Good evening, ladies and gentlemen. Welcome to our post-results teleconference for the quarter ended December 31, 2024. For today's call, we have with us Dr. Sharvil Patel, Managing Director, Mr. Nitin Parekh, Chief Financial Officer, Mr. Arvind Bothra, Head of Investor Relations, and Mr. Alok Garg from the Managing Director's Office. Let me now give you a broad overview of the developments during the quarter. We are happy with the end of the quarter of strong financial performance and remain on track to sustain the growth momentum going ahead. Our U.S. formulations business continued its upward revenue trajectory with a high year-on-year growth driven by volume expansion in base business, as well as new products launched over the last 12 months. Our India formulations business grew faster than the market, with a secondary sales growth of 8% year-on-year, the source being IQVIA.
The chronic segment outpaced the market growth, driving the overall performance of the business. The consumer wellness business registered double-digit growth for yet another quarter, aided by robust volume growth amidst a muted demand scenario in the industry. The international formulations business, comprising of the emerging markets and Europe, continued to deliver strong growth on the back of healthy demand across markets during the quarter and is emerging as a strong third growth engine for the company. With that, let me take you through the financial numbers for the quarter gone by. We registered consolidated revenues of INR 52.7 billion, up 17% on a year-on-year basis. The EBITDA for the quarter was INR 13.9 billion, with a growth of 26% on a year-on-year basis. The reported EBITDA margin for the quarter was 26.3% versus 24.5% in Q3 FY24.
EBITDA margin improved despite 250 basis points year-on-year increase in the R&D spend. Adjusted for certain non-recurring expenses, the EBITDA margin for the quarter stood at 28.1%. Net profit for the quarter was INR 10.2 billion, up by 30% on a year-on-year basis. Our net cash position improved further to INR 30.9 billion as at 31 December 2024, against the net cash of excuse me, as against the net cash of INR 6.5 billion, INR 8.6 billion as at 31 March 2024. Now, let me take you through the operating highlights for the Q3 of FY25 for our key business segments. The U.S. business accounted for 47% of our consolidated revenues during the quarter, with revenues of INR 24.1 billion, up 31% year-on-year and a flat quarter-on-quarter. We filed 10 additional ANDAs and received approval for three new products during the quarter.
We launched five new products during the quarter. New launches include all three brands of sitagliptin 505(b)(2) franchise, namely Zituvio, Zituvimet, and Zituvimet XR tablets. We entered into an agreement with CVS Caremark to add Zituvio, Zituvimet, and Zituvimet XR tablets to its formulary. These products were added to the formulary from the 1st of January 2025. Our India geography, which comprises of formulations and the consumer wellness business, accounted for 38% of the total revenues during the quarter and grew 7% year-on-year. On our India formulations business, our India formulations business delivered 5% growth during the quarter on a high base of the previous year. During the first nine months of the fiscal, the business grew by 9%, outpacing the market growth. Portfolio of innovation products sustained the growth momentum and continued to deliver strong volume growth during the quarter.
The business gained market share in key therapies of cardiology, respiratory, anti-infectives, and the super specialty therapy of oncology. On the super specialty front, we continue to strengthen our leadership position in the oncology and nephrology therapies. Contribution of the chronic portfolio has increased consistently over the last several years and stood at 42.4% as per IQVIA MAT December 2024, an improvement of 370 basis points over the last three years. Our consumer wellness business recorded revenues of INR 4.5 billion, up 13% year-on-year, with 4.8% volume growth. The personal care segment, which comprises of Nycil and Everyuth brands, witnessed strong demand and achieved a robust double-digit growth for the quarter. The segment has continued its upward trajectory over the last several quarters. The Everyuth brand continues to gain market share in the scrub, peel-off, and overall facial cleansing category.
During the quarter, we completed the acquisition of Naturell India Private Limited, a leading healthy snacking company having a portfolio of nutrition bars, protein cookies, protein chips, and health food products, thereby foraying into the consumer snacking space. Our international markets formulations business delivered robust growth during the quarter, with revenues of INR 5.7 billion, up 16% year-on-year. This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses as well as initiatives in our innovation program. Thank you.
Thank you, Mr. Nayak, and good evening, ladies and gentlemen. It is a pleasure to have you all on the call today. We are happy to inform you that our clearly articulated strategy, backed by careful portfolio selection, the deep innovation pipeline, execution excellence, and supply chain resilience is yielding the desired results as we had ended the calendar year with a strong double-digit growth and robust profitability. We are confident of meeting our growth and profitability aspirations for the fiscal year of FY25. We remain committed to address diverse healthcare needs of the patients by expanding our offerings across therapies, by leveraging our innovation engine, and in turn, enhancing key stakeholder value. In our U.S. generic space, we have built a comprehensive product portfolio across different dosage forms and therapies and remain focused on streamlined execution of the same.
On the specialty front, multiple levers such as the 505(b)(2) products portfolio, the liquids portfolio, the rare diseases assets are in place and aimed at fulfilling various unmet healthcare needs of patients globally. This, coupled with strong customer relationships, a pool of manufacturing facilities with capabilities to produce diverse dosage forms, and an agile supply chain, will ensure sustainable growth trajectory for our U.S. business going forward. On the India formulations front, our business grew faster than the market on a YTD basis. Our endeavor is to strengthen the position across focus therapies through multiple levers. Our sustained thrust on innovation led by our patient-centric approach has enabled us to build a healthy pipeline of novel and differentiated products and solutions aimed at fulfilling the various unmet healthcare needs of the patients.
