Ladies and gentlemen, good day and welcome to the Q2 FY23 Earnings Conference Call of Sun Pharmaceutical Industries Limited. 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 Second quarter FY 23 Earnings Call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q2 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. CS Muralidharan, CFO, 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 a 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 risk that our business faces. You are requested to ask two 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 of the second quarter FY 2023. Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR 108,092 million, up 13.1% year-on-year. Most of our businesses witnessed good growth led by global specialty business, India and emerging markets. For Q2, our global specialty revenues were up 27.5% year-on-year to about $201 million. ILUMYA, CEQUA, and WINLEVI were the growth drivers 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 the Q2 financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q2 financials are already with you. As usual, we will look at key consolidated financials. Gross sales for Q2 are at INR 108,092 million, up by 13.1% year-on-year. Material cost as a percentage of sales was 25.1% lower than Q2 last year due to higher specialty sales. Staff cost stands at 18.2% of sales. While staff cost in percentage terms are lower over Q2 last year, the increase in absolute value is attributed toward merit increase, consolidation of the Alchemee business and expansion of the sales force in India. Other expenditure stands at 28.1% of sales, higher than Q2 of last year.
The increase in other expenditure is attributed towards higher selling and distribution 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 loss for the quarter was INR 2,415 million, compared to a loss of INR 764 million for Q2 last year. This was driven by adverse movement across various currency pairs during the quarter. EBITDA for Q2 was at INR 29,565 million, including other operating revenues, up by 12.4% over Q2 last year with EBITDA margins at 27%. We have reported strong margins despite rising expenses. Reported net profit for Q2 was at INR 22,622 million, up 10.5% year-on-year compared to Q2 last year.
Reported EPS for the quarter was at INR 9.40 per share. Let me discuss the key movements versus Q1 FY 2023. Our consolidated gross sales were higher by about 1.6% quarter-on-quarter at INR 108,092 million. Material cost at 25.1% of sales were lower than Q1, mainly due to product mix. Staff costs at 18.2% of sales and other expenses at 28.1% of sales were also lower compared to Q1 FY 2023. EBITDA for Q2 at INR 29,565 million was higher by 2.5% compared to Q1, mainly impacted by Forex loss of INR 2,415 million in Q2 compared to a Forex gain of INR 1,457 million in Q1.
EBITDA margin for Q2 was at 27% compared to 26.8% for Q1. Reported net profit for Q2 at INR 22,622 million was higher than the net profit of Q1 by about 10%. Now we will discuss the half-yearly performance. For the first half, gross sales were at INR 214,532 million, a growth of 11.6% over first half last year. Material cost for H1 was at 26.1% of sales, lower than H1 last year, mainly due to higher specialty sales. Staff cost stands at 19% of sales, higher than H1 last year on account of annual merit increase, consolidation of the Alchemee business, and expansion of the sales force in India.
Other expenses were at 28.4% of sales, higher than H1 of last year on account of higher selling and distribution expenses and consolidation of the Alchemee business. Forex loss for H1 was INR 958 million, compared to a gain of INR 35 million for the previous period. EBITDA for the first half was at INR 58,490 million, a growth of 7.2% over the first half last year, with resulting EBITDA margin of 26.9%. Net profit by H1 was at INR 43,231 million, up 7.4% over adjusted net profit of H1 last year. As of September 30, 2022, net cash was $1.6 billion at consolidated level and about $398 million at ex-Taro level.
Debt has increased compared to 31st March 2022, as we had temporary borrowing to fund the settlement of Ranbaxy antitrust litigation in the US, which was announced in March 2022. Let me now briefly discuss Taro's performance. Taro posted Q2 FY23 sales of $100 million, marginally lower over Q2 last year, and net loss of $2.8 million. For the first half, sales were at $287 million, up by 2.9% over H1 last year. Net profit for H1 FY23 was $11.3 million compared to $4.6 million in H1 FY22. Taro's financials include the consolidation of the Alchemee business. I will now hand over to Kirti Ganorkar, who will share the performance of our India business.
