Welcome to Zydus Lifesciences Limited Quarter Three FY 2023 Earnings Conference Call. Please note that all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the opening remarks. Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh Nayak, Executive Director of Zydus Lifesciences. Thank you and over to you, sir.
Good evening, ladies and gentlemen. Welcome to our post-results teleconference for the quarter ended December 31st, 2022. For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Arvind Bothra, Senior Vice President, Investor Relations; and Mr. Alok Garg, Senior Vice President from the Managing Director's Office. I hope you have gone through the quarterly results, investor presentation, and press release, which are available on our website and also filed with the stock exchanges. First of all, let me quickly run you through the Q3 FY 2023 consolidated financial performance. We registered revenues of INR 43.6 billion, up 20% year-on-year, led by a robust growth across businesses. Our key markets, namely India and the U.S., also registered double-digit growth during the quarter.
Reported EBITDA for the quarter was INR 9.6 billion, up 27% year-on-year and 17% quarter-on-quarter. EBITDA margin for the quarter stood at 21.9%, which is an improvement of 130 basis points on a year-on-year, and 220 basis points on a quarter-on-quarter basis. EBITDA margin expanded in spite of 180 basis points increase in R&D investment on a sequential basis, as well as a certain one-time REMS set-up cost during the quarter for an upcoming U.S. launch. EBITDA margin for the nine months of FY 20 23 stood at 20.7%. Profit after tax for the quarter was INR 6.2 billion, up 24% on a year-on-year and 19% on a quarter-on-quarter basis, led by improved EBITDA margin.
We are confident of sustaining the growth momentum across our key markets, led by strong product pipeline and focused execution efforts. Let me take you through the operating highlights for the third quarter of FY 20 23 for our key business segments. Our India geography, which comprises of the Formulations and Consumer Wellness business, accounted for 40% of the total revenues during the quarter and grew 13% year-on-year. The India geography continues to deliver double-digit growth in the current fiscal, adjusted for COVID-related revenues in the formulations business last year. The formulations business in the India geography sustained strong momentum and posted revenues of INR 12.3 billion, up 14% year-on-year. Excluding revenues from COVID-related products and divested brands during Q3 and for the first nine months of the current fiscal, the business delivered a robust growth of 16% and 12% respectively.
Overall, we outpaced the market growth during the quarter. We gained market share and improved our ranking in the gynecology, antidiabetic, and nutraceutical portfolio during the quarter on a year-on-year basis. Our first new chemical entity, Lipaglyn, continued to expand its reach by growing its patient base by 45% in 2022. It has now benefited almost 1.5 million patients since its launch. The brand was ranked as the 59th largest brand in the Indian pharmaceutical market during Q3 FY 2023, a gain of 35 positions versus Q3 FY 2022. Our consumer wellness product business recorded revenues of INR 4.1 billion, up 8% year-on-year. Inflation, which hurt margins over the last few quarters, is cooling down in key inputs except milk, where it still remains high.
However, we have taken appropriate price increases to counter this, the impact of which will be reflected from the next quarter. Now let me take you through the performance of our U.S. formulations business. The business accounted for 46% of the consolidated revenues during the quarter, with sales of INR 19.3 billion and registered a robust 13% growth sequentially. Growth during the quarter was mainly led by volume expansion in our base portfolio as well as seasonality. The business delivered sequential growth during each quarter of the current financial year, which is a healthy sign for business momentum. We launched six new products during the quarter. Recently, in the month of January 2023, we launched Topiramate extended-release capsules, the first generic player to launch the product.
We filed nine additional ANDAs and received 14 new product approvals, including three tentative approvals during the quarter. Approvals for the quarter include the receipt of final approval for estradiol transdermal system twice weekly. It is the first transdermal product approval from our Moraiya site. On the emerging markets front, the business continues to deliver double-digit growth as it posted revenues of INR 3.1 billion, up 15% year-on-year, excluding revenues from COVID-related products. The business-maintained growth momentum on the back of robust performance across key markets. During the quarter, we filed our first ANDA from the newly constructed oral solids formulation manufacturing in our Ahmedabad SEZ, known as SEZ II. This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses and initiatives in our innovation program. Thank you.
Thank you, Dr. Nayak, and good evening, ladies and gentlemen. It's a pleasure to have you on the call today. We are pleased with the quarter three FY 2023 performance, particularly with the fact that the India and the U.S., the two largest geographies for us, continue to deliver robust performance led by the different strategic initiatives and focused execution. We remain committed to investing in our future to drive sustainable and profitable growth by building a diversified portfolio of differentiated products in generics, complex generics, biologics and NCEs. Over the last two years, our various strategic initiatives in India formulations business, that includes focused brand building initiatives, intense marketing efforts, keeping patients' need in the mind, expanding distribution reach, leveraging digital platforms, and driving our innovation pipeline of novel molecules and biosimilars, have enabled the business to deliver steady double-digit growth in the current fiscal year.
