Ladies and gentlemen, good day, and welcome to the Q4 FY 2023 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 Dr. Abhishek Sharma, Head of Investor Relations. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our fourth quarter FY 2023 earnings call. I am Abhishek from the Sun Pharma Investor Relations team. We hope you have received the Q4 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, CFO, Mr. Abhay Gandhi, CEO, North America, and Mr. Kirti Ganorkar, CEO, India Business. Today, the team will discuss financial performance for the quarter, business highlights, and respond to any questions that you may have. For ease of discussion, we will look at consolidated financials. The call recording and call transcript will also be put out on our website shortly.
The discussion today might include certain forward-looking statements. These must be viewed in conjunction with the risks 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, Abhishek, welcome, and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter and full year of FY 2023. Let me discuss some of the highlights. Financial year 2023 was a good year for us, with consolidated sales growing by 12.6% to INR 432,789 million, driven by strong performance across markets led by USA, India, Emerging Market, and Rest of the World Market, all recording double-digit growths. We posted EBITDA growth of 12% and adjusted net profit growth of 12.8% for the year. For the fourth quarter, consolidated sales were I mean.
INR 107,000.
Hundred and seven two five six.
Yeah, INR 107,257.56 million, recording a growth of 14.3% year-on-year, driven by global specialty, emerging markets, India, and Rest of the World markets. Let me now update you on our global specialty business. In FY 2023, we recorded a strong ramp-up in our global specialty sales, which were up by 29% to reach $871 million. For Q4, our global specialty revenue were $244 million, up by 31.7% year-on-year. This included a milestone payment of $6.8 million, received in Q4 FY 2023. Excluding the milestone payment, specialty business accounted for 18.2% of overall sales for the quarter. Specialty R&D accounted for 31.7% of our total R&D spend for the quarter.
On January 23rd, we announced the launch of Sezaby in the US for treatment of neonatal seizures. Abhay will give you more details on the specialty business later. I will now hand over the call to Murali for discussion of Q4 financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our full year and Q4 financials are already with you. As usual, we look at key consolidated financials. The full year FY 2023 sales were at INR 432,789 million, a growth of 12.6% over the same period last year. Excluding COVID product sales for the last year, overall sales were up by 13.9%. Material cost stands at 24.6% of sales, lower year-on-year, due to better product mix and higher specialty product sales. While stock costs as percentage of sales are marginally higher than last year, the increase in absolute value is on account of annual merit increase, consolidation of the Alchemee acquisition, and the expansion of the sales force.
Other expenses were at 30.4% of sales, is higher than last year, on account of higher selling and distribution expenses, higher R&D expenses, and consolidation of Alchemee business. Forex loss for the year was INR 1,261 million, compared to gain of about INR 1,540 million in FY 2022. EBITDA for the full year was at INR 116,468 million, a growth of 12% over the same period last year, with resulting EBITDA margin of 26.5%. Adjusted net profit for FY 2023 was at INR 86,450 million, up by 12.8% year-on-year. Reported net profit for FY 2023 was at INR 84,736 billion.
As of 31st March 2023, net cash was $1.5 billion at consolidated level, and $196 million at the ex-Taro level. Let me now discuss the Q4 FY 2023 performance. Gross sales for Q4 were at INR 107,256 million, up by 14.3% over Q4 last year. Material cost as a percentage of sales was 21%, significantly lower than Q4 last year, due to better product mix, including higher specialty sales. Stock costs stood at 20.3% of sales. Other expenditures stood at 34.2% of sales, higher than Q4 last year. The increase in other expenses is largely driven by continued normalization of sales and distribution expenses over the past few quarters. The normalization in other expenses happened to a large extent.
Forex loss for the quarter was at INR 272 million, compared to gain of INR 1,610 million for Q4 last year. EBITDA for Q4 was at INR 28,021 million, including other operating revenues, up by 19.7% over Q4 last year, with EBITDA margins at 26%. Reported net profit for Q4 was at INR 19,845 million. Adjusted net profit is up by 36.3% year-on-year, compared to adjusted net profit of Q4 last year. Reported EPS for the quarter was at INR 8.27 per share. Let me now discuss the key moments versus Q3 FY 2023. Our consolidated gross sales were lower by about 3.4% Q-on-Q, at INR 107,256 million.
