Ladies and gentlemen, good day and welcome to the Q2 FY 2022 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. I would now like to hand the conference over to Mr. Nimish Desai, Head of Investor Relations. Thank you, and over to you, Mr. Desai.
Thank you. Good evening and a warm welcome to our second quarter FY 2022 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. C. S. Muralidharan, our 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 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, Nimish. Welcome and thank you for joining us for this earnings call after the announcement of financial results for the second quarter of FY 2022. I hope you and your family are safe and healthy. Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR 95,567 million, recording a growth of about 13% year-on-year. All our businesses, excepting the API business, have grown year-on-year. Compared to Q1 of this year, sales have grown by about 2%, excluding the contribution from COVID-related products in both the quarters. Let me now update you on our global specialty business. For Q2, our global specialty revenue was approximately $157 million across all markets. This includes $10 million in sales milestone for two of our specialty products.
The global specialty sales do not include ILUMYA end market sales. ILUMYA has grown on year-on-year and quarter-on-quarter basis. It continues to gain traction in both the U.S. and other markets. We have recently announced the availability of ILUMYA in Canada, adding one more market to Global ILUMYA Franchise. We've also launched WINLEVI in the U.S. recently. Specialty R&D accounted for approximately 28% 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 Murali for discussion of 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. Q2 sales are at INR 95,567 million, up by about 13% over Q2 last year. Material cost as a percentage of sales was 26.4%, which is higher than Q2 last year due to product mix and geography mix. Staff cost stands at 18.9% of sales. Other expenditure stands at 27.1% of sales. Increase in absolute value is attributed towards higher selling and distribution and traveling expenses, while in Q2 of last year, these expenses were lower on account of global pandemic. As indicated in our past earnings calls, the expenses are seeing an increasing trend across all the markets as we reach full normalization.
Forex loss for the quarter was INR 764 million, compared to a loss of INR 1,164 million for Q2 last year. EBITDA for Q2 was at INR 25,608 million, up by 21% year-on-year, with resulting EBITDA margin at 26.8% compared to 25% for Q2 last year. Reported net profit for the quarter was at INR 20,470 million. Excluding the impact of the exceptional item for Q2 last year, the net profit is up by about 29% year-on-year. The reported EPS for the quarter was INR 8.5. Let me discuss the key movements versus Q1 FY 2022. Our consolidated sales were lower by about 1% quarter-on-quarter at INR 95,567 million, primarily due to lower sales of COVID products in India in Q2 FY 2022.
Excluding the COVID-related sales in both the quarters, our top line has grown by about 2% sequentially. Material cost stands at 26.4% of sales, which is lower quarter-on-quarter on account of product mix and geography mix. For Q2, staff costs were at 18.9% of sales, while other expenses were at 27.1% of sales, both marginally higher than Q1. We had a ForEx loss of INR 764 million for Q2 as against ForEx gain of INR 799 million in Q1. EBITDA for Q2 stands at INR 25,608 million, which is lower by 8% compared to Q1, mainly driven by the ForEx movement. Reported net profit for Q2 was at INR 20,470 million.
Excluding the impact of exceptional item for Q1 this year, the net profit is quarter-on-quarter. Now we will discuss the half-year performance. For the first half, net sales were at INR 192,262 million, a growth of 20% over first half last year. Material cost for H1 was at 26.9% of sales, which was higher than H1 last year, mainly due to product mix. Staff cost stands at 18.5% of sales, lower than H1 last year. However, in absolute terms, they are on account of annual wage increases and increase in field incentives. Other expenses were at 26.8% of sales, lower than H1 last year.
However, in absolute terms, the other expenses have increased on account of higher selling, distribution, and traveling expenses, while in H1 of last year, these expenses were lower on account of pandemic-related lockdown across markets. Increase in R&D expenses has also partly contributed to higher other expenses. As a result of the above, the EBITDA for the first half was at INR 53,327 million, a growth of 38% over the first half last year, with resulting EBITDA margin of 27.7% compared to 24.2% for H1 last year. Excluding the exceptional items, adjusted net profit for H1 FY 2022 was at INR 40,262 million, up 47% year-on-year. Reported net profit for H1 FY 2022 was at INR 34,912 million.