Our aim is to outperform the market growth over time. Our U.S. formulations business too delivered good performance in all quarters so far, driven by timely launches of new products and volume gains in existing products. Our wide product pipeline and focused BD&L efforts lend good visibility on new products, which are critical to offset the impact of price erosions in the base portfolio and boost growth prospects in our U.S. generics. Our nimble and agile supply chain and a network of regulatory compliant manufacturing facilities equip us to capitalize on opportunities which keep arising in the U.S. generics market. Going forward, we remain focused on adhering to highest quality standards across our manufacturing footprint and to monetize our deep product portfolio in the U.S. generics business. We are taking calibrated measures to build out our specialty business over the medium term.
Our goal is to improve the health outcomes for patients in dire need of therapies to treat the rare and orphan diseases. On the innovations front, we continue to make steady progress, which help us move further in our mission to improve the patient's health in an affordable manner. Lipaglyn, our first NCE, continues to improve its rank in the IPM with the addition of new patients. Bilypsa, which is the only available treatment for NASH indication, has picked pace as it addresses an unmet medical need. Our biosimilars portfolio has made the treatments affordable and accessible for patients and have registered strong volume growth consistently. Let me talk to you about some material developments on our innovation front.
On the NCEs front, as you all know, Saroglitazar Magnesium is currently undergoing a phase II-B/III clinical trial for PBC indication for the U.S. market. During the quarter, we also received approval from the Ministry of Health of Spain, Iceland and Argentina to conduct our phase II, phase III clinical trials for PBC indication. This will help us recruit patients faster and complete our trials on a given time. So far, 54 patients have been enrolled for the clinical trials of Saroglitazar Magnesium in the U.S. for polycystic ovary syndrome and non-alcoholic fatty liver disease indications. Currently, it's the only ongoing trial in the world for PCOS and NAFLD indications. We initiated phase II clinical trial in India for ZY19489, a novel potential single-dose cure and cure for malaria and anti-malaria drug candidate.
Coming to our biologics and vaccines pipeline, we initiated clinical trials in India for biosimilars of two monoclonal antibodies in the oncology space during the quarter. We continue to add more programs to build a robust biologics pipeline to aid future growth. We have also received approval from DCGI to initiate phase II clinical trial for one of our vaccines during the quarter. On the specialty front, our wholly-owned subsidiary, Sentynl Therapeutics, launched an early access program for NULIBRY to improve global distribution network for the product, and in turn expedite delivery of life-critical medications to the patients across the world. We filed a new drug application for one of our products in the areas of metabolic disorder through the 505(b)(2) route. Thank you. Now we can start the Q&A session. Over to the coordinator.
Thank you very much, Sharvil. We will now begin the question-and-answer session. Anyone who wishes to ask a question may raise your hand from the Participant tab on your screen. Participants are requested to use headphones, earphones while using, while asking a question.
Ladies and gentlemen, we will wait for a moment while the questions queue ourselves. The first question would be from Saion Mukherjee.
Yeah. Am I audible? Hello.
Yeah. Yeah.
Hi. Hi. Hi, sir. I just wanted to understand the domestic business growth. We have seen good growth now for some time. In your commentary, you mentioned about market share gain in some of the areas like gynecology, diabetes, nutraceuticals, but you know the bigger segments that you have, cardio, anti-infectives. I'm just wondering, you know, how the growth has come without those segments delivering. If you can give some more color. Just want to understand sustainability of this growth. Secondly, on your innovation molecule, particularly Saroglitazar, how should we think about the penetration of the molecule? You've got, you know, approval for various indications here. You mentioned 1.5 million patients. What's the kind of, you know, peak level of patient volume and revenues that you're looking from this product?
How should we think about that? Thank you.
I think on the overall side, first the important thing is our secondary sales have shown a good double-digit growth and have grown faster than the market. I think overall we have shown strong growth. The other market shares on other therapies is not that we are down or anything. They are nearby to the levels of what the market growth has been, but we are talking about where we have significantly gained share. With respect to Saroglitazar. Saroglitazar, as I already said, is doing significantly well. It has jumped almost 40+ ranks to become the 59 product, and we believe that, as I have always said that we believe this product will become the top 25 products of India in terms of its capacity and can grow beyond that. It's just the very initial days.
