing, and we have 59 products in the filed and under approval, and various other good products are there, and we are really confident it will achieve this figure.
Well, actually, U.S. I don't have a problem. I was talking more about the ex-U.S. injectable data that we were expecting that if anything happens to the facility, let's say for example it doesn't get approved in time. I'm just talking about [crosstalk].
At present we are using the existing facilities at present, Unit 4. What we plan for that is in future all products approved in U.S. facility, then we may not allocate the space for Europe and emerging market. At present we are using the existing unit for bigger facilities and things. This, we want this plant only from 2023. That is what we have envisioned. From there onwards, we will demand, we can push to that other plant.
No, I agree with that. That's why I'm asking that let's say if the approval gets delayed for the from the European regulators for this facility, does this mean that, you know, our target of $650 million-$700 million gets pushed out by a year? Because that's always possible.
We have a lot of clarity. There is no connection to the Europe and emerging markets. We have never calculated next two years when we have not calculated the Europe sales in that.
Can I add one point? There is, you know, oncology filings which are happening in Europe, and also the Penem Block is also being expanded, which is not fully utilized for Europe. These two will be additional inputs for injectable business in Europe and emerging market.
Thank you.
Thank you. Next question is from Surya Patra.
Yeah, thank you sir. Thank you for giving this opportunity. Just on the, again, the PLI side, sir, wanted to have a sense. See, obviously we are in discussion with government to get some more clarity and all that. Is it, do you have any sense of, even after getting clarity and all that, what would be the cost difference that we can have, compared to the Chinese competitors for this project? Whether it could be a kind of, considering the incentive, it could be a kind of superior one compared to the Chinese potential competition, or, what is our thought process this?
We're putting so bigger plant. Well, Govind will explain in detail. When we put so big plant, we have done very good homework in this direction on these products. And Govind, you can continue.
I think obviously, Surya, like we are going ahead with a clear consideration that we would be competitive. That's a consideration with which we are going ahead. Surya, you have to remember one important aspect of it. I think Aurobindo has been one of the pioneers in terms of these, I mean, the Pen-G, 6-APA, like I think even setting up a plant in China. Obviously there is enough experience and as Mr. Reddy explained, like there is a deep level of like I think considerations or design aspects, everything has been looked at. Particularly having a facility in a hot zone, like I think obviously like a lot of consideration and a lot of work has gone in and we're fairly confident that we'll be able to produce a product competitively.
Sure, sir. Second question on the European business, sir. In fact, obviously the expectation was to introduce more and more injectables in the Europe side and also add the Penem products in the European market. What is the progress there? Now what is the profitability that we have, or in terms of margins, what level of margins that we have reached for the overall European business? In three years' times, let's say, sir, what is the kind of expansion in the margin overall that we are anticipating for the European operation as a whole?
Yeah, Surya, I will answer. Sanjeev Dani here.
Thank you.
Am I audible?
Yeah, yeah.
Yeah. We would be, you know, touching in the low teens% in terms of EBITDA, including Apotex loss-making business, which has turned around. Going forward, we are adding more specialty products. As you know, in oncology, Eugia products, we are developing 55 products, and out of that, 12 are already filed and nine are launched and another 3 will be launched in the next quarter. You also talked about Vizag facility, which will be ready civil work by June next year, and after that will go for approval by year-end next. There are 50 Vizag injectables being developed. And out of that, 12 are already approved from Unit 4, which is Eugia 3. So as soon as the US supplies are taken care of ex-US, we will be able to commercialize that also immediately.
The Penem Block is being expanded. Right now we are not able to fully supply meropenem, and we are buying from third parties.
No need of products, Sanjeev Dani.
Okay. Then of course, there are another underutilized capacity which will be supplying to Europe from Penem Block. Cephalosporins are also being reactivated, and there is a lot of scope for higher strength of cephalosporins. These are the three areas of injectables that we are looking to add the margins. You heard about biosimilars. We have already filed one, and another is being filed in November. I think this is the overall specialty basket which are there. We are also adding the Tier one products in terms of the oral. There are 200 products which are being developed, and there are a number of them in Tier one.
Overall, we think that we will be improving the margins going forward, even though I would not like to give a guidance on this part.
Sure, sir. Just last question on the Revlimid, sir. Can you give some sense of what is your interaction with the innovator? Are you expecting to settle the litigation.
Yeah. We already settled the litigation and we are also launching from 2023 onwards some percentage of market share.
Sure, sir. Okay, great. Thank you, sir.
Thank you. We will take last two questions. Next question is from Paresh Jain. Please unmute yourself.
No, my questions have been answered. Thanks.
Okay. Thank you. Next question is from Mr. Venkat Bugnini. Yes, please go ahead. Ask your question. Mr. Venkat? Okay, we will take one last question from Mr. Nitin Agarwal.
Hi, sir. Thanks for the follow-up. Just following up on the, you know, the question around nutraceuticals. Just if you can help us understand. We already sold off the Natrol business. How different is this opportunity versus the business that you're doing with Natrol?
This is branded business for a start. That way it is different, whereas Natrol was not. It was more like an umbrella brand. This is specific brands. That's one. Then there are products which are one or two products are common, but there are different products too, like the cold segment is different here. Then this is more on the cold segment, sleep segment. That is what I would say.
This business is gonna be basically built around the products that you acquired or will be adding [audio distortion].
Yes. No, we are adding some more products, but it was started with the products we acquired. These are running business, but we acquired the products in the same way we have launched the same products as we're, we also got some stocks. We launched the business as a continuity of business, but we have not bought the business. We've bought the brands.
Okay. Last one, Govind, where you know, if you can just give us any updates, which are there on the regulatory inspections for us, on the plants, which are under warning letter?
Yeah. The only change is unit one got inspected and we have responded within the stipulated time. We are awaiting further inputs from the regulator. That is as far as unit one. The Aurolife inspection is ongoing. FDA inspection is ongoing. These are the only two changes compared to what we have presented earlier, Nitin.
Aurolife is ongoing currently, you meant?
Yes.
Okay. That is the Penems plant for us, right?
No.
That's unit four?
No, there's an American plant.
U.S. plant.
America and Italy.
U.S. plant, Nitin
Okay. The Aurolife plant in the U.S. injectable is getting inspected right now?
No, no, no.
No. Oral.
Aurolife, already warning letter is there to that plant and that plant is getting inspected.
Okay, got it. My mistake. Thank you. Thanks for clarification.
Thank you. I would now like to hand the conference over to Mr. Arvind Bothra 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 at ir@aurobindo.com. The transcript of this call will be uploaded on our website, www.aurobindo.com, in due course. Thank you and have a good day.
Thank you. On behalf of Aurobindo Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.