Ladies and gentlemen, good day, and welcome to the Cipla Limited Q3 FY 2022 earnings conference call. From the Cipla management, we have with us Mr. Umang Vohra, Managing Director and Global CEO, Mr. Kedar Upadhye, Global CFO, Mr. Naveen Bansal from the investor relations team. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand over the call to Mr. Naveen Bansal. Thank you, and over to you, sir.
Thank you, Faisal. Good evening, and a very warm welcome to Cipla's quarterly earnings call. I'm Naveen from the investor relations team here at Cipla. Let me draw your attention to the fact that on this call our discussion will include certain forward-looking statements which are predictions, projections, or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties, including the impact of COVID-19, that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmations, future events, or otherwise. With that, I would like to request Kedar to take over, please.
Thank you, Naveen. Good evening to all of you, and wish you a very happy New Year. I hope that all of you and your families are safe and well. We appreciate you joining us today for the third quarter earnings call for FY 2022, and I hope you have received the investor presentation and other material that we have posted on the website. This quarter we are pleased to report a healthy performance. For the last almost two years we have been consistently beating our internal targets. We recorded revenue growth of 6%, driven by robust momentum in branded markets of India and South Africa and continued traction in the U.S. portfolio.
Our EBITDA margin of 22.7% for the quarter tracks convincingly in terms of our full year guidance despite cost headwinds from raw material and freight, offset by increased share of the complex and chronic launches, continued rigor on cost control and operating efficiencies. Overall, our revenue, our delivery on revenue and profitability, as I said, continues to be ahead of our targets. Our One India year-on-year growth of 13% continues the impressive run driven by sustained momentum across all businesses. Healthy order flow in the prescription business continued across all the therapies as well as regions in the trade generics. The consumer business saw consistent uptick in core and transitional brands. The U.S. revenue for the quarter was $150 million, one of the highest in recent quarters, led by strong traction in the respiratory and other portfolio.
We have also received approval for the 505(b)(2) version of the lanreotide injection. Our South African business maintains market-beating trajectory driven by steady launch momentum. The YTD EBITDA for nine months is at 23.1% of sales, tracks quite ahead of our full year guidance. As you're aware, quarter four is a seasonally weak quarter for India, and our EBITDA appropriately will respond to the change in mix. Our free cash generation and operating efficiency continues to drive our strong net cash position despite strategic inventory buildup for maintaining adequate supply of medicines. The return on invested capital of 21.2% for trailing 12 months continues to track well above the long-term sustainable range that we had highlighted earlier. Coming to the financial performance, some of the specific highlights I would like to highlight.
As expected, the revenue contribution of COVID products at the company level was lower on a year-on-year basis. The COVID portfolio declined by almost 10% on a year-on-year basis and 17% sequentially. We do expect to see some traction in the coming quarters in line with the caseloads amid the ongoing third wave in India. Our emerging market business continues to maintain strong growth in DTM markets. The order flow from developed markets in our API business has witnessed a momentary slowdown, and our mix has responded accordingly. We will see traction in orders from emerging markets and API. Outlook remains robust. The total revenue for the quarter is INR 5,479 crores with a year-on-year growth of 6%. Gross margin stood at 60.9% on a reported basis.
The marginal decline on year-on-year basis of 55 basis points and about 40 basis points on quarter-over-quarter basis is attributed to increase in freight and materials cost and certain provisions for inventory, including COVID products. We expect gross margin to respond to launches from complex pipeline in the coming quarters. Total expenses, which include employee costs and other others, are at INR 2,105 crore, declined by 2.4% on a sequential basis. Employee cost for the quarter is INR 872 crore, which is flat on a sequential basis. Other expenses, which include R&D, regulatory, quality, manufacturing, and sales promotion are at INR 1,232 crore. They declined by 3.7% driven by strong cost control.
We have retained the efficiencies from our reimagination and operational efficiency initiatives from last year while continuing our growth-linked investments, which are driving the year-over-year increase in other expenses. Total R&D investments for the quarter at INR 262 crore. All the priority projects spend continue to be on track. We expect the spends to increase as the respiratory assets progress in the clinical trials. Overall reported EBITDA for the quarter is at INR 1,240 crore or 22.7% of sales. Tax charge is at INR 295 crore, and the ETR is 28%. As of 31st December, our long-term debt stands at ZAR 70 million. We also have working capital loans of $58 million, ZAR 137 million, and AUD 5 million, which act as natural hedges towards our receivables.
Driven by our relentless focus on cash generation, we continue to be a net cash positive company as of December 2021. We continue to be appropriately hedged for key global currencies as per our policies. Finally, just to conclude, the board at its meeting held on 26th October, we drew the scheme of arrangement for the proposed transfer of India-based U.S. business undertaking to Cipla BioTec Limited and the proposed transfer of the consumer business undertaking to Cipla Health Limited in favor of a more efficient mechanism to effect the transaction. Based on management proposal post the in-depth revaluation, the board has approved the proposed transfer of the U.S. business undertaking and consumer business undertaking by way of slump sale.
