Ladies and gentlemen, good day and welcome to Sun Pharma's Q1 FY23 earnings conference call. 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. Nimish Desai. Thank you, and over to you, sir.
Thank you. Good evening and a warm welcome to our first quarter FY23 earnings call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q1 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Managing Director, Mr. C.S. Muralidharan, Chief Financial Officer, Mr. Abhay Gandhi, CEO of North America, and Mr. Kirti Ganorkar, CEO of India Business. Today, the team will discuss performance highlights, update on strategies, and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at consolidated financials. Just as a reminder, this call is being recorded and the replay will be available for the next few days. The call transcript will also be put up on our website shortly.
The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risks that our business faces. You're requested to ask your questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today. I will now hand over the call to Mr. Shanghvi.
Thank you, Nimish. Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the first quarter of FY23. Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR 106 billion, recording a growth of about 14% year-on-year on like-for-like basis, excluding the contribution of COVID products from quarter one last year. The reported top line growth was 10% year-on-year and 13% quarter-on-quarter. All our businesses witnessed good growth driven by a combination of robust growth of our specialty business and all-around growth across all markets. Let me now update you on our global specialty business. For first quarter, our global specialty revenue was approximately $191 million across all markets, recording a growth of 29% year-on-year.
Ilumya, Cequa, and Odomzo were the growth drivers, while Winlevi is also gradually ramping up. Specialty R&D accounted for approximately 21% of our total R&D spend for the quarter. Abhay will give you more details on the specialty business later. I will now hand over the call to Muralidharan for discussion of our first quarter financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q1 financials are already with you. As usual, we will look at key consolidated financials. We recorded the highest ever quarterly revenues in Q1 with sales at INR 106 billion, up by 14% year-on-year, excluding the contribution of COVID products for Q1 last year. On a reported basis, sales are up 10%. Material cost as a percentage of sales was 27.2%, while staff cost stands at 19.5% of sales. Staff costs are higher over Q1 last year due to overall merit increase, full quarter consolidation of the Alchemee acquisition, and expansion of the sales force in India. Other expenditure stands at 28.6% of sales, higher than Q1 last year.
The increase in other expenditure is attributed towards higher selling and promotion expenses and consolidation of the Alchemee business. As indicated in our past earnings call, the expenses are seeing an increasing trend across all the markets as we reach full normalization. Forex gain for the quarter was INR 1,457 million, compared to gain of INR 799 million for Q1 last year. EBITDA for Q1 was at INR 28,844 million, including other operating revenues, up by 2% over Q1 last year, with EBITDA margins at 26.8%. The single-digit growth in reported EBITDA year-on-year is due to multiple factors like normalization of selling and promotional expenses, first full quarter of consolidation of Alchemee acquisition, sales force expansion in India, and absence of COVID product contributions in the current quarter.
Reported net profit for Q1 was at INR 20.6 billion, up 42.7% year-on-year compared to Q1 last year. Excluding the exceptional items of Q1 last year, the adjusted net profit was up by 4.1%. Reported EPS for the quarter was at INR 8.60 per share. Let me now discuss the key movements versus Q4 FY 2022. Our consolidated sales higher by about 13% quarter-on-quarter at INR 106 billion. Staff costs have increased in absolute terms quarter-on-quarter on account of annual merit increases, expansion of sales force in India and full quarter consolidation of Alchemee. Other expenses are higher due to increase in selling, promotional and travel expenses, as well as consolidation of Alchemee acquisition. EBITDA for Q1 at INR 28,844 million was higher by 23% compared to Q4.
EBITDA margin for Q1 was at 26.8% compared to 24.8% for Q4 of last year. Net profit for Q1 at INR 20.6 billion was higher than the adjusted net profit of Q4 by about 30%. As of 30th June 2022, net cash was $2 billion at consolidated level and up about $860 million at the ex-Taro level. Let me now briefly discuss Taro's performance. Taro posted Q1 FY23 sales of $156.7 million, a net profit of $14 million. Taro's financials include the first full quarter of consolidation of the Alchemee acquisition. I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.