Thank you, Muralidharan. Let me take you through the performance of our India business. For Q2, the sales of formulations in India were INR 34,600 million, up 10.9% on like-for-like basis, excluding COVID product sales of Q2 last year. On reported basis, the growth is 8.5% over Q2 last year. For the first half, the sales were INR 68,471 million, up 11.9% on like-for-like basis, excluding COVID product sales of H1 last year. India formulation sales accounted for about 32% of the total consolidated sales. There were no COVID product sales in Q2 FY23. In terms of core business growth, we continued to witness good growth across multiple therapy areas in chronic and the sub-chronic segment for the quarter.
For Q2, the therapies which did well for us include CNS, gastro, gynecology, urology, respiratory, and ophthalmology. We continue to outperform the average industry growth, which has led to increase in our overall market share. As per AIOCD AWACS September 2022 MAT data, we are ranked number 1 in India, and our market share has improved by about 0.5% over the last 1 year to approximately 8.6%. As per SMSRC MAT August 2022 report, we are number 1 ranked by prescription share. Though Sun being a specialty company with limited coverage with GPs, we have become number 1 in terms of prescription share. In addition, Sun has a leadership position across 12 doctor specialties. For Q2, we have launched 32 new products in Indian market. We continue to increase our reach and access.
We are also focused on continuously increasing our share across key therapy areas and improving overall productivity. 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 Q2, our overall sales in the U.S. grew by about 14.1% over Q2 last year to $412 million. The main driver of growth was the specialty business driven by ILUMYA, CEQUA, and WINLEVI. U.S. accounted for over 30% of consolidated sales for the quarter. Specialty sales have also grown compared to June 2022 quarter. With new indication expected in the future, the current growth trajectory of ILUMYA would be sustained. With improving access coupled with geographical expansion into other markets, we expect WINLEVI to continue to grow. Our rep activities and doctor visits in the U.S. have reached pre-COVID levels. Globally, in all the new geographies where we have launched our specialty products, we have received good response and have done well.
Let me now update you on our U.S. generics business. While the U.S. generic business continues to be competitive as ever, the Sun ex-Taro generics business has recorded growth on a year-on-year basis.
This growth is driven by a combination of new launches, market share gains for existing products, and better supply chain management. For quarter two, we launched three new generic products in the U.S. market. 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 formulation sales in emerging markets were at $259 million for Q2, up by about 6.7% year-on-year. There has been a significant volatility in various emerging market currencies, which has impacted our reported growth. The underlying growth in constant currency terms was about 13%. Emerging markets accounted for about 19% of total sales for Q2.
Formulation sales in rest of the world markets, excluding U.S. and emerging markets, were $181 million in Q2, lower by around 3.8% over Q2 last year. Growth was impacted by adverse currency movement. ROW markets accounted for about 13% of consolidated Q2 revenue. API sales for Q2 were at INR 4,730 million, up by about 8.5% over Q2 last year. We continue to invest in building a R&D pipeline for both the global generics and specialty business. R&D efforts are ongoing for the U.S., emerging market, ROW markets, and for India.
Consolidated investments towards R&D for Q1 FY 2023 was INR 4,608 million, 4.3% to sales, while for Q2 FY 2023 it stands at INR 5,710 million, 5.3% to sales, and this compares to INR 5,364 million, 5.6% of sales for Q2 last year. We expect the R&D spend to gain momentum in coming quarters. This quarter, the total R&D spend for specialty product was 22% of our total R&D spend. Our current generic pipeline for the U.S. market includes 92 ANDAs and 13 NDAs awaiting approval with the U.S. FDA. Our specialty R&D pipeline includes 4 molecules undergoing clinical trials. Our R&D investments have increased compared to Q1, and we expect continued ramp up of the same.
R&D investments are likely to increase both for our specialty and generic businesses. With this, I would like to leave the floor open for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Just on the U.S. generics business first, the pace of ANDA approval as well as filing has kind of reduced over past couple of quarters. Despite that and even excluding specialty portfolio as well as Taro sales, the U.S. generic sales tracking well in USD terms. How sustainable is this growth momentum given that the price erosion is very much ongoing and our pace of approval/filing is kind of slowing down? It's my first question.
