Ladies and gentlemen, good day and welcome to Aurobindo Pharma's earnings conference call for the second quarter of FY 2027. Please note, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after management's opening remarks. Should you need any assistance during the conference call, please raise your hand from the participant tab on the screen. Please note, this conference is being recorded. I now hand over the conference to Mr. Varun Mali. Thank you, and over to you, sir.
Thank you, Vandit. Good morning, ladies and gentlemen, and welcome to our second quarter FY 2027 earnings call. I'm Varun Mali from the Investor Relations and Corporate Communications team. We hope you have received the Q2 FY 2027 financials and the press release that was sent out yesterday. These are also available on our website. I would now like to introduce our senior management team who's on the call with us today, represented by Dr. Satakarni Makkapati, CEO, Aurobindo Biologics, Vaccines, and Peptide Businesses, and Director, Aurobindo Pharma Limited; Mr. Yugandhar Puvvala, CEO, Eugia Pharma Specialities Limited; Mr. Swami Iyer, CEO, Aurobindo Pharma USA; Mr. V. Muralidharan, CEO, Europe Formulations Business; and Mr. S. Subramanian, CFO, Aurobindo Pharma Limited. We will begin the call with the summary highlights from the management, followed by an interactive Q&A session.
Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other affirmations on our future business development, and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties, and other important factors that may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will now hand over the call to our CFO for the business highlights. Over to you, sir.
Good morning, everyone. Welcome to Aurobindo Pharma Q2 FY 2027 earnings call. Thank you for joining us. Today, we will take you through our performance for the quarter along with the strategic priorities that we believe will shape Aurobindo's next phase of growth. We are working to translate the scale of the established business, strength of our development pipeline, and the capacities created through recent investments into sustainable commercial growth. Key objective highlights for the quarter: We completed the acquisition of Lannett, further strengthening our U.S. presence and expanding our capabilities in complex and controlled substances. The acquisition provides opportunities to enhance our product portfolio, leverage our existing commercial capabilities, and drive incremental growth. The A1 Biochem acquisition makes an important step towards establishing an integrated end-to-end small molecule CRDMO business with capabilities spanning the value chain and experience of handling the development portfolio of more than 800 projects.
We launched ADQUEY, our first new chemical entity NDA product for atopic dermatitis, alongside the launch of the dedicated dermatology business and unit focused on developing and commercializing high-value dermatology products. The launch of key products such as gAdvair and the approval of gQVAR mark the milestones in our expansion into the high-value respiratory segment, leveraging our capabilities in complex inhalation products. The Raleigh unit recently received a VAI classification, supporting the regulatory pathway for additional filings and approval in transdermal, dermal, and respiratory products, and reinforcing our plans to expand in these differentiated segments. Business performance: We are pleased to report our highest-ever revenue for the quarter of INR 10,263 crore, representing year-over-year growth of 24%. This performance reflects contribution from our core markets, successful integration, and continued progress across our strategic growth priorities.
Operating EBITDA was INR 2,156 crore, growing at 28% year-over-year with a margin of 21%, despite increase in input cost and freight rates. Our focus remains on sustained profitability through product mix improvement, manufacturing efficiencies, and disciplined spending, and better utilization of our assets. Formulation generated revenue of INR 9,102 crore, growing 24% year-over-year and accounting for approximately 89% of the consolidated revenue. Our formulation franchise continues to benefit from its geographical breadth, product diversity, and ability to compete across a range of market segments. API revenue stood at INR 1,162 crore, growing 21% year-over-year and contributing approximately 11% of the overall revenue. In addition to this direct contribution, API business supports the reliability, competitiveness, and integration of our broader manufacturing model. In the U.S., revenue was INR 4,555 crore, equivalent to $477 million, reflecting growth of 25% year-over-year.
Our focus remains on maximizing the potential of our established portfolio while accelerating the launch of complex and differentiated products, which are expected to contribute increasingly to our growth and product mix. During the quarter, we launched 10 products in the U.S., filed seven ANDAs, and received 12 final approvals. Europe delivered revenue of EUR 288 million, with constant currency growth of 18%. We continue to build on our established market presence, broad product portfolio, and operating capabilities. Revenue from growth market is INR 1,026 crore, or $107 million, representing year-over-year growth of 16%. Our approach is to deepen market presence, broaden access to our portfolio, and sustain momentum across the Priority geography. ARV formulation was $38 million during the quarter, supported by stable volume. Profitability, investments, and financial position.