Thank you, Murali. Let me take you through the performance of our India business. For Q1, the sales of formulation in India were at INR 33,871 million, up by 13% on like-to-like basis, excluding COVID product sales of Q1 last year. On reported basis, the growth is 2.4% over Q1 last year. India formulation sales accounted for about 32% of total consolidated sales. There were no COVID product sales in Q1 of this year. In terms of core business growth, we continue to witness good growth across therapies in chronic and the subchronic segment for the quarter. We have maintained the trend of the past few quarters of outperforming the average industry growth, which has led to increase in our overall market share.
As per AIOCD AWACS June 2022 MAT data, our market share has improved by about 0.5% over the last one year to 8.5%. As per SMSRC report, we are number one ranked by prescription with 11 different doctor categories. The expansion of the field force in India is on track, and we have achieved about 90% of the targeted hiring. While we continue to increase our reach and access, we are also focused on continuously increasing our share across key therapies and improving overall productivity. For Q1, we launched 22 new products in the Indian market. We also continue to remain the partner of choice for in-licensing of products, given our strong number one position in many therapy areas, including therapies for the treatment for COVID infection, coupled with our large distribution network. I will now hand over the call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q1, our overall sales in the U.S. grew by about 11% over Q1 last year to $420 million. While all our businesses in U.S. have grown, the main driver of growth was the specialty business driven by Ilumya, Cequa, Odomzo and Winlevi. U.S. accounted for over 30% of consolidated sales for the quarter. Specialty sales have also grown compared to March 2022 quarter, despite the seasonal decline in Levulan sales. While doctor clinics have been open in the U.S. during the quarter, the situation is yet to fully normalize. Patient flow to doctor's clinics as well as frequency of doctor calls by our medical reps are both still below pre-COVID levels. Winlevi is gradually ramping up and more than 10,000 doctors have prescribed the products till date.
Let me now update you on our U.S. generics business. While the U.S. generic business continues to be competitive, the Sun ex-Taro generics business has recorded growth both on YOY and quarter-on-quarter basis. This growth is driven by a combination of new launches, market share gains for existing products and better supply chain management. For Q1, we launched two new generic products in the U.S. market on ex-Taro basis. I will now hand over the call to Mr. Shanghvi.
Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our sales in emerging markets were at $245 million for first quarter, up by around 12.6% year-on-year. There has been significant volatility in various emerging market currencies, which has impacted our reported growth.
The underlying growth in constant currency terms was about 16%. Emerging markets accounted for about 18% of total sales for first quarter. In emerging markets, we have presence in the branded generic space, and it continues to perform well, and we've maintained our strong positions in key markets. Formulation sales in rest of the world markets, excluding U.S. and emerging markets, were $119 million in first quarter, up by around 3% over first quarter last year. Rest of the world markets accounted for approximately 14% of consolidated revenue. API sales in the first quarter were INR 5,987 million, up by about 16% over first quarter last year. We continue to invest in building our R&D pipeline for both the global generics and the specialty businesses.
R&D efforts are ongoing for the U.S. emerging markets, rest of the world markets, and for India. Consolidated R&D investments for first quarter were at INR 4,608 million, compared to INR 5,926 million for first quarter last year. Lower R&D spending is a timing issue, and we expect it will gain momentum and be in line with our guidance in the rest of the quarters. Our current generic pipeline for the U.S. includes 89 ANDAs and 13 NDAs awaiting approval with the U.S. FDA. Our specialty R&D pipeline includes four molecules undergoing clinical trials. Ilumya is undergoing a phase III trial for psoriatic arthritis, while SCD-044, an oral dermatology product, is in phase II trials for psoriasis and atopic dermatitis. MM-II is also in phase II trial for treatment of pain in osteoarthritis.
Our GLP-1 agonist, GL0034, is undergoing a phase I trial for type 2 diabetes. With this, I would like to leave the floor open for questions. Thank you.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Good evening. Thank you for taking my question. The first one on Taro. Is there any one-off related to integration cost in the SG&A expense for quarter one?
