Ladies and gentlemen, good day, and welcome to the Q2 FY 2022 earnings conference call of NATCO Pharma hosted by Investec Capital Services. As a reminder, all participant lines will be in a 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 has been recorded. I now hand the conference over to Ms. Swapna Bhandarkar from Investec Capital Services. Thank you, and over to you, ma'am.
Thanks, Jacob. And good morning, everybody. Firstly, let me apologize for the delay. We were facing some technical issue on our side. Having said that, I welcome all to the Q2 FY 2022 earnings call of NATCO Pharma. We have with us the management of the company, Mr. Rajeev Nannapaneni. He's the Vice Chairman and Chief Executive Officer. Joining him is Mr. Rajesh Chebiyam. He's the EVP for Crop Health Sciences and Head of Investor Relations. Good morning, gentlemen. I now hand over this call to Mr. Rajeev to make the opening remarks, post which we will begin the Q&A session. Thank you.
Thank you, Swapna. This is Rajesh. Good morning and welcome, everyone. I apologize for the slight delay in the call. Welcome everyone to NATCO Pharma's conference call discussing our earnings results for the second quarter of FY 2022, which ended September 30, 2021. Again, as a disclaimer, during this call we may be making certain forward-looking statements or statements about future events.
Anything said on this call which reflects our outlook for the future must be reviewed in conjunction with the risks that the company faces. I'd like to state that the material of the call, except for the participant questions, is the property of NATCO Pharma and cannot be recorded or reproduced without NATCO Pharma's express written permission. We'll begin the call with results highlights and followed by an interactive Q&A session.
Again, we hope that you've received the financials and the press release that was sent out, earlier, which is also available on our website. NATCO recorded a consolidated total revenue of INR 415 crore for the second quarter, which ended on thirtieth September 2021, as against INR 827.9 crore for the same period last year.
The net profit for the period on a consolidated basis was INR 65.1 crore as against INR 203.9 crore same period last year. The decline in revenue and profits compared to last year's quarter is primarily due to a one-off contribution that we had in the last year's earnings. The company is poised for growth during later half of this financial year and is confident of a strong rebound in business. During this quarter, lenalidomide product in Canada, everolimus highest ranked product in the U.S. were launched. The revenues from these products will be realized in the immediate quarters.
The company is well prepared for its major launch of lenalidomide in U.S. during Q4 of this financial year. Segmental revenue split for the quarter as we have disclosed: API we stood around INR 76.3 crores; formulation domestic around INR 99.8 crores; formulation exports, which includes profit sharing and also the foreign subs, around INR 190.5 crores. Other operating and non-operating income stood at INR 45.1 crores. Crop Health Sciences around INR 3.5 crores for the quarter. Thank you all. We'll take the 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 your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Sameer Shah from ValueQuest. Please go ahead.
Good morning. The first question is on the based domestic business. What are the growth drivers from here in terms of, say, product launches, etc ? We are clocking INR 100 crore a quarter. What are the plans in terms of launches?
We have some good launches, Sameer. I think we've lined up a couple of good oncology launches that we're having this quarter. We're Launching cabazitaxel this quarter in Q3, and we're launching apalutamide tablets this quarter. We're expecting approval of molnupiravir this quarter. That is gonna be a big one. Not only it'll contribute in domestic, it'll also contribute in the export business. That is probably gonna be the large one I think in terms of like high impact, molnupiravir will be a big one, I think, in this quarter.
So the-
We're expecting that DCGI should clear the file in the next week. We are expecting a meeting next week, the SEC meeting, and hopefully if everything goes well, we should be able to launch in the month of November. I think that's my expectation.
The patent thing with the centralized patent pool , that is done or that is also something that,
We have applied, Sameer.
Okay.
What we have done is as of today there's no patent granted. We applied to Medicines Patent Pool.
Mm-hmm.
We are expecting a license. That's our expectation.
On the agrochemical side, how is the thing doing? We've launched pheromones, and we saw that, you know, some announcement by the Punjab government that they are gonna try out pheromones for this rabi season or something.
We have done I think INR 3.5 Crores. That primarily is driven by that product that we use for cotton, which is for pink bollworm.
Okay.
Right now the farmer is not, you know, I think everybody's not aware of the product, so we're creating product awareness. The product, the brand will take some more time to grow. Regarding Punjab and all, we have heard about it, but I, you know, we've not seen any orders per se, but I, you know, so I think that's where we are. That's it. Thank you.
Okay. Thanks. Second question is on gross margins of 75% this quarter. What led to the drop and what I mean, will U.S. launches take it up again or there was some exceptionals this quarter?
We didn't have any great triggers, Sameer, sorry. That's why the gross margins are on the lower side. I think we launched everolimus on October 1, so we only did stocking quantity of everolimus this quarter. I think hopefully we'll start seeing some scale in Q3. Lenalidomide also, we launched it in September, if I recall correctly. I think now we've been in the tenders and all. The benefit of that you'll actually see it play out in the next couple of quarters.
Overall, I think, you know, these two launches are gonna be very good launches. Obviously we have, you know, molnupiravir coming up, so that will be a very good launch. Not only in India, we're expecting a reasonable set of orders for export. In addition, it'll be very competitive, but I think the pie is large enough, so I hopefully will be able to do reasonably all right. Of course, we have Imbruvica coming up in Q4. I think overall I'm positive. I think, you know, we will pick up as we go along in Q3 and Q4. Okay?
All right.
I'll go to the next caller, please.
Sure, sure. Yep.