Gross margin for the quarter was 61.2% compared to 59.7% in the corresponding period last year, while contribution stood at INR 6,280 crore. We continue to focus on product mix and procurement discipline and operating efficiency as levers to strengthen profitability. Total capital expenditure stood at $89 million, of which $47 million towards the development capabilities and $42 million towards strategic priorities, respectively, thereby supporting our future growth plan. R&D expenditure for the quarter stood at INR 376 crore against INR 344 crore in the previous quarter. Our development investments are directed towards advancing differentiated products and building a pipeline with meaningful long-term commercial potential. We have generated a very strong cash flow of $146 million during the quarter after funding strategic investments and capital allocation initiatives and closed with a net cash position of $189 million.
Our balance sheet provides the sound foundation to support planned investments while preserving financial flexibility. Average finance cost was 4.9% and profit after tax for the quarter was INR 1,124 crore. Going forward, our focus will be continuously improving capacity utilization, enhancing product mix, driving manufacturing efficiencies, and maintaining tight working capital discipline. Outlook. Our growth strategy is supported by key drivers, each with a distinct commercial pathway that collectively diversify our sources of growth and reduce reliance on any single product. Strengthening and monetizing our U.S. business. In the U.S., Lannett acquisition has broadened our presence in complex and controlled substance. The focus is now on effective integration, portfolio development, and leveraging our established commercial and manufacturing capabilities to capture the value of the asset. Expanding our differentiated product portfolio. Complex generics remain central to our strategy of moving towards a more differentiated product.
Respiratory therapy, including dry powder inhalers and metered dose inhalers, represent an important opportunity. The recent approvals and launches demonstrate progress in this area. Our focus is on advancing regulatory milestones, converting development work into launches, and building a sustainable portfolio in technically demanding category. Biosimilars and specialty products represent important opportunities to strengthen our presence in complex and high-value segments. We remain focused on advancing our pipeline, building commercial capabilities, and pursuing opportunities that offer strong market potential and attractive long-term returns. CDMO focus. The A1 Biochem acquisition marks a significant step towards building an integrated end-to-end small molecule CRDMO business. In parallel, Lannett manufacturing capabilities, including around 70 commercial product families, provide opportunities to expand CDMO offering, deepen customer relations, and diversify sources of growth. Our focus will be on converting the development pipeline and available capacities into sustainable customer programs and commercial outlook.
Additionally, our biologics contract manufacturing business provides another avenue for growth, complementing our capabilities and broadening the overall service offering. Improving utilization and leveraging integration. Our China oral solid dosage facility is entering into a phase where execution and capacity utilization become increasingly important as supplies to international market expand. Our focus will be on customer conversion, consistent delivery, and scaling production in a commercially disciplined manner. Our API and backward integration capabilities remain an important competitive advantage, strengthening the supply security, ensuring quality and cost competitiveness. We continue to leverage these capabilities to drive operational efficiencies, improve cost structures, and enhance overall business competitiveness. Capital productivity. We will continue to maintain a disciplined approach to capital allocation and balancing investments, and the objective of generating sustainable cash flows and improving returns on capital employed. Strong working capital management and operating efficiency and balance sheet discipline will remain key priorities.
Our long-term ambition is to build a business with a higher share of differentiated products, multiple sustainable growth drivers, and an improving return profile. We believe our established scale, combined with the increasing contribution from newer businesses, will position us to deliver sustainable growth and long-term shareholder value. FY 2027 guidance. For the remainder of the year, our focus will be on sustaining execution across our core businesses while accelerating progress across our strategic initiatives. We reiterate our FY guidance with a double-digit revenue growth, EBITDA margins north of 21%, and absolute EBITDA in excess of INR 8,000 crore, with a potential upside from positive outperformance in our high-value strategic business area. We remain fully confident in our ability to further expand our EBITDA margin to upwards of 28% in the coming years, supported by resilience of our core business and increasing contribution from strategic growth drivers. Thank you.
Our management colleagues will be happy to answer your questions. Thank you.
Thank you. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. Please raise your hand from the participant tab on the screen to ask questions. The first question is from [Neha]. Hi, Neha. Are you able to hear us? We will go to the next. The next question is from Damayanti Kerai.
Yeah. Hi. Good morning, and thank you for the opportunity. I have two questions, two broad questions. Sir, you mentioned in the longer term, you would like to target this 28% EBITDA margin from 21% currently. So, can you help us understand what timeframe you are talking and what will be the key segments or growth levels which can help you to reach this number?
Yeah. Damayanti, this is not 28%, 22%, I said.
Okay. But yeah, I think if you can help us understand how market trajectory will move from here.
Yeah. One is Lannett itself, they are trying to integrate effectively and then improving the yields and the capacity utilization. Plus other businesses like China will plan to start delivering in a big way. Plus, we are also having the biosimilars, biologics, et c., coming in the coming years. So, we will be able to do. There are multiple levers are there, and we will be able to achieve that comfortably, in my view.