I mean, Taro, we cannot give information beyond whatever Taro has shared. Sorry, but I can't respond.
Okay. Second one on psoriatic arthritis trial. We were looking at some revised timelines on that, you know, because some centers where I think, you know, there were some issues and we were looking at new centers. All those has been figured out or is it still ongoing? And any timeline in terms of when the trial can, you know, get completed?
We have not given guidelines of the completion of the trial, but what you call, challenges in both Ukraine and Russia have contributed to potential delay.
Does it also affect our U.S. timeline for that product?
No. I mean, the product is a multi-center global study. I mean, the trial. Based on which then we will file in all the markets, so it will affect.
Okay. To that extent, if you are not able to solve that or till the Russia-Ukraine thing gets, you know, basically normalized.
We have to make up for that in some other country.
Okay. There is some, you know, upside risk or, you know, basically R&D could even be lower in the coming quarter.
We are addressing the issue.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Hello, good evening. My question is on the, you know, cost, which is staff and SG&A, ex-R&D. Both these places, there's been double-digit growth, both YOY and QOQ. Is it a function of currency or inflation or increased promotions both in India and U.S.? If you could just give some color and is it here to stay?
As far as expenses is concerned, we already said that it will be inching up as the operations normalize across the markets. With the increase in sales in India what we witnessed and also in our global revenues and normalized operations, these expenses have increased to the current level. There is no specific Forex related component including that.
I mean, only because of India or there are promotionals which are
This is across markets.
If there could be any comment on the U.S. if you have increased your promotions, with respect to your growing specialty portfolio?
It is very difficult to comment specifically in any market, how much increase happened toward SG&A.
Okay. These are all base level cost increases which are here to stay. There's no one-off as such.
No, there's no one-off.
Okay, perfect. I think Dilip mentioned about R&D is a timing issue, but whole of last year also we had lower than guidance R&D. Just trying to think this better. The trials are ongoing. In the past, he said as a color that, you know, recruitments have been delayed, but I think the world in the last six to 12 months is coming back, already come back to normalcy. If you could give more details on why we are seeing that kind of timing issue, that would be very helpful. Thank you.
No, I think, we are saying that rest of the year, the R&D spend will make up. If you see the percentage of the innovative R&D has come down significantly. Which is what we are expecting will go up so that the overall percentage of the innovative R&D in the total R&D cost will go up.
Okay. I missed the percentage, sir. Could you please help me with the percentage?
We indicated that innovative R&D is 21% of the total R&D spend.
For the quarter?
For the quarter, yes.
Okay. Perfect. Thank you, sir, and all the best.
Thank you.
Thank you. Participants, next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi. Thank you for the opportunity. My question is on Cequa. Post entry of generic for Restasis, have you seen any change in market dynamics for pricing or, prescription pickup for the branded products, including, your Cequa brand?
Not really, Damayanti. If you see the market share, you know, even post launch of the generic, we've been able to, you know, show an increase in market share. We are able to navigate through the situation.
Okay. Anything on the pricing part or it's similar as compared to pre-generic entry?
All segments of business put together, I don't see an impact, a negative impact on the pricing.
Sure. Okay. My second question is on Halol plant. What is the update there? Any timeline or any update you have heard from the FDA?
We are awaiting the EIR, which means Establishment Inspection Report. Post which we can then share, but otherwise we continue to update FDA about the remediation for all the 483s that we have received.
Sure. Thank you. I'll get back in the queue.
Okay. Thank you.
Thank you. Next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you so much for taking my question. My first question is on.
I'm sorry, Neha, your voice is not clear.
Is it better now?
No, ma'am.
Okay. Is this better?
Yes, slightly better than before.
Okay. Sorry about that. Abhay, on Winlevi, if I were to look at the prescription data, there seems to be, you know, some sort of a stabilization after the initial momentum that we saw in the product. Has there been any change in the promotion that is leading to this? You know, and what's your view on, you know, Winlevi contribution meaningfully, you know, sort of increasing to, the specialty sales that we are reporting, you know, any sense there?