I would not say the pace of approvals is going down. I think in the last two, three years, we have made a very conscious efforts to look at the R&D portfolio and focus on only certain larger opportunities or products where we feel that, you know, we can hold on to a certain sensible level of pricing over the, you know, medium term, if not the long term. I think it is a strategic decision to focus on what products we wish to launch rather than focus on just sheer number of products. It's a conscious call that we took.
Awesome. Just on Revlimid, given that settlement is in place, any queries pending at our end?
I think we are on track to meet our obligations and launch.
Great. Just lastly on the India business, the pace of launches has been quite aggressive over the past few quarters. I mean, 13 in 2Q, about 20 in 1Q. Is there any rethink in terms of shift of focus from top brands to more broad-based approach?
Yes. Launching new products is one of our growth levers. What we are focusing is that how do we increase the contribution of new products to overall India business. As you rightly pointed in Q1, Q2, you have seen the large number of new product introduction because we have launched many antidiabetic products and their combinations. That is also helping us to grow the CVD business.
All right, sir. That's clear, sir. Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Hi, this is Prakash. Good evening, all. Hope I'm audible?
You're very clear, Prakash.
Thank you. First question on one of the core assets on ILUMYA for psoriatic arthritis. Primary endpoint showing March 2023. Given the R&D run rate has been slower than expected, are we on track for the primary endpoints for psoriatic arthritis? 2021 on psoriatic?
Can you repeat the question? I missed some.
Sure, sir. I'm asking as per clinical trials data, your primary endpoints for psoriatic arthritis clinical trial that is being done, that is expected to end by March 2023. Question was that given the run rate of R&D has been slower than expected versus guidance also, are we on track to achieve that primary endpoint? If there is an update to that.
I'm confused about your use of the terminology primary endpoint. Basically, what you are asking is whether we'll meet timelines or not, is what you're saying.
That's right. That is right, sir.
Because in context of clinical trial, primary endpoint means whether I will achieve the therapeutic efficacy based on which we will achieve the approval or not. No, I think we've in the past also indicated that there have been some challenges for us in the recruitment, especially in some of the geographies which are disturbed because of political uncertainty. We haven't worked out. We are in the process of working out the new schedule and timeline with the CRO.
What is the size of the trial, sir, recruitment, et cetera?
I think that trial size and everything, I don't have the detail, but that, wherever you got the details about the clinical trial, that would have the number of subjects and broad clinical trial design.
It does. It says 472 patients enrolled. I was just trying to understand what is the target that you have. I mean, is it like 3x higher, which is yet to achieve or it is nearing the target or?
No, I explained to you that we are in the process of working out the new timelines. I don't want to respond to a question with incomplete information and create unnecessary expectations.
No worries, sir. Okay, understood. Secondly is again related. As you are, you know, again mentioned that R&D is expected to scale up, while in the last few quarters we have seen that R&D because of obviously external reasons you mentioned. How do we see margins playing out once the R&D starts coming up? Is there any color to that given, you know, especially the scale-up in specialty has been pretty solid. The scale-up would be able to offset the R&D increase in cost. Just some color on margins would help on that context.
Generally we don't guide for what you call EBITDA and margins, but broad guidance is that our focus would be to find a way to improve our overall profitability. You would have seen over last few quarters is that we are consistently improving our overall profitability and EBITDA, and that effort will continue. We see opportunities to be able to do that.
Okay. Lastly, just to squeeze in, seasonally Q3, Q4 are stronger for the specialty business. Is that understanding correct?
It depends on the product. If you look at some of the derm indications, your understanding is correct. We also have products which are non-dermatological t here it does not.
Okay. Got it, sir. Thank you so much and all the best.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Th anks for taking my question. Abhay, my first question is on ILUMYA. I think in the opening comments you mentioned that the current growth trajectory for ILUMYA can be maintained with you know addition of new indication. But given the you know delay in psoriatic arthritis trial, how confident are we of growth in ILUMYA just for psoriasis till the time this additional indication we get approval for that and launch it?
Neha, I see significant opportunity and headroom to continue to grow even in the existing indication.
Okay. Even without, you know, psoriatic arthritis, we should be able to maintain the growth.
That's correct.