Sorry, I correct myself. I said lenalidomide, not Imbruvica for Q4. Yes. Thank you. Next question, please.
Thank you. The next question from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, Rajeev. Thank you for taking my question. Hello?
Yeah, go ahead. Go ahead.
Can you talk about the market formation for Revlimid in Canada in terms of pricing competition and how big is the opportunity for us?
It's a good product. I mean, I don't wanna say anything right now because it's preliminary stage. I think we should do well. I think I was interacting with my sales team yesterday on the phone. I think our sales team is very comfortable that they'll do well with the product. What market share and what price and all, I think it should do well because it's a Revlimid's product. I think it'll not be rolled, you know, like the regular generic. We have to see. I mean, at this time it's premature. I think if you ask me this question then, you know, end of Q3, I think I can give you a better sense of where we are and how much revenue we're making. As of now it's premature. Yeah.
All right. Okay, fine.
My sense is we should do all right. Yeah.
Right. Secondly, on the Revlimid in U.S. side, can you provide the split between major strength? Because Dr. Reddy's got the final approval for 2.5 mg and 20 mg strength, and they are gonna launch, I think, before us.
For those two strengths? Is that the question? I think for those two strengths, your question is, if I understand correctly, they got approved for 2.5 mg and 20 mg before-
Yeah.
We don't have the full approval and they're gonna launch before us. Is that the question?
Yeah, yeah.
If I understood correctly. See, I mean, they're in the public domain. We have first to file on five, 10, 15, and 25. They have first to file in 2.5 and 20. We have full approval for, you know, for the strengths where we have FDF. We have tentative approval for the strengths that Reddy's have full approval on. We have to wait for Reddy's launch, and we can launch after their launch date. I think that's my understanding of the situation. Yeah.
Yeah. That's the right understanding. I wanted to understand how the market is split between this strength.
I think majority, like, top of mind, I don't recollect, but I think if I were to make a. I don't want to speculate, but I would say 90% of the strengths are covered with us. More than 90% of strengths.
Okay.
Roughly, I mean, don't hold me to it, but I think it's in that ballpark.
Yeah.
Okay.
Okay. Thank you.
Next question, please. Yeah. Next question. Next caller, please.
The next question from the line of Prakash from Axis Capital. Please go ahead.
Yeah, hi. Good morning. A question on, again, on this, you know, the Canada Revlimid launch. You spoke about, you know, feeling good about the market share ramp-up, etc . If you could help us understand how does this work in Canada? I mean, U.S. is a totally different market where you have a partner. This is via partner and what is the market opportunity we are talking about?
Here we are not partnered out. We bought out our partner, so we're doing it ourselves. Okay. That's first clarification I'll make with you. The second thing is we're doing it ourselves, so all the economics are coming to us directly. Okay. That is second point. In terms of Canada, what is happening is, I'll tell you what is happening.
There are four generic launches. There are Sandoz, NATCO, Dr. Reddy's and Apotex. Apotex has their own registered REMS program. Dr. Reddy's has their own REMS program. Sandoz and NATCO's product is on the innovative REMS program. Okay? We have decided to go with the innovative REMS program. We are getting good traction. I think, you know, there are some people who don't want to change the REMS, so they're comfortable continuing with the innovative REMS. That business we're able to get. That's how the market is. Okay. Is that?
What is Sir, just on the size of the opportunity on the branded, if you could help so that we can break it up, that whether it's a $10 million-$20 million product for us or it could be higher. Just on the market size, what would be the market size?
We're only speculating, Prakash. I mean, now you ask me a question that I don't have an answer to because the problem is IMS doesn't cover it properly. Because it's such a controlled distribution, the sale numbers are not known. At least with Revlimid, the innovator discloses his sales. Based on that only I'm able to estimate. If you take IMS numbers and if you look at the balance sheet, their numbers are always very different. If you were to make an estimate, I think the sale is probably like $ 400 million-$ 500 million. I think whatever I've looked at public domain document I've seen, or I think I saw one Apotex review which has estimated. I think it's probably around that size. I think that's on the size.
How much market share will we get? Prakash, I think it's doing well. I will say that, and I think the benefit of that you will see in the next few quarters. I think the numbers that you're speculating, to get those numbers I think I'll be very happy. Honestly, we make $10 million, I'll be extremely happy. But will we make it? How much will we make and all that?
I think only time will tell. I think you ask me this question next quarter, I think we'll get a more, a better feel for it, I think. Then we'd already been about four or five months into the launch. Then we can probably make an estimate of how we're gonna do. So as of now, I can't answer the question. But overall, I think we're positive. I think our sales team is positive. I think we should get good market share. Okay?
Okay. Okay.
Okay.
The next question is on the base business. We have now a good cash pile, and we expected to have a very, very strong cash flow. I'm sure you have evaluated a lot of assets. Is there any progress on that side where we want to, you know, add something which is, you know, a more continuity business and have a stable India or something like that? Is there anything? Are there any gaps you have identified within India? Are we anywhere close to closing anything?
Prakash, I think I've said this, I'll just say it again. I think there are two weaknesses our business has. That's the elephant in the room, so I, you know, I'll state the way it is. One is that we need to have a steady branded generic business, which we don't have a larger size compared to our other listed peers. Second is we need to have front end in the U.S. I think I've told you in the past as well, we're looking very. You know, obviously, you know, all the negotiations are, you know, at a critical stage, so we're not close to anything as of now, so there's nothing to report at this time. We are striving to get a front end in the U.S.
