Alembic Pharmaceuticals Limited (APLLTD) Q2 FY23 Earnings Concall Transcript

Alembic Pharmaceuticals Limited (NSE:APLLTD) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Shaunak Amin — Managing Director

Pranav Amin — Managing Director

Analysts:

Prakash Agarwal — Axis Capital Ltd. — Analyst

Sumit Gupta — Motilal Oswal Financial Services Ltd — Analyst

Bharat Celly — Equirus Securities Private Limited — Analyst

Jainil Shah — JM Financial — Analyst

Nikhil Mathur — HDFC Mutual Fund — Analyst

Cyndrella Carvalho — JM Financial — Analyst

Bhagwan Chaudhary — Sunidhi Securities — Analyst

Puneet Pujara — IIFL Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Alembic Pharmaceuticals Limited discussion on Company’s Q2 H1 FY23 Financial Results.

We have with us from the management, Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head, Finance; Mr. Jesal Shah, Head, Strategy; and Mr. Ajay Kumar Desai, Senior VP, Finance. [Operator Instructions]. And there will be an opportunity for you to ask questions after the presentation concludes.

[Operator Instructions]. I now hand the conference over to Mr. R.K. Baheti, Director, Finance and CFO. Thank you, and over to you, sir.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Thank you. Good evening, everyone and thank you for joining the Alembic Pharma’s second quarter results conference call. I know it has been a hectic day for you. Couple of pharma companies announced their results today. So, I will be short today. Let me briefly take you through the numbers for quarter-ended and half-year ended 30th of September, though most of you might have received it by now.

During the quarter, our total revenue was up by 14% to INR1,475 crores — INR1,475 crores, EBITDA was INR231 crores, net profit was INR233 crores, EBITDA margin for the quarter was INR16 crores. For H1 FY23 the numbers are EBITDA, INR240 crores and net profit, INR67 crores. You are aware that in Q1 we wrote-off significant amount of amortized R&D expense of Aleor, the company, which has been now merged with Alembic Pharmaceuticals.

So, we continue to do that. And in this quarter, that is Q2, we have expensed about INR16 crores out of previously amortized R&D cost. And so that makes it INR131 crores of charge off for the half year. If we would not have done that, our profit before tax would have been higher by INR131 crores and profit after tax would have been higher by INR108 crores. That is for the half year.

Residual intangible assets and books pertaining to Aleor operations are still INR24 crores. We hope in next couple of quarters we will clean it up. Our consolidated profit before tax — yeah, I said that. EBITDA on likewise basis would have been INR338 crores on — without charging of the one-time expense, that would have been 12% of sales. This is for H1.

EPS for the quarter before non-recurring item is at INR7.09 per share versus INR8.34 of previous year. And for H1, it is INR8.93 versus INR16.39 of previous year. Coming to borrowings. Our gross borrowings are INR693 crores versus INR630 crores in March 2022. And we have INR65 crores of cash in hand, March ’22 was almost identical amount of INR61 crores. So net-debt equity stands still very comfortable level, 0.13.

I’ll request Shaunak to take you through India business, India branded business. Shaunak, over to you.

Shaunak Amin — Managing Director

Yeah. So, good evening everybody. This quarter for the India business, the topline was 8% which reflects us to be in-line with the industry. As per last year, we did have a large sale of Amphotericin-B, primarily to deal with COVID-related fungal infections as a service. So we did launch that. If I were to take that out, our growth jumps to 11%. Within this growth, both specialty as well as acute gave a good double-digit growth with 10% in specialty, largely driven by gynecology, anti-diabetic and ophthalmology as outperforming specialty areas. And the balance of the growth is driven by the acute which is growing at 11%.

Along with that, Animal Healthcare business continues to show a strong one-off performance, locking in 15% growth for this quarter. The growth for this quarter as a organization was in-line with the industry, and with IMS numbers and I were to take a [Indecipherable] versus the IMS number, B2 [Phonetic] continue degree of outperformance, growth [Phonetic] in degree is a lot smaller. That being said, I think going forward we continue to maintain, and are extremely confident of outperforming the market growth numbers on a consistent basis. With overtime, we wish to reach a significant outperformance versus market growth in some of those for — on the moving trend. So that we maintain [Indecipherable].

I’ll hand it over to Pranav now for his presentation on the international side.

Pranav Amin — Managing Director

Thanks, Shaunak. It was an interesting quarter for the international business, especially the ex-US and API business, both had a decent quarter, especially considering that they’re coming off a high base of last year.

