Ladies and gentlemen, good day, and welcome to the Q2 FY23 Earnings Conference Call of Cipla Limited. We have with us today Mr. Umang Vohra, MD and Global CEO, Mr. Ashish Adukia, Global CFO, and Mr. Naveen Bansal, Head of Investor Relations. As a reminder, all participant lines will be in 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Bansal, Head of Investor Relations from Cipla Limited. Thank you, and over to you, sir.
Thank you, Steve. Good evening and a very warm welcome to Cipla's Q2 FY23 Earnings Call. I'm Naveen from the Investor Relations team 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 information, future events, or otherwise. With that, I would like to request Ashish to take over, please.
Thank you. Thank you, Naveen. Thank you, Steve. Good evening to all of you. First of all, I'm pleased to join Cipla Limited as Global CFO and honored to be part of the company's rich legacy of Caring for Life. On the quarter results, I hope you've received the investor presentations that we posted on our website. For Cipla, the last three months have been tremendous learning in terms of navigating the business amidst the ongoing geopolitical headwinds while continuing to make progress across all our strategic priorities. In a continuing volatile macro and geopolitical environment, we are very pleased to report historically the highest quarterly revenue of INR 5,829 crores. The overall revenue growth for the quarter was at 6% on a reported basis and a strong 12% on a COVID-adjusted base of last year.
We continue to service demand across all our markets and demonstrate robust commercial execution of new launches during the quarter. This was achieved despite a challenging operating environment and helped us deliver a robust EBITDA margin of over 22% for the quarter on a reported basis and approximately 24% on an adjusted basis. These adjustments I'll come to later. Coming to key highlights of the quarter, the core revenue growth was driven by sustained momentum in One India business and differentiated portfolio unlocking in the U.S. Our global inventory levels reflect our commitment to ensure the continuity of supply given the headwinds in the sourcing environment. Our free cash flow generation and operating efficiency continue to drive our strong net cash position.
Our operating margins of 22.3% for the quarter subsume the impact of sharp moderation in COVID contribution in last year's pace and geopolitical uncertainties. As alluded earlier, the demand for COVID products is negligible in line with sharp drop in new infections. Accordingly, we have taken an inventory charge on all of the marginal COVID inventory we were carrying and were expecting to liquid it, which is in the materials cost line, item in the P&L. Adjusted for this, our EBITDA margin would have been higher by nearly 150 basis points or at approximately 24%. The higher R&D cost, investments driven by ongoing clinical trials on respiratory asset as well as other developmental asset is higher by INR 61 crore versus last year, which is incremental 1% of our revenue.
Our reported gross margin after materials cost stood at 63% for the quarter, which is 165 basis points above last year's figures, driven by contribution from new launches and overall mix change. As alluded earlier, the reported gross margin subsumes the impact of inventory charge in the material cost line item. Total expenses, which include employee costs and other expenses, stood at INR 2,366 crore, which has increased by 7.2% on sequential basis. Employee costs of the quarter stood at INR 951 crore, flat on sequential basis. The other expenses, which includes R&D, regulatory, quality, manufacturing, and sales promotions, are at INR 1,405 crore, increased by 12.3% sequentially, driven mainly by higher R&D costs, which I talked about, which is up 22% YoY. Judicious promotional and growth linked investments.
Total R&D investment for the quarter are at INR 335 crore or 5.8% of revenue. The absolute trajectory remains intact, with assets progressing in late-clinical trials and other portfolio developmental efforts continuing. Reported EBITDA for the quarter was at INR 1,302 crore or 22.3% as I pointed earlier. Reported growth over last year's base was 6%. While adjusting the one-time COVID inventory charge, our core operating profitability for the quarter was approximately 24% or at INR 1,389 crore. At the current run rate, we are tracking in line with our full year guidance of 21% to about 22%. The profit after tax is at INR 789 crore or at 13.5% of sales.
As of 30 September 2022, our long term debt primarily constitutes ZAR 720 million in South Africa and working capital of $49 million in the US, apart from some of the other facilities that we have in the other geographies. Driven by our relentless focus on cash generation and rigor in cost discipline, we continue to be net cash positive company at the end of this quarter. Importantly, we are constantly monitoring the current macroeconomic situation and proactively addressing the risks, including any FX downside impacting our revenue and profit and inflation as we see it. To close, we saw robust momentum across portfolio and geographies for half one.
Growth levers in the subsequent quarters will include continued growth momentum across branded and consumer business in India and South Africa, robust traction in our North America franchise across complex portfolio and continued contribution from respiratory and peptide products, and thirdly, monitoring geopolitical headwinds, driving elevated procurement, freight cost and foreign exchange depreciation-led translation loss in INR. I'd like to now hand over to Umang for business and operational performance. Thank you.