I think we're clearly shopping for different assets, and hopefully we'll be able to close the transaction. Again, we're shopping for a branded generic portfolio, either in India or in the ROW markets. I think these are assets that we're scouting for. I also want to say something that we don't wanna do a deal in a hurry where we overpay for an asset, and I also mentioned this in the last conversation. Assets in India run away dramatically. That's why I prefer to do a smart deal rather than close to a bad deal. You know what I mean, Prakash. I don't wanna set a timeline on this. Very clearly, I think we have time. I think we'll do it. I'm very clear that we have to do it and I-- We will do it, but we'll do it with the right asset, and that's all. Okay?
Okay. Perfect. Thank you all.
Thank you, Prakash. Next caller, please.
Thank you. The next question is on the line of Rahul Didar from [inaudible] . Please go ahead.
Hi, Rajeev. Rajeev, S o couple of quarters we've been watching whether it was a case of patent against the FMC for our agrochemical molecule or the most recent against Novartis, the entrance into molecule.
Right.
We've been losing out on lot of cases, you know, like, in terms of patents.
Okay.
Any thought process there, like, has the R&D strength weakened recently, or what's the thought process there now? From ibrutinib to Entresto to CTPR. I know a lot of cases have been against us.
See, I'll tell you something. When you do these things, you get some right, you get some wrong. Okay? I think that's how we ought to look at this. I can't guarantee you success. All I can do is I can tell you what our strategy is. Even from, like, the two cases that you alluded to is, you know, it obviously is a reverse. I mean, that time in fact because we got rejected, FMC got delayed till 2022. Again, I'll give you two successes that we've had. I mean, you know, Baricitinib is a good success that we have had, that did extremely well in the pandemic. We've launched our product like the Baricitinib, we think it's soon.
We are hoping that you know you know we will we'll also settle with mode of review. See, when you roll the dice, I'm telling you're gonna get half of them wrong. I think you can't sort of start you know obsessing too much about it. I think. For every one success you know Revlimid was a success in Canada, for example. That also came through litigation. I remember that we lost, we also came through. I mean, you're gonna get some right, you're gonna get some wrong, and I think that's how it's gonna be. All I can do in this call is tell you what we're doing. I think our pipeline is strong.
To further your point, we're gonna do two first-to-files in this quarter. Probably shared also, we don't know how it's gonna be. I think we're gonna keep at it. You also have to understand, we follow a high-risk model. You're gonna get some right, you're gonna get some wrong. As they say, you have to roll with the punch. You know, when you lose, you lose. I think the pipeline grows, and if you get even one right, you're set, right? In a decade, I always say, you know, you get four of these things right, your whole decade's kind of earnings are done, delivered. That's the nature of the beast, and that's the best way I can answer that question. Okay?
Sure. Recently we've seen on the balance sheet a kind of large buildup of the inventory. This is regarding the pandemic season coming up, or it's the Remdesivir, you know, like
Remdesivir doesn't have so much inventory. I tell you what we have built Remdesivir inventory on. I've built on all the pandemic products. We have a lot of inventory on Apixaban, which did well for us in Q1. If you see domestic was INR 200 crore in Q1, and it's primarily driven by Apixaban. We have reasonable amount of inventory on Apixaban. We have inventory on molnupiravir, some of the packing materials and we've ordered a lot of raw materials now. We have inventory on Oseltamivir. We have inventory on Baricitinib. We have inventory on Amphotericin B. We have inventory on, you know, on CTPR, in this case that we just alluded to, which is a large set of inventory.
We built substantial amount of inventory, and all of it is dated, so I think we're comfortable. I think we believe that we're able to liquidate it. See, these are again business gambles, right? I mean, we expected that these losses will happen. Again, with pandemic, what we also found is unless you have stock, you can't succeed in pandemic. We're also making a bet, right? Somewhere in this world there'll be another resurgence of a pandemic. How do you make a bet?
By building inventory. Because when the demand happens, all demand happens in 45 days. If you don't have stock, you can't service the demand. Very deliberately, I think we have. I would believe, I think we overshot our inventory targets by more than INR 200-INR 250 crore, right? That INR 250 crores are reflected in finished goods and in raw materials, right. That's the nature of the beast, my friend. I think we have to take the gamble. If you get one of these things right, suddenly you'll have a huge upside. That's how it works. Okay.
Fair point. Thank you. Thank you so much.
Okay. Thanks.
Thank you. A reminder to all participants, you may enter star one to ask a question. The next question from the line of Kunal Randeria from Edelweiss. Please go ahead.
Good morning, and thanks for taking my question. My first question, Rajeev, is on molnupiravir. Now, you know, several of your Indian peers have also got a license. You know, India's largest company also put out a press release saying that they are also gearing up for launch. You seem to be very confident on molnupiravir opportunities. I just want to understand the reason for the, you know, optimism behind it. Is the market big enough for everyone, you think? Just know what's the kind of commercial opportunity that we can expect from this product?
I think we're the first one to file for the clinical of this product. We've probably been the most aggressive in terms of the validation batch and building up inventory, doing stability and all that. We are prepared in every sense in the raw materials and the supply chain. That's why I'm a little confident. Problem with pandemics, Kunal, I think, you know, I always say with a note of caution is that you'll go through months when there's no demand at all or very low amount of demand. This is what we're seeing with the pandemic portfolio. When the peak demand happens, it becomes 20x of whatever your base sale is. You always have a base sale, which sticks around 5%, 7% of the peak demand.