The way, I mean, if I look at the data, I see quarter-on-quarter we have grown by nearly 22%. I don't know why you say that, there has been sort of a slowdown.
No, I'm looking at it more in the, let's say last six, nine weeks probably.
I mean, don't forget that these are also the summer months where derm products generally, you know, slow down a bit. So if you're looking at a six, eight weeks, nine weeks kind of a period, you are right. I mean, I look at it on a quarter-over-quarter basis. Even in a slow quarter, if we have grown by 22%, that's a reasonable number.
There is no change in promotions in Winlevi since our launch, right?
I mean, when you say change, I mean, there's nothing which is a negative. Of course, we will keep looking at what is it that we learn about the product as we promote and make improvements as we go along. The change will always be there, but it's a change for the better is what we hope.
Okay. In terms of contribution of Winlevi, you know, when do you think you have, you know, adequate formulary coverage, to start seeing Winlevi contribution? I know it's difficult to sort of pin that down, but in your view, what is your assessment based on, you know, your conversation with the formulary?
Product-wise, you know, we don't give the split, but, you know, we have always been very positive and optimistic about Winlevi. Otherwise, you would not have had 10,000 doctors in some seven-eight months prescribing the product. We continue to invest on the product and, you know, with the hope that it'll be an important contributor to the overall business.
Understood. My second question is on, you know, the emerging market business. You know, for close to about, you know, five, six quarters now, we've been seeing very strong double-digit growth in that business despite the FX volatility. You know, is there anything that you would like to highlight in that business? What are strategies for growth there? Is it, you know, profitability, going deeper into markets, any color there, please?
No. I missed the question.
Ma'am, sorry, but again, your voice is breaking. May I request her to rejoin the queue if possible?
Sure.
Thank you. Next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Thank you for taking my question, and congratulations on a great quarter. My question was on other income. If you could just provide some explanation on why the other income was really low this quarter, and how you see it going forward given the large cash balance that we have on our books.
Other income by its definition is not really core to overall our business. It comprises various moving parts, including fair valuation of investments, certain treasury income across multiple geographies, which do fluctuate from quarter to quarter. I think in our view, comparison strictly on a quarter-to-quarter may not be correct.
I was actually looking at it over the last 16 quarters, and, you know, we've always tended to be above INR 100 crores. Given it was INR 2 crores, I was wondering if there's a one-off and, you know, if there's a trend?
No, there is no one-off.
Okay.
There's no one-off.
Okay. Thank you.
Thank you. Participant, you may press star and one to ask a question. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you and good evening, everyone. Abhay, first question is on Pentasa. Good launch. Did this 1Q results capture full three months impact including launch inventory or was it less?
It captures the whole quarter.
You launch in the middle of May, so therefore I wanted.
You're talking the approval period. We launched it in the month of May, actually. It's, you know, one and a half months sale roughly that we were able to capture.
Plus some launch inventory, no?
What do you exactly mean by launch inventory? We didn't stock up the distributors. If that's the question, did we like stock it up? No.
This is very useful. The second question is on Winlevi. First is on the expansion of the deal to newer markets. If you can just tell us, you know, how much regulatory work needs to be done here and how meaningful can this be? I mean, just qualitatively if you can.
No, I think, Sameer, regulatory work in different countries are different. In some country, we just have to file the existing product with existing studies. In some country, we have to do some kind of zone for stability study or those kind of things. Especially in Japan, I think we will have to run the phase II, phase III for sure.
Okay. Sir, fair to say that it be at least one year before the approval cycle begins in these new markets?
Minimum.
Okay.
Because many countries have approval cycle of two years.
Okay. Yeah, fair enough. Just for the U.S. market for Winlevi, Abhay, would it be fair to say that large part of the prescriptions being generated are under co-pay scheme and smaller portions being getting reimbursed?