The company has repaid debt of about $209 million in H1 of the current fiscal. Over the last six quarters, we have repaid debt of about $790 million. As of 30 September 2021, we continue to remain net cash positive even at the ex-Taro level. Let me now briefly discuss Taro's performance. Taro posted Q2 FY 2022 sales of $132 million, an adjusted net profit of about $25 million, lower by 10.2% and 40% respectively over Q1 FY 2022. On a year-on-year basis, sales for Q2 FY 2022 were lower by about 8%, while the adjusted net profit was lower by about 45%.
Lastly, I would like to draw your attention to a news report published in a section of the Indian media today alleging that a complaint has been filed in the U.S. Securities and Exchange Commission related to Sun Pharma's offer for Taro shares. Sun Pharma strongly denies all the allegations made in the news report. Neither Sun Pharma nor its subsidiary, Taro Pharmaceutical Industries Limited, have received any communication from the U.S. Securities and Exchange Commission or from any other regulatory agency on this matter. Therefore, we have no further information to share at the moment, and we will not be discussing this matter in today's earnings call. I will now hand over to 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 Q2, the sales of branded formulation in India were INR 31,878 million, recording a growth of about 26% over Q2 last year. India business accounted for about 33% of consolidated sales for Q2. We have maintained the trend of the past few quarters of outperforming the average industry growth. Sun Pharma has increased its market share in Q2 compared to Q1 of this year and also over Q2 last year. As per AIOCD AWACS MAT data for September 2021, our market share has increased to 8.1% compared to 8% of June 2021 MAT data. We have witnessed growth across most of our therapies.
The growth was driven by the combination of factors like improving the demands for non-COVID treatments, which is driving the growth in chronic semi-chronic segment, peak monsoon season leading to higher demand for anti-infectives, cough, cold medication, improved patient flow to doctor's clinic, and increased healthcare awareness. Sales of product used in treating COVID symptoms and other associated product accounted for approximately 2% of India's sales for Q2 compared to about 8%-10% of India's sales for Q1 this year. I am happy to announce that we have recorded a strong growth in the underlying base business excluding COVID product sales. Field force operations were near to normal in Q2 with almost all doctors clinic operationals. The new sales force has started contributing and is already on the ground engaged in the field work.
Travel costs for the medical representative is near to normal while we continue to see some savings in terms of the cost of medical conferences. For Q2, we have launched 28 new products in the Indian market. Sun Pharma is the largest pharmaceutical company in India, and as per SMSRC report, we are No. 1 ranked by prescription with the 10 different doctor categories. We also continue to remain the partner of choice for in-licensing product given our strong position No. 1 in many therapy areas, including therapies for treatment of 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 Q2, our overall sales in the U.S. grew by about 8% over Q2 last year to $361 million. The main drivers of growth were the specialty business coupled with the Sun ex-Taro generics portfolio. U.S. accounted for about 28% of consolidated sales for the quarter. Our specialty revenues in U.S. have grown over Q2 last year, mainly driven by ILUMYA, LEVULAN, ODOMZO, CEQUA and ABSORICA LD. Specialty sales are slightly lower compared to June 2021 quarter. While ILUMYA has grown quarter-on-quarter, ABSORICA sales have declined as expected due to generic entry. We also witnessed a slight decline in LEVULAN sales compared to Q1 FY 2022 due to some temporary supply constraints which are in the process of being addressed.
Further, ILUMYA and CEQUA grew by about 70% and more than 100% respectively on an annualized basis for September 2021. Quarter two is typically a soft quarter for dermatology products. In addition, there was a surge in COVID cases in the U.S. While doctor clinics have been open in the U.S. during the quarter, the situation is yet to fully normalize. Patient flow to doctor clinics as well as frequency of doctor calls by our medical representatives are both still below pre-COVID levels. You would have seen our recent announcement of launch of WINLEVI in U.S., an anti-acne specialty product. WINLEVI is a new class of topical medication in dermatology and will complement our existing oral acne portfolio. The addition of WINLEVI further strengthens our position in the acne segment.
The nature of the acne market is such that there is a room for a new product, especially with a new mechanism of action which WINLEVI has. It is for the first time that an androgen inhibitor will be used for treating acne. Our established presence in the acne market will help in ramping up WINLEVI going forward. Let me now update you on our U.S. generics business. While the U.S. generics business continues to be competitive, the Sun ex-Taro generics business has recorded growth on a YOY basis. This growth is driven by a combination of new launches and better supply chain management. 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 $243 million for Q2, up by about 16% year-on-year and 12% higher on Q1 this year. The underlying growth in constant currency terms was about 14% year-on-year. 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 $188 million in Q2, up by about 5% over Q2 last year and 1% over Q1 of this year. Rest of the world markets accounted for approximately 15% of consolidated Q2 revenues.