Thank you, Ashish, and welcome to all of you on the call. Our quarter two FY23 performance reflects strong execution in our One India and a solid launch momentum from our differentiated US portfolio, driving our overall revenue to a multi-quarter high of INR 5,829 crores. The reported growth is 6% and 12% year-on-year after adjusting for COVID in our quarter two FY22 base. Ashish has already explained the numbers to you. Our core business continues to demonstrate sustained momentum despite the impact of geopolitical headwinds. I'm pleased to share that our reported EBITDA margins for the quarter came in at 22.3% and adjusted margins at approximately 24%, which continues to track in line with our guided range of 21%-22% EBITDA. Coming to the detailed updates for the quarter by market.
In our One India franchise, we are making strategic bold moves, bold moves, transforming into a holistic ecosystem driven by new science, better reach, and a digital-first approach. We are significantly investing in investments in portfolio, diagnostics, channel, and digital initiatives. Our global consumer franchise continues to witness strong traction across India and South Africa. The overall franchise now stands at 9% of the overall Cipla revenue for the quarter. There is a slide in our investor deck that captures some of these distinctive structures and winning capabilities being added to fortify our One India franchise under the wellness theme as well. In One India, for this quarter, the One India core portfolio delivered a 6% year-on-year reported growth despite the continued normalization of COVID contribution compared to the quarter in the last year.
After adjusting for COVID products, revenue growth stood at a robust 15% year-on-year, reflecting strong demand traction across our therapies and our businesses. The branded prescription business demonstrated double-digit growth across therapies and core portfolio driven by continued demand. The market-beating growth trajectory continued for the sixth consecutive quarter with 15% growth for the quarter on an ex-COVID basis. This core revenue growth is underpinned by a healthy mix of price volume and contribution from new launches. During the quarter, we launched 8 new brands in cardiology, diabetes, urology, gynecology, and respiratory. As per IQVIA and MAT September 2022, we continue to maintain healthy ranks and market share in all our key therapies.
The trade generics business continues to witness strong traction across the flagship brands, with steady order flow from the tier 2-6 rural towns and the demand fulfillment across regions translating into double-digit growth over last year. Our launch momentum continued with 10 products in key therapies within the generics franchise. Our consumer health business continues to do well and is tracking well in line with the INR 600 crore plus annualized revenue we alluded to previously. The transplant brands are tracking at a robust 14% growth momentum during the quarter, with the overall business delivering over 20% growth versus last year. Coming to our US generics and lung leadership franchise. The US core formulation sales for the quarter registered a high of $179 million. This is a 25% growth year-on-year.
Our continued focus on driving business through strong execution of our differentiated pipeline is demonstrated by the launch of lenalidomide this quarter. We're committing to maintain sustainable supplies and maximize value. The contribution of differentiated dosage forms in our North America generics portfolio continues to expand, which translated into the 15% growth over the quarterly average run rate of $155 million over the last three quarters. Our generic market shares and respiratory products continue to be healthy. Market share for Albuterol and Arformoterol stood at 16% and 38% respectively as per IQVIA MAT, ending September thirtieth, 2022. Our peptide franchise continues to track well since its launch in quarter four of FY 2022.
Lanreotide 505(b)(2) has steadily gained market share with 4.6% share in quarter one, which was last quarter, moving to 9.6% in this quarter. We are tracking to our earlier guidance of reaching 15 or so % market share by the end of this year in this category. On the pipeline front, clinical trials on the respiratory assets and filings on complex generics, including the peptide injectables, are on track. For the launch perspective, we are geared up for some of the upcoming launches and closely working to secure our approvals. We have proactively responded to the FDA observations issued for our inspection of the Goa plant in August 2022. As part of our business de-risking practices, we had already initiated plans to de-risk some of our key assets.
At this stage, we do not expect any material impact to our planned launches for FY23. We will continue to share material updates as the situation unfolds. Coming to SAGA, which includes South Africa, Sub-Saharan Africa, and the CGA. As alluded earlier, the South Africa private business demonstrated continued recovery on a sequential basis. In secondary terms, strong demand continues with our South Africa private business outperforming our market by over two times. We continue to maintain the third position with a market share of 7.5% and grew by 7.2% versus a market growth of 2.8% as per IQVIA in August 2022. Our international markets business, despite the challenging operating environment and Forex volatility, maintained scale over last year's COVID base.