Suddenly in, like, a month and a half, you'll have a 25x demand. Molnupiravir is just not only India, no. I think we—let's not obsess too much about India. I mean, if you launch right now, there are no cases in India, right? I think you'll see a slow takeoff. But the question is, if position ourselves, promote it, when the actual pandemic or a third wave or something happens, when there's a sudden spurt in demand, let's say you are getting about 10% market share. Your 10% market share on INR 10 crore monthly, let's say monthly sale becomes. Let's suddenly the market expands from INR 10 crore- INR 1,000 crore, then you have 10% of INR 1,000 crore, then suddenly you're into an interesting situation. That's how this business works.
You have to, like, be promoting it, be there, and just wait for something to happen. The opportunity is just not India, my friend. It's also outside India as well. You know, there. I think if the MPP license comes through, which we're hoping, then I think the opportunity is there. The pandemic is fairly strong outside India at this time. You know that. So there are a lot of opportunities. That's why I'm. I think you have to take it as a global view. For some outside, if I get a, you know, a INR 1,500 crore pot, I'll be extremely happy, you know. I think that's where we are.
Sure, sure. That's understandable. Secondly, you know, in terms of, you know, if you can just maybe guide whether you'll be able to launch Nexavar in the next couple of quarters?
I can't answer that question, my friend.
You can't answer that.
I really can't.
Okay. Sure.
Okay.
Sure. Just lastly, if you can please, what's the cash position at the end of the quarter?
Rajesh, you have the sheet, no? I think that. Yeah. What he's asking is what's the cash. Cash and net debt. I have the sheet here. It's INR 889 crores in cash, shares, and bond liquid assets. We have a debt of about INR 346.85 crores, of which about INR 54 crores is subsidiary companies, I think. Yeah. Okay?
Okay, got it. Thank you.
All right. Thanks.
Next question from the line of Vishal Manchanda from Nirmal Bang Institutional Equities. Please go ahead.
Thanks for the opportunity. A question on molnupiravir. We just wanted to understand if you are backward integrated to the API level.
We have tied up all the supply chain. I think we're ready to go.
Okay. You'll be sourcing the API from someone else?
I don't wanna actually reveal what we have done, but what I'm saying is we're ready to go.
Just a follow-up on molnupiravir. On the export, to tap the export market, would you need to be an authorized licensee or even if you don't have, you can still tap the export market?
I think what you're saying is that we're hopeful of getting the MPP license, and I think which will allow us to tap all the major countries for which the license is available. I think that's our expectation.
How long can that take, getting that license from MPP?
Again, I've applied. I'm hoping we'll get it, I think in the next few weeks. I think that's our expectation. I think we'll see. Again, I said we have applied and we're waiting for our outcome.
Okay, on the gross margin, you had said there was no profit shared during the quarter from the new launches. Is that right? That's led to the gross margin decline.
The benefit of the profit share will happen in the subsequent quarters because the launch only happened at the end of the quarter, so that's lenalidomide and apalutamide.
You will have profit share from the other two launches, Afinitor and Zortress?
No, no. See, I tell you what it is. Afinitor will be profit share because the partners with Breckenridge. Lenalidomide will be our own sale. See, what we have done is only a transfer to our subsidiary. Once the sale is accrued in the market, that's when we actually get. We're able to book sale.
Okay.
Okay?
There was no write-off on inventory as such?
As of now, no. I think you know, routine write-offs are there. I think that is already shown in the balance sheet. For the larger batch we made, no. Like CTPR inventory and what you call the pandemic inventory, we have not done a write-off yet. I think we are hoping that we'll be able to liquidate. The product has dating, so I think we are not in a hurry to write off. I mean, the product has dating between two years to five years. I think we'll make a call as we go along.
Just on lenalidomide in Canada, you said you are on the innovator REMS. So does that adversely impact you or favorably impact you?
It's yes and no. I mean, it's one of those judgment calls. I think, Our sales CEO decided to go with, you know, the innovator REMS because he felt that a lot of reimbursement will be very comfortable because already the REMS is already established. People who want to apply new REMS. That has certain advantages. Obviously, you know, when you do your own REMS, you have more flexibilities than comes with the established rigid REMS. I think we have made a call to go with innovator REMS, and I think he feels good about it. We'll see how it plays out.
Okay. Okay.
Okay. Thank you. Next caller, please. We'll give an opportunity to someone else. Yeah. No, please. Next caller, please.
Thank you. Ladies and gentlemen, you may press star one to ask a question. The next question is from the line of Raja Sethia from IIFL PMS. Please go ahead.
Hi. Thanks for the opportunity. Rajeev, my question is, if we, I wanted to understand what is the core profitability of our business. Is it INR 300 crores or is it INR 400-INR 500 crores? Because one thing you have said in the past calls is that, from cycle to cycle, we have grown our PAT from INR 150 crores- INR 450 crores. If we take out the one-time settlement for Revlimid Canada, seems like base is continuing to squeeze.
What you're asking me is if you see, I tell you what.
What is the core profitability? Because as per the past understanding, we thought it is INR 450 crore or so.
Let me ask you a question. Let's be very specific about what you've said, and I'll tell you what. Our earnings last year, there's an element of that coming from the settlement. There's an element that's coming from the base business. I would say 2/3 of it came from the base business and one-third came from the settlement. This year also, I think we look at it, we have a run rate of about last quarter we did INR 75, this quarter we did INR 65. Let's say we keep the same run rate, we'll do about INR 350, something like that. Plus we have the initial launch quantities for Revlimid. So this is what. See, the question with our business is, you can't look at it, you know. We are not like the other companies. You know?