On the international markets front, the focus remains on expanding presence in chosen therapy areas across key geographies by leveraging our global R&D portfolio of the differentiated and complex generics as well as the specialty products. On our innovation front, we continue to make steady progress, paving the way for our healthier future. Our innovation engine has consistently delivered multiple treatment options in an affordable manner, making them accessible to a large set of patients and, in turn, strong volumes for us. With this, let me take you through some of the material developments on our journey on innovation during the quarter. On our NCE front, we have received FDA approval to conduct a Phase 2B clinical trial of u snoflast, a novel oral NLRP3 inflammasome inhibitor in patients with amyotrophic lateral sclerosis, ALS.
The study will evaluate the efficacy, safety, pharmacokinetics, and pharmacodynamics of the molecule in adult subjects with ALS. Recently, the FDA has granted an orphan drug designation to this molecule, u snoflast, for the ALS indication. The orphan drug designation provides eligibility for certain development incentives, including tax credits for qualified clinical testing, prescription drug user fee exemptions, and a potential seven-year exclusivity upon FDA approval. Data monitoring and follow-up is ongoing post completion of our patient recruitment of the Phase 2B, Phase 3 clinical trial for saroglitazar magnesium for the PBC indication and the Phase 2B clinical trial for the molecule for MASH indication for the U.S. market. We are looking forward to the Phase 2B, 3 trial data readout for PBC indication towards the end of this calendar year.
In the biotech R&D space, we completed a Phase 3 clinical trial for one of the biosimilars and have submitted an application to the DCGI, seeking permission to initiate DCGI. We have also initiated another ADC biosimilar, which is an antibody drug conjugate. On the novel biologics front, we received permission from the review committee, which is the RCGM, to initiate preclinical study for one of our drug conjugate ADCs. On the vaccines front, we completed a Phase 1 clinical trial for a bivalent TCV vaccine during the quarter. Now, on to our specialty business. The U.S. FDA has accepted for filing and granted six months priority review to Sentynl Therapeutics for its NDA of CUTX-101, a copper histidinate product candidate for the treatment of Menkes disease. The NDA was supported by positive top-line clinical efficacy results demonstrated in disease subjects who received early treatment with CUTX-101.
I'm also very happy to inform you recently our chairman, Shri Pankaj R. Patel, was conferred with the Padma Bhushan, one of the highest civilian orders honored by the government of India for his contribution in the field of trade and industry. We extend our heartfelt gratitude to all our investors and business partners for their unwavering trust and continued support of the Zydus Group over the years. Thank you, and now we'll move over to the Q&A session. Over to the coordinator.
Thank you, sir. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. Please raise your hand from the participant tab on the screen to ask the questions. The first question is from Suryanarayan Patel.
Yeah. Hello. Am I audible? Hello.
Yes.
Yeah. Thank you, sir. Thanks for the opportunity. A couple of questions. First question is that about the U.S. business. Obviously, we have seen a sequential decline. So how much of that is because of the kind of competition in Asacol HD, and how much is that because of, let's say, the base business weakness? That is one part. And the second part of the U.S. question is that the mirabegron supply, the export momentum from India, if you see, that looks really robust, while the execution, it seems, not at par with the kind of export that we are making or the kind of inventory buildup that we had done. So how should we think, and how longer this mirabegron opportunity can be considered for us?
Thank you, Mr. Surya. So I think, first of all, I don't think we have had any critical or any sequential decline between the last quarter and this quarter. And this quarter, we have not had any sale of lenalidomide, which would have been there in the earlier quarter. So actually, both the base business as well as our new launches are doing well, and that has led to a better momentum for our business despite not having lenalidomide. With respect to your second question, could you repeat that second question again?
Yeah. The second part of the same question was about the mirabegron. So the export momentum looks really robust for that from India. But the execution on that front in terms of the revenue that we would be booking looks limited compared to the kind of inventory buildup that we are making there in the U.S.
There is no inventory buildup, which is not normal for an exclusive launch. So we don't have inventory buildup, and we would keep a certain amount of inventory, obviously, which we do for every product, depending on between 90 days to 120 days, depending on what criticality of the product is there. And there's no exceptional inventory buildup. And mirabegron continues to have better optics.
That means, is it fair to believe, sir, this is the kind of peak quarterly run rate in the mirabegron? It has already been achieved, and possibly, as long as it continues, the opportunity, we will be around this level.
No, I would not say that.
Okay. Second question is on the sitagliptin franchise, what we are building it up. So we have two opportunities in that. One is the government supply opportunity, what you have already indicated. And second is the kind of supply arrangement that we have done with the CVS. So how big this opportunity could be considering both? Because you would be there in this product as a branded product before the genericization of the product. And what would happen post-genericization to this franchise? And obviously, your U.S. government supply will anyway continue. So how should one think this opportunity? Can it be a kind of the biggest revenue contributor in the U.S. given both these two opportunities?
sitagliptin combination from the 505(b)(2) specialty space, I think, has been a great success for the company and probably one of the rare successes that somebody has seen on an oral 505(b)(2). Obviously, we have secured a long-term contract with the government, which will continue. We have also the CVS deals plus some smaller deals that will continue. This would be a valuable product for us in terms of the revenue that we are going to generate as a new product launch. This has led to the effort and success of Sita is also leading to us being able to now have almost seven 505(b)(2)s commercialized in the U.S. with patent exclusivities. We continue to believe that in the next few quarters, we would have at least three to four more new licenses on 505(b)(2)s for the future.