We have got full indications of NASH and NAFLD now. That will allow us to significantly expand the patient base. The product is growing very well and contributing well to the growth and the overall volumes of the business. There's a strong patient-assisted program that we run on Saroglitazar. That is helping us track the effectiveness of the molecule, which will continuously aid to the further growth of the product.
Just one clarification, if I can ask. My understanding is that this product is materially big in the diabetes and associated indication, and for the liver diseases, NASH and fatty liver, it's not very large. Is that understanding correct? And incrementally, is that going to change, particularly fatty liver being a bigger indication? How should we think about that?
There are two, three indications. One is, I mean, if it works in the overall metabolic syndrome, if you first take the fats and triglycerides, it has a tremendous impact on that. The earlier indications were for patients who were diabetic and who had dyslipidemia. That is definitely a good market. The prescription size, prescription length and duration of that indication sometimes is not as long. With the indication of NASH and NAFLD, you, the prescription period is very long in terms of treatment protocols. You have to go for years of treatment to reverse NASH and NAFLD. That is one important aspect of this. If you look at competing molecules, they are significantly larger currently, and these are not even approved indication for them.
We believe that the NASH and NAFLD is a very big indication in India. There's a high amount of undiagnosed patients in this area. We run the largest number of FibroScans in the country now, and we want to even double that down. With the strong level of diagnosis that we are running, we believe that the patient pool is quite significant and early on we are seeing good traction on this.
Okay. Sir, my second question would be on the U.S. You know, there's a good growth quarter-on-quarter. Now you mentioned about some expenditure on an upcoming launch. You are putting some money on the REMS program. If you can share some color on that launch, is that significant? In general, you know, given the seasonality, et cetera, and contribution from Revlimid, how should we think about U.S. numbers for the coming quarters?
The U.S. numbers we believe for the coming quarters will continue to be strong with the launches of new products and specific to the REMS that is an important [audio distortion] program that we have initiated because we believe we will have a launch in the coming year. For that we had to go and pay for that REMS. That has a good business plan and a good growth potential for that REMS program product. With Topiramate Trokendi launch also we'll see further value addition to the U.S. business. I think overall the business will track well quarter on quarter going forward, at least for the next two to three quarters.
Okay. Thank you, sir. I'll join back.
Thank you very much. The next question is from Tarang Agrawal.
Hi. Good evening. I have two questions. One, you spoke about for the U.S. business, you spoke about volume expansion. Was it perhaps because of the current flow conditions in the U.S.?
The overall market to be improving in terms of channel having destock. That's one. The second is in terms of biosimilars, you've got a broad portfolio, but the portfolio, the timing seems to be restricted to India and lesser regulated markets. How should we see your journey here in terms of trying to approach the developed markets? That's it for me. Thank you.
First to the U.S., the seasonality of the portfolio is only $5 million, so the overall contribution is not significant, but it is there. The overall growth, as I said, has been driven from all three areas, the new products, the base business, both have contributed meaningfully to the growth of the business and the higher run rate that we are now running. With respect to biologics and biosimilars are always a strategy, has been in India/some emerging market plan, and currently we are tracking extremely well on India. Overall the business is in good health in India, both in terms of obviously our business in terms of revenue, but also profits. Going forward, once we get more approvals in developing countries, we would see that number increasing.
Our strategy is only linked to these two geographies, the rest of the world and India, and that is where we want to build for it. We have a lot of plans for more launches, at least two to three new launches coming up over the next two years. The portfolio, which is currently 14 will continue to expand.
Thank you very much. The next question is from Neha Manpuria.
Thanks for taking my question. You know, we saw an increase in the R&D spend in the quarter, which I understand, you know, is related to the, you know, progress on the pipeline. As we, you know, make more progress on the trials for Saroglitazar, how should we see this number? Could this trend up further? I know it's within our guidance range of the 7%-8%, but from an, on an absolute basis, you know, how much could it trend up further as we make progress?
The R&D spend, we believe that the in our investments will remain in that 7% - 8% range for FY 2023. The lumpiness of this quarter is just, I mean, R&D spends are not even all throughout the year, so you do see that, but our guidance for the current financial year remains intact. Going forward also, we have said that, you know, our R&D spends will be around 8% - 9% maximum in the medium to long term. Currently we are comfortable at the 7% - 8% R&D spend range.
Understood. Thereafter probably in the 8%-9% range.
Much later probably, we'll see. I mean, it's very difficult to predict two, three years down the line. At least short term we are looking at around the 8%.
Understood. My second question is, you know, the REMS, one-time cost that you mentioned, would it be possible to quantify that? You know, how much of the other expenses increase is because of this REMS cost?
It's $8 million.
$8 million. Understood. We don't see this. This is just a setup cost. We don't see this recurring.