Material costs at 21% of sales, lower than Q3 FY 2023, on account of several moving parts leading to change in product mix. Material costs as a percentage of sales should normalize going forward. Stock costs at 20.3% of sales were higher in absolute terms versus Q3 FY 2023, due to higher incentives and consort consolidation. Other expenses at 34.2% of sales were higher compared to Q3 FY 2023. EBITDA margin for Q4 was at 25.6%, compared to 26.7% for Q3. Reported net profit for Q4 stands at INR 19,845 million. Let me now briefly discuss Taro's performance.
Taro posted Q4 FY 2023 revenues of $146.6 million, higher by 2.3% over Q4 FY 2022, a net profit of $6.9 million. For the full year, FY 2023, revenues were $573 million, up 2.1% year-on-year, and net profit was $23.4 million, lower by 56.4%. Taro's financials for Q4 FY 2023 and FY 2023 includes the 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. Our India formulation sales for the full year, FY 2023, were INR 136,031 million, recording 6.6% growth over previous year. The underlying business has performed well, excluding the contribution of COVID product from previous year, the sales grew by 10.2%. For Q4, the sales of formulation in India were INR 33,641 million, recording a growth of about 8.7% over Q4 last year. India formulation sales accounted for 31.4% of total consolidated sales for the quarter. We continue to witness good growth across multiple therapy areas in the chronic and sub-chronic segment for the quarter.
Sun Pharma is ranked number 1 and holds 8.33% market share in the over INR 1,850 billion Indian pharmaceutical market, as per AIOCD AWACS MAT, March 23rd report. Corresponding market share for the previous period was 8.31%. As per SMSRC MAT, February 23rd prescription report, we are number 1 ranked company. Sun Pharma is also ranked number one by prescription, with 12 different doctor categories. For Q4 financial year 2023, the company launched 24 new products in the Indian market. I will now hand over the call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. business.
Our overall U.S. business grew by 10.3% to $1,648.4 million for the full year FY 2023, driven mainly by the strong performance of our specialty business. For Q4, our overall sales in the U.S. grew by about 10.5% over Q4 last year to $430 million. The main drivers of growth was the specialty business, driven by ILUMYA, WINLEVI, CEQUA, and LEVULAN. The U.S. accounted for over 33% of consolidated sales for the quarter. Specialty sales have also grown compared to December 2022 quarter. We remain excited on growth opportunities in the portfolio. Let me now update you on our U.S. generics business. Over the last year, this business has gained from a combination of new launches and market share gains from existing products.
Those gains were offset by full quarter impact of the import alert at our Halol facility. We launched generic lenalidomide capsules during Q4 FY 2023 in the US. For Q4, we launched 4 generic products in the US on an ex-WBU basis. I will now hand over the call to Mr. Chandru.
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 branded formulation revenues in emerging markets were at about $983 million for the full year, up by about 8.6% year-on-year. For fourth quarter, sales in emerging markets were about $221 million, up by 7.5% over fourth quarter last year. The underlying growth in constant currency terms were about 10% for year-on-year for fourth quarter. Emerging markets accounted for about 17% of total consolidated revenues for Q4. Amongst the larger markets, in local currency terms, Russia and Romania have done well.
For the full year, formulation sales in rest of the world markets, excluding U.S. and emerging markets, were about $752 million, up by about 2.7% over last year. On a constant currency basis, the ROW markets grew by 10.6% in FY 2023. For Q4, rest of the world sales were $191 million, up by about 7.4% over fourth quarter last year. Rest of the world markets accounted for approximately 15% of consolidated Q4 revenues. API sales for FY 2023 were at INR 19,724 million, up by about 7.5% over last year. For Q4, we're at INR 3,852 million, declined by about 6.9% over Q4 last year.
We continue to invest in R&D, building a R&D pipeline for both the global generics and specialty business. Consolidated investment towards R&D for Q4 FY 2023 stands at INR 6,657 million, 6%-6.2% of sales. This compares to INR 6,700 million, 6% to sales for Q3 FY 2023, and INR 5,433 million, 5.8% to sales for Q4 2022. Our current generic pipeline for the U.S. market includes 97 ANDAs and 13 NDAs awaiting approval with the US FDA. Our specialty R&D pipeline includes five molecules undergoing clinical trials. In the future, R&D investments are likely to increase both for our specialty and generic businesses. The board has proposed a final dividend of INR 4 per share for the year FY 2023.