So as a portfolio, I think the 505(b)(2) franchise, with the success of our first seven launches, we are going to see a good amount of opportunity as an area of interest for Zydus as to build it out forward.
Okay, but could you give some sense about the cumulative size of the opportunity that we can have?
What capability?
Hello? Am I audible? So is it possible to quantify at least the government opportunity? Is it in the range of, let's say, a few tens or a couple of hundred million dollar opportunity over the period of a contract?
It's a meaningful opportunity, but I think we are not going to do product-wise breakup of revenue, which we have always communicated. We can talk about the portfolio and how the portfolios are faring. And I said we have now seven 505(b)(2)s, and we continue to believe that in the next few quarters, we'll have four more licensed products on the 505(b)(2) side.
One bookkeeping question. See, in the presentation, what we do see that the employee cost and the R&D cost, it looks like that it has been adjusted among them. So the reported BAC format employee cost number is not the same that is mentioned in the presentation. So are you doing any adjustment to that? And hence, your margin, as it is reported in the presentation, is different than what we do find.
R&D cost in this quarter is higher than the previous quarter, but R&D cost, we every time say that it should not be viewed for a particular quarter. It should be viewed on a running basis.
No, even employee cost, I was talking about.
For the year-on-year report, which we are told to 7%-8%.
I was talking about the employee cost.
Surya, I think there is some misunderstanding on the CB format. The R&D cost and the employee cost are separated over there. I'll take it offline with you so that others get a chance. Maybe we can move on to the next participant. You can call me after this call.
Sure, sure.
Yeah, 100% pure R&D cost.
Thank you, Suryanarayan. Requesting participant to limit their questions to two. The next question is from Neha Manpuria.
Yeah, thanks for taking my question. It seems, I think in the opening remark, you mentioned certain non-recurring costs in the quarter. If you could please quantify the same and where these are allocated to get to that adjusted margin that you talked about?
So these are classified in other expenses. Some of them are marketing-related, more in terms of legal and professional fees, and also some extraordinary expense like GST loss on inventory destruction.
How much would this be broadly?
We'll share separate numbers with you later on. I don't have right now all the numbers with me.
Okay, and I'm just wondering as to why a marketing spend or a legal or professional fee would be considered non-recurring because I'm assuming there is some amount of lumpiness in that spend quarter-on-quarter, right, so is there any specific reason why we are calling this off as non-recurring?
Non-recurring because of some specific legal and professional assignment related to some acquisition that we have done. The GST loss on inventory destruction was INR 17 crore.
Okay. Got it.
May I revert with the exact number and the line height separately?
Understood. Okay. Thank you so much. And my second question is on the 505(b)(2) portfolio and specialty portfolio. In terms of the size, I don't want product-specific number, but in terms of the size, what is the 505(b)(2) like as a percentage of our revenue, whatever you're comfortable with? And how big can this get for the company as we launch more products? Could this be 5%, 10% of the business, of the U.S. business? So any qualitative color in terms of how big this can be? I understand you have a lot of launches, but if I were to quantify that in terms of size as a percentage of the U.S. business, that will help us understand the stickiness of this revenue.
On a 505(b)(2) front, there are two, three. One is obviously our sitagliptin franchise, which obviously is a significant value in the important launch and product for calendar year 2025 and will continue in terms of post-commercialization with at least the government contracts. The other 505(b)(2)s are our partnered 505(b)(2)s that we have with partners. And those revenues are, I mean, more than the revenues, though, are more profit-sharing agreements. So they're not high on revenue, but they're very high on margins and profits and absolute amount of profits also. So that's the current portfolio. Going forward, we have a few 505(b)(2)s as we believe market-making can happen. We can discuss that, but it's not going to happen in the next one year for sure. Overall, it's still a modest revenue size other than sitagliptin being a very significant value.
Understood. And my second question is on CUTX-101. Given that we have a U.S. FDA date on this in six months, how are we thinking about commercialization of this asset? I mean, just trying to understand if I have to put some value, how should I think about what we're going to spend, how we're going to commercialize the asset?
So we are already ready for commercialization. The teams have already been created in Sentynl, and it's already been prepared for launch. I think from most of that point of view, it's all on track. And once we launch, we can give a better idea about how we are preparing. But currently, in terms of preparedness for launch, we are prepared.
And given this is a rare disease asset, how should we think about pricing? Typically, there are different metrics to use for pricing of a rare disease. So what would be, I'm not asking you for a price, but in terms of methodology, what should be the right way to look at pricing for this asset?
These are extremely rare diseases with very small patient populations. With looking at the investment and the thing, obviously, these are in those, the price brackets are in those rare brackets. That's how you can look at it.
So I can benchmark it against the usual rare disease assets. Okay. Perfect. And my last question on Saro, I see that we have delayed the readout. I think it was expected in the Q2 of this calendar year. Now, if I heard it correctly, you mentioned end CY25. So just wanted to confirm that. Has there been a little bit of a delay in the?