We always bet on something unique every year. I mean, this year we made a bet on CTPR and Revlimid. Looks like Revlimid is gonna happen. CTPR has not happened. If you look at our five years of earnings, there's always an element of base business and there is always element of the X factor that comes with whatever we do. If you look at consistency in the last four, five years, we're able to pull off something or the other. If you look at it initially, we pulled off [inaudible] exclusivity. Then we had the [inaudible] exclusivity second year we got it from the pandemic. There was a flu season that we benefited from. Then we had the Copaxone launch. Then we had, you know, Canada you know had an upside. This year we had the U.S. upside.
If you see consistently, right, we're able to get, pull something off, something every year consistently. We look at five, six years. Before that, we pulled off the Hep- C portfolio. I think that's the nature of our business. I mean, all I can do in my calls, I can tell you, like, this is what I'm trying and this is what we are speculating. This is what we get from our base, these earnings and make these events happen, and this is what I'll get next year.
That's the nature of our balance sheet, my friend. I mean, I don't know how to answer your question. We're not like your other peers which have a stronger, you know, more diversified, larger balance sheet. I think we always try things which a lot of people don't wanna try. I think there's always a high amount of risk on what we do. If we get it right, then there's a reasonable upside. I think that's how it works. Does that answer your question, hopefully?
Sure.
Okay. Good. Right. Okay.
Can I-
Can I continue with you or can I go to the next caller, please?
Just one more question if you allow?
Okay. Go ahead.
As an investor, you know, what should we take away from NATCO? I mean, if you want to understand the five years of the next five years of the business, because for us it seems like in the next five years, right now it seems like Revlimid is there and seems like we are going to be squeezed out, squeezed down again, you know, once Revlimid goes out. Can we make a solid core in the next three, four years or you think we will be depending a lot on one-off payoffs?
See, we do a little bit of everything, you know. Okay, let me just lay out, for example, what I think are interesting, which we have publicly disclosed so far, I mean, in the next few years. I mean, for example, you know, Revlimid U.S. is obviously quite interesting, but I also mentioned about Revlimid Canada and Epclusa in the U.S. Those will contribute to the base business. It's not that we're not working on the base business. I mean, for example, you know, in the next few years we have, for example, we have Tracleer. We have a settlement date for bosentan suspension tabs, which is an interesting product. We have CPTR [inaudible] as you know. We have not won the case. The launch date as of today is August 2022. That will be a reasonable call.
For example, we have a settlement with our partner in Australia, launch of pomalidomide and lenalidomide. That's an interesting upside that will play out in the next few quarters. We have trabectedin filing with Sun for Europe hospital business and the U.S. [para COVID] FTF. I mean, these are some examples of products which could, you know, do reasonably well, which are not like Revlimid size, but reasonably, you know, $10 million, $15 million, $20 million type, $30 million type of opportunities. You have Nexavar, which, you know, that kind of fits into that sort of bill. All this will play out in the next four, five years or six years. It's not that, you know, we just have one. We're not a one-trick pony.
You know, we have other, you know, other filings. By end of the decade, you know, Imbruvica, obviously the litigation didn't go well. Again, you know, we have an FTF for this and that. Let's see how that plays out. That's the end of the decade. I also said a few minutes ago, we have two FDFs filing, but that will reveal what they are in the next quarter based on the acceptance by the FDA. The pipeline is strong. As I said a few minutes ago, you get three Revlimid type of opportunities, right? You get like 10 of these mid-size opportunities, right? Your decade is done. I think that's the focus. Regarding the core business, as I said, I mean, we have enough money.
I mean, you know, that I think that's not the challenge. I think the biggest challenge is how we deploy that money to strengthen our core business. I think, as I said, you know, we literally have said, I know I'm not done acquisitions. I cannot say that we're not done. I'm not done because I don't think, I don't want to do a bad acquisition. I think you, I think that's what it is. Certainly, I think we have time, and I think we'll do it at the right valuation. I think that's what it really comes down to. Okay?
Sure. Thank you.
Okay. Thank you. Next call, next caller, please.
Thank you. The next question from the line of Danesh Mistry from Investor First Advisors. Please go ahead.
Hello. Thank you for taking my question and, you know, good afternoon. I had just two questions. The first was on your domestic business, which was there and, you know, you've touched upon in earlier calls how the onco piece has taken a bit of a punch because of COVID situation and patients not going to hospital. You know, has that kind of turned around for us now? How do we see, you know, traction in the domestic business going on?
The second was that, you know, in the AgriChem piece, you know, whatever we read, we get the idea that possibly the product is gonna go off patent next year, and we can look at a, you know, full-fledged launch next year. Is that assumption right? Are there any more cases, etc , to be kind of crossed over before we can launch the product? Lastly, you know, we have always talked about trying to get into other therapies like diabetes and cardiac. Any further progress on that? Thank you.
Okay. Let me answer one question at a time. First you asked me about how is the domestic business doing, particularly onco.
Onco. Yeah.
Yeah. Onco has been stable now. I think we are seeing some price erosion, but I think things are more stable now. I think we'll see more steady state revenue and volatility would have dropped now. I don't see more volatility now. I think the whole Hep-C portfolio has now collapsed to INR 2 crore a month now. I think you'll not see much volatility in our earnings. I think that sense, I think everything has settled down. The second question you had was what is it that we're doing to enhance the reach? We started a new division recently called NATCO Reach. I think one thing we have done very well is covering only specialists. I think we've done gastro very well, onco very well. You know, we've done cardiologist and a little bit of endocrinologist.