Okay. My second question is on WINLEVI. If I were to look at the prescription data, it does show, you know, moderation in the prescription trends, you know, in the last few weeks in WINLEVI. You know, just tying it up with the comment that you mentioned on increasing coverage, you know, how are you reading that? Are you seeing, you know, as the promotions roll off, traction picking up with doctors? You know, any color there would be helpful.
Neha, wait for one more quarter, and you will see that, you know, this is just a blip that is not to be expected to go into the future.
Understood. Okay. I shouldn't read too much into the slowdown that we are seeing.
No, I'm personally not reading too much into it.
Got it, sir. Last on gross margins. You know, there seem to be a fair bit of expansion quarter-on-quarter. You know, what drove this? I mean, product mix. I mean, was it any specific region where we saw improvement in gross margins? What's contributing to this?
Neha, we already said that it is driven by the highest specialty revenues and also product mix to some extent.
On a quarter-on-quarter basis, sir, also, sir?
Yes, yes.
Is it fair to assume that this level of gross margin is sustainable as specialty continues to grow?
We work to continue to maintain the efficiency in the business to maintain the margins. That's what we said. We have been consistently maintaining our EBITDA margins for the last 2-5 quarters.
Understood. Thank you so much, sir.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
T hank you very much, and good evening, everyone. Any update on Halol, especially given that, you know, FDA gave OAI status in August?
I mean, my understanding broadly, Sameer, is that, if you get an OAI, then depending on the FDA's expectation, we will continue to address all the observations and remediation effort. Most of the time they will revisit the facility before it becomes a VAI.
Okay. That means potentially it can take a bit more longer than what we had thought.
That's correct. I think with the OAI it would take longer than what we had thought. Yes.
Okay. Sir, second question is on Revlimid. Abhay, I got your comment, but the launch is expected in the current fiscal year, if you can clarify on that.
There are many ways to skin the cat. You are trying one more.
No, it's just that, Abhay, that there's already been market formation in the second wave and we've not seen some there, and hence the question. That's all.
No, I mean, all I will say is what I said earlier, we are on track as per whatever we have agreed to with the innovator, and fingers crossed.
Final question is on WINLEVI. Abhay, how is the progress with the reimbursement coverage and, you know, for such products, I know it takes time, but, you know, if you were to see one or two years ahead, what's the kind of a peak coverage that you can achieve?
Sameer, frankly, I don't even know how to define peak coverage. You know, what constitutes peak coverage, I don't know. But definitely you're right. I mean, it takes a little bit of time for the payers to start covering a product. We will see improvement. We are seeing improvement, and it's always work in progress. So I'm pretty confident that more payers will see the value that the prescriptions written by doctors are generating for them and help us to get the product on their formularies.
Okay. Maybe I can rephrase. Not peak, but say, a more mature. D o such products hit 80%-90% or do they?
Oh, no. I think 80%-90% you really should not even be expecting. It is not realistic, Sameer.
Okay. Much lower than. Got it. Okay. Thank you so much.
Thank you. The next question is from the line of Tausif from BNP Paribas. Please go ahead.
It's Sriram here. Firstly on R&D spend, that we are guiding for around 8% kind of R&D sales to happen in the future. Currently we are at more close to 5%. Do we have visibility on the R&D activities that in absolute amount it can go up by almost 50% from here on? I just wanted a clarity because, I mean, we have been guiding for this number, but it continues to be around 5% for several quarters now.
I think you're right. Even though on absolute terms it is going up, in percentage terms, it's not as per the guidance. I think we have guided that we expect the R&D spend in the next two quarters to go up.
Okay, got it. Secondly, on specialty, like at $200 million sales, I mean, is it possible to share with us we are EBITDA positive or negative now? Given the R&D spend is less than 10%?
We don't break down profitability by business.
Okay. Because R&D spend is like less than 10% of specialty sales. I mean, when any indication will be helpful, like when whether we are making positive EBITDA or not, that's it.
No, I mean, I wish to help you. I think that's why we are trying to give you as much information so that you can reconstruct. I think CS Muralidharan said that reason why cost of goods has gone down is because of the increase in the specialty business. I think we're trying to help you understand without giving specific guidance.