We will probably still see it in Q3, end of Q3. So we just meant to say this calendar year.
Okay. Okay. Okay. Got it. Thank you so much.
Thank you. The next question is from Anubhav Agarwal.
Hi. Good evening to all. One question is on the U.S. market. So sequentially, would the U.S. sales include the one-quarter sales of sitagliptin? Because if you were starting for first-gen, you would have already supplied inventory. Have you already booked that revenue in this quarter? Hello. Am I audible?
Sorry?
Am I audible?
Yes.
Sorry. Was my question heard, or should I?
No, I think we missed the first half of your question. I just heard the sitagliptin booked sales revenue, so.
The question is that in the U.S. sales in the December quarter, have we already booked one-quarter normalized sales of sitagliptin? Because if we're starting with January 2025 with CVS, we should have already supplied that or built inventory in the U.S.
No, we have not. Though we have government sales that have been continuing, but we have not booked all the sales.
So Anubhav, on the question of our supplying to U.S., that is not booked as a sales year because it only gets booked as a sales only in standalone accounts. But to the extent it is not sold in U.S., it is reversed in terms of consolidated accounts. So sales means only sales to third parties that way.
Yeah, yeah. I'm with you on that. My question was that if contract is starting with CVS on 1st July 2025, you would have already shipped to CVS before that.
Yes, we have shipped, but it's not that we have shipped everything.
Okay, and in this quarter, the gross margin sequentially were quite lower, while U.S. sales was flattish, India was largely similar, so what is the reason that the gross margin declined sharply sequentially?
Business and product mix.
But anything?
We don't have revenue or sales this quarter.
But you didn't have revenue at September quarter as well?
We didn't have revenue or sales last quarter.
Oh, is it? Okay. Okay. So second question is.
Also ASACOL has come down, right? So full quarter.
So what has helped you guys maintain the U.S. sales sequentially? What has gone up in this quarter for you guys versus September quarter?
So there are three or four things. One is obviously the base business has done much better. We have also secured many long-term contracts because of supply surety that is required. The new product launches, all sorts of some scaling up has happened in this quarter. And obviously, mirabegron sales have also happened.
So mirabegron sales also have been higher sequentially. Okay.
Sequentially, yes.
Between the two opportunities on sitagliptin government contracts versus CVS, qualitatively, which one will be larger of the two pieces?
We have to see, but short-term will be the CVS. Long-term, maybe the government could be the one. Cumulative, I mean.
Sure. My last question is on Zydus Lifesciences. In terms of when you see the u snoflast molecule versus Radicava, for example, how is this molecule placed? Because Radicava is the, I think, the only option right now for ALS. In the initial science, when you've seen it, so in the trial that you'll plan, it will be non-inferiority versus Radicava? Will it be on absolute basis? How are you seeing these molecules versus Radicava?
So today, the trial that has been designed has been designed because there's no currently approved treatment for ALS. So it has to be a placebo-controlled trial. So this is not going to be a comparative trial because according to the FDA, there is nothing approved today.
That is fair. But patients are still being given Radicava, right, in the market, right?
Yeah, but FDA is not going to give an unapproved treatment to test.
Okay. It's a fair point. I agree with that. Thank you.
Thank you. The next question is from Bino.
Hi. Good afternoon. A couple of questions from my side. Sharvil Patel, what's the latest update on mirabegron litigation? How do you expect it to pan out? Any timelines?
So it's still under litigation. So I think it's very difficult to give any timelines. But as I said, this potentially has the chance to continue for a longer period of time.
Understood. Second, on your expenses, if I take all your expenses, employee, R&D, other expenses, et cetera, roughly the expenses have gone up by 30% YOY for the nine months. Of course, you mentioned about some one-offs in the quarter, et cetera, et cetera. But still, this 30% jump, how do we justify this? And how do we look at it going forward?
You're talking about R&D expense? Sorry.
All put together. R&D, other expense, employee expense, et cetera, all the fixed costs, if I may put it that way.
So as we said, there are about INR 95 crore worth of expenses in this quarter, which are of a non-recurring nature, which includes about INR 51 crore provision for incentives, especially given our achievement in U.S. business. Also includes about INR 27 crore of legal and professional fee of one-time nature and INR 17 crore of GST payment because of inventory destruction. So about INR 95 crore is of one-off nature. Also, when you look at expenses of this year versus previous year, previous year did not include the full impact of various expenses of acquired units like LiqMeds, Naturell. So those things are also playing their role. And our new sites, where there are additions of people in the current year.
Manufacturing sites.
Manufacturing sites.
Understood. And you said there is also some incentives related to the upsides in the U.S. business. Is that?
Yes. Yes.
Okay. Got it. And one last question, if I may squeeze in. This quarter, you have a very high forex gain, about INR 182 crore outsize compared to other quarters. How does that? Where does that come from?
That's because of how the dollar has behaved. You know how the dollar is strengthened or rupee has weakened. So it's not a thing like a one-off. It's a completely realized real gain. And we fortunately don't have any foreign currency debt right now. So we don't have anything in a negative side. We have everything on positive side. So yes, this is the current rate. It seems like it's likely to stay and continue strengthening dollar. And therefore, I think this gain is a business gain. It's not a one-off gain.
