Ladies and gentlemen, good day and welcome to the Zydus Lifesciences Limited Q4 FY 2022 post-results earnings conference call. Please note all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the opening remarks. Should you need assistance during the conference call, please raise your hand from the Participants tab on your screen. Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh Nayak, Executive Director, Zydus Lifesciences Limited. Thank you, and over to you, sir.
Thank you. Good evening, ladies and gentlemen. Welcome to our post-results teleconference for the quarter and year ended March 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 would have gone through the quarterly results investor presentation, which we have posted on our website and filed with the stock exchanges. I'm pleased to share our performance for the financial year 2021-2022 as we continued our efforts to fight the pandemic through our therapeutic products and on-ground initiatives to support the healthcare fraternity.
Though continued disruption in the supply chain and inflationary pressure impacted some of our businesses, our agile supply chain helped offset the impact meaningfully, thus ensuring reliable and timely supplies to our customers in key markets. The year gone by turned out to be good for our branded formulations business in India as the business posted strong double-digit growth consistently. On the consumer wellness front, the business environment remained challenging due to the COVID impact in the first half and the inflationary pressure in the second half. Importantly, the business retained the leadership in five out of six categories. Our U.S. formulations business continued to grow the overall volume and maintained top three ranking in 60% of the product families despite increased competition and pricing pressure. On the innovation front, the year saw several important milestones achieved by us.
Dr. Sharvil Patel will speak about them in his talk. With that, let me take you through the financial numbers for the year gone by. During the year, we posted consolidated revenues of INR 152.6 billion, up 6%. Consolidated EBITDA for the year was INR 33.4 billion, implying an EBITDA margin of 21.9%. Excluding the impact of one-time COVID-related inventory provision of INR 1.8 billion, the EBITDA margin for the year stood at a robust 23.1%. One-time inventory provision, as mentioned above, input price inflation and continued pricing pressure in the US business impacted gross margins adversely. However, continued efforts on the cost optimization and efficiency enhancement initiatives significantly helped contain the EBITDA margin decline. Profit after tax for the year was INR 44.9 billion, up 110% year-on-year.
Excluding the impact of COVID-related inventory provision, as mentioned above, profit from discontinued operations and certain exceptional and non-recurring items, our PAT grew by 12% during the year. Our balance sheet health improved significantly during the year with a negative net debt at INR 0.6 billion as of March 31st, 2022, against INR 35 billion as of March 31st, 2021. As a result, our net debt-to-EBITDA ratio turned negative and stood at -0.02 times as on March 31st, 2022, compared to 1.03 times as on March 31st, 2021. Coming to the quarterly financial numbers. During Q4 of FY 20 22, we posted consolidated revenues of INR 38.6 billion, up 5% year-on-year. Excluding COVID-related revenues, the growth was 7% on a year-on-year basis.
Adjusting for the inventory provision of INR 1.4 billion made during the quarter, EBITDA was INR 8.6 billion, implying EBITDA margin of 22.3%, which is an improvement of 170 basis points on a sequential basis. Profit after tax for the quarter was INR 4 billion. Excluding the impact of COVID-related inventory provision, as mentioned above, profit from discontinued operations and certain exceptional and non-recurring items, PAT stood at INR 5.3 billion, up 12% on a year-on-year basis during the quarter. Over the last few years, our endeavor has been to strengthen our position in the Indian market, particularly in the branded businesses.
In line with this, the salience of the India geography, which comprises of formulations and consumer wellness business, has increased from 37% of the revenues in FY 2018 to 46% of the revenues in FY 2022. During the year, the India geography business registered a healthy growth of 15% and posted sales of INR 67.9 billion. Now let me take you through the operating highlights for Q4 of FY 2022 for each of our business lines. Starting with our formulations business within the India geography. The business recorded sales of INR 11.6 billion during the quarter, up 14% on a year-on-year basis. Excluding sales of COVID-related products, the branded business grew 19% on a year-on-year basis. Importantly, the growth was well represented by volume expansion as well as better realizations.
On a full year basis, the business posted a sale of INR 48.1 billion, registering a growth of 19% on an elevated base of last year. Excluding sales of COVID-related products, the branded business growth was 21%. We gained market share in our core therapies of antidiabetic, cardiovascular, and gynecology during the quarter on a year-on-year basis. On the super specialty front, we continue to retain our leadership position in the nephrology segment. In the oncology space, we remain the fastest-growing company in India. Our consumer wellness business posted revenues of INR 6.3 billion with a growth of 6% during the quarter. Sales growth for the year was 7%. Now let me take you through the performance of our U.S. formulations. The U.S. geography posted sales of INR 14.2 billion during the quarter, down 4% year-on-year.