We've never done the mass market large volume. We started a division called NATCO Reach, which covers the GP sector. I think particularly I kept molnupiravir in mind. Because lot of times when people get sick with COVID, the first thing they talk to their GP doctor. We have a segmented cover consulting the physicians and GPs as a segment. Molnupiravir we're pushing very high. We have a specific focus. Our division's focus is completely on molnupiravir, so that's why we are very bullish about this product. Again, I am also mindful of the fact that COVID is on the lower side, so you have to position the product for the future. You had a question about the agro business.
Everything.
Based on the patterns that we've been through so far, I think our understanding is that we could launch in August 2022. This is not the only product. As I said, you know, we are looking for other agro products. We see other opportunities like CTPR. We have not publicly discussed what these opportunities are, but there are other opportunities, and I think there's very little litigation in agro.
I think there are a lot of opportunities in this business. I see that, you know, we could do more interesting filings both in agro and in pharma. I think I'm bullish. You know, obviously the outcome of the litigation is what's gonna determine the upside of the business. I think that's the challenge. I think when we are actually filing this product and initiating litigation, I think we'll obviously speak about it when it comes to that. Yeah.
Got it. Is it safe to say that domestic, the domestic business would continue with the formulation with about INR 100 crore run rate going forward? Or do we see that kind of slowly inching up?
It will inch up. I think stable for now. I think, you know, I think my expectation is very high on molnupiravir, so I think molnupiravir should help us out. As I said a few minutes ago, even if we get INR 50 crore-INR 60 crore pop on that business, then, that's almost like adding 15% growth to our business. For our low base type of business, I think it's a reasonable jump. So I am bullish. At the same time, if there is, you know, another pandemic or, you know, any small level pandemic, I think we know that COVID is gonna be around. We're well-positioned for, you know, an extra INR 150 crore-INR 200 crore profits coming over the horizon.
Got it. Understood. Thank you so much, and wish you the very best.
Yeah. Thank you. Next caller.
Thank you. The next question from the line of Ritika Agarwal from ValueQuest, please go ahead.
Oh, hi, sir. Thank you for taking my question. My question is on the CapEx front. We spent INR 85 crores in the first half on CapEx. Could you explain the nature of this and what is our CapEx guidance for next two to three years?
Just one moment. I'll just take it up. Give me a moment. Just take it on the notes. So far I think in that region we have spent about INR 72 crore over a year. Again, I think that sounds about right. I think we just, you know, these are just maintenance CapEx. We're not doing any large CapExes per se. We're just replacing reactors, replacing blocks and so on and so forth. We're just replacing blocks, but nothing dramatic. I don't think we'll spend more than, like, the budgeted CapEx per year is about INR 314 crore. My sense is we'll probably spend about 60%-70% of it. I think that's where we are.
Over the next two years?
I don't see any large CapEx spends, honestly. I think we have enough assets now. I think, like, you look at domestic export business, we have one plant in Hyderabad. We built another plant in Vizag. Both are FDA approved, so we have enough capacity there. We are trying to get more products in so that we can utilize this capacity.
That's it. API also we are fairly set. I think we have one facility in Hyderabad and one facility in Chennai. Our domestic also I think we have one facility in Dehradun and in what you call Guwahati. Agro also we have a facility in Nellore. Yeah, I think facility-wise, I think we are good. I think we did a lot of CapEx in the last three years, and I think we are well-positioned. I think I don't see any large CapExes as of now. Nothing dramatic.
Sure. Sure, sir. Lastly, on Coragen and Imbruvica litigation that is going on, any timelines you would like to call out, when do we see things materializing or things coming to some conclusion?
I can't answer that question, but I'll try answering it. August 15 or 16, I think is the next scheduled hearing for Coragen in India. Let's hope we're able to wind up the hearing and the judge reserve the decision. Again, you know, you can't say how these things go. It will be hard to suggest. December 15 to 16, that's the next date of hearing. On the Imbruvica, we have filed an appeal. Typically appeal in U.S. takes about 18-24 months. Let's see how it plays out. I think that's more or less my understanding of what's going on. Okay?
Okay. Thank you so much, sir, and all the best.
Thank you. Yeah. Next caller, please.
Thank you. The next question from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Yeah, hi. Good afternoon. Am I audible?
Yeah. Yeah, sure. Go ahead.
Just two questions. One is, if we look at the export business with the profit contribution, like for last three quarters, we were doing a run rate of INR 150 crore. In this quarter, we've done INR 190 crore. If we go by Mylan's call, they said the Copaxone prescriptions in U.S. have declined further. Have you seen a further decline in Copaxone revenue and, like INR 60 crore-INR 70 crore is from the new businesses? Or that INR 150 crore was the base and just INR 50 crore-INR 60 crore is the new products which we have launched? If you cannot give the number, just an indication of how is the-
I think so. I don't remember the market share that we have at this time. From what I understand, our market share has increased. I think we're actually doing well now in Copaxone market share. In terms of sales, it's been stable, my friend. I've not seen a decline on that. It's been fairly stable the last few quarters.
Okay.
In terms of the increase and all, I think we had some ups and downs there. Last year the same time, Q1 and all we were selling, we sold a lot of Chloroquine, so that vanished. Now I think there's a pickup because of Everolimus now, we had Tamiflu stocking last year. This year we don't have it. These vacillations keep happening. I think it's part of the business, I think. Does that answer your question?
Yeah.
Okay.
Secondly, in Zortress, what we understand, it was a two-player market, and we were the third player to enter. I think it was a $200 million-$250 million product. Have there been more players entering the market, or is it still a three-player market? Just some sense if you can give.