We continue to believe that the transaction will simplify the structure, maximize the efficiency, and has the potential to unlock value for all the stakeholders of the company. To close, we saw impressive momentum across portfolio geographies for nine months. Growth levers in the subsequent quarters will include continued momentum across all regions, securing market share in peptide assets like Magnesite coupled with traction in albuterol and arformoterol in the U.S., and driving expansion in the operating profitability above FY 2021 base by focusing on mix improvement and operating efficiency. I'd now like to invite Umang to present the business and operational performance. Thank you.
Thank you, Kedar. I would like to wish all of you and your families safety and well-being. As COVID-19 continues to evolve across the globe with the new variants driving caseloads, we continue to ensure availability of our COVID and other life-saving products. Coming to our strategic updates and operational performance for the quarter, I'm proud of the strong launch and commercial momentum across our One India business with a 13% year-on-year growth and 7% year-on-year growth in our U.S. business, underpinned by the expanding respiratory franchise. Our EBITDA margins for the quarter came in at 22.7%, as Kedar mentioned earlier, ahead of our internal targets. Given the 23.1% YTD traction, we are well-placed to close the year in line with our guidance.
In India, our One India strategy is witnessing remarkable traction and achieving major milestones along the journey. The One India business maintained double-digit growth momentum for the third quarter this year, coming in at 13% year-on-year. The core prescription business in India, excluding COVID, grew strongly by 16% on a year-on-year basis. The branded prescription business is on track to achieve the $1 billion mark, building a formidable franchise in our home market of India. Our customer engagement levels in our trade generic business have driven healthy orders from Tier 2 and below towns in India. Some of our flagship generic brands in our trade generic business have grown past the INR 100 crore mark, and few others are crossing the INR 50 crore mark, which speaks about the brand equity in these markets.
We also plan to add high-growth categories like antidiabetics and injectables to address unmet demand in the coming quarters. The branded prescription business continued the market-beating growth for the third consecutive quarter in FY 2022, driven by sustained traction across almost all our therapies and core portfolios. As per IQVIA MAPs December 2021, we continue to maintain healthy ranks and market shares in our key therapy areas across respiratory, neurology, anti-infective, and cardiac. Our focus continues in creating depth in antidiabetics and the oncologic therapies, building on existing and new partnerships with global multinational corporations. The trade generics business witnessed strong demand. We launched 10 brands across cardiac and diabetic range this year. To further strengthen the franchise, we plan to continue this launch momentum in FY 2023.
Coming to our consumer businesses, we are very happy to see how the business has shaped both in India and South Africa, almost contributing 8% to the company top line on an YTD basis. The India consumer business has seen robust traction in the anchor India anchor brands during the quarter, driven by high consumer recall, benefiting from the robust media campaigns and meaningful consumer insights throughout the year. Coming to North America, our U.S. generic core formulation sales for the quarter came in at $150 million, beating the previous quarter high. This $150 million mark sets a new base for our business, which hopefully will grow from these levels on the back of our upcoming launches. Our respiratory franchise continues its strong traction with 36% year-on-year growth.
As per IQVIA week ending 23rd December 2021, we are close to 15.9% share of the total albuterol market and 26.8% share in the arformoterol overall market, and our shares have continued to move up from those levels from the earlier levels. We expect the business runway to continue to inch up further as we enter into the next year, where we also expect to show growth over that base of the current year. During the quarter, we unlocked one major peptide asset in the U.S. with the approval of lanreotide. We're expecting a sustainable ramp-up over the medium term. Our focus will continue on to expand the peptide portfolio through internal development and partnerships, strengthening our high-value complex generic pipeline.
On Advair, we remain closely engaged with the USFDA on our file, and we will continue to share the updates on the progress. On our Goa plant, we are waiting to hear from the FDA on the inspection set schedule. Coming to our SAGA region, which includes South Africa, Sub-Saharan Africa, and our access business. Our South Africa private business reported a 16% robust growth over the last year for the quarter in local currency terms. In secondary terms, we continue to maintain market-leading growth of 9.1% versus 8% growth overall in the private market as per IQVIA, March-November 2021. In the international markets, we maintained sales close to last year base in U.S. dollar terms. Our DDM franchise continued to witness strong momentum across markets with steady double-digit growth in secondary terms.
In FY 2022, we have made significant progress against our strategic priorities. We remain confident in our near- to medium-term outlook due to the strength of our growing branded franchises and launch pipeline in the U.S. and other markets. We have important launches in the coming quarters, and we are gearing up for these launches in the near future. We are transforming our API manufacturing, supply chain, and quality operations to unlock efficiencies targeted to deliver higher performance and resilience, serving our patients more effectively. Our innovation engine seeks to capitalize on the opportunities across the healthcare ecosystem, leveraging data analytics and digital technologies to drive robust portfolio momentum and capital allocation. Our near-term priorities include continued education on the demand levers in chronic and acute therapies, improvement in manpower productivity across our branded markets like India and South Africa.
Active advancement of our innovative consumer-centric products to accelerate the augmentation of our consumer wellness franchise across India and South Africa. Grow our U.S. limited competition launches footprint, including peptides, as we continue to expand both the injectable and respiratory categories in North America. Focus on regulatory compliance across our manufacturing facilities and implement global benchmark PHC practices. Continue our highly vigilant cost and cash management while driving a sustainable expansion in our operating margins and return on invested capital. I would like to thank you for your attention. I wish you and your family good health, and I request the moderator to open the session for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Nikhil from SIMPL. Please go ahead.