On a full year basis, the business posted sales of INR 58.1 billion, down 8%. During the quarter, we launched four new products in the U.S., taking the cumulative number of new product launches for the year to 14. We received final approval for five new products during the quarter, taking the cumulative number of approvals for the year to 28. Notable approval includes the receipt of final approval for nelarabine injection, which was granted 180 days exclusivity. Cumulative number of NDA filings and approvals now stand at 420 and 312, respectively. On the emerging markets front, the business posted sales of INR 2.8 billion, up 10% on a year-on-year basis. Excluding COVID-related portfolio, the business posted a growth of 29% during the quarter.
Robust performance in key markets of Latin America, the Philippines, and Vietnam drove the overall performance of the business. However, the situation remained challenging for our business growth in Sri Lanka in light of the ongoing political crisis. On a full year basis, the business posted sales of INR 11.9 billion, up 17%. On the operations and compliance front, our injectable facility at Jarod, which is the erstwhile Liva Formulations facility, underwent a U.S. FDA inspection during the quarter. The inspection concluded with 3 observations. We have received one new product approval and one site transfer approval from this facility post the inspection. As shared with you on previous occasions, we continue to remain vigilant towards our cost structure and undertake various measures to optimize the same and remain competitive.
Advanced digital and analytics tools being implemented in manufacturing operations would enhance compliance and efficiency through simplifications. This now concludes the business review. I would request Dr. Sharvil Patel to take you through the strategic direction and material developments and initiatives in our innovation program. Thank you.
Thank you, Dr. Nayak. Good evening, ladies and gentlemen. It's a pleasure to have you here on the call today. I'd like to update you on our strategic direction as well as share material updates on the progress made by us on the different R&D initiatives during the quarter. Over the past few years, we have had a strategic review of our businesses as we continue to build sustainable long-term growth drivers for the company. Certain loss-making businesses like Nesher and Hercon in the U.S. have been scaled down or discontinued as we continue to build pipeline and capabilities to improve our business mix in the U.S. We also want to position our specialty business as a rare and orphan disease-focused organization and have been working on identification of bolt-on assets to leverage the common platform.
To sharpen focus on key growth engines and to free up management bandwidth, the animal health business divestment during the year also helped realizing optimal value for the business. These strategic direct decisions demonstrate an effort to streamline capital allocation, help improve return ratios to ensure better stakeholder value creation. I'm pleased to state that given a strong financial position with the net debt-free status, supported by one-time gains from the divestment of the India-centric animal health business, the board has approved the proposal for buyback of shares at an attractive value to reward the shareholders. We remain committed to build long-term sustainable growth drivers for the company, and that reflects in our continued investment on R&D as we continue to progress on the innovation front. We continue to augment our capacities across and realign our manufacturing network to be future-ready across multiple technology and dosage platforms.
We are leveraging automation and digitization to meet highest compliance standards and optimize cost per unit incrementally. Our business mix will evolve over the time to include more complex products with higher entry barriers, thereby enhancing our position in a competitive environment we all operate in. I'd also like to throw some light on the broad strategic direction for the two of our largest businesses, which is US and India. We remain optimistic on the prospects of branded business in India and for both our businesses, formulations, as well as the consumer wellness. In the India formulations business, we continue to focus on enhancing our presence in high growth areas within the chronic and specialty segment. Moreover, we have aligned our business strategy to build select pillar brands and focus on new product launches, which will help us outpace the industry growth.
Our biologics business is likely to sustain high growth momentum, cementing its position with one of the widest portfolios and fastest-growing portfolio in the respective categories. With few first-in-market launches like Exemptia and Ujvira, we remain excited with our pipeline, and this segment will continue to bolster our growth in India. On the consumer wellness front, we are leveraging our R&D strength to launch new products which meet our consumer needs and ensure continued brand pull. Our distribution reach continues to expand, and we aim to achieve healthy growth while expanding market share in each segment that we operate in and benefit from operating leverage, hence stronger profitability as we navigate the near-term inflationary pressures.