I don't remember exactly what you're saying. I think the first generic on that has been Hikma. Then, I think we got approved after Hikma. I think I heard Intas got approved, if I remember right. I don't remember who the third player is. I don't want to speculate who was. Par or Intas, I don't remember. What you said is right. I think it's like a three-player market.
You're putting me on the spot. I don't have an answer to your question, but I think it's like three-player market. I think that's my understanding. The market size is a little smaller than $200 million, I think, before the generic event. I think in terms of sales wise, my friend, I think we're doing better with [Epzicom]. I think that's part of my understanding, especially [inaudible] 10 mg is doing extremely well for us. I think that's what my understanding is.
Okay. Lastly, in September quarter, we generally used to fill this Tamiflu APIs for the flu season and which used to reduce our gross margin. This time there is no Tamiflu API sales, and API sales are largely in line with what we've been doing. But still there's almost a 500 basis points-600 basis points fall in gross margin. If you can just help me understand what has changed exactly? Because even if I compare against June quarter, there was a lot of this COVID sales which was there in our numbers, and which was a lower gross margin business, which I suppose is not there in this quarter. I'm not able to add these two.
No, the answer is very simple. You only answered the question. I mean, if you look at traditionally, you know, follow our numbers for the last four to five years. We used to have a lot of stocking for certain areas, and now we don't have it. The reason we don't have it is because of behavior change, and this is what has happened. I think what has happened is because of COVID and the masking and the vaccine and all, the number of people, or certain sales have dropped dramatically. There's actually very little retail sales. Except for pandemic supplies or few government supplies we're doing here and there in some territories. Otherwise, sale has completely collapsed. It also has affected our base revenue dramatically because there's absolutely no sales. We have seen that across the world.
If you observe the number of cold medicines, allergy medicine sales have dropped dramatically because of COVID. That has been one more challenge in our earnings. I mean, that's the nature of this. You know, this is an event that has happened, so we're trying to adjust now. I think we have removed that EBITDA has completely gone missing now, so I think that's the challenge we're facing. I think it doesn't look like it's gonna get better. I don't see that product coming back the way it used to be. Yeah. The way it is. Yeah. Okay.
Sure. Thanks.
Okay.
Thank you. The next question from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Yeah. Hello. Am I audible?
Yeah. Speak a little louder, man. It'd be fine. Yeah.
Okay. Sir, I mean, give some idea of the Eliquis sales, you know, bump up which could have had because of COVID. Because if I understand it, I mean, pre-COVID, Eliquis would have been on an annualized basis a INR 60 crore-INR 70 crore product for you if. Or am I-
Generally, I don't give split for competitive reasons, my friend. I stopped doing that for the last few years. For competitive reasons, you're just giving away what you're doing. I think broadly, I'll tell you trend wise, I think you're right about Q1 having a good representation of Eliquis. But generally we don't split. Q2 onwards, the bump is not there. Clearly, I think what you said is absolutely right. Split by product, I'm not doing that.
Okay.
Strategically, I'm not.
Right.
Yeah. Okay.
Second question is around the onco portfolio, which I think last year took a sharp dip because of COVID. Would it be fair to assume that when onco normalizes, you would have hit back the FY 2020 sort of numbers on oncology? Or has it settled somewhere, you know, below that and with the new product additions it'll go up?
It has settled down, but it has settled down slightly lower than what it was pre-COVID. I think it's mostly because of price erosion. It has settled down. I think the sort of swings that you saw in the past are not there.
The other products which you didn't see other than Eliquis, you know, products like Pomalyst or Ticagrelor, if you could give some idea of, you know, how those are faring for you.
ticagrelor has done reasonably well. dabigatran has done reasonably well. Ticagrelor, dabigatran, apixaban did extremely well because of COVID because they're all used in COVID treatment. in that sense, I think there's been a pop, but now they're settled on to more normalized sales. I think all the brands are doing reasonably well, I think. but apixaban is probably our biggest seller in that division.
Right. Sir, if I'm allowed one more,
Yeah, sure. Conclude.
Yeah. In TG Therapeutics came out with data on Ublituximab for multiple sclerosis. At least you know the data that they put out seems pretty healthy and strong. Do you consider this as I mean in future obviously a possible competitor to Copaxone?
Which product is it? I'm sorry.
Ublituximab.
I don't know, my friend. That's a question I can't answer.
Okay.
I don't have an answer to that question. I'm sorry. Yeah. Okay?
Right. Thank you.
Thank you. Next caller, please.
Thank you. The next question from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hello. Hi, Rajeev. Rajeev, on the oncology business in India, has there been any change in the market, competitive dynamics over the last couple of years?
I mean, there is more price erosion. Things are more settled down now, right? I would say that there's gonna be. See, two things have happened. One is price control. There's price, and because of price control, MRPs were dropped. Because MRPs were dropped, then there were further discounting that were expected by the supply chain, so which brought down further margin.
Then you had a couple of events like COVID. We had COVID in May, June, July, you're aware, and then we had COVID last year in October. Not October. Early COVID in May, June of last year. So whenever you have these events and then patients coming back, we have a fair amount of disruption. Right now things are stable now, Nitin. I don't see much. You'll see more consistent revenue now, except for when you stock products for new launches, but otherwise we're seeing fairly consistent numbers. But they're lower than, you know, what they were pre-COVID because of competition.