Okay. Got it. That's helpful. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hello, good evening. Three questions from me. One, if you could split the H1 FY 2023 India growth in volume, price and new introductions. That's one. The other two questions are related to specialty business. In specialty, you know, just wanted to understand what is the kind of, you know, front-end infrastructure that the business has created, maybe in terms of number of reps, in terms of, you know, divisions is, you know, some sense in that. You know, in terms of the target addressable prescribers, where are we? Have we probably reached 40%, 50%? You know, some shade on that would be helpful for us to understand the business better. Yes, I mean, these actually are the two questions from me.
No, on a lighter side, I think Kirti will respond, but maybe it will help me if you can do his review from next quarter. Kirti will respond.
No, I think you're asking for a level of detailed information that we generally won't share because this information is not only for investors, also potentially for competitors.
Okay. In both the questions, is it? Because I'm talking specific to India business .
I think the same really applies to the specialty business. We haven't really given any time, you know, the number of field forces and all that. No. Support organization. We really can't answer that question.
Okay. T hat's it from me.
Thank you.
Thank you. The next question is from the line of Vivek Agarwal from Citigroup. Please go ahead.
M any thanks for the opportunity. Sir, I have a question on the U.S. psoriasis biologics market, and there are two parts of the question. The first is, what percentage of the population that is on the biologics require to get the drugs administered in the medical setting or the self-administration is not a viable option for this patient population? Any qualitative color will be helpful here. The second part is, when there are a lot of self-administered drugs in the market, like majority of the IL-23, IL-17 inhibitors, then what are the factors or the reasons that are driving the patient to go for the drugs administered in clinical or the medical setting? Thank you.
T he first part of the question, if you're asking about the epidemiology, then I really don't know, you know, what percentage of the population is on some medically administered biologic. I don't have that data. The second part is easier for me to answer because there are specific doctors who prefer to inject in the clinic so that the second dose or the third dose of the patient also happens in front of their eyes, and they're able to see whether the drug has any impact or not. There are many self-administered drugs, no doubt, but there is a certain value prop that, you know, a drug like ILUMYA brings in, which doctors appreciate, like, and therefore they use it.
Okay. Understood, basically. Even the self-administered drugs are being injected or administered by the doctors in the medical setting. Is it right understanding to correct?
Actually, no. Because most of the, you know, self-administered drugs will have in-house, or at home usage. It is possible that during the first visit, maybe a nurse administrator or somebody in the doctor's chamber may teach the patient how to self-inject. Subsequently it will be at home use.
Okay. Thank you, sir. This is really helpful. Thank you.
Thank you.
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Hi. Congratulations on a great set of numbers, and thank you for taking my questions.
The first question I had was just if you could provide a broad directional view on Taro and the U.S. generics business in terms of if you're seeing this business kind of bottoming out or, you know, how we can view this going forward, say, in the next 1-3 years. How do you think about this business trajectory going forward?
Taro, beyond what Taro declares, I mean, on this earnings calls, we really don't take any Taro questions.
Would it be possible to provide, I guess, a broader commentary on the U.S. generics market in that sense, in terms of if you see pricing bottoming out or going?
For sure. I mean, overall, the generic market, I think it's been a few years since I'm hoping to see the bottom. I have not. I mean, I keep hoping, but now it's becoming like a faint hope.
Okay, thank you for that. My second question is on the specialty R&D. Given that it's come down, say, in the last 9 quarters from 26% to around 22% of your total R&D, what would be reasonable kind of level to assume on a steady state on your specialty R&D as a % of total R&D?
No, we will share with investors every quarter about how much is the spend. In the past, I think we've indicated that one of the reason why the spend has been lower is that clinical trial costs which were planned, we were unable to execute on those plans. I think the idea is to find a way to increase, and that's also possibly the reason for the delta between our guidance and our actual spend.
Okay, thank you so much and good luck.
Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Hi, thank you for the opportunity. My question is on other specialty brands ODOMZO , WINLEVI, CEQUA, et cetera. Can you update us, like, how these products are performing in terms of having better market access or prescription pick up, et cetera?