Am I audible?
Yes, sir.
Yeah. Hi, good evening. Congratulations on good set of numbers. I have two questions. One is, sir, if I look at our presentation, where we say priorities for FY 2025, in between India, South Africa and Europe and other markets, we talk about driving sustainable growth through organic and inorganic levers. Over the last two, three years, we've been looking at that we've been doing tie-ups for onco or for biosimilars and these kinds of products to grow the markets or presence in these markets. Just want to understand when we talk of the levers for growth, is it like these tie-ups become a very important lever for us to continue growing? Or do you think from our own organic pipeline we can we have product launches which can sustain the growth?
How should we understand between these tie-ups, organic and probably inorganic acquisitions?
Thank you. I think it is a good question. I think the answer is going to depend differently for different markets. In the U.S., we would like to depend on our own organic momentum of products in the U.S. and largely EU Our own organic momentum of products will create a sustainable base, and we augment this with key partnerships where we think the partners bring very specific technology skills which are very relevant, right? Ambiotide is a great example of this, where we will augment for a significant product with a partnership. In India and branded markets, the case is different. In India and branded markets, you know, though we are generic companies, we try to. We all of us are almost like innovators in this market.
There we try and strike partnerships with innovator companies to bring their products even before the patent is expired. This is important because under the patents regime in India there will be hardly any sources of products unless innovative products are introduced into the market. Most innovators now partner with Indian pharmaceutical companies to bring these products before patents expire. We are also partnering with these companies in India. In the U.S., I think the partnership is around technology. In India, the partnership is around product sales because of the patent regime. I think both of these are important partnerships going forward.
When we talk of India and ROW markets, we generally say that the branded generic markets are growing at something in the range of 8%-12%, depending upon the years and all. Based on these partnerships and all, not for the near term, but over a 3 years-5 years when you are talking about or thinking about these partnerships, is it like that incremental 2%-3% higher growth should come from the partnerships and the rest, the market beating growth, when we talk about. This incremental growth should come through the tie-ups and rest through our organic pipeline.
Just to, as an investor, if you have to understand how we should, like adding value to the company or to the business.
No, I don't think we look at it that way. That's a very interesting, you know, interesting perspective you've added. We are just looking at above-market growth as a function of our own portfolio, function of partnered portfolio, and driving strong volume growth. You know, volume growth may come out of some product families, not from all. You know, just the partnership angle, I don't think we're saying we will grow at par with market and then add the partnership revenues we get from others. It is difficult to split it that way. Our objective is to beat market growth, and I think the way to do that is to probably look at our own portfolio, plus partnered portfolio, plus the volume growth.
Okay, just last question. If I, if you look at it now, when we talk of lung leadership and, organic growth and the amount of cash which we are generating, and if I divide it between three kinds of investment, one would be our own R&D in, as you mentioned, organic growth for Europe and U.S. led by own products. Second would be the riskier assets, like, where, probably the investment would happen, but we don't know the exact outcomes. Outcome could be zero or one. Then the third is the distribution towards the shareholder. How is the management thinking about how the investment buckets would fall in, based on the incremental cash which, the company would be generating? How should we understand how you are thinking about this allocation?
No, I think, you know, maybe I can give a few statements that could help you. I understand where you're going from this thing. Our first priority is to drive a sustainable growth in of our business. To that effect, we have mentioned that we will grow. Our attempt will be to grow both ROIC as well as our EBITDA in a certain range. You know, though we are now feeling confident that we can, you know, EBITDA could continue to increase on the back of launch momentum, et cetera, we are also taking calls to invest back in the business. Because right now we would like to see the growth journey of this business to be sustained over a period of time.
You know, if the call is can you do 25% EBITDA and 5% growth versus could you do 23.5 or 24 EBITDA and 10% growth, we are likely to fall back on getting more growth over the long term. We are actively reinvesting back in the business. The second question is you asked about R&D. We have generally given a guidance range that we will not expect our R&D in years where we have bulky and chunky R&D to be more than 7%-7.5%. We're very clear about how much money we will invest in R&D and where the focus will be to grow our top line. These are two broad yardsticks that we could use.
While our objective is to improve our EBITDA trajectory further, we are going to try and reinvest money back into the business to support growth. From a shareholder perspective, this is more the board decides, I think, based on where they think the, you know. Depending on their, how we see our capital needs for the future and the benchmark performance of companies, that we see in the market. I think based on that, you know, it being probably our first or first 1.5 year of cash surplus, our dividend strategy is decided by the board in terms of how to return money back to the shareholders.
Sure, sir. I will return back to the group. Thanks.
Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets. Please go ahead.
Hi, thank you for the opportunity and congratulations on a good set of numbers. My first question is on some of your key launches which you are expecting to come in, say, second half of next fiscal. Can you update us on the status of your filing for Abraxane and Advair? Because last quarter you mentioned you need to do some study for Abraxane. Maybe on these two key assets you can share some of updates.
Yeah, certainly. I think both we have been Advair. I had mentioned in our speech that we are waiting for the FDA. We are in correspondence with them, and I think we are waiting for you know the regular updates that come from them with risk and questions with regard to with regards to our file. So I think that is on Advair. And on Abraxane, which is another peptide. Abraxane we are furnishing some more data to the FDA. Our belief is that the market could form in April with the first player's launch.
