Ladies and gentlemen, good day and welcome to the Q3 FY 2022 earnings conference call of Natco Pharma Limited, hosted by Investec Capital Services. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Anshuman Gupta, Lead Pharma and Healthcare Analyst at Investec Capital Services. Thank you, and over to you, sir.
Thank you, moderator, and good morning, everyone. On behalf of Investec Capital Services, I welcome you all for Natco Pharma Q3 FY 2022 earnings call. Today, we have senior management team represented by Mr. Rajeev, our Vice Chairman and CEO, and Mr. Rajesh. Over to you, Rajesh. Thank you.
Thank you, Anshuman. Good morning and welcome everyone to Natco's conference call discussing our earnings results for the third quarter of FY 2022, which ended December 31st, 2021. During this call, we may be making certain forward-looking statements or statements about future events, and anything said on this call which reflects our outlook for future must be reviewed in conjunction with the risks that the company faces. I'd like to state the material of the call, except for participant questions, is the property of Natco and cannot be recorded or rebroadcast without Natco's express written permission. We will begin the call with results highlights, followed by an interactive Q&A session. We hope you all received the financials and the press release that was sent out earlier. These are also available on our website.
Natco has recorded a consolidated total revenue of INR 590.7 crore, which includes the product licensing income for the third quarter, which ended December 31st, 2021. This is against INR 386 crore for the same period last year, reflecting 53% increase in revenue. The net profit for the period on a consolidated basis was INR 80.4 crore as against INR 63.4 crore for the same period last year, reflecting an increase of roughly about 27% in net profits. During the quarter, there was a one-time expense against the product licensing income. Specifically on the segmental revenue split, which has also been shared, APIs totaled INR 61.7 crore for Q3. Formulations domestic is about INR 100.3 crore. Formulation exports, which includes profit sharing, licensing income, and also the foreign subs, was INR 383.1 crore.
Other operating and non-operating income, INR 45.3 crore. Crop Health Sciences is INR 0.3 crore for the quarter. Thank you all. We'll open up for questions now.
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 the 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 Tarang from Old Bridge Capital. Please go ahead.
Hi. Good morning. Just a couple of questions from my side. One, I think at the beginning of the third quarter, Natco bought about 100% stake in Dash for $80 million. So I just wanted to get a sense on the thought process behind this acquisition. How does it help Natco as you move forward? That's number one. Number two, if you could give us a sense on the revenue and EBITDA ex the product licensing income, which is a one-off for this quarter. Thank you.
Okay. So let me answer your first question. What is the rationale for doing a front end in the US? I mean, we've been doing partnership all these years, and I think, we have done well. I think we're much a smaller company when we did this partnership, so we needed someone to support us. I think the strategy now is for the plain vanilla generics, I think we wanna do our own front end. For complex generics, we want to continue to do partnerships. I think that's what we are thinking. So we needed a front end. I think Dash came along and came at a very reasonable valuation. So we thought, I think it's high time that we start doing our own front end.
I think the value clearly is that, you know, as business gets more and more difficult, as you know, it'll be better to keep most of the economics with us as opposed to sharing, because there's not much to share anymore. That's the reason why we did the acquisition. And also it allows us to brand ourselves in the front-end market where and we're moving up the value chain. Okay, that's answering your first question. The second question was, what is the difference in the EBITDA, if you remove the licensing income? The licensing income covers most of it, most of the expenses. I think our run rate of revenue is similar to what we had last quarter.
I think I can't tell you exactly what the numbers are, but I think it's continuing the same way. I think the difference essentially is from the licensing income, because we did a licensing income with a particular partner who gave us a reimbursement of certain expenses. I mean, that's the reason why you had this one off. So I think to answer your question directly, there's no difference between last quarter and this quarter in EBITDA.
Got it.
If you remove the one. Yeah?
Got it. Just to step back on the first question, right? I mean, given that your strategy is pretty straightforward about plain vanilla generics, and wanting to do a front-end there, right, would you rather not be better off actually partnering with someone who has a broader portfolio in the front end, rather than having your own front end with a limited portfolio?
I think that's what we're trying to see. Problem is it's a chicken and egg question you're asking me. See, basically what happens is when will I get the broader portfolio unless you start something, isn't it? I think this is a long journey, my friend. I don't think the asset, payoff of this asset will happen anytime soon because all the products that we have right now are off license, and they all have five-year, seven-year contracts, so we can't really get out of those contracts, right? We can't get the ANDAs back. So clearly, in the near term, it's only ANDAs for which we are filing now, for which, let's say, launch will happen five years, seven years or eight years later. That's when we get the payoff. Partnerships and all, there's not much to share, honestly.
I mean, the U.S. has become extremely difficult. There's not much to share. Like nowadays, if you do a product, it's even hard getting licensing deals now. Once they're more than three or four generics, it's very difficult to get licensing deals. There are a lot of ANDAs which are sitting with us for which we don't have a licensing deal. And even if we don't have a licensing deal and you wanna go direct also, there's no margin. Yeah. That's how hard the business has become. So this licensing model where there's a lot of competition doesn't work. I think that's more or less what we have come to, I think. Sad but true, that's what it is. Complex and sole generic? Yeah, it works. What you're saying, it might work. Somewhere you need to choose your own destiny, right?
I mean, you got to make your own destiny, so to speak. So I think you have to make that call. I mean, I've been deferring the decision for many years. I think now I decided we should do it. But I think, again, we have certain nuances to it. If it's a very expensive ANDA, where there's like the expenditure is like INR 10 million, INR 20 million type of R&D expense, that we want to outsource. Sorry, partner out, but for the simpler ones, we'll do it ourselves. Okay?
Got it. Thank you.
Thank you so much. Next question, please.
Thank you. The next question is from the line of Ahmed from Unifi Capital. Please go ahead.