Sure. My second question is, during the quarter, we saw very strong performance in API and Europe segments. Although, like other segments also did well, but these two stand out in my understanding. So, again, if you help us understand what led to such strong growth, how sustainable these growth will be from ongoing perspective?
I would request Muralidharan to talk about it.
Yeah, sure, Subramanian. Thank you for this. Thank you, Damayanti, for your compliments. Europe has been consistently delivering the promised results, and Q2 has been a very strong and robust one for us, despite the holiday month of August coming in between. I have always mentioned, we have a very well-set team, total and thorough understanding of the market opportunities, and excellent support from our rear end in terms of supply chain and headroom in manufacturing capabilities and capacity in the process. Some of the opportunistic products that are needed or delivered fast or by air route and things like that. Multi-various factors contribute towards this robust performance. What we anticipate in the upcoming quarters is this growth will be sustained. I hope I'm clear.
Yeah. Sure. Will the supplies from, say, China facility and Vizag also were big contributors towards this performance?
It has started contributing. China, we started delivering first of the products about 15 months ago, but now it has started gaining momentum. We have got upwards of around 15 products coming out of our China facility. Of course, Vizag also will start delivering more and more products now, if you are referring to Vizag injectables. At the same time, our Vizag Unit 15, which is Europe-focused manufacturing unit for us, is one of the principal suppliers and the contributors to our European sales.
Great. Are we reaching break-even for, say, China facility?
We will be achieving the break-even this quarter, Damayanti.
Okay, so we are almost there. Okay.
We are almost there. Yeah.
Yeah. Okay, sir. Thank you. I will get back in the queue.
Thank you. The next question is from Tausif Shaikh.
Good morning. Thanks for the opportunity, and congrats on a good set of numbers. My first question is related to EBITDA margin, which has seen a sequential improvement despite the integration of Lannett, where the margin is lower compared to our company's profile. Can you share some insight on the same, whether this quarter reflects some of the cost rationalization benefit, and how would be the upcoming quarters related to Lannett?
We had an increase in the raw material procurement cost due to the Gulf issue, but still the overall impact of the cost has not gone into the consumption. It will be happening in the coming quarter also. But the overall performance has been improved because of the improvement in the operating leverage across the units. As you rightly see, the Europe unit is doing well, and the U.S. and other units are also doing well. Even Lannett also started improving. Probably Swami can talk about it in detail at this, when the time comes.
S ir, does this quarter reflect any of the cost rationalization benefit which you have done for Lannett?
Cost escalation benefit?
Rationalization.
Yeah. I will take this question.
Yeah, yeah. Please take.
Tausif, first and foremost, I want to tell you, I want to correct your impression that Lannett pulls down the EBITDA. Lannett is, by Aurobindo standard, it is doing well. I mean, overall, whatever kind of EBITDA we have, we are very close to it. That is what I would say. Yes, the second question that you asked about SG&A rationalization, I mean, the cost rationalization, yes, we do have impact of that. It is reflected in our quarterly results to the extent it is applicable for the quarter. We will continue to benefit from that kind of rationalization. This is a long-term approach that we are adopting. It will be in different phases. We have reached certain cost targets that we want to rationalize, and we will continue to do so.
That is helpful. My second question on the recently launched specialty product, ADQUEY. How much investment we have done before the launch, and have we set up any field force for the same?
Yes, we have set up field force for the ADQUEY launch, and they are all in place. We had them in place in September, prior to the launch. I cannot discuss about the number of people that we have, but we have adequate number of people. We are very upbeat about the product, at least what we have seen. It has been launched in the month of October. We believe that this is quite encouraging, and the infrastructure is all built up for successful launch and continuation of this. The way it is going, it will continue to do well.
That is helpful. I will get back in the queue.
Thank you. The next question is from Shrikant Akolkar.
Hi, good morning. I have two questions. Firstly, on the Raleigh unit which got clearance. I just want to know how many complex products do you see getting launched? We also have partner inhaler assets, if you can provide some update on that?
Yeah. On the Raleigh, there are two kinds of products that we have. One on the derma side, and we also have on the inhalation side. You may be also aware that we got approval for the inhalation product. That is one we will be launching once we are ready. We also have a few products that's lined up, where either they are in the stages of filing or it has been filed. So we expect those also to be added up. I will not be able to disclose how many products, but we have adequate number of products to keep the facility busy. Apart from this, we also have the derma product that we will be launching from that place. We already have one product, which is a relatively smaller product, but we will also have additional products that's coming out from there.
You also may be aware that we have certain derma facility, R&D facility in India, so that would also contribute a few products for manufacture there.
Understood. On the partnered inhaler assets?