We believe that the nature of this product may not result in a total market formation because of the supply that both the innovator and some of the generic companies may face in order to satisfy the market. We think this is a good asset for the long term, and the market will stay limited for a very long period of time. We still have some you know, the FDA has asked us questions, and we still have some data that we are submitting to the FDA.
Okay. Very broadly, you remain on your, I'll say earlier expected timeline of these launches in second half, next fiscal. Should we work with that assumption?
Well, each launch is different. Both of these are different. Yes, we have guided that our second half of the year will have more launches compared to the first.
Okay. My second question is on the launch guide. Have you launched the product in the market and how many first peptide products do you have in your pipeline?
I can't give you specific numbers and as i mentioned, we will try and manufacture to build sustainable, shorter than medium plan. Right now you know, we are in the process of protecting the market and there will be a launch corresponding in this quarter, you know, sooner than later.
Does this production be manufactured?
We are not disclosing that, but it is about our partner's site.
Thank you. [inaudible]
Thank you.
Thank you. The next question is from the line of Prakash from Axis Capital. Please go ahead.
Hi, good evening, and thanks for the opportunity. My question is on the India business. Since you had a large, you know, over nine months if you see there has been COVID contribution. How do you see this business for next year, given that, you know, we are doing fairly well in our, you know, base portfolio. Do we expect flattish performance, or how do you look at it? And what is the COVID contribution for nine months please?
Kedar?
Yeah. Prakash, we are not disclosing specifically the COVID contribution for one specific business. As I mentioned from quarter two to quarter three, there is a large decline at a company level in terms of the contribution. Depending on how quarter four evolves, the number of cases evolve, I think that could get tweaked. Obviously, our responsibility is to service as per demand as we trade in India and other markets. Regarding the next year, our thoughts are still being shaped by all these volume developments. What we are happy is, and you would have seen that in our presentation, Prakash, is, you know, all the key therapies, you know, respiratory, neurology, cardio, overall chronic acute, I think we are experiencing strong growth.
It would be tough for, you know, for us to exclude COVID and talk only on non-COVID because some part of COVID in our view might continue in the next year as well. Maybe in the May call when we announce full year results, that may be a base time for us to give some clue into next year. Growth continues strong in RX business, GX business, and consumer health business.
Okay. Perfect. Thank you for that elaborate answer. My second question.
Prakash, sorry.
Yeah.
Just to add, I think couple of deals we had announced. I think maybe you should factor the contribution from some of these deals that we had announced in the past, which will get commercialized now hereafter.
Okay. Fair enough. Secondly, moving to R&D. You know, the peptide approval that you got must be like 2-3 years, you know, back, kind of, R&D work you might have done. Trying to understand what is the next level of R&D work you are doing, which we will see approvals, filings over the next 2 years-5 years. One is peptide, one is respiratory inhalation. What are the other areas you have already worked on and what you plan to work for the next 2 years-5 years?
I don't think we, Prakash, I'm not sure we give this level of information. I can just say that on respiratory, of course, we will want to cover as many assets as we can. On the you know, some of the other pipeline injectable assets, you know, there are you know, outside of peptide, there are different technology platforms around the release characteristics of these drugs and the encapsulation of injectable products. Those are some of the things we'll begin to build out. They are not easy technology platforms. You know, some of these may be partnered, some may be our own. It will take us time to internalize this. I think longer term that is where we want to go.
I think we are working towards it, but it's quite a leap for us also to make in terms of getting there. I think we are confident that with the right focus we'll be able to do it.
When you say partnered, how do you see the financial aspect of it? I mean, these are, just, contract manufacturers or these also have contribution in terms of y ou know, funding and doing some trials.
Well, there could be both. Some of these could be early partnerships where the risk is largely taken by Cipla. Some of these are in the nature of partnerships where Cipla and the partner both take equal risk, and some of it could basically manufacturing only. I think it will be all three depending on the asset and our relative ability to do it ourselves versus the need to bring in a partner who has mastered the technical complexity of the asset.
Okay, perfect. R&D, we should build in 4%-5% only or do you think with these kind of models happening, et cetera?
No, I think it will go up. It should go up. I think next year definitely we are penciling in a slightly higher R&D. You know, whatever it may be, it'll never be higher than the 7%-7.5% that we've set as a target for ourselves. It will be slightly higher than this year.
Understood. Okay, thank you.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi. Congratulations, Umang and Kedar, on good set of numbers, and thanks for the opportunity. My question is on One India play. What really are we seeing the benefit of One India in the Rx, Gx and consumer? Second question is, now we have been seeing that several platform-based pharma company, I mean, pharma launches are happening in the trade generic. How that will kinda disrupt the whole trade generic business, and what are our strategy to meet that kind of a disruption?
Yeah. Kedar, do you wanna take it first?
Yeah. Bharatji, between prescription generics and consumer healthcare business, I think the synergy exists on several counts. I think portfolio is one, supply chain and distribution is another. Some of the capabilities for campaigns, advertisements, A&P spends is third. And overall brand name and expertise in terms of digital analytics, that is fourth. I think there are several angles, Bharatji, in which we could leverage, and we are leveraging between these three businesses. There is an active work stream which we have been speaking about for some of the brands which are in generics business, which have very high recall, and those are actually consumer brands.