Thank you for the opportunity, sir. Just one question. How is the competitive scenario in Canada for Revlimid, considering how are the market share gains and the pricing erosion?
Price erosion has been top of mind, I don't remember, Ahmed, but it's been quite anticipated because it's been as per anticipation. It's been fairly competitive. I will not say there's some margin. We have done well. I can't recollect the market share, but I think we have done well. I think we have done well. That's all I can say. I'll give you more color to it once when we just launched it last quarter, so we're not having clarity on how much market share we have. But we have done well, and I think the subs have done well. So both Canada sub and Brazil sub have been profitable this quarter. So I think the Canada sub has extremely done well, partly because of Revlimid. So overall, I'm happy.
Erosion has been quite a bit. I think it is not, but not unanticipated because there were multiple approvals. You had us, you had Dr. Reddy's, you had Apotex, and then there was the authorized generic from Sandoz. So I mean, it's fairly competitive, but it's okay. I mean, am I happy? Yes. Yeah, we are happy with how things have worked out.
Okay, okay. Sir, what about sequential jump we have seen in the export formulation business from INR 190 crore to INR 380 crore? Is it mainly because of the one-off licensing income?
It is partly because of one-off. Yes, absolutely correct.
Okay. Fine, sir. Thank you.
Thank you. Next. Next question, please.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, sir. Based on the comments that you made around the Canada market for Revlimid, and since our launch for the U.S. is very near, how do you think that would play out, given that there are the same kind of competition? I mean, all the players that you mentioned in Canada are gonna be launching in U.S. as well, right? So how do you see that playing out based on our experience on the Canada side?
I think, there's a difference in your U.S. and Canada. So U.S., I think we are gonna be the first generic, and we're gonna be the only generic.
Yes.
Okay? That's the start. Okay? Right.
Yes.
So I think that's probably the biggest difference. It is still a REMS product, so the reimbursement will be, you know, there's a certain cost of selling the product because of the REMS. So It'll be little more different from Canada, where it was all the generics came in at the same time. It is different from U.S.
Right. After the 180 days, the competition would come, right? Like how it is in Canada.
It'll come, but again, see, they'll come. When they'll come and all, again, I have no answer to that question. From what I understand, again, they'll come in a staggered manner.
Okay.
So I think that's a question I can't answer, my friend. I think let's see when they come with and.
Okay.
But I'm very bullish about the product, and I think we should do well with this product.
Got it. Great. Lastly, have you started supplying the for Revlimid in the U.S., like start-
We have already stocked, my friend. We are already ready with the product. We've already given it to Teva.
Okay.
And Teva is ready to launch. I think, as we have announced in the past, the launch date is in the month of March. So just-
Yes. Yes.
In the next month. Yeah.
Okay.
Okay. Bye-bye.
Thank you.
Thank you. The next question is from the line of Danesh Mistry from Investor First Advisors. Please go ahead.
Hello. Hi, good morning, and thank you for taking the time to talk to us. I just had two questions. One was on the domestic business that you have. You know, so last quarter you had mentioned that it seems like it's flattening out, and it has. So we know. When do you see uptick in the domestic business? That's question number one, and I'll come back to question number two after that.
Okay. I'll answer your question number one. So domestic, see, I think we started the year very nicely because we had the benefit of the COVID portfolio. That particular month, the June quarter, because of the Delta variant, I think domestic did extremely well. I think the benefit of COVID was not there in subsequent quarters. I think that's why you see a dip. This is without COVID, our run rate is about INR 100 crore a quarter, my friend. I think that's where the numbers are. But whenever there's a COVID spike, then the sale goes up a little bit, but otherwise that's the base sale that is there. See, to answer your question about base business and all, I think, see domestic, you know, we are obviously present only in limited spaces.
I think that's the reason why they're unable to grow, and it's something that we have been working very hard on. So I think we have a good portfolio. I think things are not, things are stable. Okay, let me put it. Things are stable, and then we tend to have these one-offs because of COVID. So overall the business has done well, but I think the predictability of business is not there as much as your, you know, people like in your market like to have. Yeah. That is there. And we're trying to address that by expanding the portfolio. That's one answer. Does that answer your question?
I was trying to understand more on the onco side because I remember, you know, basically because of the COVID lockdowns, you know, a lot of patients could not kind of go for their...
Onco has been stable, my friend. I think onco has been relatively stable. I think we are happy with how onco has done. All the price erosion, all the COVID issues have been resolved. See, this COVID is a tricky one. Yeah. I mean, for example, January was a bad month, you know.
Mm-hmm.
Because of COVID, I mean, the impact of it wasn't as bad as let's say, like in Delta, but-
Mm-hmm.
Hospitalization was a lot less because, you know, I mean, you know, it was obviously not as bad as Delta, but obviously there was some impact for few weeks. But this pressure will be there. I mean, we have to live with COVID, no? I think, there's nothing we can do. But we'll have one or two ups and downs, but overall, if you take a 12-month view, you know, it's a fairly stable business.
Got it.
Okay?
Understood. Yeah. Got it. The question number two was essentially, with regards to your agrochem business. If I see your segmental results, you've you know, had a INR 10 crore EBIT loss, which is there. So is that on account of salaries, or is there some other one-off expense? And does that equate to the other expenses jumping up from INR 8 crore last year to about INR 24 crore this year?
We are losing money in agro. I mean, there's no two ways of saying that. Consistently we are losing, and we're losing about INR 10 crore-INR 12 crore a quarter. See, I think, the launches that we anticipated didn't happen as you're aware.
Mm-hmm.
I think this division, I think that's the reason why we're getting a lot of pressure on our base earnings. So I think this won't get better. I think conservatively, you know, our big launch of chlorantraniliprole won't happen because court decision is unresolved. Conservatively, you know, if it remains unresolved, then we can't launch before August 2022. So a difference in a swing. See, that INR 10 crore EBITDA loss, if you have to swing it, let's say, if you swing INR 20 crore in that particular quarter, then you have a INR 20 crore improvement in the domestic business because you're covering up a INR 10 crore loss and a INR 10 crore profit, so to speak. Let's assume you get a INR 20 crore EBITDA because of the launch.