Partnered inhaler assets, we already have one partnered inhalation asset, which has been commercially launched in this quarter, the quarter that we are discussing. It was just the beginning, and as we go along, we expect higher volumes and better business in that. That is doing as it is on track, and it is in line with our expectation. We expect it to do better than our expectation, given the circumstance today. We believe that we have opportunities that we were able to enhance our footprint in that. In addition to this, we are also looking at all options because we are very upbeat on this segment. We are upbeat on this particular kind of product. We are discussing with various partners, including a major pharmaceutical company. The major pharmaceutical company, actually, we have already partnered with them, and we expect the product in the future.
Apart from that, we are also talking to other players for partnering or in-licensing few other products. We would see, as the next few years, we would see a lot of focus on inhalation, and this would help us take us to the next level in terms of product offering and opportunities in terms of business.
A small follow-up there. Is it possible for you to comment on the potential size of these products that we are discussing? Broad number?
Yeah, I mean, broad number, it will mean billions. The market is in billions, so what is our potential is on how much we are able to grab it. It is several billions, I would say. Especially one product that we have partnered, it is a fairly significant value product, and we believe that even a decent market share would give us a fair amount of value.
Understood. The second question is on the Pen-G plant. I just want to understand if there is any change in the pricing, plus the anti-dumping duty. Is there any discussion happening with the government? At the plant level, what are the utilization levels, and are we getting any gross margin benefit yet because of the Pen-G? Thank you.
The first point in terms of the pricing, yes, we understand the six-APA prices have gone up, right? Some 10, 15, 10 days back it has gone up, right? But the impact of it will come to India because the existing stocks have to be liquidated, and it will start reflecting now, maybe in another 15, 20 days' time. That is first point. The second point which you asked is the anti-dumping thing. Yes, we have filed the anti-dumping, and the notifications have been issued by the government. As and when any further development, you will come to know of it because this will be in the public domain, right? The third point which you asked is in terms of the gross margin. In fact, in terms of the Pen-G, the yields are really good, and we have improved significantly, and we expect to be positive EBITDA.
Already, we are in a positive EBITDA, but it is a very low number, but it is expected to go up in the coming quarters in a significant manner. I am talking about without taking into account the PLI benefit. Once the PLI benefit comes also, it will have an impact on it. The fourth question which you have asked is in terms of the capacity. We have the capability to produce 15,000 tons. There is no issue at all. However, we have been producing around 10,000 tons only because we have the Indian demand around 9,000 tons, plus we are also trying to do exports, plus we are also trying to do the captive consumption and then convert it into other products in the family, like bulk in terms of formulation, everything. We are trying to do that.
Hopefully, probably in six months' time, this will go aggressively. Because we have filed it, we are expecting some regulatory approvals and other things.
Understood. And sir, with your permission, last question. In TheraNym, beyond MSD, are we seeing any interest from other companies?
What is that?
So, at the CDMO unit, Biologics CDMO unit, are we seeing any interest from companies other than the current partnership, which is with MSD?
Technically, see, I have told that we are a pure play contract manufacturing organization at this stage and not a contract development and manufacturing organization in biologics. So the entire business model, Shrikant, is built around one anchor customer. So while there has been some interest from a couple of parties, we wanted to be rooted with one anchor customer, build the capability and credibility, see how it goes, and then expand on the business model sometime in the 2030s. But at this stage, the short answer is, the TheraNym product schedules one, two, and three that we have signed with MSD is all centered around one anchor customer.
Understood. Thank you so much for responding to my questions.
Thank you.
Thank you. The next question is from Bino.
Hi. Good morning and good evening, and congrats for a great set of numbers. My question on the U.S. for the quarter, have we got any significant benefit from ADVAIR launch in the quarter?
Binod, this ADVAIR has been launched, I mean, in the middle of the quarter, and it does take time for the momentum to pick up. To your question, short answer is not the full benefit in this quarter that we are discussing. Going forward, you would see higher benefits.
Got it. And we had this shared exclusivity in pomalidomide. Has that been a significant contributor in Q2?
I'm sorry, shared exclusivity in what?
In pomalidomide.
Okay.
Yugandhar, yeah.
Yeah, Yugandhar can answer that.
Yes, it is shared exclusivity between multiple players. It is FTF for a lot of people. Yeah, it is a decent product, but it is not that great out of the sky opportunity. Yes, we got addition share, and it is doing pretty well.
Okay. And it is a decent contributor in Q2, I suppose.
Yes.
Oh. Finally, on this Pen-G plant, is it reasonably up to reasonable expectations in terms of operating leverage, et c., or are we expecting some more operating leverage to play out?
I think it all depends upon how fast, depending upon the policy initiatives by the government. Apart from that, we are also doing on our own how to expand the market also, export market, and also other products also. I mean, in terms of the forward integration, we are trying to do that, and that's the way we are planning to do that. Probably if we are able to achieve around 12,000 tons by next year, I mean, it's a great achievement.