Product-wise, we haven't given much of details in the past, but CEQUA clearly I think I must mention that despite the launch of Restasis generics, pretty happy that we've been able to hold our own and actually grow the product in the current fiscal. So I think after ILUMYA, that would be our biggest product. Therefore, I think that commentary, I'm sure, would be useful to everybody on this call.
I would just like to ask about these product performance versus pre-COVID level, like are these products broadly back to what we had before the pandemic? Just like some qualitative color would be helpful.
All three products have grown year-on-year. Whichever period you look at, year-on-year or half-year to half-year or quarter-on-quarter, all three products that you mentioned have grown.
Okay. That's helpful. My second question is on operating costs. Except R&D, which you mentioned would likely catch up with progress in clinical trials for some products, how should we look at other pieces for the operating expenses? Because now you mentioned we have Alchemee costs included there, then most of S&M costs are back to pre-pandemic levels. Should we assume 2Q numbers are broadly now the new cost base, or?
The other expenses as you've seen in Q2 is somewhat the level at which we are today. However, as we said that we are not giving any specific guidance on other expenses or margins, since it also depends upon the overall ramp up we are having in the various markets as the markets are normalizing.
Okay. My last question is, are you done with sales team expansion for India business or still going on?
W e are done the expansion.
Okay. Whatever target you had set in is now in place and now focus is on ramping up the productivity.
Correct.
Okay. That's helpful. Thank you.
Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.
Thank you. I have two questions on specialty. The first one on ILUMYA. How much of a threat do you believe HUMIRA and STELARA biosimilars, which are expected to hit the market in 2023 and 2024 potentially? Second one is on WINLEVI. I think your past comments makes us believe that the gross to net is quite high. Do you see that improving next year? How should we think about that?
I couldn't get the second question.
Gross to net is quite high for WINLEVI.
The gross price to net price difference is quite high.
I don't think on any call we have spoken about the gross to net, so I don't know how you got that number from.
Your partner Perrigo's comments from their last earnings call is actually helpful in doing some basic calculation, and that makes us believe that gross to net is low. Do you see that improving? Some color on that would be helpful.
W hat they have said really I'm not aware, so I think I would defer it to them. You know? As far as I'm concerned, we had a certain business case which we are trying to meet and beat, and I think we are on track to do that. As per the first part of your question on, I think the biosimilars, I think it's too soon for me to comment. I mean, we have done our own modeling, looked at various scenarios of what can and cannot impact. But things in the U.S., unlike in Europe, are pretty fluid as when it comes to the uptake of biosimilars, and it has clearly not been as, you know, quick as what you saw in Europe and as rampant.
How these things will pan out, I mean, there is certain lack of clarity, even on my part and part of the overall branded industry as such. We have to always keep, you know, keep watching and keep recalibrating our own strategies to meet those challenges different when they arise.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Group. Please go ahead.
Hi. Thank you for taking my question. A couple of housekeeping question. Is there any PLI related benefit in the quarter for us?
Yes, it has been considered in the quarter.
Can you quantify?
No. We normally don't quantify such items.
Would it be material or?
From the overall scheme of revenue, I don't think that's revenue from operations. That's a material amount.
Secondly, if I see the cash flow statement, there is, on the provision side, we have some big outgo. Is it related to the Valsartan, Valganciclovir settlement that we did in Q4 ?
T hat is. You are right. That's the settlement amount that has been settled. That's why you see a downward revision.
Okay, our trade receivable has also gone higher vis-à-vis March. Any particular reason for that? Any particular geography from where it is coming?
As our top line and overall business has grown, which you've seen in the results, from a value perspective, I do agree that there will be an increase in receivables overall. Some number of days of increase at the group level, which we are looking at to further optimize.
Sure. The second question is on ILUMYA. We have been saying that it's currently in the growth phase. Is it primarily because of the way the economics of certain channels in the U.S. market work out, where you know we are benefiting?
I think doing well with a product in any geography is never dependent on one particular factor. I mean, it's a combination of all things. You know, launching a product in the right manner, sales, marketing, market access, medical. I think it's not just one reason which makes a product successful or unsuccessful. I would give credit to, you know, every department and function working together within the organization to really make the product grow.
Can you just help us understand our data exclusivity on ILUMYA till what year it runs to?