I think that is very critical for our improvement of base business. But it is what it is. I mean, you know, I think we just have to wait for this outcome to happen. And also agro is a little tricky. Last quarter we had better sales than December quarter because the product that we had was for cotton. It can be only sold between July and September. You know, like, you don't get consistent sales in all quarters, so that also is there.
Understood.
Yeah. But overall, I mean, to answer your question, yes, there's a loss, and the loss will continue until, my view, till the September quarter. Okay?
Got it. And the other expenses . Sorry, last one, if I can just squeeze in. The INR 8 crore to INR 24 crore.
Sorry, say that again. Other expenses what?
The other expenses jumped from about INR 8 crore to about INR 24 crore this quarter. So I just wanted to check the reason behind that.
INR 8 crore to INR 24 crore?
Yeah.
Not eight, my friend. It's INR 247 crore. I think INR 88 crore.
Oh, yeah. Okay. Yeah.
Yeah. No, this is related with that one-time ANDA expenditure. No, I think we have explained that at the beginning of the call. The general expenses are in that same region, and in the same INR 100 crore per quarter kind of region. This is a one-time expense related with that particular product. Okay?
Okay. Got it. Great. Okay. Thank you so much. Thank you very much. Thank you.
Thank you. Reminder to the participants to ask a question, enter star and one. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Good morning. I hope I'm audible. Rajeev, just to pick up the previous participant's question. So your domestic oncology used to do I think around INR 100 crore a quarter, I think around two or three years back, right? And now my sense is more like around INR 70-ish crore or something like that. Maybe if you can sort of break it down, how much of it was because of competition, how much because of business loss due to COVID, or are there any other factors?
Peak may be a bit like, maybe like 85%-90% for now. I mean, again, we have one quarter, but average is about 85%-90%. Now it is settled around that number. You're absolutely correct. The reason why we see a decline in oncology, there's two, three reasons. COVID is a one-time thing. I mean, I don't want to attribute everything to COVID. I think the biggest problem we have in the business are twofold. One is the price controls. Earlier, we used to have excess amount of margin, and because of price control, there's a certain drop in the base business. And two is because of competition. We had a couple of generics which did extremely well, which has faced competition.
I think one particular example I can give you is there's a product called sorafenib for which we had a compulsory license. We ran that generic where we were the only generics for almost eight years. So once more competition came in, obviously, the brand declined. These are the two major factors that made all the difference. There's still a stable business, and we are not complaining that, you know, it's still a very profitable business for us. I mean, you know, we do INR 250 crore-INR 300 crore of revenue in that division with practically 60 or 70 boys. I think it's like a, you know, it's a cash cow for our domestic business. But growth is a challenge, as you rightly said, and I think we are looking at new launches.
We always have new launches. Last quarter, we launched three products. I think we have launched tipiracil plus trifluridine where we're the only generic. We launched azacitidine tablets, where there's more competition. We launched cabazitaxel, where we launched as the first generic. We launched olanzapine. I mean, these are launches that we've done in the last three, four months. I think it's a good business. It's just that, you know, I guess challenge for us in domestic is that we are too concentrated only on one or two segments. I think the challenge is we need to expand out, and I think we have done a little bit in cardiology. So we're trying to expand. I think it's a long-term game. Yeah.
Okay.
Sure. Rajeev, I mean, what are the challenges in growing this? Is it because the competition is extremely, you know, aggressive in pricing? I'm sure the market, the volumes would be growing.
It's pricing. See, the problem in oncology is the discounts are very high and there's a gross price and there's a net price, no. I think there's always a lot of discounting that you need to do, and the limited number of institutions. And so if you lose few accounts, then there's a dramatic decrease of sale. So I think, I mean, it's a structural issue, you know. I think even domestic, I mean, overall the sector has done extremely well, but our portfolio being a niche portfolio, we're seeing more pressure. But I think what you said is right. I mean, one is the competition. I think competition is probably the biggest reason why we don't see much growth. And see what happens in...
It's not like you can't compare it with you know, like a, you know, like a more stable therapy kind of setup because that has more volume, it's more spread out. If let's say you lose one tender in two, three hospitals, then it has a dramatic impact on your brand, you know. It's not like in an antibiotic or a cardiology product where the prescriptions are more widely written, so then the you know, volatility of earnings is not as much. I don't know if that answers your question, but yeah, that is broadly, I think that's how I would judge that business. I think how do you get out of this? I think the way you get out of it is you expand your therapies, and I think that's the only way you can grow.
Sure. Just one accounting question. How should we sort of assume some profit share from Revlimid in the fourth quarter, or will that come from Q1 FY 2023?
The launch is in Q4, so there's no doubt about that. So there'll be some, hopefully, there'll be some profit share in March, and then every quarter we will be getting profit share thereafter. That will become a, you know, significant part of the earnings. I think when it comes, I think, you know, we'll see how the takeoff is. I think at this time, I don't want to, you know, tell you how much and all, but I think we'll have a good start. So as you know, we're the only generic, so I think we should have a very good start, and I think we should do well in the coming few quarters.
Sure. Thanks, Rajeev. I have a few more. I'll get back in the queue.
Okay. Sure. Thanks.
Thank you. The next question is from the line of Rahul Veera from Abakkus. Please go ahead.
Hi, Rajeev. So in the earlier comments, you mentioned that X of the licensing income, broadly Q2 and Q3 would be similar. So now also, if we do a little bit of reverse calculation, whether it's Revlimid Canada or Afinitor or Zortress, then there's been no impact of any of these molecules. So again, just trying to understand what is it that the cost of high-priced molecules on the domestic and the other businesses have gone down, which have been offset by these launches.