I mean, you can say that. Though remember, co-pay also leads to a realization, so it's not exactly like free. We are increasingly seeing that a lot of our prescriptions are actually going through the payer system, even without you know, contracting. That is, that's very useful because it shows that doctors are interested enough in the product to take the effort of raising prior auths.
Okay. Including that also, what's going directly through payer. Still the larger part is co-pay and you say co-pay, of course you get some money, but it just barely covers the cost and maybe a little bit margin, no?
All right. You're putting words in my mouth, Sameer. I mean, yeah, okay, let me just say that, you know, if everything goes through the payer system, I would be the happiest person.
Okay, no, fair enough. On Levulan, when do you see, you know, the sales getting restored back to pre-COVID levels?
Very difficult question to answer because, if I see in the U.S., Sameer, even today the social distancing norms and I'm talking in clinic, not in the outside world. How many patients are taken up in a day and all that is much lower than what it used to be, in the pre-COVID times. To that extent, the throughput per doctor has definitely come down. Having said that, I mean, the number of doctors who are now doing PDT therapy has increased, from what it used to be like, you know, a year or two years ago. Between the positive and the negative pull, what really translates as a growth is very difficult for me to estimate at the moment.
Oh. Thank you so much.
Yeah.
Thank you. Next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah, thanks for this opportunity. Just first on the Alchemee, since it has been integrated, and it has obviously had implication on the staff cost rise, other expenses rise and all that. This quarter we have seen kind of a meaningful underperformance at Taro end also. Just to understand a bit, whether this is a kind of a profit-making company or it is a loss-making company, or what is the kind of profitability of its the portfolio that has been added. Some sense on that, if you can give, it will be helpful.
This is Murali. I think, beyond what Taro has disclosed, we'll be unable to furnish any further information on Alchemee acquisition.
Okay, fine. Second question is on the Revlimid, sir. Now, are you in a position to give the launch timeline for this? That is first. Secondly, on this, do you think the competitive intensity could be higher than what it was earlier expected among the first wave launch players? Because what we are seeing that although it is a volume limited kind of a condition that is there for everybody, but in case of Teva, it seems a double-digit percentage of volume they have done post-launch. Do you see the condition of a limited volume one is not so rigid and people can do more than what it has been mentioned in the terms?
No, I think every company has their own different contract and agreement with the innovator. Once you are bound by a contract, you abide by it. I think that's a simple answer to your question. You know, we will abide by whatever we have committed in our contract. I think that should answer the latter part of your question. As to the first part, I mean, internally, I am clear when we would be likely to launch, but you know, on our calls, we don't give product-wise details of when exactly we are launching because that's also competitive information.
Okay, sir. Just last question on the sales force addition. We had indicated around 10% kind of a rise in the current financial year. When you said that 90% of the targeted addition has been done, so that means the full costing part of that is already been reflected in the numbers. Is that right, sir?
Yes, that's correct.
Okay.
Sure.
Thank you, sir. Thanks a lot.
Thank you. Next question is from the line of Dhara Patwa from SMIFS Limited. Please go ahead.
Hi. Good evening all. I have a question regarding Ilumya. Since the trials are ongoing for psoriatic arthritis, how does the pricing differ? Do we keep the same pricing as the current indication of psoriasis, or does the pricing differ for different indications?
I think, pricing for every product is a function of appropriately choosing the price which will allow you to get appropriate reimbursement as well as, access in different formularies. It's difficult to respond today, because it's better to take those decisions closer to the market. We have to remain competitive with whatever the pricing for IL-23 for that indication would be at that point of time, so that we can get good acceptance.
Sir, will it be fair to assume that whatever the competitors are offering will be more or less, you know, 10%-20% at that range?
I think that is how we have priced Ilumya for psoriasis also. That it's in line with the competitive pricing for, you know, psoriasis. We will continue with the same practice.
Okay. Sure, sir. Got it. Sir, I wanted the CapEx guidance for FY23.