Understood. Thank you. I'll join back the queue.
Thank you. The next question is from Tushar Manudhane.
Am I audible?
Yes, Tushar.
Yes.
While you have given guidance for FY 2027, while not exactly into quantifying on numbers, if you could also share the outlook for FY 2028 now that we are already into November.
I think we can say at this stage, FY 2028 will be far better than the FY 2027 because of the various initiatives and full benefit of the Lannett, full year benefit of Lannett, and also China will be moving up, and as biosimilar is also will be there. With this, we expect FY 2028 will be better than FY 2027.
China OpEx loss would be how much for first half 2027?
I think the first half OpEx loss is around, I think, $3 million-$ 4 million, I think so. In the last quarter, it is around $1 million type.
Got it, sir. Secondly, on Raleigh facility, if you could share, let's say, the capacity for the inhaler products and what kind of scale-up of capacity given the number of products that are getting approved. If you could throw some light over there.
Sorry, Tushar. Can you repeat, if you don't mind?
With respect to Raleigh facility, the inhaler facility, just to understand—
Raleigh?
—yeah, Raleigh. Just to understand the capacity, current capacity utilization, and subsequently plan to scale up the capacity.
Tushar, for the Raleigh facility, right now the capacity utilization is nominal. It is very low because we have not started the MDI product manufacturing yet. We are still in the preparatory stage. As far as the Derma is concerned, we have just one product. It is a smaller product. It does not have that kind of volume. We are looking for the future. I think in the next six months, it will be better, and six to nine months. From there on, I think the capacity will pick up.
Got it. That is it from my side. Thank you.
Thank you. The next question is from Neha Manpuria.
Am I audible now?
Yeah.
Yeah.
Thank you so much. Swami, just on Lannett, if you could give us more color on how the utilization. I remember when we acquired it, utilizations were fairly low. I can see that there has been traction in IQVIA and some of the Lannett products. So if you could give us some color in terms of how we are tracking on utilization Lannett. And Subbu, did I hear correctly that you want to leverage the Lannett capacity for CDMO as well?
Lannett is already doing the CDMO, but Swami can answer.
Yeah. So yeah, thanks, Neha. I think last time also you had raised this question. The Lannett facility is underutilized. We had mentioned this. When we bought it was underutilized. And one of our goals is also to utilize it to the extent we can and take the benefit out of it. These things take time. Regulatory-wise, we have to do filings, we have to get products, and it takes time. So it is going to take time. That is one. Number two, Lannett by itself is profitable at the current level, and it is profitable adequately by any circumstances, I would say, because they have decent products, they have niche products, and they are doing well. Now, we are highly encouraged with the first quarter performance, which kind of exceeded our expectation across multiple operating metrics.
When we talk about the utilization, we are looking at some of the CDMO opportunities, but we do not want to get into some kind of arrangement where we do not make adequate money, adequate margins on it. But we are cautiously optimistic that we will get few opportunities there in addition to some of the products that we will be bringing on board, which are all progressing very well. The integration is progressing extremely well, and we believe this will give meaningful momentum to support our long-term growth of years business. We are very upbeat at this point of time with what we have seen. That is all I can say. I am happy to answer any specific questions you have.
Okay. Just to be clear, sir, the CDMO, Lannett is already doing some, and you will be opportunistic about how you choose to add products there?
Exactly.
Okay. Fair.
Lannett had taken on some CDMO opportunities, and they are there. It is marginal. It is probably 10%-15% of the total capacity or the utilization. But we are looking for opportunities. In fact, we were discussing even yesterday, we had taken up this issue. We had discussed with some partners. This is ongoing process, right? I do not want to jump into something, take on just because we are getting in volume, because we are not in that situation. We are quite happily situated as far as the existing products are concerned, and we are doing well. If I look at all the operating metrics, they are all doing very well. I do not want to bring in something just to increase the capacity utilization. That will come, that will follow anytime.
Understood. Given that we have had ADVAIR, and I think you will have the gQVAR launch, generic launch soon, I think we also had a few more products in the Aurobindo pipeline. I think you mentioned one large product. From what I remember, Lannett was also supposed to file for another large product just before it filed for bankruptcy. What is the status on the Lannett pipeline for respiratory? When should we see those filing and monetization, both for the large Aurobindo product as well as the, I think it was Spiriva for Lannett?
Yeah. I think you asked me multiple questions here. To answer, it is going to take me some time. But let us split it as three different questions. One is our own products, in-house products that we are developing for inhalation, let us say. We already got approval for one product, another MDI product. That is in full swing. Preparations are on for manufacturing those products, and we already started looking for selling those product, that particular product. Apart from that, we have at least four product that we are looking at for the inhalation in the underdevelopment. Some of them, they are all in various stages. Obviously, I cannot disclose that. We are fairly upbeat about the inhalation space, like I was mentioning earlier, because we have got, on one hand, what North Carolina's site is developing.