There is a recurring, but it's not as significant. This is mainly the setup cost.
Okay. Got it. Thank you so much, sir.
Thank you. The next question is from Bino Pathiparampil.
Hi. good afternoon and congrats on a good set of numbers. Just one question on this 505(b)(2) that you filed. You say that it's for a metabolic disorder. When you say metabolic disorder, are you talking about the diabetes, obesity sort of things, or is it a genetic enzyme deficiency sort of disorder?
The, we have a portfolio in this. We already had filed one product earlier, and this is the combination products that we're filing. We, in this franchise, we'll have maybe around three filings total. This is the second filing.
Okay. Is it like a peptide or something?
No, it's a small molecule.
Small molecule. Okay. Okay, great. I'll join back the queue. Thanks.
Thank you very much. Next question is from Kunal Dhamesha.
Thank you for the opportunity. Congratulations on the good set of numbers. First just one clarification. I think as far as I remember earlier, we were pursuing NASH indication for Saroglitazar in U.S. as well. Is it still continuing or we are kind of pivoting towards more towards NAFLD?
Currently the trials in the U.S., the most immediate ones are PBC trials, which we believe, are the near-term ones, and we are still continuing with the phase II trials for NASH. As we progress on the key milestones on NASH, we'll come back to you. We are also testing for other indications like PCOS and NAFLD also. The NASH trial is ongoing.
Sure. Perfect. On the PBC trial, when to expect, in terms of readout or if you can share any progress in terms of the enrollment, et cetera, where are we currently?
We hope to finish enrollment in the next two quarters if everything goes right. Then after the follow-through, we hope late 2024 or early 2025 filing, if we are able to achieve that timeline.
Okay, perfect. Perfect. This is second question on the same thing, like, you know, earlier we were thinking about having a strategic partner. Is that still on the cards for these kind of, you know, specialty R&D or, you know, we are going to do it on our own?
Our current strategy on Saro for PBC is to do it on our own. As we move forward, and as we evaluate our timelines and competitive intensity, we will take an appropriate call. Currently we are preparing for our own launch for Saroglitazar.
Okay, perfect. Last if I may, on the Revlimid side, would you I'm not asking for a number, but on a qualitative or directionally, would the quarter three numbers be better than quarter two for us? How should we think about it? Whatever trend we are seeing right now, contribution, would that continue for the, let's say, next two quarters?
Quarter two, quarter three was similar. Quarter four we'll see higher numbers.
Okay, perfect. That is because of some player coming out of exclusivity, et cetera, would that be the case?
No. It's the way. There is a market share volume plan. Accordingly, we are able to take more share.
Okay. Thank you. I'll join back the queue.
Thank you very much. The next question is from Damayanti Kerai.
Hi. Good evening. Am I audible?
Yes.
Okay, great. My first question is on your Topiramate XR launch. You are the first one to enter the market. How do you see this opportunity in terms of competition over next two , three quarters?
Very difficult to estimate, but currently we are alone in the market and we still believe we hope that we still have the exclusivity, but we are not seeing any immediate launches. It's currently we remain exclusive.
you launched in January, so, six months, you believe you will be the only generic in market?
We can't predict because FDA will not make a sort of a decision until they see a next generic. Because there are no next generic yet, FDA has not made that decision.
Okay. Okay. My second question is, now you have two transdermal approvals from Moraiya. What are the launch plan, and when do you see a meaningful pickup from these opportunities?
If everything goes well, we believe we will launch at least two transdermals in the next financial year. If we are, even if we do better, then maybe up to three. Currently that is the plan and that would, all three of them are meaningful launches.
Okay. You have like all required setup from Moraiya, and you might not need to invest anything additional for these launches?
We have already made the investments earlier.
Okay. My final question is, your CapEx is currently trending at around INR 10 billion for a year. Where are the major spend happening?
The major CapEx is happening on our expansion of our oral SEZ II facility. Some expansion that happened in the ZTL, the transdermal area. We had a new line, injectable line as that is getting commissioned. Also, the new pre-qualified, I mean, a new plant for MR for WHO pre-qualification, which is getting ready now, and some API projects.
Okay. How do we see CapEx trending for coming years? Will it remain in similar range or you are like broadly done with some of the major spend?
I think our, this kind of base will remain because we are investing for our growth in different areas, so that, this kind of, range will remain.
Okay. That's helpful. Thank you.
Thank you very much. The next question is from Surya Patra.
Yeah. Thank you, sir. Congratulations for the good set of numbers. Sir, my first question is on the domestic formulation business. Sir, is it possible to share, excluding this biosimilar and the NCE portfolio, what is the growth for the quarter and the nine-month period?