I mean, we have not given any specific guidance, but we have no major investments. However, in any case, some kind of debottlenecking or minor upgradation, we would generally spend a few 100 crore rupees every year.
Okay. Okay, sir. That's it. Thank you.
Thank you. Next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.
Yeah, thanks for the opportunity. You know, just one question on Halol. Sir, have you been able to-
Sir, sorry to interrupt you. Your voice is not coming clear. Can I request you to speak through the handset?
Sure, sure. Just one second. I hope this is better.
Yes, sir. Thank you.
My question is on Halol. Is it fair to assume that you have been able to shift all the, you know, injectable approvals that were held up at Halol to other facilities, or it's still work in progress? How do we look at it?
No, I think we've not responded to the issue specifically about Halol. We hope that we should get approval once we will get the EIR. Some of the critical product on a safety basis we may evaluate transfer to a third party.
As of now, we have not really shifted any products to other facility. Is that fair to assume?
Yeah, not yet.
Okay. Okay, fine. Thank you very much.
Thank you. Next question is from the line of Harsh from IDFC Asset Management. Please go ahead.
Yeah. I hope I'm audible.
Yes, sir, you are.
Yeah. Thank you for the opportunity. I just had one particular question. Just wanted to get your view on the sitagliptin generalization. What is the ground level understanding as of today? I mean, I understand that it might be a little bit early to comment because the market formation is yet to happen. The transition is taking place. Just wanted to get your view like what do you see as the upside to the overall transition? Any particular risk that we are seeing right now? And which particular molecules would be possibly more at risk in terms of gliptins or would it be more towards glimepiride? Any thoughts on that transition?
I think it's a very broad question about sitagliptin marketing. What I can say is the patent got just expire on fifth July, so we are too early to the market. As of today, as I understand that there are 25 companies which has launched the generic products. The pricing is in the range of some INR 9-INR 10 for 50 mg. The market dynamics is very competitive as everyone is trying to get market share out of what market share Sun has and the Merck had in the past. We have about 33% market share. Our objective is even post-patent expiry, how do we protect our market share and grow over that. That's what we can say.
The other question on how DPP4 like, sitagliptin will impact other therapy areas is very difficult to say. Maybe after one or two quarters we will have more clarity on how it is impacting the other therapies.
Okay, sir. Thank you.
Thank you. Next question is from the line of Naushad Chaudhary from Aditya Birla. Please go ahead.
Hi. Thanks for the opportunity. Just a clarification, sir. If I look at your specialty business, the quarterly run rate that has crossed our targeted annual rate of around $750 million, if I remember it correctly. Would you like to revise your target here and what we should expect in FY 2024 and 2025 from this piece of business?
At the outset we want to clarify that we have not given any annual target or guidance on a global specialty space. I think it's important to recognize that. As such, we have not given any guidance, any specific individual business.
Okay. In terms of growth rate, should we expect this kind of momentum to continue in this business?
No, I think you should factor everything that we've given within our guidance. It's a mixture of how we expect all our businesses to perform. That will include specialty, generic, all markets.
Okay. Lastly, in terms of our exceptional cost and provision, if I see last four or five years, the quantum has been quite high versus in this quarter I don't see there is much of that. Going forward, should we expect the magnitude of that should come down significantly?
In terms of litigation, we have given express disclosures in our annual report for ongoing litigation, and these matters will get decided as and when those litigation come up for hearing and conclusion. At this point of time, we're not able to comment any outcome on these litigations.
All right, sir. Thank you. That's it from my side.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead. Neha, may I request you unmute your line from your side and go with the question, please. Getting no response. We move to the next participant. Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Yeah, thanks. A question on India business. When you do go down to smaller cities and towns, any thoughts that you can share, what is the limiting factor for you to drive growth? Is it the, you know, less healthcare infrastructure or doctors? You know, just your thoughts on that would be great.
Yeah. Sameer, what is the question?
Well, the question is since to drive India growth, you know, we are trying to geographically expand, which I read as going into smaller towns and cities. When you are doing that, now at a larger scale, what do you think is the key limiting factor, you know, for you to expand your business? I hope I'm clear.