Talking about the IP?
T he IP.
No, I mean, we don't have exact number because there are many patents which we would have filed also, which are not publicly visible. So we don't wish to give any specific guidance on up to which period we expect exclusivity. However, if the question is with the view to understand potential, what you call competitive associations or things like that, then we still have a long time.
Sure. Sure. Thank you.
Thank you.
Thank you. The next question is from the line of Kunal Randeria from Nuvama. Please go ahead.
Good evening, and thanks for taking my questions. Abhay, the first question again on ILUMYA. There are several clinical papers that say that the prevalence of, you know, psoriatic arthritis in patients with psoriasis is much higher than what, you know, people had previously accepted. Assuming you do get approval in psoriatic arthritis setting, you expect the volumes to improve for your psoriasis setting also?
It will have some halo effect. I won't deny that. That, you know, there will be an increase because we'll have you know, new data to speak about. That itself helps with doctors. So to that extent, I think the halo effect will help us both in the existing indication as well as in the new indication. So I would agree with you.
Sure. Thanks. Secondly, see, while you did say that the US generics market remains challenging, but on the other hand, on the specialty side, you have been doing fairly well, and now you have a good infrastructure in place. From an R&D perspective, the fact that you're spending around 20%-25% of your R&D on specialty, in the next 3-4 years, should we expect the specialty contribution in R&D to increase meaningfully?
I think we've indicated that the specialty R&D, even today, if we were able to execute on some of the studies, would have been much higher than what it is today. It will continue to be an important component of our future investment.
Sure, sir. Just have to clarify, this assumes some maybe inorganic, you know, maybe move that you may make and acquire assets in derma, ophthal. Does it sort of bake this in your calculations?
What is the question?
My question, sir, is that, you know, since you said that, you know, specialty R&D will increase going forward, so are you also assuming that, you know, maybe three, four years down the line you'll have a lot more products, you know, by acquiring them?
No, I think whatever that I speak about is for business that we have. What we don't have, I can't plan for.
Okay. Got it, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead.
Thank you for taking my question. My first question is on WINLEVI. What caused the temporary blip in the prescriptions in 2Q, and you know, and what would basically you know, reverse that can aid in the growth going ahead? Basically the second question is that what proportion of sales are we now getting from repeat customers in WINLEVI?
I was waiting for you to ask the first question anyway. I mean, as I said, it's a continuous process, and I think if one quarter there is a not a significant growth in the number of TRXs, I mean, I watch it as carefully as, you know, you do, I mean, more than you do actually, because that's the only thing I do. I'm sure it's only a temporary blip. I think next quarter onwards we will see increase as we are used to. That's my personal sense. To the second part of your question, I think we have typically around a third of our customers who are regular users.
Okay. That's helpful. My last question is on R&D. We had given a guidance of 7%-8% of sales. After, you know, completion of half of the year, do we want to revise it down or do we still expect that, based on the pickup in R&D in the second half we will be closer to the guidance that we had given earlier?
I think our guidance is 6%-8%, and I think we're not changing the guidance at this point.
Sure. Thank you so much for taking my questions.
Thank you.
Thank you. The next question is from the line of Surya from PhillipCapital. Please go ahead.
Thank you a lot for taking my question, and, congrats for the great set of numbers, sir. A couple of quick questions, sir. First is that,
Sorry to interrupt you, Mr. Surya. The audio is not clear from your line, sir. Please use the handset mode.
Is it right? Am I audible?
Yes, sir.
Sir, a couple of quick questions, sir. First is that, on the when we are talking about the psoriatic arthritis indications for ILUMYA, so the target market would be for this indication will be similar to that of psoriasis or it is higher? Because some sense would be useful.
When you say target market, you're talking to, referring to doctors?
No. In fact, the potential of this indication in the U.S. market, if I say, compared to the psoriasis indication.
Psoriasis is definitely the larger indication. Now, depending on what data you look at, in the psoriatic arthritis in the U.S. I'm speaking, I do not know about other markets, can be something like, depending on what data you're looking at, anywhere from 20%-30% of the psoriasis market.