Understood. So for example, your receivables are completely unhedged. And because of the rupee depreciation, this gain has come. Receivables?
Yeah. It's a completely open natural-like position for us, and that's the position for many years now.
Okay. You don't hedge any receivables at all?
No. No.
Okay. Understood. I'll jump back to you. Thank you.
Thank you. The next question is from Vishal Manchanda.
Thanks for the opportunity. Hope I'm audible.
Can you be a little louder? Thank you.
I have a question on CUTX-101. So basically, I wanted to understand whether we have been able to qualify for a screening test here. So kind of is it a screening test approved for neonates?
You said screening test, right? Hello?
Vishal, we are not able to hear you clearly. Hi, Vishal. Are you there?
Maybe we can take the next question and wait for Vishal.
Okay. The next question is from Bino.
Hi. Thanks again for getting me on board again. In terms of ASACOL HD, is the intensity of competition fully visible in Q3 numbers, assuming there is no further entry of competition?
With product, Bino, we could not hear you properly.
ASACOL HD.
Yeah. Currently, no. Currently, ASACOL HD, we will see further competition on ASACOL HD once the CGT exclusivity gets over. So potentially, at least one more player.
Oh, okay. Understood. And second, on Revlimid, how do we think going forward? Typically, your revenues come in Q1 and Q4. So I assume that Q4 will have a good chunk of lenalidomide. Going into FY26, by Q4, the exclusivity of the generic settlers will be over. So should we assume that you will have Revlimid only in Q1 next year? And would that mean that for the whole year, it will be less than this year?
So I think it's still a moving scenario. We can't 100% say exactly how it will happen. But our best estimate to Revlimid sales for this calendar year will be it will be spread across the year. It will not be just a one-month or two-month or one-quarter kind of phenomenon because the buying will not happen altogether. These are best estimates right now.
Understood. But for the financial year, next financial year, would lenalidomide be equal to below or higher than current financial year?
So a lot of scenarios to play out, but with more share, even with lower price, we hope at least we can maintain this year's momentum.
Understood. Thank you.
Thank you. The next question is from Nitin Agarwal.
Hello?
Hi. Can you hear me?
I can hear you.
Yes. I was saying, just taking off the previous question, sir, in the last call, you shared a couple of large launches in FY27 that will come through for us. That's more like a second-half FY27 opportunity, the way at least that's the sense we have. So after bulk of the Revlimid is sort of done, are we looking at essentially a situation of potentially where there's going to be a period where there are not too many big launches or the different launches will sort of take care of a lot of the delta between Revlimid and the ex-Revlimid business? For the time as some of the bigger launches begin to kick off.
So I think one is obviously, see, one thing, we have a portfolio of products that we still continue to launch beyond this one-offs that we have. And looking forward, if you look at FY26 also, we still believe that assuming some of the scenarios whichever may pan out, we will still see a high single-digit kind of growth, at least for the U.S. overall geography for us. And that is what our best estimate is. But going forward, we do have 25 to 30+ new launches that will continue to happen, with some of them being important as well. So I think with that and also base portfolio continuing to remain resilient and strengthening and the new products gaining more share, which we have launched this year and the earlier year, I still believe that the portfolio-wise, we are still very comfortable.
Obviously, we'll see big jumps in FY27 because of exclusive launches that we will get to see. But we should be able to still have a healthy portfolio in the coming year.
That's very encouraging, sir, because 2025 is a pretty large year for us. We have got a large Revlimid component plus mirabegron. And on that, if you're able to grow in single digits next year, that's a pretty commendable if that's the outlook that we're running with.
Yeah. That is the best estimate right now. Yeah.
Okay. That's great, and so secondly, on the emerging market piece, so what has really changed in this business over the last three or four quarters? We've seen very meaningful pickup and consistent pickup coming through on that part of the business.
I think it's. I would say most of the geographies are doing extremely well. We did have a hiccup in Brazil, which has also recovered. So I think even that was the only market that was underperforming to some extent, and that has also recovered. So I think it's a strong execution across markets. It's been the portfolio of products that we have launched in these markets, which are some complex, some are first generics, and other areas of interest, and we have added new markets also in the Middle East and Saudi, so I think expansion, same markets doing also better branded business, so better margin profile and also risk mitigating some of the difficult markets.
I think all in all, I think the mix of geographies and the portfolio has helped EM and will continue to. I think we see good visibility of strong growth and improvement in profitability further.
And this business as well, this is above corporate, in line with corporate profitability, or this is a how should you if you were to just broadly qualitatively assess, give us a sense on the profitability of this business overall?
No, it is not about companies' profitability, but I very strongly believe that it can achieve 23+% EBITDA margins in the next one or two years.
That's great. And the last one, sir, on the GLP-1, especially semaglutide, how, sir, how are we approaching this opportunity? Is this a relevant opportunity for us? I mean, which in India, emerging markets, U.S. obviously follows in much later. But how should we think about our play in GLP-1s?
So the first is U.S. Obviously, we have one for we have filed in the U.S., and that opportunity is much later. In India, we hope to be in the first wave launches with our own semaglutide franchise with some unique differentiation. And similarly, we would like to build this differentiation in the emerging markets also, both with the current formats and new formats. So yeah, we will be playing in the semaglutide market, starting with India first.
Sir, what is the level of integration here? Are we making our own API as well as the formulation or?