Rajiv, just to sort of push that, has the market been impacted by entry and more competitive pricing action by some of the newer guys? Or has there been multiple new guys who entered the business or anything like that which has happened in this space?
That is true of anything, right? I mean, you know, generally domestic is fairly hypercompetitive. I think if you look at the last two years, the emphasis on domestic has increased so dramatically now and people don't leave a single order now. I mean, it's almost, you know. Because everybody loves domestic right now, and that's why all my questions are always revolving around domestic.
People find this as more stable business compared to the export business, which was the exact opposite in perception-wise few years ago. See, I think that's the lay of the land. I mean, we're gonna have competition, and I think. We're doing generics. The way you sustain sales is you build your core brand, at the same time you launch new launches. That's how the momentum is maintained.
We had some very good launches this year. I mean, we had, for example, we launched Eltrombopag, Novartis' product, so that we are the only generic on that at this time in India, so that has done reasonably well. As I said a few minutes ago, we're launching this quarter cabazitaxel and Apalutamide tablets. I mean, it's a good business, and it's a good, stable business. I think we have a good setup, you know, and I think we do well. I think that's a mix of base business and new launches that drive growth. Okay. Next question. We'll take the last question.
Thanks, Rajiv.
Yeah. Thank you.
Thank you. The next question from the line of Vishal Manchanda from Nirmal Bang Institutional Equities. Please go ahead.
Thanks for the opportunity. Sir, lately Delhi High Court has granted an injunction with respect to Entresto. Basically, will that impact NATCO?
We're not, we were enjoined on that product some time ago, Vishal. So as of now, we don't have sales on that product at all. So as of now, in terms of financial impact, it is zero. But obviously it's an opportunity that was missed, right? I mean, we had the opportunity to launch that product, and market size of the product is very good right now. I don't remember the numbers, but it's like upwards hundreds of crores. So it would've been nice to have a generic version of that. But as I said a few minutes ago, I mean, you're gonna get some right, you're gonna get some wrong, but that's how the business is. I think just go at it. That's all it is.
Yeah. Just one more. Earlier during the call you hinted at some launches beyond these large ones. Could you just. One I heard was Yondelis trabectedin. And was that in Europe or in U.S.?
What I alluded to, I think the gentleman was asking specifically what are the products that we have, and I identified about seven or eight opportunities which I felt were reasonable opportunities. Among them is Yondelis. Yondelis is filed in both Europe and in the U.S. market. U.S., as you know, we have a Para IV, we have an FTF contract, so that's a partnership with Sun Pharma. Similarly, we have a partnership with Sun Pharma in Europe as well for Yondelis. I have not speculated the time on the launch because at this time frame it would just be a guess, but it's one of our more interesting products that we have in our pipeline.
You also said lenalidomide in Australia also is scheduled some time from now.
Yeah. We have settled it recently. pomalidomide and lenalidomide, both together we have settled in Australia. That is another interesting product we have.
Got it.
Again, we're not disclosing the date because of bond right confidentiality, but yeah, that is something that we have an approval on both these products in Australia already and, we're hoping, I think on the day of the launch, we should do reasonably well, yeah.
Okay. Just one final one. On NATCO's working capital is significantly higher versus peers. Is it just because that your sales is lower because you report only profit share and not the net sales in U.S.? Is that the reason for the working capital to appear apparently higher in reference to the sales or?
The working capital is higher because of the stocking point, because we take a lot of risk, my friend. I build inventory, I think I said a few minutes ago, we have inventory on all the pandemic products. When either you have it or you don't have it. We build significant amount of inventory on CTPR, on CTPR. That is one of the biggest contributors of the increase in working capital. I'll give you an example what the problem is. See CTPR, you have to build inventory before the kharif season, before June, because majority of the sale happens between July and September. If you don't have inventory, then you can't launch the product. You see what I'm trying to say, right?
If the launch gets delayed, then you're sitting on the inventory because all the sales get concentrated in the three months, you know. That's the nature of the business. I mean, because we do so many pandemic and stocking products, I think that's the reason why we have high inventory. What I also said was that, you know, we're hoping that we'll be able to liquidate them in the next few months, based on launch expectations and assumptions.
Got it. Thank you.
Okay. I'll take one last question because we started little late, so I'll take one last question, whoever it is.
The last question is from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Yeah. Hi. Thanks for the follow-up. This is regarding one comment which Rajeev you made that in Canada if we make $ 10 million kind of a profit on Revlimid we would be very good. Is your expectation much lower than that considering the market is like between four players and you believe you have a better presence with the innovator ramp? That is one. Secondly do you think this whatever profit we make can sustain for three, four years or do you think that will go off in one or two years? It's a one- or two-year opportunity or do you think it can sustain?
Honestly, my friend, I have no answer to any of your questions. See, the $10 million number is something that he threw at me. Then I answered it affirmatively saying that'll be a nice number to have. In generics, you can never predict what will happen. I will not hazard a guess on what's gonna happen. What I said was if it holds up at that level, I think I'd be very happy. I think that's what our expectation is. How market formation plays out or not, it's a question that only time will tell.
I said I will give a better insight of it because if you ask me this question, let's say in our call for December earnings, you know, hopefully we'll have a call maybe from January, February, right? Maybe I'll have a better idea of what's going on. I think he was speculating, so I was speculating back. That's all.
Okay.
Okay. I thank you. Thank you, guys. Thanks so much. Yeah. Thank you. Bye. Well, thank you all. Again, any questions pertaining to what we discussed in the call, please feel free to reach out. It will also be put up on the website. Okay.
Thank you all. Thank you all. Thanks.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.