So the question is why the business is not growing. Is that the question?
Yeah. Even after the launches.
No, no, I understand the question. I mean, I'm just saying it the way it is. Yeah. It is not growing. I mean, that's a fundamental challenge that we have in our business because, see, we have a very export-heavy exposure in the U.S. and we are seeing like the products that used to make good money for us are not making as much money they used to. For example, doxorubicin used to be INR 100 crore profit share every quarter, you know, every year, sorry. That has dropped dramatically, you know, because there are more entrants. We are seeing more competition on other smaller products. That's the nature of the business. I mean, that's all I can say. I don't have an answer to your question.
I think you just have to hope the new launches will come, and then hopefully they do better than what you've done in the past, and then you can offset the loss. And so I think, as we discussed, I think Revlimid is gonna be a very critical one which will give us growth.
Sure. Any update on Nexavar and Imbruvica?
Imbruvica, I don't have a legal update. Nexavar launch and all, we'll discuss closer to the date. We're bound by confidentiality not to discuss about the launch at this time. But when we're coming closer to the launch, we'll discuss.
But just any rough estimate over the next 12 months or 18 months?
No, I can't answer that question. It'll happen. We'll discuss when we're closer to the launch. Yeah. Thank you.
Sure, sure. Fair point. Thank you.
Thank you. The next question is from the line of Ritika from ValueQuest. Please go ahead.
Hi, sir. Thank you for taking my question. Sir, what I understood was QoQ growth and income was completely offset by the QoQ growth in the other expense, which was due to this licensing of product. Could you explain more about what products did we in-license and what is the future outlook of these products?
I think what we have done, I think at the beginning of the call, we have already said what is the nature of the complex products we decided that we would, you know, do through partnership. So essentially the income was a reimbursement of costs. I think that's what it was. What products? At this time I don't want to speak about it. I think at a later time I would like to speak about it, but at this time I don't wanna speak about what products they are. I think once the filings come to a certain stage, I think we'll discuss about that. Yeah. Okay.
And reasonable to assume these are for the U.S. market.
It's reasonable to assume they're for the U.S. market. It's also reasonable to assume that it's a complex generic product. Yeah.
Okay. Sir, second question. In the Q1 quarter, we had commented that we expect to file two to three FTFs by the end of this year. So could you tell us where are we in the process? Have we already filed any FTFs?
So far this year we filed two FTFs. One I think our partner asked us not to disclose the name of the product. For instance, I'm holding off on that. The one we filed by ourselves, I'm gonna disclose, is ibrutinib. It's written up. It's already there in the public domain. There's a couple of articles that were written about it. Again, it's such a competitive market. Even though we filed, I think five other people have filed on the same day. So I mean, it is what it is. I think these are two FTFs that we got this year. Yeah.
Sure, sir. Sir, lastly, last question, if I may. Last quarter we saw in our balance sheet we have INR 900 crore of inventory, comprising of all molnupiravir, other COVID drugs and CTPR. With molnupiravir not picking up so much, what is the kind of inventory that we currently hold in that drug and do we expect any write-offs from these inventories going ahead?
I think there are two inventories we are holding. We are holding inventory on the agro products, the agro intermediates, which we are carrying in our books because we believe that we'll be able to liquidate them in the next financial year. So that is fine. COVID? Yes. I think we're sitting on a lot of inventory. Some we are able to sell, some we are unable to sell. We have to make a call, Ritika. I think what I'll do is I think after March quarter, I think we'll make a call of what we believe we'll be able to liquidate and what we're unable to liquidate. I think we'll make a call and we'll speak about it in the next quarter. You are absolutely right.
I think we need to make a call about this inventory. I think molnupiravir we did reasonably well in January month. Again, suddenly it collapsed. And we also know that a lot of the market of molnupiravir will move to Paxlovid. I think that's also our understanding. We have a reasonably large COVID portfolio. I mean, this is not the only one. We have, you know, apixaban, we have baricitinib, we have this, we have amphotericin B, we had chloroquine in the past. We have a whole bunch of portfolio. So we have to make a call. But I think in the March, I think we'll communicate what call we have taken on this inventory. Okay?
Sir, very helpful. Could you give any sense of what is the total COVID inventory that we hold currently?
I don't wanna answer that question. I'll speak about it in the March quarter, Ritika. I think, again, I can say this much that we have to make a call. We'll speak about it in the March quarter. Once we make an assessment once a year and we'll see some of the stock you can sell, some of the stock will have longer dating. I think it's a very complex calculation. See, certain things you believe will be able to sell in about a year's time, then you'll not make a provision. Things that you believe, you know, will expire in shorter duration or you don't think has value. There's a calculation you have to sit and make. I will not want to guess anything right now.
I'll come back for the next quarter earnings, then we'll discuss about it. Okay?
Thank you so much, sir. I'll get back in the queue.
Okay, sure.
Thank you. The next question is from the line of Ritesh Rathod from Nippon India. Please go ahead.
Yeah. Hi, Rajeev. Is there any way Natco can protect itself, post Revlimid launch if there is any kind of litigation, pay for delay kind of? We have seen recently in Anda where one of the generic companies-
I'm sorry to interrupt you, Mr. Ritesh, but can you please speak louder? We cannot hear you. And there is a disturbance from your line also.
Is this better?
Yes. Please go ahead.
Yeah. Is there any way Natco can protect itself from any sort of litigation post Revlimid launch? We have recently seen in Anda where one of the generic peer group had to pay for the delay for launch, kind of, which was a huge amount. So how do you protect this profit pool which we'll be getting from such litigations which may arise after two years or one year of launch?
I think we've been legally advised that I think we will pass the market. And secondly, Anda is owned by Teva, as you're aware. I think this question is better directed at Teva than us. Yeah. Thank you.