We are making our own API and formulation, and we have a second source also, so we are back. We have de-risked also, including devices.
There has been a lot of talk about some of the large markets, Canada, Brazil opening up in FY27. Would be there in the first wave of launches in these markets, or are we going to be following later?
Currently, we don't have immediate China plans, so I doubt we'll be in any first wave, but we do have plans for the other EM markets.
Okay. Thank you so much.
Thank you. The next question is from Vishal Manchanda.
Hello.
Am I audible?
Yeah.
So I have a question on CUTX-101. So one thing I want to understand is what is the duration of treatment? Is this a chronic treatment that children will have to take lifelong, or will this be a fixed duration treatment, say, two, three years?
Lifelong.
Lifelong. Okay. And second, do we have a neonatal screening test that's approved for Menkes as of now?
No. That's something that we have been working with the professionals to build a sensitive test for neonatal screening. But because this product has been under clinical trial for a very long period of time with a strong patient registry, there is already a set of significant amount of patients who will be on treatment, and new patients are getting identified.
As you had discovered in the clinical trial, early treatment can significantly prolong survival. So would this not mean you need to kind of identify the patient immediately at birth?
Yeah, well, not at birth, but very soon.
Okay. So any chance you would have the test approved this year prior to approval, or will that take longer?
No, I think the test is not a question of only doing the test. The test has to be approved. The test needs to go through every state approval. It needs to go through, make sure that the dry blood spot test, they can detect this with the current equipment that the centers use. So it's not a short-term opportunity. We've been working on this for two years, so we believe that it's an important area to succeed in. But currently, I don't think at launch we will have that yet.
Okay. Okay. And second one is on the lenalidomide portfolio. Do you expect any large launch this year or maybe next year?
Yeah. There are two products.
Okay. So this year, they're scheduled for launch this year?
Yeah. One is just launched, and one is about to be launched.
The one that you're talking about is imatinib oral solution.
That is to be launched now. Yeah.
Okay. And would these be large opportunities since you paid a large premium for the acquisition?
So, because you just said the second statement of large premium, I do not believe you paid any large premium to this acquisition. But I think it's a very, I would say, it's a good acquisition that we have done, and it's doing better than what we expected. So definitely, there is in the beginning, we haven't paid any significant premium.
Okay.
It's a sizable profitable.
Final one. So when we in.
Right.
So just one final one. So when you in-license a product or partner a product, you would pay an upfront payment. So is that upfront payment capitalized on the balance sheet, or you expense it on the P&L?
I mean, currently, all whatever we have done licensing, most of them, all of them are expensed out right now. But if we have very, very large long-term programs, which will take years.
It's a product acquisition, then the product is capitalized in books. But anything which is under development and we are acquiring and thereafter the R&D spend, everything is revenue expenditure.
Got it, sir. Thank you. That's all from me. That's all from my side. Thank you.
Thank you. The next question is from Suryanarayan Patel.
Yeah. Thanks for the opportunity again, sir. One clarification or update, rather. So what is the update about the pact with CMS, what we have done for desidustat? And when this could be a kind of a revenue-generating opportunity for us?
So the milestone in terms of filing with the Chinese regulators has already happened. And obviously, the new product approval do take time. So if best-case scenario is this year or the coming year, this or next year, we should see approval.
Okay. Regarding the domestic business, in the opening remark that you had mentioned that the secondary sales growth looks better than the kind of a market trend. But what is the trend that you're facing in the primary side? It is looking relatively modest.
On a YTD basis, we have grown at 9% with this quarter's growth of 5%, which is better than market. And I said, last year, we had a high base of growth of almost 17% on the corresponding quarter to that. So that's the base effect. But we are on track to deliver better than market growth.
Okay. Sure. Yeah. Thank you.
Thank you. The next question is from Sayan Mukherjee.
Yeah. Hi. Good afternoon. Dr. Sharvil, one question on the specialty business. I just want to understand what's the P&L impact currently? Specifically, if you can highlight the front-end expense that you're currently incurring at Sentynl in this financial year and also on the research and development, how much you are spending. And going forward, how should we think about these spends? And in that context, we have done some inorganic moves with respect to specialty. Any thought, any color you want to, because now you have a good cash on books as well. So if you can just take us through your thoughts on spending on specialty, both on acquisition and through the P&L, what is currently and how you are thinking going forward?
So I'll add, and maybe then Nitin Bhai if he wants to add anything more. So we have two front-end businesses, the Sentynl Therapeutics and Zydus Therapeutics. Sentynl is already a commercial stage company, but with currently two products which is scaling up. I think post-CUTX launch, we believe that FY26 we can see break-even for this business. So currently, there is still, I mean, commercialization cost going on, but with the three products, the business will break-even and turn profitable. With respect to Zydus Therapeutics, currently, majority of our investment are in clinical nature. In FY26 and FY27, we would see commercial expenditure coming up for launch of Saro. I think the better time for us to give an update would be after we do a readout of Saro and then talk about how fast we're going to build the commercial footprint.
But currently, most of the cost has been clinical cost in nature with the small commercial cost in terms of critical talent being hired. But the large amount of expansion will only happen after a readout, and maybe we can give that guidance after that.
If you can share the numbers, Nitin bhai, in terms of R&D spend and also the Sentynl losses, if you can highlight for this year?