Those are being contributed heavily by CHC business, either through their own channel, modern trade, and in terms of approaching consumers, converting it to almost like a B2C kind of a brands. Some of this is already in the numbers, Bharatji, and we believe that going forward, there is a very strong synergy across all these angles. We are particularly excited and interested on two counts. One is the consumerization, as I mentioned, and secondly the digital aspect. Digital analytics are reaching healthcare practitioners, reaching channel partners, analyzing brick by brick throughout the Indian demography and geography, and targeting specifically for a particular region, particular therapy. I think those are the avenues in which we are seeing an enormous power for all our three businesses.
Obviously, as I said, I think the performance is in the current numbers as well, and we are hopeful that, you know, it will shape up to become a more dominant engine in the coming years.
The several platform companies, which are, I mean, owned by large industry and they are planning to launch several private label. So how that can affect our trade generic business?
See, actually, we do have. I mean, we have been watching, all of us are watching some of these evolving developments in the e-pharmacy or other, you know, be it teleconferencing or other avenues and platforms in which newer companies are reaching the patients directly, not even channel partners. We are watching. We have our plans in mind. Some of those plans are being executed as we speak. In our view, I think the strength of the reputation, the corporate reputation, the strength of individual brands in all these three businesses and the execution engine that we have built in is one hedge, you know, for us to offset. Going forward, I think we have to deploy several strategies, which will be tough to enumerate today, all of those.
We are conscious of that possibility of disruption and we are working on Bharatji.
Okay. Thank you. All the best.
Thanks.
Thank you. The next question is from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead.
Hi. Good evening, guys. First question, lanreotide. I'm just trying to understand this product. In general, how many new patients start on this lanreotide annually as a percentage of total patients? Can you give some rough idea?
Yeah. Anubhav, it's a little complicated, and I'll tell you why. There is a historical average which we have. The historical average is also changing because there is octreotide, which also we have heard there will be generic competition on, and there have been some supply issues with octreotide in the market as well. The two products at some points, you know, overlap and interface for a few indications in the market, and I think that's the issue. While we have seen that lanreotide growth has been, you know, high, and of course there's also been value growth that we, you know, that every year, you know, it was taken on their portfolio. It's a little difficult to estimate what are new starts because of this mix.
We have a historical average, and I mean, of the total patient pool, I don't think the number of new starts is very significant from a lanreotide perspective. Right now the data is convoluted because of you know, some amount of interference with the other two types.
Even just to get some idea that historical number will be 10%, 20% or even less than that.
Yeah, I would think that ballpark you are on the, you are in the right range. Maybe towards the lower aspect of the 10%-20% number that you mentioned.
Would it be safe to assume that your ability to take market share of new starts will be very high and existing guys may not shift to your product? That's the reason your guiding share is very, let's say, slower than expected.
Well, I'm not sure that we look at the market necessarily from the new and the old. I think you know, we are also learning this market. Our objective is to build a sustainable share over a medium term. Sustainable from a perspective of what we can supply as well as where we think this equation is to pan out in the market. Yeah, I mean, I'm not sure that it will just be the division will only be new versus old. I think we're also guided by you know, the way we can supply the market and how much we believe we can benefit.
Okay. Just one. A couple more questions on this. In terms of, let's say, going and talking to each of the hospitals, will it be like just talking to some of the GPS and like promoting a normal injectable product or pushing a normal injectable product versus pushing lanreotide? Is there any difference or is it the same thing just going to GP and things like that?
No, I think this is also a very significant clinic product, Anubhav. I think it will be a mixture of the clinics and the GPs. You know, the market is generally fairly well established for these in terms of this. I don't think the outreach is more significant than a conventional health system approach to the market. I don't think it will require. If your question is that, you know, would it require significantly more than the way you operate in the health system space today? No, it won't.
In terms of the formulary coverage, typically generates certain advantage. In this one, between doctors thinking about an existing patient, will they be incentivized enough, not by you, but let's form this from the PBMs perspective to, let's say, to use a generic, versus a brand?
Well, I'm not sure we understand that part of the market that well. I don't know whether that would work. I think our primary route would still be through the clinics and the GPs.
Okay. Second question is from. You mentioned about one of the complex injectable launch in FY 2024 from a portfolio presentation. Just wanted to understand that, broadly, can that be as meaningful as lanreotide or in that status in terms of contribution?
You are referring to, Anubhav, our presentation?
Yeah. Which we made in mid of January, yeah.
The GPM?
Yes, correct. Yeah.
You see, I think lanreotide, because of the timing, could, you know, as obviously because we're the only generic player. I think the competition is different. I think that other products may have more competition than just us being alone in the market, but it's a question of timing. When we started lanreotide, we also thought we will not be the, you know, the first to enter this market. I think it depends on the number of competitors. It is a meaningful asset, maybe not as meaningful as lanreotide, but it is definitely meaningful.
Okay. Can I ask one more question on consumer wellness, portfolio?
Mm-hmm.
You have transitioned certain products to Cipla Health. You already done 10, 12 products over there. Let's say some of the larger products which are yet to be transitioned, Omnigel, just as an example, what is stopping you from transferring this right now from GX to Cipla Health? That's one question. Second question is, that's a more general question. Once the product is transferred from GX to, let's say, consumer portfolio, did you reduce channel discount because now you're putting more resources behind targeting it? Or let's say that's a more phased out process. At some point in time you go ahead and reduce the discount to the channel margin. Can you just talk about these two things?