I don't think we are segmenting our business like that. you know, when we push something, we are obviously doing it as a portfolio play. I think we don't.
Yeah, yeah.
with one business
No.
Then look at the other business.
Basically, sir, what, some time back that we have been emphasizing about, our, the new launches and, means basically the specialty and the mass kind of approach that we had sometime back had, followed and discussed. Now since we are not talking that way, so that is why I was trying to understand, on the core portfolio
I think for us, we look at India geography and the formulation business as a whole. You know, the strategy and investments will depend on where we feel the maximum growth will be driven from. It's, we don't bifurcate like that. Sir, overall to say even the base business which is, or the established products business of the company has done better than market.
Yeah, thank you. The second question is on, let's say on the Moraiya front. Is it whether we have seen any kind of advantage in the current quarter from the Moraiya side? See, I'm not talking about the product launches, let's say in terms of the cost or something like that or increment. No.
Moraiya, the main launches are the transdermals which will come.
Yeah. In the cost front also there is no saving, right?
There's no saving.
Sir, is it possible to discuss something more about the Revlimid outlook? Like, how should we be thinking that or how meaningful it could be. Not giving any number, but at least, of the overall kind of a run rate, what we have been seeing, for our U.S. business. How meaningful this could be?
It is gonna be meaningful and Revlimid, as I said in the next quarters, will be better than the preceding quarters.
Okay. Just last one question, sir. See is, obviously you are one of the large integrated manufacturer of formulation as well as APIs. obviously currently the trend, what we are witnessing, bit challenging trend for even API business. Could you share something, your view about the pricing volume trends in that API side, to be specific?
I think for us, currently a large part of our strategic initiative is for our backward integration, for our formulations and driving our first to day, first to market launches and first to file. The API strategy that we are generally following is for large, largely driven for internal consumption. Having said so, we also want to expand in the other markets, but we are not a very large player in terms of third party sales. There has been some, you know, slowdown overall in the market as we see because of last two years. For us, the major critical part of the API business is for internal consumption. We hope going forward, we'll see growth coming back for us because we are on a lower base.
Sure, sir. Okay. Yeah. Thank you, sir.
Thank you very much. The next question is from Devang.
Yeah. Hi, sir. My first query is regarding the last quarter's we are seeing, some of the pressures on the U.S. markets, the pricing of the drugs. Is it continue in the current quarter or for next two quarters, what is the view for that?
Our view still continues. We see single digit price erosion in the U.S. market, and we are not seeing anything majorly changing other than this guidance that we have given.
Okay. The second question is, like, the growth was seen as the mid-teen high levels, like, that would be of nearby 18% or something near to that. Is it, the continue with the same prospects or there are going to be the changes in the coming quarters or something like that? For the, like quarter four also.
No.
for any two, three quarters for update.
As I said, at least, it's difficult to predict the full year. The next two quarters are looking better than the current quarter.
Okay, sir. Thank you very much.
Thank you. The next question is from Sameer Baisiwala. Sameer, you are on mute.
Yeah, yeah. Got it. Good evening, everyone.
Evening.
First question is on the working capital side. Over last nine months, looks like, it has gone up much more than the sales growth. If you can talk about it.
Sameer, partly it's also because of the business mix with higher growth coming from U.S., and U.S. obviously has a longer working capital cycle compared to India business. Also, you know, the growth in emerging market where also relatively compared to India business, the working capital cycle is higher. I think it's some business mix which is responsible. There are no other, you know, factors.
Okay. Okay, got it. On transdermal from Moraiya, one is estradiol. The second you got PAI inspection in January. Is that correct? The third one may come and that's over and above this. What about I think approval-
We got one Estradiol approval, we had a PAI for three products, and that's the current portfolio right now that is being inspected.
Oh, I see. Okay. Okay. which means that you may have four approvals in a short order of time, yeah?
It's potentially possible, yes.
You said all four of them are going to be meaningful, yeah?
Three out of the four at least, if I have to hedge.
Okay, that's great. Sharvil, what's the outlook for margins? I know you've guided 21x, 22 x, but you see this now, change going forward?
Right now we are trending on the higher margins. As you know, we have some exclusive products and all of that. Current outlook for the margins are looking much better at 21%+. I think for the full year at least, we believe we'll be better than the last year.
Okay, great. One final question, and I have to ask this. In your assessment, in your outlook for U.S., how are you thinking about Asacol HD competition, sir?
I think the good thing is obviously for us is that there is no competition right now. With the new products that we are launching, where we have also sort of exclusivities as well as maybe differentiation as well as some of the new launches, I believe with that base will continue to grow and we will, as I'd always said, we will find ways to make up for the losses on Asacol. I think that is already happening, but we have not lost Asacol yet.