Okay. 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 opportunity. My question is on clarification. So the licensing income and the cost that has gone up Q-on-Q, so they are both related to the same products?
Correct. Yes.
Okay. So basically you got in a partner who will reimburse those expenses?
Yes. Correct. Yes.
Okay. And I mean, it would be currently under what development stage or it is nearing filing?
Some we have filed and some are in, close to filing. Yes, both.
Okay. So it's a handful of products, you said.
It's about three products.
Okay. Understood. In terms of, you know, the big ticket launch, obviously we have Revlimid coming, and then you spoke about couple more. But, you know, assuming, you know, Revlimid is a blockbuster for, say, maybe next 12 months, maybe 24 months, and maybe thereafter, what are the other known variables we have in terms of bigger products?
I think.
We have been talking about complex filings in the last three or four years.
In terms of what we have publicly disclosed at this time, I think the first-to- file we have, I think that they are on our website and I think these are the major ones. So I mean, I would say, we have spoken about Revlimid, and I think, we have. So that and we have, you know, Nexavar we have 180 days. In the carfilzomib we have 180 days for one strength and other strengths we have shared 180 days. And then Imbruvica is there. We have, Tracleer we have, first- to- file for the TFOS formulation. Yondelis, which is trabectedin, which is our JV with Sandoz. We have first- to- file, shared first- to- file. And Imbruvica, I think I already said.
So these are the major ones that we have. They all staggered out. I think we have not disclosed the dates, but these are staggered out in the next few years.
So our exports seem to be quite on track and with very good strong growth visibility. I just wanted to understand outlook for the India business, which has seen some ups and downs, given that Hep C also down, oncology also down, and now a little bit stabilizing with some COVID portfolio. So A, how do we see the growth going forward? What are the steps we are taking? Do we still plan to use some cash to scale up the business or is there other thought to that?
We are in a way trying to strengthen our domestic business, and I think we're trying to find an acquisition which can bridge the gap. We're seriously looking at a branded generic portfolio from to acquire. Now that we have plugged the U.S. front-end gap, now we're looking to plug the gap in the branded generic portfolio as well. So we're looking hard for an acquisition. Hopefully, we'll be able to get something in the next few months. I think we are trying very hard. We're looking at two to three acquisitions. Now we have the cash in the books, and we are expecting some cash flow in the next few months. I think we're looking at some opportunities. I think we'll be able to you know, bridge the gap. I think that's where we are.
And these would be like, you know, more like the chronic portfolio that you're looking at, which are more, you know, sustainable or how? What are you thinking in terms of building them?
More sustainable, you know, established brands, you know, which would allow us to, you know, have more, you know, predictable, you know, revenue, and that's what we're looking at, those type of acquisitions.
Okay. And any other areas you are looking at in terms of deployment of the cash that you would be generating over a period of next 12, 24 months?
This is probably the biggest one. And I think this is what I want to say, Prakash. It's very, you know. We have something good that's gonna happen and we're gonna use this cash. It lasts however long it lasts. You know, I don't want to give any timelines on that. But you know, we will use this cash wisely to, you know, to build a more broader portfolio, in terms of more sustainable and more predictable cash. So I think that's more or less what we're looking at. We're looking at different acquisition targets. I think once we reach a stage where we are close to an asset, I think we can discuss what we are able to do. But I think we're actively looking for it.
Okay. What's the cash balance as on now? I mean, the net cash.
December 31st, we have total cash excluding stock of INR 775 crore. And total debt is about, if you remove foreign bill discounting, which is about INR 90 crore. We have a debt of including that is INR 300 crore. Without the foreign bill discounting, it's about INR 210 crore. Yeah.
INR 210 crore is the debt, and INR 775 crore is the cash.
Yeah. And if you do foreign bill discounting, the debt is INR 300 crore because if you remove the foreign bill discounting, it's against the receivable, so those negate each other. Actually, what we owe the bank in cash is about INR 210 crore. And cash on books is about INR 775 crore.
Okay.
This is after the Dash acquisition. I removed cash from the whatever we have spent on Dash.
Yeah. This includes the MedPlus statement that you have done?
Yeah. That is shown in the comprehensive income. As you see in our earnings, it's 3.4. But the gain of the MedPlus is shown in the comprehensive income. If you include the way the MedPlus gain is captured, it's captured through the comprehensive income. If you include the MedPlus shareholding gain, our profits are INR 108 crore this quarter.
Okay. Is there any other, I mean, any remaining stake in MedPlus?
We still have like 325,000 shares of MedPlus sitting in the books and reflected in the cash flow.
Okay. Got it. Thank you so much.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi, Rajeev. Just taking forward from the previous questions. You talked about the landscape for the U.S., getting tougher. Given the fact that our business model historically has been driven around, built around doing complex filings, how are you seeing the landscape for these kind of opportunities over the next years? Are there enough of these $50 million, $100 million opportunities around or they're very difficult to come by? I mean, how are you looking at it?
There are opportunities, Nitin. There are. It's harder than before. Obviously, clearly it is harder. I think there are opportunities. I think you need to take a global approach to these opportunities. You should not completely bet on the U.S. You need to look at multiple markets so that the R&D expenditures that you're incurring is, you know, it's spread out over multiple markets. The return on capital is much better. But the U.S. is hard, clearly, Nitin. I think U.S. is extremely hard now, and I think you need to have a more, you know, diversified geographical spread. I think I've been saying this for many years, and I think especially in the last two years, I've been very vocal about this, right?
U.S. as a business model has become extremely difficult, and I think that's why we have, you know, propped up our other subs. I mean, Brazil and Canada has done extremely well. If you look at our consolidated numbers, you know, a significant part of our profitability is coming now from our subs in Brazil and Canada. So both the subs have been profitable. You know, some of the margin is captured in India and Switzerland, some of the margin is captured in the, you know, in the south there. Clearly, I mean, you know, this is the way the world is gonna be. I think very clearly, I think you need to have a strong strategy which takes you out of the U.S.