While we have built a formidable U.S. generics business backed by strong generics R&D effort, we continue to focus on differentiated products, ensuring a balance between high volume and high value complex products. While this would scale up in times to come, we are calibrating our R&D spend judiciously and supplement it with business development and licensing efforts to improve the ROI and to ensure on-time launches for commercial success. For the medium to long- term, we also have investing resources to evolve as a strong, rare and orphan disease company. Our own NCE pipeline continues to progress well, and we will invest in a phased manner to ensure that Saroglitazar meets its development goals for PBC and NASH indication that will translate into commercial success. Let me also talk to you about some material developments on our innovation front.
On the NCE front, we have launched a novel molecule, Desidustat, for the treatment of anemia associated with CKD developed in-house in India under the brand name of Oxemia in March 2022. This launch will further consolidate our leadership position in the Indian nephrology segment by providing first-in-class solution to the specialists. Desidustat is also being evaluated for a global development, and currently the molecule is undergoing a phase III clinical trial in China for the management of CKD patients. The global development of Saroglitazar Magnesium, the phase IIb/III global clinical trial of the molecule to evaluate its efficacy and safety in patients with PBC and the phase IIb trial for NASH and fibrosis and other indications are currently ongoing in the U.S. market in line with our current plans.
Coming to our biotech, we have submitted market authorization application to DCGI for Rituximab and submitted an application to initiate phase III clinical trial for one more monoclonal antibody during the quarter. We have also received GMP approvals for manufacturing facility from Mexican authority, COFEPRIS, for three products during the quarter. This will facilitate launching these products in the large opportunistic market of Mexico post their approval. Coming to the specialty initiatives, after the acquisition of CUTX-101, now branded as Zycubo, during the quarter, we entered into an agreement with BridgeBio Pharma, Inc. to acquire Nulibry, fosdenopterin, for injection. Nulibry is approved by the U.S. FDA to reduce the risk of mortality in patients with molybdenum cofactor deficiency type A, an ultra-rare life-threatening pediatric genetic disorder. With this acquisition, the company further strengthens its pediatric rare and orphan disease portfolio.
Commercialization plans for CUTX-101 for the treatment of Menkes disease are underway. The product is under a rolling submission, and all modules of the NDA are expected to be filed during the current calendar year. We have undertaken various initiatives to create awareness for this disease, which is a rare disease. On the vaccines front, ZyCoV-D received an EUA approval as a two-dose vaccine for the eligible population, the age group of 12 years a nd above. The vaccine will now be administered on day zero and day 28, improving the compliance profile. Thank you. Now we will start the Q&A session. Over to the coordinator for the Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask questions may raise your hand from the P articipants tab on your screen. Participants are requested to use headphone or earphone while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from Neha Manpuria.
Thank you for taking my question. First, I just wanted to understand on our India business, we've seen good growth in the quarter, even excluding COVID portfolio. Could you give us a little color on, is this a reflection of our initiatives that we have taken? How should we look at the growth for next year given the high base?
Yes. We are very pleased to play an important role in the fight against COVID, and that's been very good in terms of the overall business. As we have recovered from the pandemic, I'm pleased to share that the India business has also started to register a healthy growth. Ex-COVID sales India business grew by 90% for the quarter and 21% for the full year. This partially reflects the impact of a renewed strategy to focus on brand building. Also, the strong momentum of our novel products like Lipaglyn, Bilypsa, and Oxemia will further add to this growth. On the super specialty front, our biologics business continues to maintain strong momentum with major products leading in the category in terms of growth and in terms of patient enrollment.
From the therapy focus standpoint, the chronic and the semi-chronic will give us a higher thrust as we aim to strengthen our footprint in the therapies like cardiovascular, diabetes, gastrointestinal, gynecology, respiratory and also in the specialty segments like onco and nephro. As I highlighted earlier, I think our endeavor is to outpace the industry growth sustainably now, and we are clearly seeing the path to achieve this.
Understood. In the reported numbers for the quarter, is there any contribution from vaccine?
No .
No.
Okay, understood. Second, the COVID inventory write-off, if I understood it correctly, this is all sitting in the gross margin, right? If I were to adjust that, our gross margin seem pretty strong despite the price inflation and the erosion we've seen in the U.S. Could you help us understand what's benefiting that?