On the other hand, I also mentioned that we have entered into a partnership with a pharma major. Plus, we also have the product ADVAIR that we have launched. Finally, I also want to tell you that we are talking to other partners around the globe for bringing on additional products in the inhalation space. Some cases, we are in fairly advanced stage of discussion. We believe that this is going to be a major segment that we will be able to exploit in future in terms of business.
Understood. Thank you so much, sir.
Thank you. The next question. The next question is from Kunal Randeria.
Hi. Good morning. Sir, just carrying forward on Lannett. I believe Lannett is marketing insulin glargine in U.S. So has it started? And just want to understand—
No, Kunal, I did not get that product. What is that?
—Insulin glargine. Lannett is in partnership with a company to market insulin glargine in the U.S.
Kunal, Aurobindo part of the Lannett is not marketing the insulin, nor does it have plans of launching it anytime soon. If you are talking about the older Lannett, and they have got the name like Lanex for that company. I do not want to confuse these two things. Lanex is not part of Aurobindo. Lannett is part of Aurobindo, and Lannett is not marketing this, nor has plans to do it anytime soon.
Got it. Got it. As a second question on ADQUEY, this non-steroidal topical market is somewhere around $1 billion. I am just wondering at what rate is this market growing at, and any kind of peak sales that you are targeting, and what would be the economics with Otsuka?
We have launched this product in the month of October. We have a plan for it. We have created the infrastructure. These are brands, these are long-drawn products, and this is our first NDA. So we are also experiencing this. We had some plans, we had expectations for this product. I think at this point, we are in line. It's very encouraging what we are doing. But you must understand that these are all very long-term things because we have to establish the market for it. That's one. And we also have to look for expanding market access and physician adoption. That will take time. But long term, this is an opportunity, and we are very confident about this.
Sure, sir. But can you share—
With regard to the market share, I think we should wait and watch because we have just launched it. It may be a good idea for you to discuss, for us to discuss little later, maybe after a few quarters.
—sure, sir. But can you share what rate is the underlying market growing at?
I am not able to tell you that immediately, as far as the market growth is concerned. But my understanding is that it may be around 20%, possibly. That is one view. I do not want to be overly optimistic, but somewhere around 20% is what my understanding is.
Got it. That is helpful. And just one more if I can. Earlier this fiscal, you launched trastuzumab, bevacizumab in U.K. Just wondering, how is the traction so far in the products, and given the fact that there would have been several players already in the market. How do you see it shaping up?
If I can answer, yeah, in the U.K., these products have been commercialized. In NHS U.K., the acceptance level is fairly high, I would say, because we got some repeat orders as well. Slowly but steadily, we are establishing the initial set of biosimilars in the U.K. market.
But any meaningful contribution in the quarter so far, or it is still some distance away?
I wouldn't say it is substantial, but it is encouraging.
Okay. Got it, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from Tarang Agarwal.
Hi. Couple of questions on the financials, and one on North America and one on Europe. Sir, if you look at the conversion cost of the business, excluding R&D, year-on-year, it has grown meaningfully. Any factors that you might want to call out? And how should we see this?
In the U.S. business?
No, overall. I would not have data on the U.S. business. Overall, if I look at—
No, I think overall, if you really see this quarter, particularly if you take this quarter, if you see all the businesses have grown really well. You are talking about the business revenue or the expenses?
—expenses, sir, excluding R&D.
Oh, expenses are the okay.
Excluding R&D and excluding COGS, raw material costs.
Okay. I am sorry. I just missed. So in the overall analysis, if you really see this quarter where Lannett has been included, which will be around INR 200 crore type, right? Plus, apart from that, there is a growth taking place everywhere, and that is also adding to that. If you really see last quarter, we were around INR 2,150. This quarter, around INR 2,400 because there is an increased freight cost and other things. Apart from that, Lannett has been included. Plus, our R&D cost also has gone up by about INR 30, INR 40 crore compared to the last quarter. So if you take all this into account, probably going forward with this current economic scenario, we should be around INR 2,450 crore type.
Okay. Got it. So there's no one-offs that have to be called out here?
There are no one-offs with it. Yeah.
I understand, sir. Sir, then how should we look at organic CapEx for the business now going forward, H2, and maybe perhaps an insight into FY 2028?
Organic CapEx, if you really see, we did development expenditure, which is the maintenance and the development expenditure is around, if I'm right, around $1 50 million, and we expect around $ 200 million will be the run rate for the year, and we'll continue to do that.
But sir, if I look at H1 alone, H1 alone is about INR 1,600 crore.
No, that includes the strategic CapEx for the biologics and also some of the product development which we are doing, intangible assets for the partner products with global pharma major, all these things.