Even though you're present in the U.S., you need to have a strong strategy which takes you out of the U.S. Otherwise, this decade is gonna be very hard. This is my personal view. Yeah.
Sir, if I were to sort of take that a little further. If you said we're talking about a $100 million product hypothetically, where you're saying you need to have a pan-global strategy. Typically, in products like these, how would a split be? How much U.S. would be, for example, 50% would be U.S., 60% would be U.S., and then you make the balance in the non-U.S. geographies? Or how do you think of opportunities like these will crystallize in general?
I mean, how do you want to look at it? See, I'll give you an example. I mean, just giving a simple mathematical example, so that you understand. If you look at earlier, people would spend, let's say, $100 on dosing a product. They would either do it in India and U.S., and they would have been very happy because that would cover like, you know, 70%-80% of your balance sheet revenue. If you got these two markets right, you were very happy. But now what has happened is, U.S. is not giving you the return that you want. So at least you leave out U.S. and India. You need to find four or five other countries where you can monetize your assets. What are these countries?
You know, I mean, we found Brazil, we found Canada, and maybe one big Western European country which we're not present, and maybe, you know, a little bit in ROW, you know, like Indonesia or South Africa type countries. You need to have a model which diversifies you from India and U.S., and you include like seven middle income or high income countries. Yeah. Which where you have a reasonable presence, so that whatever you're spending, you get a little more return on your capital. Because if you look at the Indian generic model, it's primarily a U.S., India driven model. I think we need to get out of that and I think build a model which is more global. Which is a lot of guys are doing now, I think. But more strongly, than before, I think clearly.
I think that's the only way this business is gonna work.
On China, where are we? Have there been any progress on our China initiatives?
We are not having front end in China or we are all doing partnership model there. We have filed about few products. We filed I think four or five products. We've not got a single approval. We're expecting at least couple of approvals this year, but as of now we don't have an approval. That's where we are. Okay?
Thank you.
Thank you. Thank you, Nitin. Yeah. Next caller, please.
The next question is from the line of Ravi Purohit from Securities Investment Management. Please go ahead.
Hi. Questions have been answered. Thank you.
Sorry?
All my questions have been answered. Thank you.
Okay. Thank you, Ravi. Okay. Next caller please. Yeah.
The next question is from the line of Shivram from [Astomind] Enterprises. Please go ahead.
Sorry. Thank you for giving me a chance. Rajeev, have you signed any contracts with, for Revlimid in Canada, which are definitive and long-term? First question. And I'll say the next question.
I didn't understand your question, Shivram. Could you rephrase that question one more time, please.
There is some news about Natco signing long-term contracts with Government of Canada for the supply of Revlimid. Can you confirm if that is true?
I don't know. Our guys sign different contracts at different-
Okay. All right.
And there is also.
Sorry to interrupt. Please stay connected. The line of the management got disconnected. Ladies and gentlemen, thank you for patiently holding the line. The management line is reconnected. Thank you, and over to you, sir.
I apologize for the disconnect. I think the call just dropped off. So the question of the gentleman was, have you signed contracts with Government of Canada? I think Canada works in a provincial basis. I think our guys bid in different provinces and they win different contracts in different states. That's how it works in different provinces. I think there's like routine tender stuff that happens. I can't specifically say that, you know, top of mind, I can't recollect which particular province they won. Some they have lost. But I think this is something that happens on a routine basis. Does that make sense? Does that answer your question?
Yes. Sure. Thank you.
You're welcome. Thank you. Next question.
Thank you. The next question is from the line of Nikhil from SIMPL. Please go ahead.
Yeah. Hi. Am I audible?
Yeah. Go ahead, Nikhil.
Yeah. Hi. Good morning. Rajeev, one question just on the U.S. part. When you said that doxorubicin was contributing almost INR 100 crore on a yearly basis, and now that has dropped off. Even if I do a back-of-the-envelope and say add INR 25 crore-INR 30 crore and remove the licensing income, it seems the new launches which we did in Canada and Afinitor and 180-day with Zortress and everything, the numbers seems to be pretty low as compared to what we were even thinking in Q3. Has there been a significant execution fallouts or is my understanding wrong?
See, also what happens is, based on the surplus we have, we plan expenditure also. I think that's what it is. I think we have done, you know, for example, we ran two first -to-files last quarter, and so there's a significant amount of R&D expenditure. So I think that's the reason why you see, basically what you do is you look at the surplus that you have in this particular year, and then you budget how much surplus you're gonna have. Based on that, you plan your expenditure. If you believe that you're gonna have, let's say, INR 100 of surplus, then you say, "Okay, fine.
I'm gonna spend INR 30 or INR 40 rupees on, you know, R&D, which I'll expense in my balance sheet." That's the reason why, for example, you know, this particular product will be out licensed. If we expense that completely on our balance sheet, then we would have had a loss in the quarter. I think you need to make those calls all the time. I think based on, I mean, the surplus, you make these decisions.
Rajeev, sorry. Sorry to interrupt. I was more focusing on the revenue side. We have reported INR 383 crore on the export business, including the license income and everything. During the call you said that some of the products like doxorubicin had seen a significant price erosion. Even if I just add back those numbers and offset the license income, considering the launches which we did in Q3, like Revlimid Canada and Afinitor, it seems the numbers are they completely in the books in terms of profit sharing and everything, or is it like it's not completely reflected in our revenue? That's where I'm trying to understand.
What I... I, uh-
Reflected in the books on that profit sharing.
Yeah. No. Everything is reflected. All the profit shares are reflected. See, everolimus that we are selling in Canada and all and lenalidomide are reflected in our books directly. There's no sharing of revenue, no.
So it seems our market share in Revlimid Canada and even in the products FTF and other products which we launched seems to be pretty low or either the price competition is too high as compared to what we were thinking we could be building in terms of the revenue.