There are three, four different factors. One is the business mix itself in terms of the growth that you have seen in India business. Another is foreign exchange fluctuation, which is partly helping us in terms of realization. Also our supply chain, stockings, various inventories, before the price increase took place. On other end, some of our business like Zydus Wellness was able to take price increase also. Multiple three, four major factors which contributed to this.
How should we look at the sustainable gross margin for next year?
Gross margin, Neha, would remain a function of business mix to some extent, but I think in terms of EBITDA, we are pretty confident of saving 20% plus EBITDA margin.
Understood. Thank you so much.
Thank you. Next question is from [inaudible].
Hi. Just clarification on generic Revlimid launch now that we are close to it. Could you confirm if we will be part of the next wave of launches o r would there be somebody in between launching in between the first wave and us?
We expect to launch this product in the next wave of the generic launches, subject to the final approval in place. I think we are backwardly integrated on the products and, beyond that, I don't think we can add more color to it, but we will be planning for the launch.
Okay, great. We have seen U.S. FDA inspections coming across in many, many facilities. Do you have any heads up on Moraiya?
We are prepared to be inspected by the U.S. FDA anytime, and we hope that the re-inspection happens in the current year. As you said, the resumption of inspections have started in India. As I also earlier have mentioned, that majority of our high value products, excluding transdermal, have now been site transferred to alternate facilities. From the risk mitigation perspective, it's good. However, there are still a number of products which could potentially be launched from this site post-clearance, and we await the FDA to come and inspect that.
Okay, great. One last question on Asacol. B etween last call and now, have you got any incremental information about any potential competition entry?
No. We don't see any on the immediate basis, any potential entry.
Great. Okay. Thank you. I will join back the queue.
Thank you. Next question is from Pritesh Vora.
Hello, sir.
Good evening.
Can you hear me?
Yes.
How do you see the India business going from here? W hich area we are targeting in India business? What is the outlook on India business?
I think I covered some part of the answer earlier already on the India business. It's three things. On India, we have seen a strong growth. It's driven all across the segments for us. The future growth we believe will be driven by the chronic and subchronic categories for the company. Novel products like Lipaglyn, Bilypsa, and Oxemia will significantly add to further growth. We are seeing strong momentum on our biologics business, which will maintain its growth trajectory, which will aid to better growth and also better patient enrollment. That is our ambition to do there. We believe that we are poised to grow and plan for a better than market growth, with some of these initiatives that we have taken across the important TAs that we have mentioned earlier. That's our current expectation.
My second question is about the API. We are seeing some degrowth quarter-over-quarter and large degrowth quarter-over-quarter, as well as the YOY degrowth. What is happening there in the API side?
Going forward, the growth will come. I think it is also base effects. During the COVID period, I think we had a lot of business that was created. I think we were sitting on a good base. I think going forward we'll see some growth coming back, but it's more a base effect.
All right, sir. Thank you very much.
Thank you. Requesting everyone, before asking the question, please introduce yourself and your company's name. Thank you. Next question is from Anubhav Agarwal.
Hi. This is Anubhav from Credit Suisse. One question, Sharvil on this product that you acquired, Nulibry, h ow big this drug could be in two to three years, and how much you have paid for this, for the U.S. market?
Nulibry is a very ultra rare orphan disease. The patient population that is there is very, very small. In Europe this is a little bigger, where there are now some odd 1,800 patients there. In US, we believe there'll be two to three patients every year who will be added to the ongoing program. It's a very rare disease. It's a disease that is terminal in terms of children who have very high seizure rates, and they don't survive. The payment for this is not anything significant at all. As I said, it's a rare disease. As I said, the company's philosophy and we have committed to working on rare and specialty diseases where there are unmet needs and there are no medicines for.
We've picked up this juvenile or newborn area to work on, and that's why there are these two drugs, both Nulibry and Zycubo, which will be going for the pediatric population. But the patient numbers always will be very, very small because these are very ultra rare diseases.
Okay. Thank you. Second question is on Oxemia. What is the pricing that you have launched in the Indian market? That's one. Secondly, just from a patient perspective, if patient takes it in an alternate days basis, but for how long, a patient needs to take, patient who has CKD disease?
It is a chronic treatment. It's not acute in nature. This has to be taken for mainly CKD patients for almost throughout their lifetime. I don't have the exact pricing. I can't give you the exact rupee value on the tablets right now. Our endeavor is that today the class of treatment is an injectable, which is erythropoietin, which has also side effects and multiple times you have to inject. This is an oral treatment to that. We believe we will see a lot of conversion from the current mode of treatment, and especially the new patients who are not on dialysis will also see a significant opportunity in terms of this product.