I understand.
But if you really see what is going into the regular routine expenditure, I mean, maintenance expenditure or sustainable expenditure, it's around $ 50 million per quarter.
Got it. On the U.S., a lot has been discussed on the respiratory business. Just without getting into specific products, which year between your own pipeline, between your pipeline that you have probably gotten from Lannett and your partnership, which year do you think will be an inflection year for the respiratory business?
Tarang, if you talk about inflection, we already launched a good product. This is the beginning, and we are getting good experience out of this. We are very encouraged, quite encouraged with what we see in the market with this product. I think going forward, we will see that in numbers too. Apart from that, in about next few months, we will also have our own in-house product. These two are in the short to medium term, I would say. Anything beyond that, I would look at it beyond 12 months- 18 months, because they are all in development stage. Some of them, we need to have the LOE, so the LOE event has to happen. I think that would take time. I think these are a couple of products, but probably one other product we may be able to launch.
If you see in a staggered basis over a period of next one and a half, two years, I think we will have decent amount of product. The other major product may go beyond 18 months, but basically because of LOE requirement.
I understand, sir. I understand. I mean, we are in mid-2027 today, about. Maybe, two years out, maybe mid-2029-ish would be a good time to really have a scaled-up part of this business. Would that be a fair way to look at it between three or four products that you are targeting?
Yeah. If circumstances work out, yes, that is a possibility. Like I said, even when you talk about a loss of exclusivity somewhere, it's not clear-cut. Sometimes it changes a bit here or there.
Sure.
I think what you said may not be very far off. It may be somewhere close to that.
Got it. And on Europe, if I want to sort of get a sense of extremely firm performance, and I think it's been a trend for now eight to 10 quarters. The business has come to a base of about EUR 285 million on a quarterly basis. So, we don't see this kind of traction on such a high base. So, do you think this, we're probably approaching some element of maturity in this business, and we should sort of probably temper down our expectations from this business going forward? Basically trying to get a sense on how well penetrated are we? What is the aspiration for this EUR 285 million number that you're looking at? Some broad brushes would also help. Thanks.
Sure, Tarang. Actually, Tarang, you alongside the other investor friends on this call, have been one of the encouraging guys which has energized the Europe team to perform and deliver better quarter-on-quarter. I can recall hardly seven, eight quarters ago when we were touching the EUR 200 million mark, you have always commented, "Is it sustainable?" Now we are almost touching the EUR 300 million mark. So what I would like to say is there is plenty more to achieve. There is no such thing as saturation or level field being achieved, because this is arising out of our base business, which is quite strong, in which we are showing a growth ahead of the industry growth rate. In addition, there are launches, loss of exclusivity launches, as well as late-to-launch products that are getting launched. This is on the generic side.
Then there is plenty more to achieve on our CuraTeQ and Eugia launches that will be happening in the coming year and the years. We will be definitely sustaining this double-digit growth, at the same time, achieving further numbers. This is the broad outlook, this is what I would like to say. If there are any other specific questions, I can take. In the meantime, also I would like to share with you, in our European footprint, in couple of countries, we have already started climbing one or two positions above, which is a due reward for our sustained effort. Also, as you are aware, in Portugal, we are the market leaders with a stranglehold on the market share. All these are collectively contributing to our sustained performance. Tarang.
Got it. If I can butt in one last question, because you called out Eugia. Yugandhar sir, if you could get an update on Eugia, are we on track to achieve a 10% dollar growth in FY 2027? If you could give us a broad sense on what's the composition of the business between U.S., Europe, and ROW, that'll be helpful. Thanks.
Yeah. I think, Tarang, the good thing is the business is doing well, and we are growing at a double digit every quarter. Now we are back to full production capacities across plants. I'm confident that whatever guidance we have given in the past, it is still on track. Coming to the composition of the business, a few years back, we used to be U.S. heavy with almost a 70:30 ratio. U.S. is 70 and rest of the world is 30. That business dynamics have changed. Now, like all other geographies are growing. Now the business tilt is now U.S. is 55 and rest of the world, including Europe, is 45. It is a pretty balanced now. Going forward into FY 2028, 2029, I feel it'll be 50/50. That business dynamics are across the world, we are growing.
Got it. Thank you. Thank you so much. All the best, guys.
Thank you. The next question is from Shyam Srinivasan.
Good morning. Thank you for taking my question. Sir, have you called out our Lannett contribution for the quarter?
No, Shyam, I don't believe it's our policy to do that.
Sir, but, sir, let me interrupt. It's first quarter with Lannett, so would urge if you could. 20% QoQ growth when we have gone from $400 million to $477 million. Should I use the old number to $200 million divided by four, so $50 million, say? Give us some range.