No, Revlimid has just been launched, no. I mean, the product has been launched only last quarter, no. And even Everolimus also has been launched recently only, no.
Yeah.
The market share reflection will come as we go along. In terms of, see, I mean, to answer your question, I think everolimus and lenalidomide is what is driving the export business right now. The everolimus Afinitor is what is driving the export business. And lenalidomide Canada is helping, you know, driving Canada's profitability. To answer your question about price erosion, price erosion is the nature of the beast. I mean, you can't really do much about that. It's not in my control. I think in terms of market share or not, I think we have reasonable market share. I think somebody has specifically asked me what is the market share on these numbers. I said I can't come back because we've just been launched.
I think we'll give more color to it as we come more in the next quarter. I think we'll have more clarity about our market share. Because the data basically don't get updated within three months of the launch. It takes a little more time. Okay?
Sure. Lastly, on domestic side, in one of the participant's question, you said that we will have to broaden out our therapy areas. You mentioned that one is acquisitions, which we are looking at, but.
Parallelly, are we looking at something organically developing ourselves or would the focus of new therapy addition be completely through inorganic route?
Both organic and inorganic.
Anything in the next one year in terms of organic side? Any new therapy area or division?
We're sticking to these divisions only. I think we have some ideas. Typically, we don't reveal the pipeline on a call, so.
Yes, sure.
When we launch, we can, you know, articulate what our pipeline is.
Sure. Thanks. I'll come back to you.
Excellent.
Thank you. The next question is from the line of Rahul Veera from Abakkus. Please go ahead.
Hi, Rajeev. Again, now coming back to if you consider X of the licensing income with a EBITDA of INR 70 crore-INR 80 crore, what will be the share of U.S. within this? I mean, just trying to understand, because there'll be limited contribution from the Tamiflu this season. Just seeing the base erosion in Doxil or Copaxone now, sir.
What is the contribution of U.S., you're saying, and what's the contribution of India in EBITDA is what you're saying?
Yeah. Yeah.
I don't have that number or split. I don't have.
Okay. Again, going back to the previous participant's question, all the launches, everolimus or Revlimid. Is there a front-loading of cost in the number and probably the profit share will come from a higher profit share will start flowing in with a better market share next quarter? Is that what you're expecting?
No, I'm not expecting. I think with fairly the numbers are the way they are and I think if you get more market share, then you get more sales and more profit shares. But there is always pressure in, it is very tough to judge what you are asking me is to predict revenue in the next few months for products where there is significant number of competition. Honestly, I cannot answer your question. I, we just have to go with the flow and I think I can speak about it as things go along. I cannot make any predictions of revenue.
Sure. Fair point. So in terms of Copaxone, Doxil and Fosrenol, are we making any substantial money there as of now?
Copaxone we're making. Copaxone is still our number one product, so in terms of revenue. What's the other one you said?
Doxil.
Doxil is down quite a bit. Doxil is down 80% down compared to what we used to make before. Lanthanum, we make reasonable amount of money, but I, from what I understand, there are two other generic competitors that got approved last month. I think that's where we are on those two products.
Sure.
I think Cipla and Teva I think both of them got approved just I think in June January I think is what I understand.
Right. Sir, one of our peers in Tamiflu has written off a lot of inventory because of the expiry dates, you know. So are we seeing that pressure for us on the Tamiflu side?
Our contribution from Tamiflu has been low. But as I said, we'll make a call in the March quarter on the COVID inventory. I think we'll make a call. We will speak about it in the March quarter. Yeah.
Tamiflu I'm talking about.
I said we'll make a call on all inventory in the March quarter now that the COVID wave is over. So I think we'll make a call in the March quarter. Basically, you make different provisions based on your dating of your product. We'll make a call in the March quarter based on how the portfolio is moving.
Sure. Sir, I mean, as of now, whatever we spoke in the past one hour, it seems like whatever the profit that is going to be, we will be generating via Revlimid is gonna be set off by all the write-offs now.
See, my friend, I think what I can tell you is that, see, the numbers are the way they are, right? You can't, you know. What we are communicating is the nature of the business. And beyond that, I don't know. So you know, that's how it works. So what I can tell you is about strategy. I can't tell you why you're not getting better realization on this product because it's the nature of the beast, isn't it? And I think it is also very clear. I think Revlimid is gonna drive our profits clearly. I think that's the way it is and, there's no two ways of hiding behind it. I think it is what it is.
Sure. Fair point, sir.
Yeah.
Thank you.
Thank you. The next question is from the line of Chirag Dagli from DSP Mutual Fund. Please go ahead.
Yeah, Rajeev. Thank you for the opportunity. Rajeev, this is slightly, you know, higher level question. If you look at pre-Copaxone FY 2016, and versus, you know, let's say the annualized run rate currently, we had roughly moved INR 1,000 crore sales to about INR 1,600 crore, and EBITDA from INR 250 crore to INR 360 crore. Right? Of course, over the last five years we've accrued reserves. But pre-Copaxone versus now, the base business has, you know, not moved materially. We are again at a juncture where, you know, we are going to get windfall gains from another large product, Revlimid in the U.S. The question there is, you know, how different do you think the next five years are going to be for the base business versus the last five years?
I think, see, if we look at our journey over the last five, six years, we had windfall gains in both Tamiflu, we had windfall gains in Copaxone, and we're anticipating, you know, some gains in Revlimid. That's the nature of the way our business works, isn't it? So we've had the ability to deliver something every, you know, every few years, which has allowed us to do something special. You know, I mean, Doxil did well while it was there. But that's the nature of the beast. I mean, the business, you know, if you have a smart idea, you do very well with it and it holds on for a while and then it goes away. You just have to come up with a new idea.