Our reported numbers in dollar terms also subsume the adverse impact of a depreciating euro, the British pound, and other local currencies against the United States dollar, which is offsetting the healthy double-digit secondary growth across our DPM markets. We continue to monitor this volatile operating environment for currency and demand headwinds and are proactively exploring options to mitigate risks and protect our margins. To close, Adjusted EBITDA margin of approximately 24% for the quarter tracks above our 21%-22% guidance range. Unlocking of our complex pipeline while balancing incremental R&D investments future is in progress, and we are committing to accelerating our return on capital employed, which is currently tracking at a healthy 20% for the twelve months period in line with our commitment of a 17%-20% range.
Turning now to our outlook. Our near-term priorities include accelerating the growth in the One India engine with building big prescription brands across chronic therapies, driving accessibility of the trade generic brands, and a sustained portfolio expansion in the wellness categories. Sustainable scale-up in the U.S. business, driven by maximizing contribution from complex upcoming launches, and this includes our respiratory and peptide products. Continued execution in the branded and generic portfolio, across our DPM markets in the emerging side of the world in SAGA. A continued focus on cost, and offsetting the cost inflation through calibrated pricing actions and other interventions to navigate the procurement, freight, and other cost inflation we are seeing. A focus on regulatory compliance across our manufacturing facilities and implementing globally benchmarked ESG practices.
I would like to thank you for your attention and request the moderator to open the session for Q&A.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. First on the generic revenue, right? There has been a stark difference in terms of the kind of business which is being done by the companies already launched the product. The company they're doing almost kind of $100 million. Is this more or less in line with the kind of agreement with the innovator or there has been some amount of kind of production or the supply chain management which has led to this difference? If you could clarify.
Tushar, I think the I you know I think the reporting universe numbers are still to come out, but I guess what you're referring to is the competition. I think if you are first to file on this product and two companies are obviously the share allocation will be high.
Got you. Just secondly, given that this was just maybe a month kind of a launch for a limited competition product, and we are already tracking 64% gross margin. If you could just share the outlook for the second half fiscal 2023 on the gross margin front, and subsequently, if at all any revision in the EBITDA margin guidance for second half?
Yeah. We don't give the gross margin guidance, but EBITDA margin, we have given the guidance that will be in the range of 21%-22%. We will stay with that margin.
Given that in second quarter we are already at 24, and it's not a full quarter impact of the niche product launch.
What I'm saying, 21%-22%, it is for the full year. That's one. Second also, there is also seasonality, quarter-on-quarter, which we have to take care of.
Got you. Just lastly on Lanreotide, just if you could share some color in terms of the kind of price erosion that would have happened because of the competition.
Nothing significant over quarter two or over quarter one, which is the previous quarter.
Thanks. That's it from my side. Thanks a lot.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, thanks for the opportunity and good evening to all. Just one clarification first on, you know, the inventory write-off related to COVID. It is largely done or we have some bits left?
No, this is all done.
Okay.
All COVID-related inventory, it's all been taken into the books.
Okay, understood. Another clarification on Revlimid. I heard you saying on, you know, obviously the competition has FDA approval. For us, would it be well spread across the quarters to come by? Or, is there a front-ended stuff or it is back-ended for us? Just a little color will help.
Yeah, I think our sense at this point in time is that there will be repeatability at least for this year. You know, as we get closer to next year, we'll be able to give more guidance. It's also linked to how players come into the market, et cetera, and the settlements. Yes, if your question is what you have seen in this quarter, if your question is whether this becomes a kind of a new base for the U.S. business, I would say yes.
Okay. When you say this year, means financial year?
Yeah, this financial year, but I also think that this current level of our business at INR 175-180, unless there is something that goes dramatically wrong, I think this could be. You could translate this to seeing this as a new base for the business.
Okay. One question on your presentation, it talks about high value launches in second half fiscal 2023. You have talked about generic Advair, which also had an EIR from the facility side. Question is, which are the products we should pen in and what is the update on Advair? That's it from my side. Thank you.
Advair update, as we had mentioned, we were looking at it in the second half of the year, of this year, fiscal year, and I think we are sticking pretty much to that guidance today. You know, obviously the FDA has to review any responses to questions or information they may have asked during the review period, which hopefully is the process that's ongoing now. On Abraxane, obviously it is linked to the Goa site approval. We are in the process of de-risking the asset as well. If the Goa site approval comes, obviously this will be on track with either late the first quarter of the next financial year, which is the first half of the next calendar year.
If it is delayed, then it could be pushed out by six months.
Okay. Any other products you were penciling in with high-value launches?
Prakash, at this stage I'm not sure we're giving that level of guidance. I think we did disclose the pipeline.
Yes.