API sales for Q2 were at INR 4,358 million, lower by about 15% over Q2 last year, mainly due to lower opiates revenue. We continue to invest in building a R&D pipeline for both the global generics and the specialty businesses. R&D efforts are ongoing for the U.S. emerging markets, ROW markets, and for India. Consolidated R&D investment for Q2 were at INR 5,364 million compared to INR 6,127 million for Q2 last year. The year-on-year decline is due to spillover of some clinical studies into subsequent quarters. Our current generic pipeline for the U.S. market includes 88 ANDAs and 13 NDAs awaiting approval with the U.S. FDA. With this, I would like to leave the floor open for questions. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question 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. The first question is from the line of Prakash from Axis Capital. Please go ahead.
Yeah, good evening, and thanks for the opportunity. First question is actually a clarification. U.S. business ex-Taro, what I heard right was it was a growth Q&Q led by new launches and better supply chain management. If you could highlight more, which were these new launches? Because I understand the market is very competitive, and there's a huge pricing pressure that is happening. Did we have any big product launch?
We had six new product launches in the U.S. in the last quarter, and of course, with the help of the supply chain and the production and quality and R&D teams, we ensured that most of our products remained available to the levels that we wanted them to, so we could look for businesses and keep our existing business continued.
Okay. The idea here.
Prakash, this is Nimish here. What Abhay had indicated in his opening remarks was that Sun ex-Taro generic business has recorded growth on YOY basis. There was no mention of QOQ.
Okay. If some outlook can be shared, that would be great on the U.S. generic business. I mean, what is on ground pricing pressure? Has it been better or the competition has increased? Some color would be helpful. Thank you.
Situation broadly remains the same, Prakash. Number of competitors looking at specific products keeps on increasing every quarter. Like we have said consistently, depending on the product and the number of competitors, the pricing pressure on the ground is something we continue to face. I mean, that's the reality of the market. I don't think much changes from a quarter- to- quarter basis.
Okay, perfect. From a Halol side, are we seeing any communication already from the FDA as seen by other corporates also they're sounding? I mean, do we expect it by this fiscal year and some resolution? Or what is our current thinking around this?
We haven't received any intimation from the agency about their plan to audit the facility. We continue to stay in touch with them with a request that they should audit the facility at the earliest, because we make many products which are potentially or sometimes in regular shortages. It all depends on their priority and their importance of the facility based on which I think they will decide when to inspect us.
Okay, perfect. Thank you. My last question is on WINLEVI. From a build-out perspective, I mean, is the existing setup good enough, or do we need to invest in the near term at least one, two quarters before we see it gaining momentum or the existing setup is good enough?
When you say setup, you're talking about the field force?
Yes, sir.
We have had some increase in the size of the field force from the team which used to promote ABSORICA and ABSORICA LD. I think for the last quarter, you know, a large part of that cost has already been reflected. Some more you will see in this quarter three. There has been an increase taken in the size of the field force, looking at what the potential of this product can reach.
Okay, perfect. Unlikely to see a major cost expansion is what I heard.
Did you say unlikely?
Yeah.
Yeah. Yeah. I would agree with that.
Okay, sir. Got it. Thank you. All the best.
The next question is from the line of Kunal from Emkay Global. Please go ahead.
Hi. Thank you for the opportunity. First from the R&D expense, which we have already indicated that, a couple of clinical trial have spilled over. Are those the trial related to psoriatic arthritis and SCD-044 we are talking about?
That's correct. I think a cost of that clinical trial is linked with the ability to commission new sites as well as enrollment of subjects. If that is going slow, then the cost is much lower.
Does that mean that the cost would be apportioned over a much longer period and hence this lower R&D expense as a percentage of revenue would continue?
I mean, in the sense that my understanding is that major reason for the slowness of the enrollment is linked with the COVID. As Abhay said that last, till last quarter, there was a potential impact in the patients visiting doctors' clinics. Gradually, I think, things are normalizing. We should expect that we should go back to the normal, and then that should help the enrollment of subjects faster.
Sure. The second question would be one clarification that I require. You have said that ILUMYA and CEQUA on an annualized basis, which I believe would be kind of a MAT basis, has grown at 100% and 70%. Is that the right way to look at it?