I think that's how it works. And that's where we are. In terms of how the future holds, I think we are very acutely aware that we need to strengthen the base business. I think, I mean, this is something we've been working on for the last two or three years. I think Brazil and Canada expansion is part of that. We have built that business from scratch organically. Building a business organically takes six to seven years, and I think we went through that journey in these markets. You know, our agro foray is also part of that, so that we can diversify our revenue so that we're not so highly dependent on one-offs from the U.S. market. I think this is what we've been working on continuously.
The benefit of that you'll see in the next few years. I think by the time, Revlimid tapers off in the U.S., I think we would have built, large enough businesses in all these segments so that when it tapers off, the base continues to be strong. I think that's continuously our endeavor, and this is what we've been working on. When we try to build things organically, you won't see results like overnight. You say, "Rajeev, next quarter you show me INR 300 crore in a non-U.S. revenue, in this particular market." It doesn't happen like that, you know. It takes time. See, a lot of the articulation that we do in terms of, agro and all that, it's a process. I mean, I...
What I can tell you is that, like, this is what we are doing and this is what we believe will launch and happen. This will happen in this particular month based on this particular event. I think to answer your question, I think this is what we've been working on. I think we are very conscious of what you said, and I think it's, you know, we're very clear that this has to be done, and I think we're working towards that. I believe by the time Revlimid goes away, I think we'd have built this business to a significant size so that the base is much stronger. Okay?
Understood. Just a second one on CTPR. How many do we have approvals across multiple crops, et cetera? Because I understand this product is sold across multiple crops. Do we need approval for all the crops before we start scaling up?
I don't wanna hazard a guess on that one, but I think we have approved for multiple crops. I think that's.
Interesting.
Is that right?
Yeah. When we register it is applied for the multiple crops, Chirag.
So we can immediately access the entire INR 1,400 crore market in India.
Yes. Yes. I think that's my understanding. Yes.
Understood. Okay. Thank you so much. Best of luck.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Yeah. Rajeev, thanks for taking my question again. Rajeev, just building upon, you know, one of the previous participant's question on complex generics. It's not as if, you know, there are a dearth of products in the U.S., right? Some of the U.S. companies have actually revealed their pipeline, right? You know, products like Risperdal Consta, Sandostatin LAR, and Invega and so on. I'm just wondering where, why is it that, you know, a lot of Indian companies which were developing it have not been able to sort of develop this? Because these can be very lucrative long-term opportunities.
Okay. I'll answer your question. Why do we? We're not revealing the pipeline. Revealing and all, you don't reveal at the time in R&D. You only reveal it when you reach stage of filing where you're done the clinical, you're done the filing with the ANDA, that's when people start revealing. They don't never. Nobody reveals at the time of the R&D or, you know, because it's only an idea, right? So unless you execute your idea, you don't reveal it. That is one. Second is, your question, why don't Indian companies these are not successful in complex generics as opposed to U.S., you're saying. Is that the question?
Yeah. I mean, at least in some of these products, right? I remember, you know, for Sandostatin, for example, a lot of the Indian companies are trying to develop, I think, in the last five years.
No, I think these are very tough to deliver, Kunal. I think that's what you need to appreciate. I think they're very hard to deliver and when they come through, obviously there's a huge upside, but it takes a lot of time to deliver. If you're able to pull off like two of these products in a decade, you have done a great job, you know. I mean, look at our own capacity and success. I mean, you know, we've done it 10 years before the actual launch actually happened, and now, you know, it's a fairly stable revenue stream for us. These are very hard to deliver, Kunal. It's not as easy as, you know, it's said. But everybody has their own complex generics pipeline.
Again, you know, again, we are privy to, you know, what is publicly said. I think Indian companies are also doing that. I don't say that they're not doing it, but success is very hard to come by. I think clearly it's not easy.
Sure. I'm not sure if you revealed this, but you know, would you be sort of comfortable in making, you know, a domestic acquisition in excess of, let's say INR 2,500 crore, given the kind of cash flows you'll be generating in the next few years?
I'm open to any transaction, Kunal, but as long as it is right for the company, right? I don't want. We should do what is right. We need to fill the gaps in our pipeline, as the gentleman asked me earlier. You know, we need to use this cash in a way that we, where we are able to fill the pipeline and build, strengthen the base business. I think at the right valuation, at the right price, with the right synergy, I think, I'm open to any transaction.
Got it. Thanks a lot, Rajeev.
Okay. We'll take one final question and wrap it up.
Thank you. The next question is from the line of Sai Pavan Kumar from an individual investor. Please go ahead.
Thank you. Hi, Rajeev. This is Surapaneni Sai. I'm an individual investor in Natco for the past couple of years. Sir, my question is, you know, what I've understood from the other, you know, almost my queries got answered, but one question I have, sir, futuristic. Like, you know, next financial year, we're gonna have very good revenues from the Revlimid U.S. So, and you also said that the base of the business you're going to strengthen by the time Revlimid gets phased off, or you may have. And you also have staggered launches going forward in couple of years.
Can I assume that, you know, the revenue, what we're going to see in the next financial year is sustained for a couple of years, maybe next three to five years, sir?
That's a question I can't answer, honestly. So I don't know. We're hoping it'll hold up for a bit. It's a reasonable opportunity. I think let's see how it plays out.
How many years? Maybe two, three years we can, maybe down the line or two years.
I will never make a definitive time commitment on how long it'll hold up. It'll be a good thing. It'll hold up for a while. Again, you know, I can't judge what the market dynamics are. See, that's. I think that's all I can say. But the question I can answer is, what will I do with the money? I think the question I would like to answer is that, and I think clearly we have to use this money in a judicious manner which allows us to strengthen our base business. I think that's essentially where we are at this time. Yeah.
Got it. Sure, sir, and all the best, sir.
Okay.
Thanks again.
Oh, thanks. Thank you all.
Thank you.
Okay. Thank you. Thank you very much. Again, the transcripts will be up when it's available. Thank you all again. Have a good day.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.