We believe that markets like India and other emerging markets like China have a great potential with a large population of patients who have renal deficiency and who have problems related to that, with anemia. There is a lot of opportunity for that. The gross margins are good on this molecule, much better than the company gross margin.
You have already commercialized this or you're about to commercialize this?
We have already launched it in March and very good traction from the first few months.
Last question, just for clarity on your vaccine contract of that 1 crore doses. Since you haven't sold much, so is there anything going to be commercial opportunity from those 1 crore doses contract with the government o r that may not materialize?
Currently, there is no demand there from the government so that we have not been able to fulfill that order because there is no demand for the vaccine in the adult population. What we are working on is to get our approvals. We already have approvals, but we are waiting for the final approval for the 12 years and above. Then our opportunity that we are now currently targeting is exports and also the private market. If there are procedures that change with mix and match and booster and other things, then we would see some opportunity there.
Lastly, for the U.S. business, can you just give us some outlook? Do you expect next fiscal 2023 to be a flattish year, I'm assuming that SRO competition comes maybe next quarter or quarter after that? Do you expect that to be a flattish year or growing year?
We expect that on the US business, there will be a price erosion in the mid- to high-single digits, and that's what we are expecting. I think what is going to help the US business to grow is going to be new launches. We are currently assuming for FY 2023 a single-digit growth for the year b ut there are a lot of variables to it, and we have to see how everything goes. We have a good pipeline of NDAs still pending approval. We have some high impact products that we want to launch in the second half of this year. If all of that goes well, we'll see single-digit growth for the full year, but a better second half than the first half.
Thank you.
Thank you. We will keep two questions at a time because of the time constraints, and there are many people who need to ask questions. Next question is from Mr. Prakash Agarwal.
Yes. Hi. Thanks for the opportunity. Good evening to all. First question again, carry on on the U.S. I'm looking at my last notes. You mentioned that it is flattish or a partial decline is possible. Now we are talking about single-digit growth. Anything changing in your assumption? Do you think the competition is away in Asacol o r do you think the launches are chunky? If you could throw some light there.
While we continue to see price erosion and some part of base erosion, we believe that there is some upside to Asacol in the second half and also two high value launches that we believe can do good. Because of that, we believe that we can have a high single- digit growth.
Okay. Follow-up to that is on the other mesalamine product, Pentasa. That is stuck due to Moraiya or...
I don't think we give updates on, to be launched products. I don't think I can give you that. We are working on a couple of other mesalamine franchise products.
Okay, perfect. Secondly, on EBITDA margin guidance of at least 20%. If any color could be given on the current gross margin or how we are seeing the input prices. We hear that packaging freight, etc , all have gone up, as also mentioned by various companies. What is the strategy here? Do we see that we take a lot of cost-cutting measures or how we are going to address to this high inventory cost issues?
Prakash, I think it works on several different measures. While we continue to work on cost rationalization, cost optimization initiatives by different programs, both in manufacturing, supply chain as well as marketing and other sectors. On the other end, wherever feasible, we are also taking price increases to at least pass on, if not full, at least part of the price increase in various commodity items.
Okay, perfect. Great. I'll join back the queue.
Thank you. Next question is from Sameer Baisiwala. Sameer, please unmute yourself.
Yes, sorry. Can you hear me now?
Yes.
Yes. A very good evening. Sharvil, I don't know how you want to answer this, but just thinking, do you think the upside from Revlimid versus negative from Asacol HD competition, how does the two factors stack up?
I think it's very difficult to say when the competition is there in Asacol. As I said, currently there is an upside because the competition is delayed. Revlimid is going to be a good sizable opportunity from our point of view. That's a positive for the business. We do have one more high value launch. I think that's the current update I have for the current FY 2023. Beyond obviously our high value filings and first to file products that we have for the future.
Okay. Thanks, Sharvil. Just if I can, if both were to get launched on the same day, which is Revlimid launch and competition Asacol HD, are the two comparable? I guess that's what I'm trying to get to. Don't need to quantify it.
No, obviously they're not comparable.
Upside from Revlimid is much higher, right?
No, that we can't comment because we have not launched the product. Once we know about that and what is the pricing and all of that, so it's difficult to answer that question.