Could you repeat? Sorry, the question.
Yeah. I mean, I'm looking for the R&D spend on specialty overall, which probably is largely in Zydus Therapeutics and also the Sentynl loss, EBITDA loss this year.
Once we have our calendar year accounts of 2024 ready, we'll share that number because we'll have subsidiary accounts of Sentynl available. We'll be able to share the number. Otherwise, R&D of Zydus Therapeutics is a part of overall R&D spend.
Yeah. Can you share approximately what percentage of R&D you are spending on specialty?
So I think it changes, right? Because most of our costs on Saro are over in terms of recruitment and follow-up now, and then the next cost will be on continuing the trial post data. So I think it's not that it sometimes can be there, and sometimes it's not there at all. So my point is it's in the overall R&D spend that we do as part of that cost. And Sentynl doesn't have any major R&D spend.
Yeah. I mean, I'm just wondering, R&D spend has gone up this year versus last year. So I'm wondering, I mean.
I mean, as a portfolio of specialty complex products, it's about 35% of our spend. NCEs, biologics, some vaccines, and specialty products from the April-December period.
Okay. And just one another question, if I can ask on GLP-1. So Dr. Sharvil, how are you sensing this opportunity in India and other emerging markets? Because most of the companies are indicating they would be in the first wave. So is the dynamics going to be any different? Any color you can provide where the challenges are and how you think Zydus is sort of placed in all the complexities that this product presents?
So I think I would say first is the complexity. I mean, I can talk a little bit about India first. First is the complexity of the API, which is sort of now readily available for most companies. I would say that challenge is gone. For us, we are backward. So the only good part is we would see less disruption, but we also have an alternate source. So we have both options. The second is the formulation, and we have two formulations for the franchise, and we look forward to creating some differentiation for us. The third is obviously the device, and we believe the device will also play an important role. And I think we are sort of good on the device. Not that we are exclusive, but we are good on that device. So I would say that's the first part.
The second is to finish the clinical trial in India and be ready for launch on time. So while many companies will do it, all companies will not be able to do it. So we'll see how that plays out. But I still believe it will be a very competitive, disruptive time for the launch in India. So we have to wait and see. But I think we are fully geared to at least have the product ready and launched. How the market plans out will depend on, obviously, individual company strategy and any differentiation that they can bring for more compliance or how more compatible and friendly the dosing can be. And I think in some of those things, if what we are thinking is successful, then we'll have some differentiation.
With respect to the international markets, we are also going with the dual strategy of that, of doing what is current and doing something different. And we'll have to wait and see how that pans out for us in the global markets, what works better for us.
Okay. So different, Sharvil, means sort of device. The differentiation is primarily on the device front.
No.
Okay. I mean, is it possible to share anything on that?
No. That would be a very competitive differentiation, which is difficult to share.
Understood. Okay. Thank you.
Thank you. The next question is from Kunal Dhamesha.
Can you hear me?
Yes.
Yeah. Thank you for the opportunity. Sharvil bhai, first question on capital allocation. Now we have almost around INR 4,000 crore cash. So how are we looking at it? Would we be deploying more towards specialty efforts for the U.S. market, or is it more doubling down on 505(b)(2)? How should we think about it? And relative to that, how are the, let's say, the overall environment in terms of valuations of these specialty deals or 505(b)(2) deals have kind of evolved in the last one year?
So I think I also missed to answer some part to the earlier speaker question also. So I think on the capital allocation side, there are two, three things that are important for us over the next two to three years. On the 505(b)(2) first, I think we are completely. I don't think there is, in the sense in terms of meaningful, significant capital allocation, any change in strategy. So we should be able to license or file one or two new 505(b)(2)s in the next one to two to three years. So we have a pipeline that we believe is quite robust on the conservative side. With respect to the specialty, sorry, then there's a second angle of we do believe that with our scaling up happening in different markets, both in India, international, and U.S., we do believe we need higher capacities with different complex dosage forms.
So there is going to be a higher cycle of capital CapEx, at least for this coming year and maybe one more. So we would be using a little bit of additional CapEx over the next two years. And beyond that, I think our efforts are going to be on acquiring a commercially capable ready asset in the U.S. or a product to sort of synergize with our launches on the orphan and rare disease side. So that is something that we continue to look for. And if anything appropriate is there, we would use. We'll allocate some capital to that. Beyond that, I think international markets also offers opportunity for us to expand, and that we tactically do look at, and we have some ideas. And finally is our foray into med devices.
We do want to build another leg of business of med devices for Zydus. That is where we would also be allocating both on the CapEx side as well as also looking for other opportunities to partner or co-build or buy.
Sure. So these higher CapEx would be up to the tune of what, maybe 20%-30% higher than the last five-year, or how should we think about it?
Yeah.
Okay. Sure. And my second question is, we have kind of launched many NCEs in India market, and these products are doing well. Saro has multiple indications and doing well. Desidustat is also there, right? But from a new product launches, let's say, in India from a super specialty or specialty perspective, how is that pipeline looking on that front?
So we have, I mean, for us, India, we continue to have a very robust launch pipeline. It comprises of three things. One is the day-one launches of patented molecules, and we are happy that we have almost most of the time succeeded in launching day-one generics to branded generics to off-patent molecules. The second is launching complex generics, including biologics, which are biosimilars. I think, again, in that, we have been most of the time day-one in launching these molecules in the respective therapies, largely oncology right now. The third is we still have a pipeline of an anti-malarial study, which will complete Phase 2, which is not a long Phase 2. We have a follow-up. We have a few ADCs which are entering clinical trial, including a novel biologic for some of the specialty indications.