Six months to 12 months is what you would guess, if you to-
Whatever number, Sameer, you want to take.
It's very difficult.
just ensure that. Short term-
I can only say for at least the next quarter, nobody's there. Every quarter, maybe I can add.
Okay, got it, sir. Thank you very much. Good luck.
Thank you.
Thank you. The next question is from Prakash Agarwal.
Yeah. Hi, good evening. Am I audible?
Yeah.
Yeah, just trying to understand this upcoming REMS product better. There's a large investment that we have done. I mean, how to think about this product, could it be, you know, a largish product, a billion-dollar kind of product and would it have exclusivity? Some color would really help given we are making some large investments.
It is not exclusive. It will have some limited competition, but it is meaningful in terms of the investments that we have made.
There's a setup cost also.
There's a setup cost. The revenue we currently expect, obviously made that investment assuming we gonna have better revenues.
Okay. this is like a first half calendar year kind of opportunity or it's already?
It is, it's a definitely a FY 2024 opportunity, maybe the second or third quarter.
Understood. Fair enough. In the opening remarks, there was a mention of market share gains. Any particular trends we are seeing, and these are like little longer-term trends are we seeing or is it like one, two large orders which have triggered this, you know, or it could percolate to next many quarters?
Consistently we have managed our base business well, so that is the strategy. With the disruptions in the marketplace, we believe that we will continuously strive hard to not only manage it, but also make sure we don't, I mean, do it profitably.
When you say disruptions, you mean USFDA issues with others or you mean other trends?
Mostly it's to do with the supply chain, yes.
Okay. Okay. Understood. You know, just wanted to understand transdermal opportunity better. There's already some answer on two or three of the four opportunities. We have taken some time to get the approvals. I mean, is the market already matured, the ramp-up is slow or, there is definite position for the third and fourth player? How do we think about that opportunity over six, 12 months?
No, in the next 12 months, our current plans are showing that these will be meaningful launches for us.
Okay. Okay. Just to sum it up, what I understand is there are a few large meaningful opportunities which can, you know, take us to the, you know, a sizable step up. In terms of margins and R&D investments that we are doing. Margins, you gave some color, but I mean, does it take us to 300, 400 basis points higher, or we have a step up in R&D which will keep the margins at the current levels?
I think first let us complete the current year. Maybe in the next quarter we can give some better understanding. Our, as I said, R&D investments on the generic side is sort of almost stable and you don't see any major growth on that. The investment that we'll be making will be on the NCEs and biologics, which are gradually going to scale up. The EBITDA margins, as you have seen, there's room for improvement, and we hope we can continue to deliver better EBITDA margin.
Yeah, I mean it is quite evident, right? I mean, the step up, I'm just trying to understand the scale of step up that we can see.
Currently our estimates are looking that there will be a step up, but you know, we can't predict the whole year, so.
Okay, understood. Top two, three priorities apart from NCE, any other large investment or gaps that you see and balance sheet is pretty strong?
No, for us now the main thing is to execute on the new launches, and continue to make sure what we are doing in India, we're able to keep on executing well there and at the same time grow these strategic brands that we have decided to do so.
Okay, lovely. Great. All the best.
Thank you.
Thank you very much. Next question from Vishal Manchanda.
Thanks for the opportunity. Hope I'm audible.
Yes.
My question is on Oxemia. Can you share any feedback in terms of how the product is being accepted in the market?
The product acceptance is very good. Right now we are seeing a lot of patients on people who are not on dialysis. Slowly, we would also want to add people who are on dialysis. It will be a gradual build-up, once the, you know, once you're able to do enough work with the medical fraternity as well as the patients to show the better safety as well as the better care that better compliance that we can see with an oral product. Also, with the approval of the same so similar class of products with, by the USFDA, we also believe that some of the questions will get answered and we'll see better traction going forward.
Got it. The U.S. approval will help you promote the drug better, in India?
Yeah. This class of molecules has...
Yeah.
USFDA has approved it. Obviously, all products are not the same, but at least one small overhang will sort of reduce.
Yeah. GSK got that approval a few days back.
Yes.
Okay. Second one on Asacol HD. There's a settlement agreement in public that says, you pay a royalty to the innovator. Since the patent has expired in November 2021, is the royalty still payable or that royalty has been discontinued?
I don't think we can discuss the confidential agreements, right now, but that would be difficult to answer.
Okay. Third one on biosimilars. What was the growth you achieved in the nine-month FY 2023?