This is in addition to the interim dividend of INR 7.5 per share paid in FY 2023, taking the total dividend for FY 2023 to INR 11.5%, compared to INR 10 per share for FY 2022. Lastly, on the guidance for FY 2024, we expect high single-digit consolidated top-line growth for FY 2024. All our businesses are positioned for growth. Ramp-up in our global specialty business is expected to continue. R&D investments will continue to be 7%- 8% of sales next year. 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 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. The first question is from the line of Chirag from DSP. Please go ahead.
Yes, sir. Thank you for the opportunity. Sir, as we look at our $870 million, you know, base on the specialty piece, what are the key products that you think will drive growth from here on over the next two to three years, you know, as we look at this business?
Abhay, would you like to respond?
Sure. I think the three major products for us, which can drive global growth will be obviously ILUMYA, CEQUA, and WINLEVI. When you talk about the time frame that you are talking about, we could also have other interesting products in the pipeline.
Understood, sir. Sir, is our specialty business at this, you know, $870 million number, is it EBITDA positive, significantly EBITDA positive? Just some color around profitability of this business will help.
I mean, you are aware that, business-wise, profitability numbers, we do not share, so really can't answer that question, Chirag.
Would it be fair to say that FY 2023 cost base for the specialty business has not dramatically changed over FY 2022, sir?
That would be a fair statement.
Understood, sir. One more question, if I can squeeze, sir. deuruxolitinib , do we think this is a FY 2024, FY 2025 launch, you know, event?
Product by second quarter, which I think because of the FDA hold on 12 milligram, we are relooking at what should be the exact date for us to be able to file. Based on that, we can then, once we have clarity, we will give you some guidance as to by what time we can come to market.
Okay, sir. Thank you so much for it.
Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi, thank you for taking my question. First one on the goodwill jump that we have seen of around $200 million from September to March. Could you provide some color there?
The goodwill increase is mainly because of the Concert acquisition.
Sorry, sir, I missed you. I think there was some connectivity issue.
Mainly account of the Concert acquisition goodwill increase, mainly driven by Concert acquisition.
As far as I see, there is also increase in intangible under development increase, which is roughly $427 million, which is roughly $576, minus the cash that they had.
As far as Concert is concerned, we have time to finalize the purchase price, accounting of one year. Based on the provisional purchase price accounting, there's a share in the goodwill and also the intangibles under development. That's why you see the increase in both.
Okay, sure. Would you provide any update on Mohali? You know, what is the situation there? It seems that we, from the press release, it looked like we are fairly confident of resolving the issue, but any timeline would you like to provide there?
What is the question?
Mohali, plant resolution, when we'll be able to restart the supply from that plant?
Yeah. What I think, we've already received the, what you call, EIR. We believe that in a gradual and phased manner, we should be able to start selling products out of Mohali.
Sure. If I can just squeeze in one more. I think in the opening remark, you said the gross margin, you know, would revert to a more sustainable level. Would you be providing any range, et cetera, where the gross margin could end up in the next year? Maybe what is the kind of one-off part that you see here?
Specifically, we are not guiding anything towards gross margins, or as you said, that the Q4 expression of gross margin...
... is mainly contributed by the change in product mix and higher specialty sales. There are many moving parts within this that have resulted in this decrease. As we shared in the readout, it will normalize in the personal sales going forward.
Sure. I have more question. I'll join back with you. 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 first question is, in fourth quarter, we have seen other operating income as well as other income, were substantially higher than what you booked in the previous quarter. Can you, like, explain, what has come in incrementally there? Also the milestone income of INR 6.8 million, which line item, it's going in?
As far as the other operating income is concerned, there are multiple moving parts, or it's related to the export-related incentives and other drawbacks we have. As far as the milestone is concerned, what we have, it is considered in the revenue.
Sorry, milestone is considered in? I just missed that.
Income. In revenues.
In revenues, okay.
Yeah.
ext question is, like, the durability update, where, like, your 12 mg strength has got a partial holdback from FDA. So, obviously you are evaluating opportunities, but if it doesn't come, do you think the opportunity size will remain similar if you just have to go by single strength instead of two strength? ``
We are, I think, evaluating a possibility where we might have to launch only 8 milligram. Our preliminary analysis indicates that even 8 milligram on a longer term basis, Of course, studies are different, but on different studies, has an overall response rate, much better than reported by competing products.