Yeah. I think, firstly, what's stopping us is, you know, I don't think there's specifically anything stopping. The board, you know, today approved the scheme of the, you know, through the plan sale. I don't think there is anything stopping us. The question is how do we grade this over a period of time, considering, you know, the timing of the shift as well as considering what we believe could be the impact on several other businesses that we run. Right? One is the ability of, you know, of the business we're transferring to, their ability to absorb it. The second would be the ability of the transferring business to cede it and the timing in the market on when is the right time to do it.
I think there's nothing stopping us. It's a function of how we grade the transfer. I think on the margin piece, I would just say that it's a mixture. It is product to product. Sometimes margin corrections happen overnight, sometimes they happen over a period of time, depending on how much we think the equity of the product in the market is. I think it's a function of both of these. Yes, the general trend is that you transfer, you kind of reduce margins, and you take off your advertising spend to create demand.
Thank you.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Congratulations on the good set of numbers, sir. My first question is on the outlook for FY 2025 or till the time the outlook that you have given for the U.S. market, you are saying that incrementally $300 million-$500 million revenue can be added annually. By that, are we a bit more conservative considering the potential of Revlimid and products like Advair? Considering these two products' potential contribution itself, either we are a bit more conservative here, or we are anticipating larger than expected competition for Revlimid. Could you please clarify on this, sir?
Yeah, I think, Kedar, maybe you can take this one.
Right. Surya, we had spoken about these targets about a year back in the last year's January month. From that vantage point, we had said there is a possibility of $300 million-$500 million. Look, you know, when you plan out future launches and multiple variables which will shape those launches and incremental growth in a market like U.S., over a five-year timeframe, you are going to be right for some assumptions and you are probably not going to be right for some assumptions. I think how competition will evolve, how pricing will evolve, how our ability to take share will increase in some pockets or not. See, I think all these factors depend and eventually will determine where you will get into it.
We feel that 300-500 is ambitious enough because our base that time was around 500 also in this over a year back. I think to date, we have progressed well. The early indicators are quite positive. Our ability to take share, our ability to service the needs of the market, you know, our ability to seamlessly ensure supply chain and compete wherever we have to compete in case of added competition. Most importantly, the development and regulatory engine. I think everything is working fine so far. Now, this is the 300-500 is a congregation of several aspects. Some of those are filed, some of those are yet to be filed, some of those are quite ahead in the review process.
What we would not do probably is to attach any word, whether conservative or not conservative. What I'm just saying, the external business environment and our ability to respond to it would shape up this opportunity. In our view, it is ambitious enough. There is no conservatism in anything. Internally, for every launch, we take it very seriously and very meaningfully, and there is no conservatism. We go all out. What we avoid is getting very disruptive on pricing. I think our attempt is to be very responsible on pricing. That's the only thing I would caveat. Yeah, that's it.
Okay. Fine. My second point, if you can just give some clarity about your China presence. How critical that could be in the overall revenue mix, how critical that could be, let's say, three years down the line?
Yeah. Projects, when you expand into new countries, and especially when there are multiple layers for approval and listing within hospitals and regions, and then several regulatory pathways of filing through local manufacturing or through Indian manufacturing. I think those plans often play out over a fairly long term. I mean, to answer your question, from a 1- year to 3-year standpoint, it may not be as meaningful. We have the plan ready now, as you know. The capability has been built in. The initial set of batches have been taken. We are excited because it's the second-largest pharma market globally. We are excited, and there is lot of respiratory potential in that market. We are excited.
To answer your specific question from a 1-3-year standpoint, it may not be even. I think going forward it would shift in the subsequent years to be probably meaningful for our emerging market franchise.
Sure. Sure.
Okay.
Thank you. Thanks so much.
Thanks. Thanks, Surya.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Nithya Balasubramanian from Bernstein Research. Please go ahead.
Thank you, and congratulations on another strong quarter. I have a follow-up on lanreotide. I'm gonna squeeze in one more. Lanreotide, one is given that it's a complex product and it's relatively difficult manufacturing, is your partner geared up to, let's say, help you get like 20%-25% of the market? Is the manufacturing ready? Two, given that you're not a therapeutically equivalent product, what incremental commercial infrastructure investment will this product require?
The next one is actually on expenses. Excluding R&D, your expenses seem to be trending down. Should we assume that Q3 was largely a normal quarter in terms of India sales force expenses, etc.? Is this a new normal?
Maybe, can I request Kedar to take on the third one first, and then maybe Nithya, I'll come back to answer the first two.
Yes. Yes. I think most part of the quarter, Nithya, the last part of the third quarter was in operation. We keep saying that our attempt was to secure and safeguard some of the efficiencies that we delivered last year through Reimagination exercises and some of the digital initiatives. I think some of those seem to be working. I mean the business model across the region and at the overall company level is fairly optimal now, although, you know, we still feel there are some opportunities to execute. Given all of this, I think we should treat quarter three as a base.
As you know that we have often said a large part of our OpEx is very responsive to the sales in multiple geographies based upon the commission discount and other arrangements that we have. I think the expenses would respond to the sales volume and value. Overall, I think we should treat Q3 as a base quarter, Nithya.