Yeah. That is the right way. It's an annualized growth, comparable periods.
Okay. Sure. Yeah, so my last question would be on the specialty breakeven, which we earlier guided to be kind of next year. Do we still stick to the same guidance?
Specialty what?
With the kind of topics that we-
Breakeven.
Specialty breakeven.
I don't think we ever said that there'll be a breakeven across the board next year. We always said that this is a business by business working that we do. Internally, we are clear which business will breakeven in which year based on how well we execute on our plans.
Any guidance for the specialty business as it is today or the growth that we are seeing?
You're talking about breakeven?
Yes. Yes.
No, no real guidance really. We don't give those details. Business by business, of course.
Okay. Thank you, and all the best, and Happy Diwali in advance. Thank you.
Happy Diwali to you.
Happy Diwali. Thank you.
Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities. Please go ahead.
Hi. Thank you for the opportunity. My question is again on WINLEVI. Here, will you be incurring DTC cost for next few quarters? How is your reach in terms of formulary coverage for the product?
The initial focus will be on communicating our messages to doctors. What you need to remember is in the U.S., for the first six months post-launch of the product, you can't do any DTC. That's not allowed. Six months post-launch, we can't do DTC anyway. Our focus will be on communicating our messages to doctors, convincing them that it's a product they should give a trial to, see the results, and then hopefully start prescribing it far more regularly.
Okay. How about the formulary coverage for the product? What has been progress here?
It's a launch product. We in fact launched it yesterday. Yesterday was the first day of launch. Formulary access is an ongoing process, it's not that you get complete access or before the launch or day one of launch. Different payers take their own time and period to make a determination of whether to cover and how to cover and in which formulary they should put it on. It's a process that we have to go through. We are comfortable with the initial coverage that we have for launch, and we find that it is comparable to a lot of new products in the space which have been launched in the past.
Okay. That's helpful. My second question is, how do you see higher commodity prices impacting your gross margin over next few quarters?
Can you repeat your question please, ma'am?
Cost impact.
How higher commodity price how it's going to impact your gross margins in next few quarters?
I think the margin will be under pressure from the cost point of view. Margins that, say, like currently our cost of goods is X, it may go up a little. In many businesses, we are able to pass on the cost increases to customers. To that extent, there is an adjustment.
Okay. Broadly there would be some increase from current level in next few quarters. That's what you are saying.
I mean, I have no understanding of how long this increase in the commodity prices is going to continue because we are seeing that in many products there is also a reversal. It doesn't go back to its original price base, but it comes down significantly from the peak that it has reached. It's difficult to quantify. The positive for us is that because of the COVID, we created a strategic inventory for many products. That is the reason why you see our working capital is a little bit higher, but that is now useful for us in terms of those materials have been procured at old prices. We don't know when we'll start increasing.
Okay. Thank you. I'll get back in the queue.
Thank you.
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Congratulations on a good set of numbers, and thank you for taking my questions. My first question was related to ILUMYA in terms of the phase III trials for psoriatic arthritis. Given the slowdown because of COVID and enrollments, is there a rough timeline you could share on when we expect these trials to be completed?
We haven't shared the specific date by which we should have the last patient enrolled in both psoriatic arthritis as well as in other studies. I think our focus is to find a way to complete the study at the earliest.
Okay. My other question was on the sales and marketing expense and other expenses in general. Would it be fair to assume that the percentages we are seeing in Q2 would be a steady-state percent going forward to account for the COVID aberrations we've seen in the last few quarters?
We have maintained our position in the last earnings call also that as the normalization of operations is happening quarter by quarter, you will also see the increase in expenses. However, we also maintain that probably even a full normalization, maybe we may not reach the full pre-COVID levels. That's what our position is.
Okay. Thank you so much.
Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.
Yes. Hello. Just couple of clarities. One, this $10 million milestone that you talked about in the specialty business, is that included in revenues or that's included in the other income?
Anubhav, it's included in the revenues.
Any reason for including in the revenues, not in other income?
No, it is part of the Ind AS revenue from contracts with customers as per the Indian GAAP.
When you report $361 million U.S. sales, is this $10 million inside the $361?
For the H1, what you're seeing, the numbers reported includes our $157 million and $10 million. Let's put it like this.
No, that's right. 157 is across the businesses. This I assume $10 million specifically for the U.S. That's the reason I'm asking that. Is that 361 includes that $10 million?