I mentioned it in the beginning, that the performance for this quarter has exceeded our expectation, in terms of numbers too. Somebody asked me about the EBITDA, and EBITDA is either in line with the overall EBITDA or better. That's all I can tell you. You can draw your conclusions. Look, this is how it is, but we are telling you that it has done well, and you can do the math.
Got it, sir. That gives us some sense of what the non-Lannett U.S. business has done, right? Even that seems to have grown. That's the point I was trying to arrive at.
Yeah.
Absolutely. Yeah.
Perfect. Thank you. Second question is on all the, Dr. Satakarni, all the biosimilar developments that have been happening over the last two, three months, right? We have had Sandoz talk about its Bio100 at its Capital Markets Day. Then we had recently Fresenius tie-up with WuXi Bio. You're a keen observer of what industry is doing. Just, and how does, maybe the angle for Aurobindo is, how does it fit in for us? Right? They're talking about 100 biosimilars, Fresenius 37. Just want to get your thoughts.
Hello, Shyam. I read the Sandoz's Bio100 ambition, and recent news about Fresenius Kabi signing up for 37 biosimilars with WuXi Biologics. I mean, this is in general a good news for the category. Loss of exclusivity over the next decade is a large opportunity for biosimilars. And a company of Sandoz's ambition and scale and Fresenius Kabi, what it shows is that they're putting serious capital behind it, both in manufacturing, development, and commercial infrastructure. What is the takeaway message there is, it confirms that biosimilars are a durable, growing, and differentiating business, especially for some of these generics players who wanted to improve their margin base points. It also shows, on the flip side, what the ambition costs. 100 products or 37 products by 2040 is a long horizon plan, built on years of sustained investment, right?
I mean, Sandoz probably made somatropin way back in the 1990s, I guess. To come back to your question whether Aurobindo or players like Aurobindo, Indian players can expand, I think yes. But by not copying that model or ambition. Indian companies have real strengths. We have some cost-efficient development these days, a growing scientific maturity that we are seeing in the last five, six years with regulatory approvals coming across Europe and U.S. And with regulators waiving efficacy trials, companies that have already demonstrated that they can deliver a product that can withstand the scrutiny of EMA, for example, European Medicines Agency, day in and day out, can stand to benefit from it.
But the practical answer for Aurobindo would be that we have to be selective with it when we develop, and how do we expand our reach through partners, and that is how we are building the business, right? I mean, in Europe, we have our own presence in nine plus one, 10 countries. Then we have Orion as a partner in Nordics. Then we signed for a couple of products with STADA last time. And beyond that, what we are doing personally is that we are differentiating in formats such as subcutaneous and device combinations, where the economics can probably help us compete with the Tier- 1 players. What is becoming evident, Shyam, in the nutshell is, with the ambition that Sandoz, Fresenius Kabi, et c., are showing in biosimilars, there is a clear Tier- 1 player base that is already forming between Sandoz, Fresenius Kabi, Celltrion, et c.
As for doing every biosimilar, I do not think we can match their aspiration and ambition, or we should not even attempt to match their aspiration and ambition. Also, not every loss of exclusivity also turns into a viable biosimilar market. Some molecules are very complex to make, some serve a very small patient population, and some carry patient or manufacturing barriers that can change the economics. So, our approach at Aurobindo and CuraTeQ is very deliberate, a careful selection of our portfolio, which is chosen to advance our interests and support our territory players who can market this and sustain us in the market over a longer life cycle. Where a molecule falls outside our pipeline, but for example, it suits a territory to serve, we are open to in-licensing it.
Essentially, we cannot be a Sandoz or a Fresenius Kabi in terms of having those many molecules, but we will be very selective about the choices we make, Shyam. Even I am following the industry trend carefully. In the nutshell, what it tells me is, the biosimilars business is going to be a durable differentiator and a growing business for generics companies. How many of these players will really make a serious attempt to differentiate themselves over the next 10 years? Only time will tell. Maybe 2030, 2031 will provide a good makeup of how many Indian companies will be probably in that league. If that answers your question. It's a very subjective question.
Got it, sir. Thank you and all the best.
Thank you.
Thank you. I now hand over the call to Mr. Varun Mali for closing remarks.
Thank you, Vandit. Thank you, everyone, for joining us on the call today. I also take this opportunity to wish all of you a very happy Diwali on behalf of Aurobindo Pharma. If you have any of your questions unanswered, please feel to get in touch with the investor relations team. The transcript of this call will be uploaded on our website, www.aurobindo.com, in due course. Thank you once again, and have a great day ahead.
Thank you very much to Aurobindo's management team. Ladies and gentlemen, on behalf of Aurobindo Pharma, that concludes today's conference. Thank you for joining us, and you may now disconnect your line and exit the webinar. Thank you.