Okay, sir. No worries. Just on Nulibry, what's the thinking behind taking this asset? It doesn't look like any meaningful commercial opportunity, maybe a lot of hard work. You will build this whole infrastructure. Why get into something like this?
I think our philosophy for the company going forward is that we will be working on therapies and areas where there are unmet medical needs. If you look at our current portfolio of Zydus also, when you look at Saroglitazar for the treatment of PBC is also an orphan disease in the U.S. where there are no frontline treatments for that. If you look at Desidustat and when we're doing work on CKD anemia, chemotherapy-induced anemia, again, it's an orphan area. I think what we have decided is to create a niche in this space of orphan and rare diseases.
As a responsible pharmaceutical company, we also want to make sure that while we do that, we also work on some of the neglected diseases or very rare diseases where there are no available outcomes. I think both of these molecules have tremendous importance in terms of extending the life of young patients. I think we looked at all of that, and we decided to do that. Commercially, it is still meaningful for the size and scale of the company we are. We do get premium for being able to provide this medicines for this. This business will slowly scale up. It's not something that can scale up overnight, but it's a very sticky and continuous business, and with very little threat on genericization.
Sami, over a period, I think it will be basket of such products, which will make a meaningful difference using common platform.
If I just give you an example on just Nulibry also, even if we are recruiting two to three new patients every year, it's still a good business model for us.
Okay, great. Thank you so much. One final is on ZyCoV-D. Sharvil, what's the outlook? I heard your commentary, and good to see two-dose getting approved. On the previous call you mentioned you can do 3-5 crore doses for the full year. Now how does it look like? I s it a meaningful commercial opportunity for this year?
No, I don't see it immediately being so. I think our efforts are going to be to work on exports and the private market. If the plan of vaccination changes in terms of...
Booster.
Mix and match and other things in terms of booster, we can see some opportunities. But we are not now talking about doing 3 crore doses, because there's no demand currently for 3 crore doses. What we are also working on is the multivariant vaccine for this, because we are working with multiple strains to be put into one vaccine. That's a little longer term development for this. That's the current update.
Okay. Thank you.
Thank you. Next question is from Dipen Sheth.
Yes. Hi, I hope I'm audible, sir.
Yes.
Dipen Sheth from Buoyant Capital. M any of the questions that I wanted to ask have already been answered, so I'll take a slightly high- level issue, I would like to raise it for Sharvil to answer. We have raised a significant amount of resources on the balance sheet now, and we are literally pretty cash rich. I would guess that you're not going to let this ammunition remain idle for too long and you have a certain strategic intent with it. Or would you be thinking in terms of returning it to shareholders? The little bit of a buyback and all that is fine, but, is there a concrete thought process here that over the next one or two years, you want to put it into something which could be value accretive in some way? Is there any thinking around these lines, and if so, what is it?
I think what you said is correct, as we are looking to build our specialty footprint, and extend it both in India and U.S., and also look at some other global markets in terms of partnerships. I think some part of our investments will go into the buildup of a specialty business, and the R&D associated with it for some of the products that we are developing. Second, we'll always look at some opportunities in India in terms of brand acquisitions that we want to look in terms of adjacencies that we want to create.
Okay.
There will be some capital investments now for enhancement of biosimilars and some vaccines, especially the global WHO pre-qualification vaccines like MR and TCV, which we are committed to, and we are seeing good visibility to that. Some investment on oral solids for our U.S. As I said, we are looking at optimizing our network to make sure that the next facility we build is better, best- in- class in terms of cost, and that's what the current work is going on.
Okay, I'm hearing you. Thanks.
Thank you.
Thank you. Next question is from Prakash Agarwal.
H i. Thanks for the follow-up. Just if I missed, I don't know, but R&D, what we are guiding here in terms of percentage to sales.
About 8%.
About 8%. My next question is on Saroglitazar. Last time we had indicated that filing expected by calendar 2024. Do we stick to that, and do we see a ramp up in cost in fiscal 2024- 2025?
Saroglitazar, we are still looking to file this in 2024 and commercialize it in 2025. The clinical work is ongoing. These clinical programs for both PBC and NASH are going to be over three to four years because NASH is a 27-28 filing and launch. I think our current view is that we'll be around 8% of revenue w ill be spent on R&D over the next three years.
Would you say that your share towards NCE and innovative pipeline is increasing already versus generics investments in the R&D side?