Okay. My last question, can you update us on phase three studies of ILUMYA in psoriatic arthritis? When the studies will be likely completed?
I don't have... I think what we indicated is that we will start guiding for what are the study timelines. Unfortunately, I think we are not ready with that information. Maybe from next call onwards, we could give clarity on what is the status of different studies as a part of the readout. I don't expect the ILUMYA, I mean, sorry, ILUMYA psoriatic arthritis study to get completed in this financial year. It may take a little bit more than this financial year to complete.
Okay, that's helpful. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi, thank you very much. A couple of questions on specialty side. One is, how does the annual price increase for these products filter down to your net realization? That's one. The second is on ILUMYA. Given the positive clinical outcomes for oral IL-23, you know, what could be the implication for your product?
Sameer, I'm trying to understand the nuance of your first question. When you say filter down to the net realization, what exactly do you mean there?
Yeah, what I'm trying to understand is, does it proportionately, you know, the rebates go out of that, or is it any different?
The price increase that we take for the specialty products, at least in the U.S., I can't answer this question on a global basis, is very nominal. When you talk about the rebating, it is very product specific to them. Working with every year that we retain or pass on, it's very product specific. I don't want to give a color saying that most of it we are able to retain or most of it goes back to the payers. It's like a moving parts.
Okay. Okay. I presume, some of that does come to the company?
Of course.
Okay. Okay, for the second one, sir?
What was the second question, Samir, if you can just quickly repeat?
Yeah, sure. On the oral IL-23, the positive clinical trial. I know it's four years or so away from any launch, if at all, I mean, you know, but how are you thinking about that?
I mean, the data that is coming out with the orals are positive. I think the injectable IL-23 clearly give a higher response. There is a place in therapy for the injectable, and especially when you have an injectable which is only four times a year administered by the doctor. We don't see a resistance from the HCPs for the use of injectable IL-23 in our product definitely.
Okay, now, that's great to hear, sir. quickly on REVLIMID, I think, Sun is the seventh or the eighth player to enter the market. as things stand, do you think it's a nice, good, lucrative opportunity, or, is it a lot diluted?
As of now, it's holding up. With more come number of competitors coming in during the course of this financial year, we have to, you know, observe and see what really happens.
Okay, great. Thank you. That's it from my side.
Yeah, thanks.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, hi. Good evening. Question on CTP-543. You mentioned that, you know, because of partial or 12 mg reevaluated, but 8 mg, just the clarification, 8 mg is on track to be filed by Q2?
Q2 is already over. We are studying the FDA letter, indicating the hold and evaluating what is the best way for us to progress with the filing. That is where we are. I think we are. It gives us an opportunity to relook at the data in terms of 12 milligram and what are the differential side effects and all of that. I think we want to find a way to file the product in such a way that we still have an opportunity to get both the strengths approved.
Okay, if I get about that correct, 8 mg also you are relooking with respect to the pros and cons of 12 mg?
I think if you see our release, I think what Agency asked us to do was to move all the patients of 12 milligram to 8 milligram.
Okay.
Based on the experience and long-term safety study, which we already have, where some of the patients have been on treatment over multiple years, it kind of looks like a very safe product.
I'm trying to understand the filing time period for 8 mg, sir.
I think we, what we are trying to do is, we are trying to see whether we want to only file for. Because you can't file for one strength and then file for another strength.
Okay, fair enough. Got it. Understood. Secondly, on India business, we had, you know, added some sales force. I see the growth, but what we pick up from the channel is volume growth is really tepid.
Hello? No, what he's saying.
We lost you.
Yeah.
You can hear us?
Participant has left the question queue, sir. The line has dropped.
Let him come back, then we'll explain. Yeah.
Yeah. In the meantime, yeah, let's move to the next.
The next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Sir, thanks for the opportunity. Well, due to the concern, we have a high R&D cost. That has impacted the consolidated EBITDA margins. Sir, any guidance for the same?
I think we are on the lower end of the overall R&D guidance. What is the question?
Sir, actually, last quarter, there is a 100 basis points impact on the margins on the consolidated basis due to the higher R&D on the Concert, sir. Just try to, just throw some light on it.
I think when we are looking at numbers, we don't see what you are asking. I think it's best that you separately speak to Abhishek and get the details clarified.
Thank you, sir.