Okay. Thanks for that. Second question is on the overall margin trend, although you have commented something on it, but here I'm trying to understand this, that, this quarter sequentially, whatever the improvement that we have witnessed is obviously led by the specialty performance, despite of the Taro's underperformance, what we have seen. Believing that this specialty performance is likely to remain steady, and improving only, and we would obviously will, believing some improvement in the Taro going ahead. On the top of that, the Revlimid opportunity if we factor, then I think, the margin visibility, it looks really robust, much beyond 30% kind of margin profile. Any commentary on that, sir? How do you see it? If this understanding is right.
As we said earlier, no, we are not giving any guidance on that.
Based on what you say, we should all go on long holiday so that business will take care of itself.
Obviously not, sir. Of course. In the other expenses front, to some extent if I try to understand, the QOQ there is a decline. Despite that there is a normalcy in the overall operation across world post-COVID. There is an Alchemee addition and also the expanded operation generally is that we have seen. Despite that, we have seen a sequential means a reduction in the other expenses. How should we read this?
If you see the sequential of expenditure, I don't think it's a very material deviation.
No.
I will not read much into it.
Just a quick one. Since last few quarters that we have been seeing a kind of steady reduction in the debt levels, in this quarter there is a kind of a rise to the tune of around INR 350. Any specific reason or anything for that?
We have said no, we have taken a temporary borrowing for the settlement of the litigation readout.
Okay. Sorry, I missed that. Thank you, sir. Thank you for answering my questions.
Thank you.
Thank you. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Good evening, everyone. Thanks for the opportunity. My first question is on Alchemee, the business we acquired at Taro. When we made the acquisition, we had disclosed annualized revenue of around $165 million for the business in calendar 2021. I'm trying to understand if we are still tracking at those levels on an annual basis. I'm asking because there were a couple of years of decline prior to our acquisition. Trying to understand if the business is stabilized.
I think unfortunately we can't share anything beyond what Taro has shared. I don't think Taro has specifically shared the revenue numbers that were there in Alchemee before they acquired. I mean, we'll not be able to respond to specific questions which is beyond what Taro has shared in their press release.
Okay, sir. Next one is on the other operating income for the quarter, which is around INR 140 crores. We've seen a step up in the run rate there. Is it related to the PLI scheme approvals that we've been booking, this step up in other operating income versus FY 2022 run rate?
The other operating revenue step up is mainly the PLI. We have recognized the PLI accrual.
Okay. Last one. When I think about further product additions to our specialty business, can you comment a bit on the availability of potential licensing candidates in our chosen specialties, which is derma and ophthalm primarily? Are we pursuing some of those licensing opportunities if they are available? How or should we expect the next leg of product additions to come through our own organic R&D efforts in the specialty business?
You want to take it? No, I think, as everybody would inform you, that there is a potential opportunity to license or acquire product or companies. There is a fair bit of competition to acquire these assets. We need to feel comfortable with the potential value that we might have to give to acquire those assets. We will continue to look at those investment opportunities with a view to strengthen our portfolio.
All right, sir. Thanks for taking my questions.
Thank you.
Thank you. The next question is from the line of Ritvik Sheth from One-Up Financial. Please go ahead.
Hi. Good evening, sir, and thanks for the opportunity. I just have one question.
Mr. Sheth, sorry to interrupt you. The volume is very low from your line, so please increase.
Is this better?
Yes, sir. Thank you.
My question is on the tax rate. First half tax rate is about 7%. What should be going forward the tax rate for second half and FY 2024 onwards?
We have always said that please look at the tax on a full- year basis, and as per our internal working, we also expect it to go up, as we move forward.
Okay. It should be in the range of last year full year rate, right?
We are saying that it will inch up compared to the last fiscal full year.
Okay, fine. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I now hand the conference over to Mr. Nimish Desai for closing comments.
Thank you. A small update from our side before we end the call. Abhishek has joined us as Head of Investor Relations and will be taking over the IR responsibilities from the next quarter onward. For the next few months, both of us will work together for a smooth transition. It has been an absolute pleasure interacting with all of you. I'm extremely grateful to all of you for the support that you all have given to me for the past 10 years. Thank you, and have a good day.
Thank you.
Thank you.
Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.