No, it's almost same. I think about 2/3 is in generic and 1/3 in NCE.
The programs.
Yes, I'm asking from a filing standpoint, once you are in fiscal 2014 and fiscal 2024/2025, would that share partly change or you would be at similar levels also? I mean, the generics focus would be there.
The generics, I think we would not be having significant growth on the current base. The base, obviously, on biologics and NCEs will grow. There will be some change towards that. I think at this base of generic investment with some incremental growth, we should be okay.
Okay, perfect. One clarity that there was a comment that there is no vaccine sales for the quarter. Is that correct?
It's very insignificant. There is some sale,
but i t's not anything meaningful.
Okay. The inventory write-off is not related to vaccine, it is related to the COVID related drugs. Would that be correct?
No, everything, including drugs related to vaccine.
Okay. It include little bit on the vaccine.
Yes.
Okay. Lastly, on the overall strategy, there was a comment on big picture cash utilization. The extra buck, where is that getting deployed? NCE is one area where you are increasing focus, but on the M&A side, India versus U.S.?
Well, I think both markets are geographies where we're wanting to do acquisitions. We are in the U.S., it's the specialty side and in India it's o n the brands.
You would have looked at these assets which have gone in the last six months. There's an aggressive M&A that's happened in India.
Yes. I think more than businesses, we are looking to acquire brands, so that's our main interest to do. That's why some of them have not been meaningful for us.
Okay. P erfect. Great. Thank you.
Thank you. Next question is from Vishal Manchanda.
Thanks for the opportunity. This is Vishal from Nirmal Bang. With respect to your orphan drug portfolio in the U.S., wanted to understand how are you handling the diagnosis challenge? Because these are ultra-rare diseases, how do you get to reach to the patient pool?
Yes. That's a very important part of the question and answer. I think the hard effort that is being put in for both the molecules is newborn screening. We are working on developing the assays for the deficiencies that we want to see for both CUTX-101 and Nulibry. New newborn screening assays are being under development with different universities. That's how in the future we'll be able to find more patients. Initially we will find patients more by talking to the doctors and making them aware of the disease and the complications related to the disease. At the same time, work on newborn screening assays, which we'll also have to work to make it part of the state plans and the government plans to make sure they are part of the screening process.
How long this development of assays can take?
The assays, we are hopeful we can do it over the next three to six months t o get it enrolled into the programs for newborn screening will be a long-winded effort. It will be a state-by-state effort over a period of time.
Right. Just on the copper histidinate drug, Menkes disease, do we have a number on how many newborns get diagnosed every year, or that number would not be available?
I don't have it offhand, but we have all that data. If you actually visit our website also, you'll see a little bit on that, b ut definitely I can provide you offline the prevalence, the diagnosis and what are we looking at. These are all ultra-rare diseases. As I said, one of the products, we are looking at two to three new patients. In this, we are talking about 10-12 new patients every year.
The annual cost of therapy can be a few lakhs dollars.
Yes.
Okay, thank you. That is it from my side.
Thank you. Next question is from Surya Patra. Excuse me. Surya, you can go ahead and ask the question. Okay. We'll take him again. Next question is from Anubhav Agarwal.
One clarity on the personnel cost. From FY 2021 average to FY 2022 average, we are seeing a reduction of INR 50 crore. Is that just absolute reduction in the personnel cost, or is this just expense getting booked in other line items?
No, o ne reason was that because we discontinued the operations of Nesher and Hercon, people cost related to that is now no more there.
T he personnel cost was lower in third quarter also. We were doing about INR 650 crore in Q1 and Q2. Now, Q3 we're doing about INR 585 crore and now INR 600 crore. This continuation nature you would have seen in this quarter, I guess.
That was done in September. O bviously, few people were still left, so gradually they will be terminated. We'll get back to you with the exact numbers if you want further details on that.
The full cost saving advantage of that discontinuation nature has flowed in now in this quarter?
Yes.
Okay. Thank you.
Next question is from Nitin Agarwal. Hi, Nitin. Please unmute yourself.
Thanks. Sharvil, on the U.S. business, what is the share of specialty business as it stands today after the discontinuation of Nesher and Hercon?
We don't currently have any specialty business in any significant manner. It's not anything meaningful right now because we discontinued one of the products and so that was the only specialty business we had.
Aspirationally, with the focus which is there on orphan drugs, and this whole new strategy that you're building out, where do you see this thing number really getting to in, say, three years to five years?