Because these products are in public domain, we talk about these. The other ones, you know, obviously we have products in the pipeline, but we're not giving granularity at this stage on their launches.
Okay. Pipeline, what we saw was under development, under filing, et cetera. It might take some more time, right?
Yes. You could assume. There are a few I think that were in, post-filing as well.
Okay. Lovely. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Yeah. Thank you for the opportunity. On Lanreotide, we are kind of tracking well in terms of market share. Would we be, you know, kind of, increasing our aspiration there, in terms of gaining more market share, from what is guided at 50%?
Yeah. I think we're at about we were at four last quarter. We're at nine, close to 10 this quarter. We're assuming a natural progression, trying to get as close as possible to the guidance we gave, which was around 15%. I think as we mentioned earlier, this is a very gradual ramp-up product. You know, and so I think you know we will assess this closer to when we reach this goal of 15%.
Sure. Can you provide some, you know, color on our launch of the Leuprolide depot injection? What is the addressable market size? What are our aspirations there? You know, any prerequisite.
I think, let me answer the last one because I think that's easier. We have already, you know, an infrastructure that we created for Lanreotide. We are hoping that infrastructure will be able to support Leuprolide. Obviously Leuprolide is not a single brand market. There are almost two, three brands in the market, two, three players. We will be launching the product, you know, any time now. You know, I think it will also ramp up slowly, just like Lanreotide has. We think it's a fairly attractive product for us.
Any comment on the addressable market size?
I think, Lupron. I think maybe IMS would probably suggest that the full market is somewhere around INR 200-odd million. I think, you know, obviously there's the brand and both are brands. I think it's a fairly attractive market. That's what I would say at this stage.
One last housekeeping question. If I look at our launch of lenalidomide, it seems that we have just launched, you know, the smaller quantity bottles. Is there any reason that why you would not have launched a larger quantity bottles?
No, I don't think there's any specific reason for that.
Yeah. There's no specific reason.
Okay.
I do know that there are a few strengths which we do not have first-to-file positions. .
The other thing that I would like to tell you is lenalidomide has a large number of SKUs.
I think if I recall, there are almost 15-20 SKUs on lenalidomide by the brand. People, you know, I don't think anyone would launch all 20. Between
The different players, I think the market may get covered.
Okay. Your agreement would mention that those kind of different SKUs or no?
I'm sorry?
Your agreement with Innovator would mention the SKUs that you can launch or no?
I don't think there's any specific mention. Other than what you're barred from launching because of FTF, I don't think there's anything there.
Okay. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yeah, thank you for taking my question. You know, just on the EBITDA margin guidance, given the 24% margin that we're doing in this quarter adjusted for one-off, and you know, second half does seem to be seasonally strong in India, we'll have Revlimid contribution Advair coming through. Any reason for keeping our guidance at the 21%-22%? I mean, I'm just trying to understand if we are planning higher investment, higher R&D, you know, any color there, please.
Yeah. No, sure. I think, first of all, 24% is adjusted for the COVID provisioning, right? So if you look at after that, you know, it's 22%. Then, you know, quarter three, you know, it is expected to be a quarter where some of therapies does well. But quarter four is generally a more muted quarter in comparison to others. So, looking at all those things, the full year guidance is somewhere around in the range of 21%-22%.
Just on R&D, you know, should we expect? You know, we've already seen a fair bit of increase in this quarter. As we are progressing on our respiratory assets, should we expect a further increase from the run rate that we're doing in the quarter?
You would have this run rate continuing for rest of the year. The 6%, the 5.8% that we've seen is something that is likely to continue, because the products and clinical trials that we are carrying out on some of the products.
Understood. Thank you so much. On the U.S. business, if I were to look at the base business, you know, ex Revlimid, has there been, you know, given we have grown Lanreotide very nicely, is it fair to assume that has been more or less stable? Or, has the rest of the portfolio seen a higher erosion?
Neha, I think every quarter that we see a little bit of erosion in the US, which is there in the past couple of quarters as well. You know, yeah, I mean, it's not as if we will not see erosion in any quarter. There is erosion and then there is Lanreotide increase, and then there is lenalidomide as a new launch.
Understood. It's fair to assume that therefore the base business would have been flat, quarter- on- quarter.
Yeah, flat or, you know, it could, I mean, there could be a little bit of a decline or anything.
Understood.
I think. Yeah.
Okay.
I mean, it's the regular trend. Nothing untoward, if that was your question.
Okay. Understood.
In terms of price erosion, nothing untoward.