Total what we have reported does include $10 million revenues. That's what we're saying.
Okay. Sure. Second, on the COVID sales, Kirti just did mention about contribution from India, but was there any material sales done to EM and ROW market as well in this quarter or not?
There would be marginal, I think, sales. Not significant.
Okay. Sure. Last question, just on the DTC and ILUMYA. So are current expenses reflecting the normalized level of DTC and ILUMYA? Like, in the past you mentioned that DTC on ILUMYA has come down from the when you started initially. As the situation normalizes in the U.S., as the cases go down, et cetera, is this the base level of DTC that we need to do, which we are doing already? As situation normalizes, we need to ramp up on the DTC on ILUMYA?
No, I think you can consider this to be your baseline.
Okay. Thank you.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you very much, and good evening, sir. A question on operating leverage. I think company has done a great job over the last few quarters. Where the margins are now 26%-27%, do you think we should expect more of this to continue, which is sales growing faster than the cost?
Sameer, that is the effort. How much we are able to execute, I think will determine whether it happens or not.
Okay. Great, sir. The second question is on the U.S. side, especially on the generic side. Can you give us some visibility of new launches as we go forward, and especially some high-value complex products?
I can tell you the number of products I did that last quarter we launched around six. This quarter again, you will have some launches. Till we have an approval in hand and you know are able to tie up business, I think I don't want to give names of products because that affects me competitively. Yeah, every quarter, the attempt is to have a few products and come to market, preferably first to market, or at least in the first batch of products to come to market.
Okay. I mean, I'm not looking for any names specifically, but just that, you know, some high-value complex products. I know the timing can be very, you know, up and down. Say, to take a four to eight quarter view, you think you have sufficient ammunition that can come to market?
Yes, I do.
Excellent. Great. Thank you so much.
Thanks, Sameer.
Thank you. The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.
Yeah, thanks for the opportunity. My first question is actually, you know, about WINLEVI. Can you explain as to, you know, how is it the better than the standard of care? In fact, it would be great if you can also allude to which is the standard of care, and, what is the mechanism of action of WINLEVI? I mean, there is some element that is given in the press release, but it's hard to understand. So if you can help, that will be very great.
I mean, to be able to fully answer your question, I will have to go give you a complete product briefing. I'm perfectly all right if you want to take this offline, and I can explain to you the product and the mechanism and the scope. I'm happy to do that, if you wish.
Yeah, I will be very happy to do that.
Yeah. I think, Nimish or Gaurav can, you know, find time, and I will be happy to brief you on that.
Okay. No issues. The other one, you know, actually may be related to the same. You mentioned that there are 13 NDAs which are pending approval, and that's quite a large number. If you can, kind of break it up between how many would be 505(b)(2)s and how many would be, you know, NCEs, that would be helpful.
All of them are in the 505(b)(2) generic or generic space. There is no NCE in that.
There's no NCE. Okay, fine. If I may, last one to squeeze in about the domestic business. You know, it has actually grown significantly above the wider market, the overall market as well, even if we adjust for the COVID-related phase. So any specific reason how should we read that going forward? Thank you.
I think I just told my readout that the overall things are coming back to normal. What I see is almost close to 95%-98% of the doctors are practicing. The patient footfall still is not pre-COVID level, but it is around 85%-90%. There are only two specialties, which is like pediatric and dermatology, where footfall is within 70%-75%. It's like
That must be true for the entire market, right? I mean,
Yeah, yeah. That is for entire market. Second is, even this year, the monsoon started early, and it was a long drawn period, so that also helped. As you know, there are large number of infections, like a viral infection, cough, cold. Anti-infective market has also grown substantially compared to last year. In this growth, I think we have done better than the market. We have gained market share. As an example, in both, subchronic as well as in acute therapy, we have grown faster than the market, both in Q1 and Q2.
Yeah. Exactly. How, like, any specific reason, and is this something that is likely to continue? I mean, growing better than the market and significantly better than the market.
I think the India business objective is to grow faster than market and gain market share. That's what we are trying to do. If you remember, we have done expansion also. 10% of the field force we have added two years back, so that also helping us. Last year was a COVID, and there were challenging time, but now the things are coming back to normal. This expansion has also helped us to gain better growth compared to our competitors. It's a mix of all the factors, but I think the idea is to grow faster than the market in most of the therapeutic area where we are present today.
Okay. Okay. Thank you very much.