Got it. Thank you. Bye. Bye.
Nithya, no, there are two more questions she's asked. I think that the second one that you asked was on whether we believe there's an incremental amount of infrastructure required to drive this. Our understanding of the market right now is no. Our current infrastructure will drive it. The first question was on the capacity, et cetera. Look, I think the partner that we have is, you know, is also a partner that understands this product well. We have a certain internal target of where we want to get. I think the partner is geared up to supply to that target. We've guided it will be sustainable over a midterm base.
All right. Thank you, Umang and Kedar, and all the best.
Thank you.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hey, thanks. Good evening, everyone. I think even I need to ask a few questions lanreotide . Here I go. Umang, can you just share how the product is different from the innovator that you had to take 505(b)(2) route? Second is, you know, you mentioned sustainable market share or midterm. You know, things have to have some incline. Are you looking at double-digit market share, say, by exit market share by end of next year fiscal? Is that realistic?
Sameer, let me mention, I think we will not divulge information on the specific targets for share, et cetera. All I can say is that, as I mentioned, maybe whatever is sustainable over the medium term, I think that's where we'll go. Because I think at this time the product is also competitive in the marketplace, and we don't want to divulge too much information on it. The first part on how the product is different, I think we can have a separate discussion. We're happy to provide that visibility to you. But it's largely around, you know, largely around things we have used to, you know, to offset the patents, et cetera, that at some time were on the product.
Okay. Umang, just, you know, is your device ready to use or is it needle assembled?
The device. What do you mean by ready to use, Sameer?
That's the new form that the innovator has transitioned to, where you don't need to assemble the needle with the, you know, while injecting.
Yeah, yeah.
Older form where-
Yeah, in that manner, we are ready to use.
Okay.
Sorry, can you go back and tell me what is the, what was your earlier thing? There is no need of mixing any diluent or anything into the product. If that's the question you're raising. If you're saying does the needle have to be affixed on the product? Yes. The needle has to be affixed on the product.
Okay, got it. Versus, I think, the innovator device where you don't need to. That's a big difference.
They have changed some part of that device in the past as well. That is correct, that right now they are all pre-assembled. The ready to use connotation is actually a different segment in dedicated space, which is why I asked you what you meant. Because generally RTUs are more of no need of diluent, no need of anything else within the clinic setting. That's why assembly-wise, we need to assemble. I told you earlier the product is pre-assembled.
Okay. No, that's fair enough, Umang. I mean, keeping the semantics aside, does the device difference makes a difference, you know, from the commercialization of the product?
We believe not, Sameer. I think it is a function of acceptability of the product in the market. We don't think so. You know, that is out of our experience so far in this area of the market. I think as we begin to understand the market more and launch in the market, there will be more information. Right now our assumption is none.
Okay. Just one final on this, Umang, you know, I know you can't say much, but what's the commercial arrangement between you and your partner? Is it, like, more or less the industry standard, 50/50 profit share plus or minus or is it very different from that?
Well, I could say broadly we are there, but, you know, there are some nuances here, so broadly.
Okay. Just one final question with your permission, if I may. You know, I saw that you applied for two respiratory products in Europe. Just broadly taking 3-year or 4-year view, how do you compare the respiratory opportunity in Europe versus the U.S. in terms of addressable market and the competitive dynamics? You know, if you make $100 in U.S. would you make $20, $30 in Europe or much more than that?
Sameer, it's again a function of our market entry. I think Europe is more sensitive to market entry than the U.S. is in these products. In the U.S. if you are even third or fourth player, because of the volumes in the market and people can carve out their own shares and stay sustainable. As you can, for example, have so many people who have launched into the market, but the market is still attractive for many players. Whereas in Europe, I think that equation changes very rapidly after the second or third entrance. I think the market begins to be more responsive on price than we've seen in the U.S. Yes, I think the Europe potential is significantly lower compared to the U.S.
It depends on your market entry and your timing. If you are number two or number three in Europe, I think it can still be an asset which could well be 20%-30% of the U.S. launching margin.
Okay. Great. Thank you so much, and all the very best.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question. Umang, you know, we had the investment in Avenue, which obviously we have terminated, but I think that investment still continues. In a lot of your presentations and also, you know, when it comes to the U.S. business, we've talked about, you know, respiratory and injectable largely being the areas that we're investing in. Is it fair to assume that specialty is something that we're not looking at? It's completely out of question or, you know, do you think that it's still open and you will explore that, you know, based on what opportunities come your way?
Yeah. Neha, I think on the specialty part, the pulmonary asset, which is a respiratory, you know, antifungal, inhaled antifungal asset for Aspergillus diseases, that is continuing on its path. We continue to sell plazomicin in the U.S. It was intended to be our second asset after the Tramadol asset from Avenue.
Mm-hmm.
I think Avenue, unfortunately, you know, the asset has not progressed forward. Specialty, the strategy is always built around an asset, a central asset.
Yes.