Thank you.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just one update I wanted on the ongoing molecule, five molecules, which is there in the pipeline. Last quarter, we had indicated that we'll come up with some more additional update on this. Qualitatively, just wanted to understand, in next one or two years, can we see or do you see, at least one or two sizable products coming to our specialty basket from this five molecules? At least if you can, you know, share us in terms of size of opportunity on the molecules you're working on currently.
I think indicated that we were to share the development timeline for all these innovative products, and what is the plan that we have for these products to be brought to market. Unfortunately, we couldn't do that this quarter. We will start doing it from next quarter, so that you as a part of our readout only.
Sure, sure. Lastly, last quarter, we had indicated that we had in India portfolio, we had some, challenges in our, gastro portfolio. Any update on that? Do we continue to feel, have that challenge, or, have you worked on that please?
Sure, sir. In the last call, what we said is both in gastro and ortho portfolio, we are seeing some challenges. Now, it's too early to say, but we are seeing some improvement in this quarter. Maybe we'll be able to update you better after two or three quarters.
Definitely. Okay, thank you so much, sir. That's it.
Thank you.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Hi. Sorry, I got dropped. On the India business, my question was, that, you know, in the market level, are we seeing, you know, volume coming down quite a bit over the last two, three years? If so, what are the changes, actions we are taking, apart from the field force addition that we have done, and also the field force count, please? Thank you.
Sure. I would, let me try and help you out. Like, say, if you look at the IQVIA data for March 2023 MAT data, the volume growth for the industry is almost 0 or -0.5%. To compare to that, Sun's growth is about 11%. If you divide this 11% growth into three buckets, the 6% growth is coming from the unit growth. That is a pure volume growth. Two percent of the growth is coming from new products for us, and the 3% growth is due to price increases. When we compare Sun among all our peers or the top 10 companies, I think our volume growth is one of the best.
There are one or two companies which are like Sun only, but most of the other players, they are not growing by even 6% in volume. I think we are well-placed, and this is also a reflection that we are able to generate the prescription in the market.
Any commentary on the new product launches, like, you know, we are not among the top 5, top 10 also, I think, in the new range of, DPP4, the gliptins, et cetera.
No, that's not correct. I think we are the leader.
I think, you don't see our product in new because we already have these products.
Yeah.
We have
If the brand, but the volume and price both would have come down, right?
I think price, we're competitive, but I think volume has gone up significantly.
Just to give example, like Istavel Istamet in terms of volume in both sitagliptin and sitagliptin metformin market, we are number one.
In unit.
In unit terms. Yeah. In value term, we're not, because we have reduced the price post-patent expiry. Yeah. After the post-patent expiry, we have launched a good number of combination products, which will also help us to grow this franchise.
Okay. Lastly, the field force count, sir?
Sorry to interrupt you, Mr. Agarwal. May we request that you return to the question queue for follow-up questions?
Just wanted to know the field force, please.
Please go ahead.
Yeah. Just the field force number, sir.
Field force, we are close to around 10,000 field force, yeah.
This is despite adding the last year, 1,000+ ?
Yeah. See, expansion is a part of our strategy, so we continuously keep evaluating territories where we can add MS. That's a part of our strategy only.
So ten thousand-
Market dynamics are changing.
Yeah.
Consultants are now starting to practice from smaller cities and towns, and we need to find a way to reach out to these people.
Okay, got it. Perfect, thank you and all the best.
Yeah.
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Thank you for taking my question. My first question is on the debt and the balance sheet. Could you just provide some color on why we've seen an increase in the debt and how you sort of see this going forward?
The debt in the balance sheet increase is mainly due to the bridge funding for the Concert.
Okay. on the... Can you provide the number for the interest income for FY 2023?
Interest income? We are talking about interest income or interest expense?
Interest income.
We will get back to you on the specific number.
Sure. Lastly, I just wanted to ask if you could provide a number for the full year ILUMYA sales?
We're not giving product, is it?
Yeah, we don't, we are not providing ILUMYA as a number.
Since last time.
Okay. No, I just asked because we used to get that annual data, so.
We will continue with whatever the practice is. If we were giving, then we will share that number.
Okay, I can take that separately. Thank you.
Thank you.
Thank you. The next question is from the line of Bino Pathiparampil from Elara Capital. Please go ahead.