As I said, the biosimilars is part of the branded generics business, so I don't think we will give different numbers on that. Definitely it's trending better.
better than the company growth?
Better than the market, growth.
Okay. You also launched a drug called Rucaparib in India, which is a cancer drug, and you are among the few players to have launched that. Is that a large opportunity for you?
From the overall oncology play, yes, this will significantly add importance with the practitioners and the patients. We also believe we would be adding three, four more products which are unique. Our oncology pipeline will continue to evolve in terms of being a meaningful one for all types of cancers beyond just the solid tumors.
Okay. Just one final one on CanAssist, which you in-licensed from a company for breast cancer, basically. That's a diagnostic sort of a product. Has that been launched in any, how is the product shaping up?
It has been launched and it's tracking very well. I think, as I said, for us, the most important strategic drive for the future is to how do we bring better value for the patient. This is one of our attempts now that, you know, we can bring the right advice and right diagnostic and prognosis markers for the patients to make the right choice and for the doctors to make the right choice whether chemotherapy is required, and if required, then what could be the chemotherapy protocol. I think it's a good step forward in terms of giving patients better, patient and the doctors better access and better decision-making capabilities.
Patients have started to use this option to kind of go forward.
Doctors use it for the patients.
Doctors. Basically doctors use this option.
Yes.
Got it. Thank you. That's all from me.
Thank you very much. Next question from Ankush Mahajan.
Yeah. Am I audible, sir?
Yes.
Sir, I have checked the list of drugs that we got approval from USFDA from the last one year. There are a few drugs, sir, like Cetuximab, Mirabegron, Lenalidomide, that's Revlimid, and this Brexpiprazole. Can you tell me, sir, the status of these four drugs?
Revlimid, you already know it's launched. Many of the products that get approved have settlement dates for launch. All products that get approved don't get launched, yeah, on that approval date.
When we can expect such, these drugs in the market?
These are not in the short term. These are much later.
Okay. Okay. Okay. Thank you, sir. That's from my side. Thank you.
Thank you very much. Next question from Kunal Randeria. We move on to Neha Manpuria.
My questions have been answered. Thank you.
Thank you very much. Bino Pathiparampil.
Hi, thanks for the follow-up. Sharvil bhai, this product for which you have invested in REMS, is that a transdermal transmucosal sort of product?
No, it's not a transdermal product.
Oh, okay. Thank you.
Thank you. Let's move on to Kunal Dhamesha.
Thank you for the follow-up. you know, I just wanted to understand if you could provide a number in terms of how much we are spending on the specialty products, specifically for Saroglitazar in U.S., at least for first nine months, so that we can better understand what is the P&L burn right now on this business which is not generating revenue as of now.
Overall, 30% of our R&D spend is on all of these clinical programs that we are running, of the total spend that we are doing.
Okay, great. Second on, again, going back on the REMS that we have done, is it a shared REMS program sharing with other generic companies?
Yes.
Okay. Others would have also put in the similar amount?
I can't disclose all of that, but it is a shared REMS program.
Okay. Or is it like we have put in higher amount, but we get them later on, you know, to pay some kind of fees?
It's a shared REMS program, so I think you'll be able to understand the meaning of that, yeah.
Okay. Perfect. Perfect. Thank you.
Thank you very much. Now we have questions from Saion Mukherjee.
Yeah. Thanks for the follow-up. Sir, on the transdermal, what is the total number of filings you mentioned, you know, with one approval already coming from Moraiya, we'll have four approvals. I just want to know what is the total number of pending approvals now on transdermal side?
We have filed nine products, out of which six are pending approval. One of them we are not going to commercialize, which is the approval for a fentanyl patch.
Okay. Okay.
We do continue to file. We do have expectation to file two, at least immediate, near basis, two more products.
Two more products. Okay. Okay. Sir, I think a few quarters back you mentioned around your partnership pipeline on injectables, certain exclusive products likely to be commercialized in calendar 2023. Are you on track for those launches?
Yes, we are hopeful that we will see at least one to two partner products launches.
Those would be exclusive, I mean, 180-day exclusive kind of products?
Not exclusive, but they at least some of them have no generics.
When do you expect, sir? first half or second half?
It's approval cycle, and these are complex products, but definitely in this calendar year.
Okay. Sir, one last question on your R&D program. 30% of program, I mean R&D you were saying on clinical program, this proportion is going to go up in the next few years, right?
Yes.
Is it going to be closer to 40%-50%? Anything you can comment on?
Again, for a three year, I don't have that exact thing, but as you first guided to speaking is it'll definitely go up as a percentage of overall R&D spend. Now whether it becomes 40% or 50%, it's still too early to say, but I don't think it'll be a drastic jump because every year we are recruiting similar number of patients and it'll be gradual, unless we are seeing some major thrust on any critical program. Most of our programs are in indication that are not requiring a lot of patients, so we hope that we'll be able to manage our R&D expenses.