Thank you. The next question is from the line of Tarang from Old Bridge Capital. Please go ahead.
Hello, sir. Good evening. Sir, just wanted to check, you know, given the size, scale, and the moving parts of the business, just wanted to get, you know, better handle on, you know, which are better or more profitable revenue segments. Would it be possible for the management to, you know, provide revenue segments in descending order of gross margins? Without the numbers, just the ranking would be all right.
I think, this call and information that we share is not only with analysts and investors, it's also with competition. We need to be cognizant of that. We will generally avoid doing anything which will negatively impact our business.
That would be difficult. Sure. Okay. The second question is if you could give us a sense on your launches last quarter in Q1 FY 2022, and how many launches should we see in FY 2022 as a whole in North America Generics ex Taro? I answered this part of the question earlier. I said last quarter we have launched six products. But the future, I mean, I don't really want to give a number because it is uncertain. We are doing our best, and it's also competition sensitive information, right? For me to give a number again impacts us negatively. I meant Q1 of FY 2022 when I asked you. FY 2022 was similar number. Okay. I don't recall exactly, but it was five or six again. Quarter two, I can confirm it was six. Okay.
To an earlier question, I did mention that when I look at the portfolio over the next four to eight quarters of what we think will be able to come out in the U.S. market, I'm comfortable with the pipeline that we have.
Okay. Thank you sir. All the best.
Thank you.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yeah. Congratulations for the good set of numbers, sir. First question is on WINLEVI. Considering the kind of superior attributes of the product like tolerability and the superior safety profile and the way it is indicated for like moderate patients. Does that provide some indication in terms of faster or kind of a relatively larger volume in terms of penetration of the product in the first year? A communication from your partner side indicate that from before the launch of the product itself, the enrollment of the product with the payer group is like one of the best. Does that really indicate any anything about the penetration of the product, and the quantum of the prescription that it can generate in the first year?
We really couldn't understand the gist of the questions. Could you kindly rephrase it for us?
Sure. What we are seeing, sir, I think, the product has got, better tolerability as well as the safety profile. And also as per one of the partners communication for WINLEVI, they are saying that, the product has already got, enrolled with a maximum payer group in the U.S. before launch. Does that indicate anything great about the penetration of the new molecule compared to the comparable products?
Let me take the first part of your question. I mean, anecdotally, when we have spoken to the KOLs about this product, even before we licensed it, and today when we are talking to doctors after licensing it in doctors conferences or individual doctors in clinics, we see a fair degree of interest because it's a first in class molecule after a span of almost four decades.
Okay.
Now, attempt of the team obviously will be to convert that initial interest into an action and then repeated action in terms of prescription, and that is what will give us that volume that you talk about. I'm not privy to the, you know, what you call, the so-called partners' communication about whatever you, that was the term you used.
Access.
Best in class kind of an access. In response to an earlier question, I did say that access is an evolving thing when you launch a product, and each payer has a different timeline when they make a determination of when to cover and how to cover and then on which formulary to cover.
So it's an ongoing negotiation. I also said that at the point of launch, I'm comfortable with the accesses that we have and we. Well, the attempt of the team will always be to improve, and that won't be a next three months kind of a task. It will be an ongoing forever kind of a task. To maintain and to grow access will be a forever task.
Sure, sir. Second question is on REVLIMID, sir. Is it possible to share like what is the timeline and how is our preparedness for launching the product as per the settlement, although that is not known?
No, that will be difficult. We'll not be able to share that because it is definitely competition sensitive information. Also, I think there are some confidential parts of the agreement as well. All in all, I cannot give you specifics on that.
Okay. Just last question if I may, sir. About the biosimilar initiative, what you talked in the earlier calls also. Can you just give some sense that, okay, what is the progress on and what is the kind of thought process about it to add product or build product or develop product like that?
I think we have indicated that the product that we've chosen is a product which is likely to be in the third wave of biosimilars, which means that potential patent expiry is after 2027, 2028. I think we've been working on the product in the R&D right now. We haven't yet scaled up to any kind of size. We are still at very small fermenters. I think the early validation of the structure and characterization does indicate that we are on the right path.
Sure. Okay. Thank you, sir. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Cyndrella Carvalho from Centrum Broking. Please go ahead.
Thanks for the opportunity. Am I audible?
Yes.
Yes, you are, ma'am.