Hi. Thanks. Most of my questions are answered. Just one clarification on REVLIMID. Has that significantly contributed to your Q4 numbers, or would it be significant in Q1?
For quarter four, it was a significant contributor.
Okay, thank you.
Thank you. The next question is from the line of Punit Pujara from Helios Capital. Please go ahead.
Yeah, hi. Thanks for taking my question. My question was on Concert. Via Concert acquisition, we have got a DCE Platform. Do you wish to continue developing the deuterated products through this Platform?
I, as on today, I think our primary interest was in deuruxolitinib, and we are potentially looking at additional indications of that product in different indications. We have no immediate plan of working on deuteration as a platform.
Sure, sir. That answers my question. Thanks for taking question, I enjoy making it with you.
Thank you.
Thank you. The next question is from the line of Cyndrella Carvalho from JM Financial. Please go ahead.
Thanks for the opportunity. Just wanted to understand on the India piece, would we continue the similar growth that we have reported in FY 2023, or do you see opportunities to calibrate this growth further?
No, no, I think, what we have said in the past also, it's very difficult to forecast what will be the growth in the coming years. Whatever is the market growth, India business, we want to grow in line with the market or slightly better than the market. That will be our effort line.
We would have some benefits of the new added, MR force also, right, in terms of FY 2024? Is that a correct understanding?
Yeah, yeah, that's correct.
On the US piece, I mean, earlier participant also asked for the ILUMYA number. If you would want to share, that would be helpful. However, if I look at the gross margins, I'm just trying to clarify this again. Is that because largely our mix was tilted towards specialty business, and that's the reason we saw this gross margin? Would that be a correct statement?
What we have said is that in Q4, the expansion of margins was contributed by, of course, higher share of specialty, but there were also other parts leading to the product mix. Both are contributor. It's not only higher specialty sales.
Okay. Sir, in terms of the overall growth of specialty business in the U.S., ILUMYA will continue to be the major driver. How do we see CEQUA and WINLEVI for at least coming two years? How is the ramp up? If you could help us understand some nuances there, would be helpful.
All the 3 products that you have mentioned will contribute to our growth. However, in absolute dollar terms, I would expect ILUMYA to be the largest contributor to the growth.
Any, any color on how Sezaby is expected to pan out, any patients, I mean, in terms of neonatal coverage, anything that you would like to share, sir?
Sorry, I, you know, voice was a little patchy for me. Were you referring to CG-B?
I was asking to, some understanding on the CG-B product, sir, in terms of the market formation, how are we taking up, the coverage?
It's a niche market, and I, it's a niche market, obviously it will not be on the same scale as, let's say an ILUMYA. In that niche, it's a very interesting product. We are right now in the process of going, literally hospital formulary by hospital formulary, trying to sell the concept, you know, of our product being the only FDA-approved product and trying to get a buy-in from those. It will take some time, and it will ramp up, but the scale is completely different from a much larger opportunity, let's say ILUMYA or CEQUA or WINLEVI. This is a niche play.
Okay, that we understand, sir. On the WINLEVI side, sir, anything on the coverage side, do you want to highlight, how are we seeing it?
It's improved in the last quarter, and of course it's, you know, always a work in progress, and we hope to continue to improve the coverage even further during this financial year.
Thank you so much, sir. All the best.
Thank you.
Thank you. The next question is from the line of Chirag from DSP. Please go ahead.
Yeah, thank you for the follow-up. Sir, our other expenses are, you know, almost INR 500 crores higher than the past averages. Is there anything specific you want to call out over here? Is this run rate something that we should, you know, see as a sustainable number?
We have said that our expenses is triggered by the higher selling and distribution expenses. Of course, from the year-over-year quarter on consolidation, Alchemee business also is there. What we said that we are almost reached to normalization to some extent. With the growth in operation, some of our expenses will incur towards the growth. I think, we are almost near there.
There is no one-off in the other expenses?
No, there is no one-off as such.
Understood, sir. Sir, second question was on this, in the notes to accounts, there is a INR 164 crore impairment related to an associate. Can you just provide some color around what exactly this is, sir?
This is regarding an impairment of a loan and advances given to an associate. We are actively monitoring the progress of this. The total package we have provided for it.
Can we quantify the total outstanding as far as for towards this transaction, sir?
So when I-
Have we 100% of what we have?
We do not want to comment on the total outstanding or total thing. We have taken based on the current understanding of the impairment provision as required.