My last question on India. You know, the generic business, you know, we're seeing a double-digit growth, seems pretty strong, especially with the COVID base that we had. You know, are we doing anything additionally, you know, to help maintain this growth momentum? I ask this because it seems like a lot of our peers are also becoming or launching their generic business. You know, is that. Are we going deeper, and how difficult is it to, you know, grow that business from the base we are?
I think if you were to just segment our businesses in India, the branded business, which is our prescription business, grew. I think its overall growth was 12%. The branded business growth was higher than that, excluding COVID. Trade generics was roughly at the same mark. I think the branded business is actually growing a little faster than trade in the second quarter. I think what happens in quarter two, we always see a bump up on the growth rate, and that's because that is the season.
The same growth rate in a non-seasonal quarter, you know, you could take off 300 or 400 basis points from it. I don't think 15% is a representative growth for the rest of the year. You know, we are hoping that we would always continue to be higher than industry growth, even in quarter three, quarter four, adjusted for COVID.
Understood. Thank you so much, Umang.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Thank you for this opportunity, sir. My first question is on the kind of a cash flow that we are likely to see from the Revlimid. Generally, say, Cipla is known for generating strong free cash flow. Now on the top of that, this Revlimid cash flow is likely to be kind of really robust. Given that, our investment towards the specialty projects or about drug development, are we going to see any kind of meaningful change to our developmental pipeline, strategic growth initiatives and all that? Could you give some color on that, sir?
Let me cover the cash flow first, and then I'll hand over to Umang to just talk about some of the strategic initiatives. On the cash flow this quarter, of course, we did well. I think the couple of things that we need to bear in mind is that this was a dividend paying out quarter. Some of the cash that we generated went out there. The other is that with the launches in the U.S., et cetera, so there was increase in the debtors. Of course, that cash release will happen over next, of course, this quarter and the next. That's broadly on the cash flow.
On the strategic priorities, of course, we constantly discussing various capital allocation priorities, which includes both investment into new line of businesses as well as looking at some of the opportunities that are available in the market to grow some of our existing businesses. There are CapEx proposals as well, which could be towards more modernization of our facilities or reducing costs, et cetera. I would like Umang to come in out here as well. Thank you.
I think further to what Ashish said. You know, our strategy, at least for the U.S., is about being very selective with products. Maybe the average R&D spending per asset is higher, but we don't subscribe to the breadth model of assets, where we do more projects necessarily. In that way, we keep a watch on how much we are investing in R&D. I think specialty projects, we have a few in our pipeline. As they begin to gain steam, the R&D spending will go up as our biosimilar programs advance. Long-term trend, we have said we can't afford R&D higher than seven in our financial model.
As these expenditures begin to ramp up, I think that's roughly where we will go.
Okay. Just one clarification about Revlimid. Do you expect a second wave of generic launches before the patent expiry?
Well, I do know. I can't say that with certainty because I don't know the terms of everyone's settlement with the innovator. I would like to believe that with everyone, now that the market has been created, with everyone who has filed for Revlimid, I would expect perhaps that they would have similar settlements with the innovator at this, allowing them to launch at different time points. Yes, your assumption on that there could be more people entering the market, it may not be completely wrong.
Okay. Just two small questions, sir. One on the Advair. Do you find this price erosion scenario in Advair is a kind of a much sharper than our expectation? That is one. Secondly, the Indore facility which has got this Fourth Industrial Revolution Lighthouse rating, whether it has got any kind of a commercial or any kind of a business benefit to us?
4IR is just, you know, whether 4IR has resulted in any commercial benefit to us.
Correct. In the sense, any new contract in terms of CDMO or, you know, is there anything that we're getting out of it?
It's too recent as a certification, but I can tell you that what has happened as a result of 4IR is that our overall yields have gone up and therefore the cost per tablet has come down. We've seen that almost impacting our cost per tablet there for most of our categories by about 15%-20%.
Okay.
The second thing that we have also seen is that our greenhouse gases have reduced. If you reduce greenhouse gas, obviously your input quantity is lesser, of what you consume. I think, those are the impacts of it. Has anyone signed a business because we are a lighthouse? I'm not sure. Lighthouse certifications are more to make sure that your internal processes are more holistic.
Okay. About Advair, please, sir?
Yeah. On Advair, from how we understand the price in the market even today is very attractive for us. Because we're one of, you know, the players who's localized the supply chain in India, we'd like to believe, just like for Albuterol, that our cost position is fairly superior.
Sure, sir. Okay. Thank you. Wish you all the best.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, good evening, and thank you for the opportunity. My first question is on India business. Can you broadly give split between the branded generic and then other complex, which is the trade generic plus consumer health business? Second part of that question is, we have seen very strong growth in the trade generic part. Does it present some kind of risk in the future to the overall India business profitability?