Yeah. Yes, sir. The first question is on the WINLEVI, if you could, I don't know if you will be comfortable giving a guidance, but, what will be your peak sale estimate? Because, there were some analyst expectations which were indicating, northward $400 million peak sales for this particular product. Do you relate to it or anything that you would want to share on this?
No, clearly the analyst knows far more than I do. No, I clearly cannot give any guidance on that.
Okay. Thanks. Sir, on the opiates side, on the API lower sales, we have specifically identified that lower opiate sales have led to this. Any current scenario that you can highlight here and any sense that you can provide on the outlook?
Our sense is that opiates, I think, are controlled by narcotic commission, and they are not currently issuing permits. Can people go on mute? I think the expectation is that they are not issuing new permits till the company has existing inventory. To that extent, I think the sale is subdued. Hopefully, I think
Okay.
Once inventory comes down, then some better sales will start.
This is very helpful, sir. One last question, if I can squeeze in. It's on the India run rate, quarterly run rate at almost INR 3,200. Should we see this going ahead? Do you think this is a more sustainable run rate going ahead?
What I can say is very difficult to predict because we are in uncertain times. We don't know whether the COVID wave three will come and how much it will impact our business. It's very difficult to say like how next two to three quarters will be. I think things remaining normal, our endeavor is to keep on growing faster than the market. That's what I said earlier.
Thank you, sir. This is helpful.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you for taking my question. Abhay, on ILUMYA and CEQUA, if I were to compare our performance in both of these, you know, in terms of how they are trending versus our pre-COVID expectations, is it in line with that? Or do you think the time lost due to COVID, there is still recovery when it comes to the performance of these products?
No, clearly, I think if there was no COVID, I'm certain the uptake of these products would have been better than what we have today. There is no doubt on that, because all said and done, these are new products launched by a relatively new company in the specialty space in the U.S. You know, to be able to directly meet doctors, communicate your product benefits over that of the competitor, gaining access, I think these are all things which have to be done on the ground. You can't do it virtually, not at least for a newer product and a newer company. Yeah, clearly, I think you know, but for COVID, we would have been in a better place than we are now. That's for sure.
That does not change. I mean, your expectation does not change even with, you know, COVID. I mean, I know there is a bit of uncertainty in terms of, you know, another wave coming through and therefore this kind of ramp up. Has your expectations on these products changed either ways, up or down, post-COVID?
See, my personal mindset always is that you can either let circumstances bog you down or try and find ways by which you do better than what you think you're capable of under any circumstance. I, you know, in my head at least, this is not a setback of a permanent nature. We have to find creative ways of getting back to where we should be and keep moving forward. That's my personal mindset.
Understood. My second question is, you know, from a, you know, capital allocation for, you know, the specialty business development. Have you seen after, you know, doing fairly smaller assets, WINLEVI seems to be a mid-size asset. We'll have to see how that ramps up. But a mid-size asset. Two questions there. One, is there any part of the specialty segment where we'd like to see more product additions versus others in terms of, you know, our picks for investment there? You know, either or et cetera.
Second, has you know the let's say ramp up or success so far in the specialty launches that we have done or progress so far in the specialty launches change the type of the asset or the size of the asset that we are ready to look at?
We don't necessarily start off any business development process by looking at size, but we look at gaps in our portfolio and needs of customers or what is it that they're looking for. Whether you call WINLEVI a mid-size asset or a large asset, the fact is, if you look at it from a customer point of view, they were looking for an androgen inhibition drug for the past four decades. We were able to acquire that and give the customers what they want, and that will translate into a business opportunity for the company. Rather than look at size of the acquisition, we try and look at gaps in therapy, needs of the customer and how we can augment our portfolio in the segments that we said that we remain keen on investing in and growing, of course.
Okay. It's not as if, you know, we have, even though, you know, there might be assets available, we are ready to look at a larger asset, you know, now versus, let's say, we weren't as keen two years back.
No, I think, our view was that it's better for us to see a certain size that we achieve in our specialty business before we continue to make additional investment.
Yeah.
Because even us, I think there is a learning process. Clearly what we know today is more than what we knew two years back. I think that gives us the confidence and the courage to consider future investments.
Okay. Understood, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good evening, and thank you for taking my question. Just the first one is on capital allocation again. We're generating a significant amount of cash, just looking at even your half-yearly numbers. Just wanna understand, we've been paying down debt so far, so it looks like now with net cash, that avenue probably closes. Just trying to understand, you know, what are some of the capital allocations of priorities. Is it more R&D? Is it CapEx? Is it M&A? You know, any sense on the like a three- to five-year that we need to keep in mind?