Understood. Just if I can squeeze one more question, sir. This heightened R&D that you are guiding towards, it's almost INR 1,000 crore higher than the current, you know, annual run rate. I mean, I'm just trying to think, what is it that you are kind of, you know, thinking about in terms of INR 1,000 crore, you know, $125 odd million seems like a fairly large number, even for specialty business. Just what is it that you are kind of baking? Are you baking in incremental products like Concert's products, et cetera, as well in this? Or, just what is your thought process around this, you know, incremental INR 1,000 crore kind of R&D budget?
I think, like what you identified, Concert R&D would be clearly contributing to a part of that increase.
future products as well, if at all, you end up, you know, acquiring more.
we decide to develop additional indication.
For your existing products?
No, even a deuruxolitinib.
Yeah.
Understood. Do you expect this to kind of come through in, like, a year or so? I mean, in one full 12-month period, you will see this activity just, you know, go up to that kind of level?
No, I think my sense is that some of the clinical studies for ILUMYA will start recruiting rapidly during this year. At the same point of time, we may start additional studies for our GLP-1, as well as the Concert product. All of that, I think, there is a much more clearer visibility of why and how this cost will go up.
Understood. Okay, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question. Abhay, one clarification on WINLEVI. You mentioned that the, you know, coverage has improved in the quarter, and it's gradually, you know, picking up. If I were to look at the prescription data that is available, you know, WINLEVI has been sort of, you know, broadly, you know, been in the range of, what we have seen for the last couple of months. You know, how should we look at, you know, improvement in prescription for, WINLEVI, and is it tracking in line with your expectation, better than your expectation? Are you seeing any challenges in ramp-up, any color there?
What you're seeing is the outcome, and if you are tracking the prescriptions, with the improved coverage and also the change in the co-pay, these are far more valuable prescriptions than what we saw earlier.
Mm-hmm. Okay.
The coverage has improved. It is like part of the co-covered population, right? It's.
Yes.
In some cases, other patients still remain. When you make the co-pay change, prescriptions will sort of let go for some time. With improved coverage, I think the idea is to grow the prescriptions from its current.
Yes. When do you start seeing that in numbers? You know, now you've seen that come off, the prescription come off, as we, you know, change into the co-pay. Coverage is improving. In your view, when do you start seeing the benefit of the improved coverage in prescription numbers, you know, stepping up from the current run rate? Is that two quarters away?
We have.
Three quarters away, take longer?
I don't think it should take that kind of time. In fact, in our budgeting, I mean, we are expecting it to happen early.
All right. All right. You know, any challenges in terms of...
Q2, Q3 in mind, I would be happy.
Okay, understood. We're not seeing any challenges in our ability to get more coverage for the product, you know, that's not a concern?
It's a challenge. I mean, it's a process that we have to go through, keep explaining to the payers why it makes sense for them to cover this product. I mean, getting coverage for any product is always a challenge, and it's a challenge that we are expecting to meet.
Thank you. We'll move on to the next question from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. Most of the questions have been answered. Just, if you could quantify the PLI benefits, which has been there for this quarter.
normally, we do not quantify any type of incentives or grants what we receive as part of our achievement of the targets or scheme-related investments.
Okay. This would be in other operating income, right?
Our other operating income, yeah. All what I want to say is that, this has been consistent between Q4 and Q3.
Got it. Just on the guidance, while, you know, the specialty sales continues to ramp up nicely, even we continue to outperform in the domestic formulation markets and emerging markets, and ROW also continue to grow at a robust double-digit growth. So what's holding on to guide for a single-digit growth for FY 2024?
No, I think it's after evaluating all the businesses upside as well as downside, and taking a conscious decision that we want to share a number which has a certain element of stretch, but at the same time, a certain, what you call, possibility for achievability. We don't want to kind of take a number far out and then say that we can't deliver on the number. At the same time, we don't want to give a lowball number and overperform.
Sure, sir. In fact, REVLIMID also would be having a full year impact and few certain niche launches as well. That's the reason why I asked the question.
Yeah, I mean, I understand, but we've also shared with you that Halol, we will have certain challenges in terms of being able to sell products. We've also said that Mohali, we will gradually start reintroducing products. I think all of those things have potential negative. That's factored in our guidance.
Sure, sir. Just lastly, if I may,
It's an achievable guide.