Okay. Sir, I have just one last question, if you can, if you can take that. It is on M&A. I mean, you have done M&A in the past in consumer business, but we haven't seen much action on the formulation side and, you know, there is lot of assets which people are acquiring. What are your thoughts? Because there are gaps in your portfolio currently. So any thoughts on sort of, plugging those through acquisitions?
On the India business, I think our first priority that we believe is that we have our portfolio and the new pipeline of our own launches, we believe are sufficient for us to deliver better than market growth and that's what we are driving towards executing. We do have gaps as every other, but I think currently we believe that our own portfolio, concentrating on our own business would be more better. Having said so, we do evaluate all opportunities, but I think many of them at the prior multiples don't make sense for us to do because, you know, the growth will be challenged if they're more established.
I think focusing on our new launches and the products that we believe are important, like those 20+ products, I think can drive the substantial growth that we want to drive for the medium term.
Okay sir. Thank you.
Thank you very much. Next question from Surya Patra.
Hello? Hello?
Yes, I can hear you.
Yeah. Sir, just, can you clarify what is the gross debt number that currently we are having right now. I think in the quarter it seems that, okay, you have paid something. As for the credit rating report, that's why.
Yes.
As on 31st December, gross debt was INR 1,816 crores and net debt is INR 604 crores.
Okay. Okay. Yeah, fine. Thank you.
Thank you very much. Next question from Vishal Manchanda.
Yeah, hi. On Saroglitazar, on the ongoing trial in primary biliary cholangitis, since you are recruiting patients from Europe as well, does that mean you can do a global filing if it is if the trials are successful?
Yes. For Saro, obviously, as I said, we have recruited across different centers in U.S. and Europe. Our initial plan is for the U.S. market in terms of commercialization, but we will also be looking at how do we take it through partnership in other European markets.
Okay. Since this is a phase II, phase III trial, would you be separately reading out the phase II data, or it'll kind of go into phase III, and then you will share the data?
The phase II will continue into the phase III, so the meaningful readout will be after the phase III is completed. Because the patients continue into the phase III, so.
Okay. Okay. that should happen in FY 2025, the readout?
Yes.
Okay. Just one on CUTX-101. Is that approval due anytime now? Any progress on the testing?
So the-
for the interseries?
Yeah, the newborn screening testing we have, I think had some good progress. We hope by the time we have an approval, we are at least near to getting that test through. The test, the approval is still pending and because we have a licensed end product where it is manufactured by the licensing partner. Until they are able to get through with the filing and the approval, we have to still wait.
Okay.
The exclusivity gets only triggered after launch.
Understood. Thanks. That's all from my side.
Thank you very much. Next question from Vaibhav Ravi.
Hello. Hi.
Hi.
This is with regard to SEZ II. You spoke about a few projects there. You said there's a new oral solid plant. There's expansion of the transdermal area and some API projects. Did you also mention this MMR vaccine plant for which you're seeking a PQ from WHO?
Yes. Yes, that also.
What's the CapEx? You know, what's the kind of expenditure for these projects here at SEZ II?
We are not breaking up individual CapExes. SEZ II is a meaningful CapEx overall in the overall scheme of things. I said the overall INR 900- INR 1,000 crore CapEx is broken up into these major factors.
Okay. By when do you expect this PQ? Do you have any kind of a clue there?
This is a little bit down the line. It's nothing on the immediate term. The first PQ for us will be the typhoid conjugate vaccine one, and then we will do the filing for the MR. It's definitely not in this calendar year.
Okay. Okay. Could you just talk a bit more about how significant you expect this, you know, vaccine? You have spoken a bit in the past about it, do you see that, you know, the given, post-COVID, the importance of vaccines has, like, shot up considerably. What are your plans here, and how big do you see this business growing?
The business is, as I said, for both the PQ vaccines, which is the MR and TCV, they're part of the global immunization plans, including India immunization.
Mm-hmm.
The volumes that have been stated in terms of requirements are significant and large. As I said, we were looking at taking about 11%-20% share of that. That if we are able to be successful with the pre-qualification and meet the timelines of the tenders, it will be meaningful.
Very profitable.
Profitable.
Okay, thanks.
Thank you.
Thank you very much. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.
Thank you very much and look forward to interacting with you again in the month of May for the last quarter results. Thank you and good night, and enjoy your weekend.
Thank you very much. On behalf of Zydus Lifesciences Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines and exit the webinar. Good night. Thank you.