I think if you were to look at our overall growth rates, so we don't give you specifics by line of business. But I think what we are saying is that, you know, if you were to look at the consumer business of, you know, roughly INR 650 odd crores and split that into quarters.
That's roughly what our consumer business will show you, and that this business is growing the fastest right now. If you were to look at our trade generics business and our branded business, both are growing. The branded business is almost 60%-70% of our India business.
Okay.
That's growing at the same rate as perhaps the generic business.
Okay.
The trade generic business. I don't think there's too much of a you know lopsided impact on account of trade generics. The trade generics business is not as big as a branded generic.
In the future you will continue to focus on growing these part of businesses also, the trade generic part.
Yes.
Personalize patient.
Yeah, because the trade generic business is essentially a business that services our tier two to six cities, where actually growth is higher today than the metros and tier ones.
Okay. That's helpful. My second question is on, like, current comment on the input cost part. Have you seen any notable difference in, say, raw material or logistics costs, et cetera, compared to first quarter?
You know, what we're seeing is that on the procurement cost, there has been some pressure, but we're seeing a trend of stabilization out there. On freight, we have taken certain steps to mitigate the cost increase. We have very closely looked at the mix of freight, air to sea, et cetera, to bring down the cost.
Okay.
At the same time, making sure that we're able to service the market with no compromise.
Understood, sir.
Overall on the cost side, I think we've been able to maintain that discipline through certain actions from our side, even if we are seeing some trend outside, to ensure that we are able to maintain our margins. On the Forex, I think already Umang has covered. We have certain imports, and we have certain underlying currencies in which we in some of the markets that we have, right? That also on one hand, we lose out on those because of those currencies appreciating against dollar.
At the same time, we have gained, when we report our financials, when we make our dollar revenue.
Okay.
Overall, these are the big items of cost that we focus on closely to ensure that, we are well within our desired range.
Okay. That's helpful. My last question is, you mentioned that your R&D projects, including peptides, are on track. How soon we can see any one of those products coming into your launch portfolio? Say in next two years, three years, any timeline?
Well, actually, the first set of launches there hopefully will be towards the later part of the first half of next fiscal.
Okay. Next fiscal, later half of the first half. Okay.
Yeah.
Okay. Thank you. I'll get back in with you.
Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.
Thank you. Congratulations on another strong quarter. I had one on Leuprolide.
Ms. Nithya Balasubramanian, your audio is a bit muffled. If you can take the phone on handset, please.
This is any better?
It's still a little low. If you can just speak a little loud.
Can you hear me now?
Yes. Yeah, better. Go ahead, please.
One on Leuprolide. You have approval for the 25, 22.5 mg, which is about 40% volumes of Lupron. Now, given that you're a 505(b)(2), how do you look at your target market? Do you look at the other strengths as well as fair game? Do you also look at the other brand, Eligard, as fair game? How are you defining the target market, and should we expect to see some of the other strengths as well?
Yeah. Nithya, as of now, it's just a single strength launch. You could calculate the market-addressable market by looking at, you know, by looking at the 22.5 mg strength across the two brands. I think that's one way to look at the market and then take a phased-in, you know, I mean, some kind of a 505(b)(2) type share uptick for modeling purposes.
Okay, got it. Quick one on the partner asset. Any updates there, when are you expecting the partner respiratory asset to be launched in the market?
Nitya, I think there were some questions that the FDA had, which I believe the partners responded to, but I think it's probably going to take, you know, may take, I would think at least since based on the regulatory thing, it's another nine month time period. This was responded, I think, some time back. We're in that nine month time period.
Understood. One on India, I think, Umang Vohra, you were alluding to stronger growth from chronic therapies. If you can give us a bit more color on which therapies are actually supporting growth and what is actually supporting growth. Is it new launches? Is it because you've expanded your doctor coverage, or is it actually because now you have brands that are no longer exclusive and Cipla can participate? If you can give us a bit of color on what is driving growth in branded generics.
Yeah. Certainly, Nithya. I think respiratory has shown strong growth over the last, I would say over two-year, three-year period. Initially, it was aided by COVID, but now the market is also responding to some of the work that Cipla's been putting in for awareness, and diagnosis. I think that's expanded. On the other chronic therapies, cardio, diabetes, very strong growth. We're also seeing the growth back in urology, where for some time we had an issue in terms of our execution. That growth is back as well. Our emerging therapies are growing also very strongly. Of course, in this last quarter, acute has done well because it's also the season quarter for India.
Across all therapies, Nithya, pretty much across all therapies.
Would this be market share gain or new launches or, you know, market expansion?