Our effort is going to be to make the business profitable, and grow it sustainably. As I said, the way to build on the orphan and ultra-orphan side, is to slowly build onto the patient flow. These treatments are lifelong, so you incrementally build the value on this. That is going to be the expectation from the management to do so in the US.
In the past you've talked a lot about complex injectables being a very critical driver for the U.S. business growth. A ny color you can provide on how in the next couple of years we're looking like from the launch perspective on the injectable side?
Yes, injectables is going to be an important segment of growth for the U.S. generics business for us. Today we have a mix of more simple products that we just started to commercialize after approvals and some complex products like liposomal, doxorubicin, and oxaliplatin, the first and the nelarabine injection, where we are exclusive. Slowly we are building onto this launch pipeline where we have good amount of filings. Then we have also filed the first complex product in terms of the pen device combination product, and more products are to follow. That's how we're building on the pipeline of complex products for the U.S.
From a size perspective, when do you see it start to become meaningful for your business? Because right now it's primarily orals, right?
Sorry, can you repeat the question?
T he business currently is largely oral solids. When do you see injectables, say, probably getting to a 15%-20% of the business at some?
Injectable business overall will be part of the... It will never become larger than the orals business, but it'll become an important part of the business. I think the sum of three parts. We are talking about our orals, including complex orals. We're talking about transdermals as one franchise and injectables. These three franchises will add to the overall growth, and the aspiration that we have for U.S. generics business. I think we generally look at it as a portfolio of businesses, while injectable is one part of it. We are not segmenting it one from the other.
Got it. Thank you. One last one. Since you mentioned transdermals, what is the thought process on the transdermal launches, at least, as of today?
Transdermals, I think the important stage gate for it is the inspection for Moraiya facility and then the clearance for Moraiya. Once that happens, we would see a rollout of transdermals. I think the business of transdermals is good once we are able to roll it out and take some shares, the more sticky business, so that's what we're looking forward to.
Okay. Thank you.
Thank you. Next question is from Surya Patra. Surya, please unmute yourself. Okay, I think he's facing an issue. Next question is from Sameer Baisiwala. Sameer, please unmute yourself.
Got it. Thank you. I'm looking at the last slide, Slide 14 of your slide deck. For fiscal 2022 you had roughly INR 240 crore of income coming from FX fluctuations . A lot in other operating income, some in other income. You have another INR 75 crore coming from profit on sale of investments. We're talking roughly INR 310-INR 315 crore of one-off. This was not there in fiscal 2021. If you can talk a bit about it. In your opening remarks when you had excluded all one-offs while telling us the net profit for fiscal 2022, which was a 12% growth YoY, did you exclude all of this or was this part of this?
No, it was not excluded. Foreign exchange fluctuation has two component. One is normal movement of dollar. Another is because of the forward contract that we have entered into on our receivable, and we have got the forward premium for that, which also gets classified here as a part of other operating income. Profit on sale of investments is related to our surplus cash deployed for liquid funds, overnight funds, et c. That is the income which could have been part of interest income. Here it is on profit on sale of investments. That is on surplus cash.
Okay. I get it, sir. Going forward, these income may come on the same line or may be part of the business income, but should be continuing as we go forward?
Profit on sale of investment kind of income would remain. The form may be depending on the instrument that we invest in, maybe interest income, maybe something like mutual fund investment income. Except to the extent of cash that we are now planning to use for buyback program.
Okay. For the FX pack?
Yes, FX, I think the position still the rupee continues depreciating, and we have continued our forward contract for the existing receivables, so that benefit will continue.
Okay. Thank you very much.
Thank you. We will take the last question from Vishal Manchanda.
Thanks for the opportunity. Can you share your biosimilar numbers for the quarter?
No, we are not giving individually the numbers, but as I said, the biosimilars overall business is on a good trajectory and scaling up very fast and it will become a important line of revenue for the overall India business.
If you can share the YOY growth for the biosimilars for you?
Much better than overall India formulation business.
It's significantly higher than the other India business.
Okay. Thank you.
Thank you. I would now like to hand the conference back to Mr. Ganesh Nayak.
Thank you very much, and look forward to interacting with you again during our next conference, which will be in July- August. Thank you and good night.
Thank you. On behalf of Zydus Lifesciences Limited, that concludes this conference. Thank you for joining us, and you may now exit the call.