No, actually, I don't understand the question. What is the limiting factor mean for? We remain very positive about our India business to be able to continue to grow. The reason why I think we are expanding is that we are seeing that over time, we, as a result of the trickle-down, and also because in some of the specialty we were not reaching out to 100% of the universe. There is a expansion, but Kirti can explain.
No, I think what you are assuming, we are going into rural markets and smaller towns. That's not correct.
That is not correct.
That's not correct. When we are saying we are expanding, it's not necessarily that we are expanding into smaller towns and rural areas. There is a lot of expansion happening in metros and Tier-1 , Tier -2 cities.
Okay. No, that's fine, sir. I will maybe take it offline. The other question is there any update on the biosimilars? I think you had mentioned a few quarters back that you would be commencing work on this.
No, we also said at that time, Sameer, that we are looking at products in the third wave of approvals, in the sense that we want to be in time for launch along with patent expiry, the products that are likely to be going off patent in the third wave. That I think that we are pursuing.
Okay. Still early days. Okay, that's fine. Sir, I'm a little confused about the Taro's results, and I know you're not taking any questions on that, but I'll just express, you know, what's going on in my mind. They don't do a call, so unfortunately we can't ask anyone else. The small point here is that if I see pre-Alchemee and now post-Alchemee full quarter impact, the sales has just grown about $15 million or something like that, and the cost has gone up just SG&A and then about $30 million. It's almost a big negative factor, this one. Second, my understanding was that in 2021 full year, Alchemee's total sales was more like $160-$170 million.
Actually, on a quarter basis it should be a much higher number to begin with. I'm just wondering whether this Taro's result is a quarter as usual, a business as usual, or is it something, you know, it's gonna get better as we go forward.
No, I think, Sameer, you started the question in a way which I think you understand it's difficult to share beyond whatever we have shared. I understand the challenge that you have in terms of putting a certain kind of model. However, I think, if you look at it in a positive way, then in spite of a loss of potential profit in Taro of almost $30 million, we've grown profitability. I think philosophically, we are looking at that in our business there will be challenges in product or in some subset of business. How do we find a way to make up for that challenge in as a company overall in the business? That's how we want to run the business on a long-term basis.
Yeah. Very clear. Thank you so much.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.
Thank you for the opportunity again. This one is on Winlevi. Given Winlevi was already approved at the time of North America in-licensing agreement, did that agreement included some form of initial inventories to be transferred to Sun Pharma?
Sorry, what is the question? Initial inventory.
I mean, the upfront payment of INR 45 million, you know, in the agreement would have also included some kind of inventory because it was already approved product and, you know, we were about to launch.
Yeah. Whatever we have disclosed is disclosed. There is nothing on inventory that, I can specifically answer to. It was not a marketed product. If that's where you are going. It was an approved product, but not a marketed product.
Okay. The supply would have only started just before the
Also you have to understand that the product came with Sun label.
Yeah.
So it theoretically cannot be part of the.
It was produced for Sun after the agreement was signed in a certain transition period that we had agreed to. There was no buying over or something of an existing inventory, if that's where you're going with this question.
Okay. Clear. Thank you.
Thank you.
Thank you. Next question is from the line of Prakash Agarwal from Axis Capital Limited. Please go ahead. Prakash, may I request you to unmute your line from your side and go through the question, please.
My question is on the impact of, you know, the trade generics and private labels which are, you know, in a way impacting the volume of the market. You see three-five years the volume has been really dismal. What is our sense and what is our strategy to, you know, have a volume growth, and do we see this impact increasing for the market as well?
Which market are you referring to?
IPM, branded generics.
IP-
It's really eaten up some volume share, right?
Yes, sir. You're talking of generic generics versus branded generics, right? That's the question.
If you have seen the IPM last 10-year growth, 5%-6% has been volume growth, 3% price and 3% new product. If you see the last three-five year trend, ex-COVID also, the volume has come down to 2%-3%. I mean, my sense is there is some impact from trade generics and private labels, which is eating some volume share. What is your view going ahead that this is going to continue and increase and what is our strategy to combat that?