I think in the case of respiratory, it's both expansion as well as as market share gain. I think in the case of cardiology and diabetes, it's a function of high, very high volume growth as products have become generic. I think and more people have launched, the market's really expanded because we believe that some of this market has shifted from other sub-therapies to the therapy that became generic. So it's largely a function of these two. The third is, you know, versus the last two years, you know, what do you call that when you go to clinic?
The clinical sector?
No, the clinics have increased because of just a lot of people who sat out from the treatment now coming back to seek active treatment.
Understood. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, hi. Thanks for the follow-up. Just two quick ones. One is on Advair. Just to understand this better, once approval comes through, is it the NRx which will be more critical or do we have a chance to take share from the other players as well? And how, you know, fast is the ramp-up in market share? If you could guide what is the expectation there.
I think it logically should be from both sources. But we are also cognizant of the fact that the brand still holds over 40% share in Advair. Obviously, the share should start converting from there. But also there would be some amount of share that we take from existing players. I think because the market is, there are three players in the market, I think over a period of time the shares would come. We are not guiding specifically, but it would take the shares uptick would come in due time.
Do you expect competition to pick up there as well? I mean, more players or, it would stay less competitive for some time?
Actually, we are only aware of one subsequent filing. I think there was some guidance they provided recently about their file. We haven't heard of anybody else after that as yet. I think based on that, at least for the next two years or so, we think that it will be limited.
As per you, what is the addressable market currently? I mean, innovator plus the competition, it should be what? 700-800 or less than that?
No, I think it is less than that. I think 700 is possibly a little higher than that. It would be less than that.
Perfect. Lastly, on the PLI, is there a benefit that we get or we have started booking already or what is the outlook there?
We have a marginal benefit that is coming in our. Also, you know, some of our launches are not exactly from our facilities in India. So, you know, we don't have a huge benefit coming on account of PLI.
The outlook, sir?
Outlook as in, if like, for example, if Advair launches and Advair is a product that will have that benefit.
Okay.
It's very product specific.
Okay. Understood. Fair enough. Perfect. Thank you, and no other questions.
Thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead. Seems like we lost the connection for the current participant. We move to the next question from the line of Vivek from Citi. Please go ahead.
Yeah, thanks for the opportunity. My question is related to the U.S. market. When we expect to file the next inhaler asset that is currently under clinical trials? Thank you.
I think towards second half of next calendar year.
Thank you. Would you like to highlight what is the addressable market of this particular product?
I don't think we'll give that level of detail.
Yeah, no problem, sir. Just one more thing. You have alluded that $179 million-$180 million number in US that is more or less sustainable. Are you comfortable with this number even after, let's say, Revlimid comes down maybe few quarters only?
I think, you know, Revlimid, we also have other launches, so they should hopefully be able to offset this. I think the range we are guiding to is INR 175-INR 180 as the new base.
Okay, sir. Thank you. That was from my side.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the follow-up. One of the branded player in albuterol market is going to stop marketing. Do you believe that could offer a small opportunity in that product or any dynamic change because of that?
Are you referring to a change that is being made by one of the innovators for a climate-friendly version or what?
Not really. They have said that they would stop marketing that product in a way that they would cut down on the field force for that product.
I'm not sure we have heard that. Do you know the name of the company? Sorry, we've not. We are not current with this.
Teva yesterday in that.
Oh, you're talking about ProAir?
Yeah, ProAir.
Yeah. I think basically, from how we understand, Teva has an AG also to the same product that they sell.
Correct.
Which means they will move the whole market generic.
If they stop marketing.
To their generic is essentially what's going to happen.
Okay. The new prescription would also be just set on as maybe Albuterol. Earlier that.
Today a large share of the prescriptions are already generic.
Okay. I think at start we used to say around 55, 60. Has it changed in your mind?
It is significantly higher.
Okay.
Once the authorized generic versions have come, and our belief is a large share of the prescriptions today are generic. Where they are not generic, they are dispensed generically.
Okay. No problems. The second question on the trade generic business or the consumer health business. I think we transferred some of the brands from trade generic to consumer health where we had good brand equity. Is it going to be a continuous process where you launch the trade generic products, you know, and two years, three years down the line, then you once the demand is strong, then you move to consumer health?
Well, it's a progression.
We realize that some of our trade generic portfolio has very strong customer equity.
It is those products which, where we think that the customer equity is strong and where, potentially new users and formats can be derived for the product. Those products, you know, we feel have a very active, consumer potential. Yes, depending on product to product, we will evaluate and see.
Okay. As of now, let's say when you look at your generic, do you see a, I mean, a meaningful portion of that, usage potential?