No, I think the focus is to find businesses that will help us improve our return on capital employed, return on equity, so that anything which will help us grow our top line as well as bottom line, as long as it is reasonably priced or something that we can afford to pay. Now, what is reasonably priced is a very big zone of reasonableness. I think that is an important decision for us, and we will always remain disciplined about what we pay for an asset.
Dilip bhai, just looking at the quantum of cash flows, do you think the rank order. I'm also trying my luck with rank orders today. Is it India assets? Is it U.S. specialty assets? You know, any directional sense.
Directionally, I think, we've explained in the past also is that with our size and with our presence in almost all therapy areas of our interest in India, unless and until we get a specialized opportunity, we are not looking at buying something in India. But we will look at bolt-on businesses in markets, in emerging markets where we have existing presence and we can scale. We can look at small, medium sized businesses in Europe. We can also look at existing businesses with either existing products or products close to market in the U.S.. Because the market is much bigger in terms of value, possibly that can be a much more higher cost potential acquisition.
Thank you. Thank you, Dilip bhai. My second question is just on ABSORICA. I think they mentioned that there has been QOQ decline. Maybe I think it's in the generic part of the thing. How should we or is it the entire portfolio? I'm unable to understand. How should we look at this? Is there more one, two quarters of pain before kind of then it stabilizes at some market share where we think things can't get worse or?
It'll depend on how you want to look at the overall business. One way to look at is, say about a year ago when we were only marketing ABSORICA, we had roughly, and I'm rounding it off, but we had roughly like a 7% share of market. Then we launched ABSORICA LD, and a few months ago we launched the authorized generic of ABSORICA also. Now, if you look at all three products put together, or three forms of the product put together, then our market share is more or less the same.
Got it. Maybe the realizations are different. Maybe that's where probably things are different.
Yeah. The realizations would be different, and also where it is classified. ABSORICA will be classified as a specialty product business, whereas the AG will be classified as the ex-Taro generic business.
Got it. Last question, Murali sir, is on the ETR. I think Q2 was abnormally low, but if you can help us, what could be ETR for fiscal 2022? Thank you.
Oh, as for the Q2 ETR being low, there's a one-time adjustment on account of the common control method. Otherwise, Shyam, we would say that at least we should look at the ETR on an annual basis now.
Murali sir, it's just going trending up gradually. That's been the previous guide.
No, we stand by the same guidance. It will inch up, as we progress. That's where-
Fair enough. Thank you, and all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bang. Please go ahead.
Thanks for the opportunity. I have a question on CEQUA. Just want to get your views on what it would actually take for you to gain share from RESTASIS. Because as I understand, there is a large population that does not respond to RESTASIS. We probably are still struggling around a single digit number. I also understand you have been doing a post-marketing study to understand CEQUA in non-responders. Any color there will be helpful.
You're right. I mean, better execution is the only answer. A lot of our marketing strategy is to try and convert shares from the existing incumbents, whether it is RESTASIS or Xiidra, product. I think, we clearly will have to do, a better job at executing on our strategies. I'm with you on that. Yes, to the second part of your question, I mean, through different IITs, we are trying to, you know, work on the product and creating the scientific evidence of why a doctor should, either start a patient on CEQUA or move a patient to, CEQUA in case they are non-responders to existing products.
Would we have some data around this, anytime now or later?
Data on what?
Basically, non-responder CEQUA's performance in RESTASIS non-responder.
Once these studies are published, then they are in public domain, and therefore then you will have access to it. Obviously, till it is in public domain, I cannot share it with you.
Got it. Just one more question on Taro. There was a sharp decline in gross margins on a quarter-over-quarter basis, about 500 basis points. Could you share some color there?
The sharp decline is due to one-time impact in the cost of goods sold. Otherwise, we don't see any change in the normal range-bound margins as far as Taro is concerned, the gross margin level.
Got it, sir. Thank you. That's all from me.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Nimish Desai for closing comments.
Thank you, everybody, for taking time out and joining this call. If any of your questions have remained unanswered, do send them across and we will have them answered. Thank you. Lastly, from all of us at Sun Pharma, wish you all a very happy Diwali. Thank you.
Happy Diwali.
Happy Diwali.
Thank you. On behalf of Sun Pharmaceutical Industries Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.