In my view, we are growing, well, both by volume and value also. The impact of this, even if it's some impact, it will not be a meaningful impact. That's my sense probably.
Being a market leader, can you comment on the market volume impact also?
Sorry?
Yeah. The question is, do you foresee this impact increasing for the market?
It's difficult to predict this, what will happen for the market area.
No. Kirti, parallelly, we have to understand that access is continuously increasing because affordability of drugs, financial capacity to pay is constantly increasing. Maybe a small part of that will go to this.
Percentage of that, how much it will impact, difficult to say.
No. I mean, we will continue to grow.
Okay. Understood. On the NPPA side also, we haven't seen price increase for, you know, sorry, price control expansion for some time now. The last list was 2015, and then there were some small lists coming in. Are you in discussion with the regulatory authority and what thought process we are, you know, using price increases? I mean, everybody's taken price increase. But for the core portfolio, essential product list, what is your sense on the price rationalization which might come?
No, no. You are talking of when NPPA will come with the new. We are not aware of that yet.
Okay. I guess it's long overdue, so that's why I was asking. Okay, no problem. Thank you.
Thank you. The next question is from the line of Aalok Dalal from CLSA India. Please go ahead.
Yes. Good evening. Dilip bhai, when do you expect Ilumya approval in China and the African market?
No, I think we've shared with you the date on which we filed the Chinese product, because it needed to do some clinical studies and all of that. It's difficult to predict. There is a certain amount of process that we need to follow. Hopefully, we should be able to close all these issues in 12 months. I'm not predicting that we will launch the product in that time because regulatory issue's difficult to predict till we get the approval.
Okay. On the African market?
Which African market? We haven't said anything about any African market.
Okay, I thought there is an out-licensing with Hikma as well. I mean, the partnership with Hikma.
That's mainly for GCC countries.
Okay. Understood. Also, you know, on the specialty side, do you think the pipeline products are large enough now to help sustain the base? The question that I'm trying to ask is that the specialty business has become pretty large and, you know, as years pass, some products will reach the maturity stage. Do you think the pipeline is good enough for you to continue that momentum going or in-licensing becomes a big part of that?
No, I think we've always said that filing our own new product, at the same time looking at opportunities, inorganic, both licensing as well as acquisition, is something which will continue to help us expand our specialty business.
Okay, because, you know, since the base has become very big, you will also need products that are large enough for you to sustain and grow on that base.
I mean, that's a reasonable expectation.
Sure. Thank you very much for taking my questions.
Thank you.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Yeah. Thank you. I just have one question for Abhay on Ilumya. Abhay, you mentioned, you know, I think a few calls back, you know, COVID sort of had a negative impact. Now we are seeing the traction coming through. The product has been in the market for some time. There is enough data, you know, formulary access, et cetera, has improved. I mean, how are you thinking about growth, Ilumya, in the U.S.? Will there be a spurt in growth in the sense that we'll see an acceleration, or it would be a, you know, gradual steady rise in its market share?
I think our expectation of how Ilumya will grow is part of our total guidance, so I think I have nothing specific to add on the product question.
No, I was not, you know, asking for this year's guidance, like more from a two, three perspective.
Any product in chronic segment doesn't really see spurts as such. I mean, therefore, I wouldn't want to classify and give you any kind of an answer which even suggests that. I think it's what you do each and every day with each and every doctor and the prescriptions. It gradually builds upon the product base. I think that's the nature and that's the beauty of the chronic segment, and we understand that pretty well.
Okay. Yeah. Thanks.
Thank you very much. As there are no further questions, I will now hand the conference over to Mr. Nimish Desai for closing comments.
Thank you, everybody, for taking time out and joining our call. If any of your questions have remained unanswered, do send them across. We will have them answered. Thank you, and have a good day.
Thank you very much. On behalf of Sun Pharma, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.