Yeah. Not meaningful. I think there is obviously we have been working with this within with two products that sit today in our generics division, but where we seek inputs from our consumer division. That work is already on. You know, at overall Cipla level, you know, the transfer creates a new phase of life for these brands.
Sure. Thank you.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India. Please go ahead.
Yeah. Hi, everyone. Just on this guidance of U.S. business of $175 million-$180 million, need to clarify you are not assuming any revenue from the upcoming respiratory launch in Q4?
No, no. This is, we have guided towards what is the new base for our business.
Okay. How would be the in an annual in a yearly cycle for Revlimid, the revenue booking would be more front-loaded, like assuming September or October is the start of the year for Revlimid?
I think it is following how any regular generic product is launched. No difference.
Okay. Maybe one last one on Albuterol. Can you share how pricing has behaved in last 1.5-2 years and how it has been in line with your internal expectations or it has been more than that? Can you share something over there?
No, we have obviously witnessed competition and therefore there is some erosion. That's true with, you know, generally the base business, as Umang had talked about earlier, are the three components of U.S. business.
Yeah. I was talking more from Albuterol specific as a product, pre-genericization entry of a couple of players, and the way pricing has played out in last 2.5 years. Was it more than your internal expectation, how it has panned out? If you can give any color would be really helpful.
I think it's more or less in line with our internal estimates.
Would Advair be larger than Albuterol? Would that be a fair assumption on its peak revenue if one want to see?
I'm not sure we can give that level of detail. Not because we don't want to, but because there are multiple factors that will go into the launch. Even with Albuterol, though right now we are in line with our internal estimates, but we've gone through a cycle where, you know, there were periods where we were higher and there were periods when we were lower than our internal estimates.
Okay. Thank you. That's all my side.
Also, COVID was a factor, you know, that was playing out as well at that time.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi. Thanks for taking the question. On the U.S . Business, I think, you know, with the new base that you've created and with the growth that is expected to come through with some of the newer launches, we're getting to a point about $200 million plus quarterly revenues. I mean, a point where most of the other competitors have typically faced, you know, started to face growth issue at some point, I mean, in their growth trajectory. When you philosophically looking at the U.S. business trajectory for us over the next three to five years, I mean, how are you approaching this in terms of at a point where does the business get to a point from where on incremental sales start to become, growth begins to become a challenge?
How will you look to sort of tackle that, you know, at some point maybe 2-3 years down the line?
Yeah. I think, Nitin, we are not going to be any different or immune from what is an industry phenomenon. I think at some point in time, as we become larger, we'll also, you know, our growth will also not be as high as we have seen in the past. I think we have a base effect, plus we have two things going for us right now. One is a very small base compared to the other companies. The second is that we've made some pipeline choices which probably have helped us, including respiratory and the peptides. I think at some point in time, the base becomes larger, but the pipeline choices will continue to hopefully be distinctive.
I don't think we will see that level of growth that we may have seen in the past after 2-3 years.
Right. How do you propose to, you know, sort of reach up? Either do we go the specialty way or US remains as a business doesn't grow much beyond that and you focus on growing other parts of the business?
I think, well, I don't think other parts of the business have to grow and they are independent of the US. I don't think we'll make a choice to say that the India business should grow faster than the US because they pretty much have different resources allocated to them. We will try and grow the US as much as we can. Specialty is definitely an option. We have a pipeline that we are building out between organic and we already have one asset. You know, if you look at the 2028-2030 time period, that's the time the biosimilars we are working on will be launched in the market. That's one way to take a look at the problem.
While continuing to invest in some of our respiratory assets and, you know, we changed, Cipla really changed its model to get into its own front end sometime in 2015, 2016 time period. That's when we started the Albuterol, the Advair journey. It took us 6-7 years to launch, and by the time we launched, we were already number two or number three in the market. Our goal would be for subsequent products to try and reach the market faster than our position today. I think, you know, if you are able to do that, then also there is a fair, then the market is fairly attractive for players.
That's very helpful. Just one housekeeping. You know, there's a very sharp increase in depreciation costs on a QoQ basis. Any specific reason driving that?
That has some, you know, COVID-related impairment also sitting there. So that's why it is higher. You know, we go back to a more normal depreciation amount from next quarter onwards.
Okay. Thank you.
That's it.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Naveen Bansal for closing comments. Over to you, sir.
Thank you, Steve. Thank you everyone for your attention today and for joining us for the earnings call. In case you have a follow-on question, feel free to reach out to the investor relations team. Thank you and have a good evening ahead. Thanks.
Thank you. Ladies and gentlemen, on behalf of Cipla Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.