Sure, sir. Sure. While there was import alert at Halol, that time we had mentioned about the sales from that facility. On the similar lines, given the kind of regulatory action that has happened at Mohali, would it be possible to quantify how much was the sales and how much has that been got disrupted because of the recent regulatory action?
I think we actually ourselves are not clear, so we are not giving a separate guidance on that. We don't know by what time, what products we want to bring back. We might be able to protect the entire business also. I don't want to kind of come up with a number which then has no relevance.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Outlook, given the challenges we've had this year, I mean, how are you seeing the outlook for our business over the next two to three year period on a qualitative basis? Given the fact there is some talk about the markets destabilizing, prices and situation improving at the margin in the overall US market?
No, I think, Abhay, would you like to respond? I couldn't fully hear the question.
No, same here. I also couldn't really understand the question.
basically, I was trying to say.
Generic side of the business?
The generic side of the business, yes.
Specialty. I couldn't get it.
The generic side of the business, Abhay.
Could you reframe your question, please? I'm really not sure what was asked.
I was just trying to ask is, given the fact that we've had challenges this year in the generic business, but at the same time, you know, there are some positive signs in the market stabilizing from a pricing perspective in general. Given the fact, with whatever pipeline that we have, you know, about 97 odd ANDAs awaiting approval, qualitatively, you know, where do we see the generic business headed over the next, you know, couple of years for us, given where we were in FY 2022, 2023?
I don't see the price stabilization that you are speaking about. And not just from some perspective, but also from an industry perspective. I don't see that. I think your, that basic assumption is probably incorrect. In the overall context, I think, if I look at the market in general, it's a low growth or a degrowth kind of a over generic business in the U.S. Volume growth is there, but value growth I do not see from an industry perspective.
Okay. Okay, bye. Second question. On the sir, on the acquired assets like Concert, the Concert business, what is the typical account the amortization policy to be followed, sir?
Murali, can you respond?
Normally, it depends for the class or type of asset, varies life, economic life between 8-15 years.
... even for patented clinical assets, which will be taking such a long period of amortization, sir?
That will also driven by the patent expiry, that one factor we consider.
Okay, sir. Thanks.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah, thank you for this opportunity, sir. First question is to understand the cost equation better. Sir, the first whether the remediation spend on the two facilities, which is under observation, so whether that expenses are fully factored in the quarter?
The incremental expense for remediation is broadly been already factored in the quarter.
Okay. So practically, the question was that we have seen already kind of upswing in the gross margin, which also to some extent supported our margin this quarter. For future going ahead, we are guiding for a kind of enhanced R&D spend, 200 basis points- 300 basis points from the current year base. We are also indicating that the gross margin scenario is likely to be normalizing going ahead. I'm just trying to understand how the profitability should be for FY 2024. From that perspective, my first question would be that how should one really see Taro's performance in the subsequent period?
It has been very subdued in the current financial year, and possibly that could play a kind of a margin boosting trigger. If you can share some idea about it, and how should we really look at it?
I think we don't guide for overall profitability because there are so many moving parts. At the same point of time, some of your points about increase in some of the costs that we are guiding for are valid. Finally, your question about Taro.
Yeah.
I mean, if I see the Abhay statement about overall competition for pricing, dermatological products that Taro currently markets has the highest level of new entrants and new competitors coming. It will continue to see significant price competition going forward.
Okay, my second question, sir, on the India formulation business. Generally, having seen a kind of a consistent performance during difficult times of last 2 years, most of the players have either expanded their field force, enhanced their market presence, product basket, all that. That is, in a way, has the intensified competition, I believe. Here we have expanded our field force as well, and we have penetrated in the existing product basket better. If you can give some sense versus FY 2022, in FY 2023, how the profitability would have changed? Not any specific number, but qualitatively also, if you can share something in this.
Specifically on the India business, our business-based profitability, we do not comment as such.
Sorry, sir, I missed your last statement.
What I said is that business-wise or segment-wise, profitability normally we do not comment.
Okay. Okay. That means the full field force expansion cost has been reflected in the last year numbers.
Yes, it has been reflected.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Dr. Abhishek Sharma for closing comments.
Thank you everyone for joining us at this late hour. If you have any remaining questions, you may write into me, and we'll be happy to respond to your remaining questions. Thank you, have a good weekend.
Thank you.
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 lines.