Now plazomicin is taking the load for everything, and the asset plazomicin was never intended to be a big asset. We are discussing strategically in the absence, let's say in the case that tramadol does not go ahead any further as an asset. Anyway, our rights to Tramadol have ceased. We are now only an equity investor. If, you know, if we don't have tramadol in our portfolio, then there has to be some amount of rethink on what we do with plazomicin and what would be the asset that would come into play. We're actively in discussion on this. The asset on the respiratory space, which is the inhaled antifungal, that is proceeding in its clinics. It's proceeding ahead with the partners.
Okay. Just to understand this correctly, we are looking at opportunities and depending on what comes our way, we'll decide whether we would like to invest further in that business or not, assuming Tramadol does not happen.
Yes. Assuming Tramadol does not happen, we will need to find a lead asset because.
Yes.
ZEMDRI is not a lead asset, right? It's a smaller niche asset.
Yes. Yes.
It can't take the load of the whole portfolio. That is the stage we are in with respect to those two assets. The respiratory asset that we have, that is in the clinic and it's going on.
Understood. When we're looking at these opportunities, you know, is there for example we already have one respiratory asset. Tramadol was okay more a pain asset, but it was a fairly large opportunity. How are we thinking about what opportunities we could look at? I mean, is it fair to assume it would be a tramadol type opportunity which might not necessarily require a large commercial footprint?
No, I think we don't want to invest too much money on huge commercial footprints. I think that we're clear about. One of the things we've also, you know, gone back and tried to, you know, tweak and change, and we are actually in the middle of that, is that we must have our own, you know, some pipeline assets that come from our own labs.
Mm-hmm.
They may be small. They may be $30 million or $40 million in size, or $20 million or, you know, between $20-$50 million in size. What happens is when you have an asset that does not come or your asset disappoints in a late phase III trial, you have the ability to at least cover it up with something that is within your stable. Right. When we did Tramadol, et cetera, we didn't have this pipeline backing, right? Now, you know, we are at a point where in about 1.5 years , 2 years, we might have at least some of these assets close to filing. They may not be big, but at least they add the portfolio base and momentum for our specialty business.
Understood. Sorry, one other question on the India business. You know, if given that we're talking about entering into new categories, you talked about antidiabetic and injectable in your opening remark and even in the recent presentation. So is it fair to understand that you know the penetration level of our existing brands you know is getting slower and therefore we need more such you know launches and probably these partnered products to you know maintain the strong momentum that we've started seeing in India. Is that one of the changes or am I reading that incorrectly?
I think it's both, Neha because really there is no product source unless you partner with them in America, right? I think the days where you could do, you know, change formulation or the addition of an excipient and relaunch the formulation, I mean, those days are there, but realistically the bang that you get out of that is now much lesser. If you really want to bring more products and more innovative products into the, you know, more products which are patent protected and innovation driven, you have to partner with the multinational corporation, is my view. Because there's no other way to get innovation into India. It's a mix of both. It gives us growth-
Mm-hmm.
It certainly is driving growth for us. But it's also an absolute necessity. Because why would, for example, you know, yesterday there was news that Novo Nordisk is launching the oral semaglutide in the market in India right now. That's a great product, right? Now, if it was not Novo themselves, and supposing Novo was looking for a partner, many Indian companies would have offered the partnership for this. Because the therapy is a game changer, right? So why would anyone sit out when there is innovation that we can bring to this market, which can spur the market growth and create, you know, an unmet need demand?
In that case, the fact that we need to get more such partner products and that we're launching new divisions, which would probably require investment in, you know, expanding our MR coverage, would that mean that, you know, incremental growth in India is coming at lower margin?
Well, I think to some extent you could say that because the partner also shares here, right? In the thing. I think what is changing is, Neha, there's a very active reallocation of capital that's happening across India by all the Indian companies.
Mm-hmm.
I think what that reallocation of capital is doing is that it's taking capital and putting it, you know, around the assets and the brands that you want to create formidable franchises with. What happens is, I don't think the infrastructure requirements of launching products by, from innovators is anything new for the top 10 or 15 Indian companies, because everyone will have a cardiac field force, everyone will have a diabetic field force. Every time there's a new product that comes in, I think they kind of eliminate the tail. Almost like eliminate the tail of products that we are selling currently, so that productivity is maintained.
Understood. Thank you so much, Umang.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Just would like to understand again on the India part, like how is the profitability now, in terms of the branded prescription and consumer health and trade business? Either in terms of the cash in order or maybe a broad range if you could highlight.
Tushar, more or less, you know, prescription business and generics business profitability was close to each other, although not equally. Prescription business is a bit higher than generics business. Both are conversely higher than the company, you know, EBITDA. Consumer business, as you know, will reach breakeven fast with the current state of portfolio. Which means what? Which means the earlier launched products are breakeven, in fact generating significant money, which funds the subsequent launches. I think that engine is working well, Tushar.
Got you. Lastly, also maybe for 9 months or for 3 months, if you could break down this India business proportion into branded, trade, and consumer.
I can come back to you Tushar.
Okay.
Tushar, I can come back to you separately on that.
Okay, sir. That, that's it from me.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Naveen for closing comments. Thank you, and over to you, sir.
Thank you so much, Rajat. Thank you everyone for joining us today for our quarterly earnings call. In case you have any follow-up questions, please feel free to reach out either myself or Ankit or writing to us at investor.relations@cipla.com. Have a good evening. Thank you so much for joining.
Thank you. Ladies and gentlemen, on behalf of Cipla Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.