We have a pipeline in the next three to four years that we would hope to build at least two to three more NCEs as commercial launches for India. And beyond that, we are obviously doing life cycle management and better patient adherence through packaging and other methods to innovate on our sort of large brands. And I think those will be the areas which we'll continue to sort of put efforts behind.
Sure. Thank you for that. And the last one, if I may, on the U.S., did I hear it correctly that we expect FY27 also to grow on FY26 base by mid-single digit if some of the key molecules come in? Is that correct?
No, I only spoke about FY26. FY27 isn't out there right now to predict. But as I said, in that year, late part of that year, we have important large product launches which are exclusive.
Sure. So FY26, earlier, we had said that it would be at least in line with FY25, right? And then now we are saying that there could be growth as well.
FY26, sorry?
Earlier, we had said that FY26 would be at least in line.
Yeah, we expect some growth in FY26.
Perfect. Thank you, and all the best, sir.
Thank you.
Thank you. The next question is from Anubhav Agarwal.
Yeah, thank you for taking my follow-up question. I want to understand the CVS arrangement here, not the terms between two of you, but how would it happen in reality? So let's say a patient, a doctor has prescribed Januvia or Janumet. A patient goes to CVS Pharmacy. Would the pharmacy have to call up the doctor that I'm substituting because it's not allowed by the FDA? Or a default substitution can happen? Or what percentage default substitution can happen?
It's an important question, which I don't have immediate answer, but the way to look at it is it's a formulary that the CVS plans and decides. So there would be certain training and decision made in the formulary as to how they would make the choice between one brand versus the other. So it's a brand-to-brand switch. So that's how it will happen. It's not a generic switch,
Yes, but would the prescriber need to be involved here, or it's just a decision of the pharmacy?
I'm sure the prescriber is involved.
Okay, and then what's the incentive for Merck if they are out of formulary for CVS? I mean, to promote the brand, would it not lead to prescriptions falling significantly? They're already impacted by GLP. Would sitagliptin prescriptions not fall dramatically?
I think we can currently, for us, obviously, it's a win. I don't know what will happen for Merck, but for us, it's a good win because we would see a significant amount of prescriptions switched.
Okay. Thank you, guys.
Thank you. The last question is from Nitin Agarwal.
I just had one quick question, so do we have an animal health business in the U.S.?
Yes.
Any thoughts around it? Because that's one interesting space. Not too many Indian companies actually explored that. And what is the size of our business? Roughly, you can give us some sense on that?
It's part of our overall business. It's just we are almost 15 months of launch only, so it's not very old. But the good thing is that in the first short period, it has broken even also, which is very positive. So we hope to build it, but it will be, it's not in the lines of what a human formulation business is. So it's going to be a niche business. The good part is that with the portfolio, we are growing very well, and it should be profitable. But I don't think it will be very large.
Sir, on the liquid business, this is what largely going to be a U.S. opportunity, or this is an opportunity that you will leverage across various markets?
It's only right now, only a U.S. opportunity and focused towards U.S.
How big can this piece really get for us over a period of time? If there is any I mean, is it like a business can get into triple digits, or it's a double-digit growth business in size where it can get to over a period of time?
So I think, as I said, we have just really commercialized, and the growth has been very good. So we have to wait for the next few years to give you better feedback. But as I said, as a portfolio, it will be a very interesting and good fit for us. In terms of individually becoming a large business, right now, it's very difficult to sort of say that because we have still a lot of products to develop and develop and then trial and launch.
Sir, last one. On the biosimilars, so far, we've been largely focused on India emerging markets. Any thoughts on sort of taking on the developed markets with the portfolio and how?
Not yet. No. We are currently mostly focused on India and developing markets. If once we have a thought process on how to build it for other markets, once the regulatory process changes or the clinical development program changes, we will probably take the development. But currently, we don't want to do a full-blown efficacy trial for a biosimilar.
What would be the size of this global biologic business right now for us on approximately across India and emerging markets where you're doing right now?
So currently, a large part of it is India, and we are building the emerging markets. And it's a good profitable business with brands that are large. And as I said, in some markets, like even Mexico, we are among the only generic biosimilars. So it should be a good business both from the tender and private market. And Russia also.
Okay. Any color on the size of the business right now?
No, we're not giving individual breakup because I think while biosimilar is a technology, we don't sell biosimilars as that. We sell biosimilars as a therapeutic area. So it's oncology, it's all of that. So I think to say how much is a type of product sale does not make sense. But in the therapy, it is going to dominate as it's doing in India. Hopefully, we'll build that kind of capability in international markets. I think the way to look at it is we look at the large market tenders that happen in these markets, and we hope to participate in them as one of the few or only generics.
Okay. So thank you so much. Best of luck.
Thank you. I will request management for the closing remarks.
Yeah. So thank you very much, and look forward to interacting with you again for the Q1 in the month of May 2025. Thank you and goodbye.
Thank you very much to the Zydus management team. Ladies and gentlemen, on behalf of Zydus Lifesciences Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your line and exit the webinar.