The US business continues to remain challenging, and a lot of oversupply in the market and a lot of price erosion due to that. In spite of that, we managed to grow the business by 20% in the quarter. This was due to some one-time buy opportunities, one-time opportunities that we had in the market. The sales for the current quarter in the US was $52 million. We continue to remain focused on this on the long-term of the US business. We had to have as you must — we announced in the market that we got first of our two injectable sites approved, we got three approvals from the site, so site approvals pending, but product approvals have started flowing in. So that is promising.

Our R&D expense is INR168 crores. If you see ex of the one-time Aleor products R&D charge-offs, it is INR151 crores, which is 10% of sales in the quarter. We’ve been guiding for low R&D in the future and this is a trend that we will see moving forward as well. We filed five ANDAs during the quarter and cumulative ANDA filings are 242. We also received three approvals during the quarter. We launched five products in the US during the quarter, and hopefully we’ll launch another ten at least in the rest of the year.

The US FDA as I mentioned had conducted inspection at our injectable facility, F-3, where we had two observations and F-2, our oncology facility which had four observations. But as I said earlier, we have started receiving product approvals from this facility, so that is promising. The US Generics grew by 20% and the ex-US Generics grew by 9% whereas the API business had a very good performance and grew at 23%.

I’ll open the floor open for questions. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Prakash Agarwal from Axis Capital. Kindly proceed.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Yeah. Hi, thanks for the opportunity. Good evening to all. First question is on the expenses side. So, quite a bit of cost control air, wanted to understand what is the capitalized cost sitting for all the facilities put together. And given that you have received the approval, I’m sure you’re launching soon if not already. And, how would the cost start to go up from there?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

So the capitalized cost is INR1,100 crores for all these three plants F-2, F-3 and F-4. The yearly spend is around INR200 crores-odd, the revenue, expenditure, and once we capitalize that, we would plan to use. For F-2 and F-3, this cost would be in vicinity of INR300 crore, including depreciation.

Prakash Agarwal — Axis Capital Ltd. — Analyst

So yearly you said INR200 crores, first that, and then INR300 crores?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yeah, with depreciation INR300 crores. Yes.

Pranav Amin — Managing Director

Put together.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yes.

Prakash Agarwal — Axis Capital Ltd. — Analyst

And yearly INR200 crores for all the four facilities?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

That’s true.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay, no. I was asking, going forward, what is the kind of expenses we should start penning in given the approval and launches will start from the injectable plant?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

So Prakash, this is exactly what I said. Keep aside F-4, let’s take F-2 and F-3, then the running cost is around INR160 crores, INR170 crores, which is like cash burn out, okay, that’s over-written. And then you have to add another INR100 crores on — as depreciation.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Understood. So of the INR200 crores, INR160 crores is for the first two plants, is that what… [Speech Overlap]

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yes.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Understood. Okay. Fair enough, And yeah, congrats on the approval that has started. Just trying to understand for the opportunities, juice is still left on these products? And when do you plan to launch them?

Pranav Amin — Managing Director

So we will probably launch in Q4 of this year. In terms of Ketorolac, yes, I think, while there are people in the market, but it continues to remain in shortage on and off. So there would be an opportunity to get some share. Paclitaxel is also large volumes, so that is also an interesting product on the oncology side. Right now, we’re seeing some shortages in few SKUs of Paclitaxel as well. And the third is Glycopyrrolate, that also is a smaller product which will be interesting.

Prakash Agarwal — Axis Capital Ltd. — Analyst

And we should start seeing more — I mean, the kind of filings you have done would range, I mean in the past you have mentioned that to start with it would be smaller and basic product, but you would have complexity going ahead. So when should we start seeing the complex product approvals? Are they still in the filing stage?

Pranav Amin — Managing Director

I’m just right now — I’m just soaking in the pressure, at least the approvals have started, Prakash. But, I think few things, yes, we do have some interesting products. Hopefully in another six months or 12 months, we should see some interesting ones. Lot of the other filings also going on. Lot of our filings were delayed this last 12 months due to the FDA remediation. So hopefully that pace will also pick up somewhere.

Prakash Agarwal — Axis Capital Ltd. — Analyst

Okay, perfect. Right. Thank you and all the best.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Sumit Gupta from Motilal Oswal. Kindly proceed.

Sumit Gupta — Motilal Oswal Financial Services Ltd — Analyst

Yes. Hi, thank you for the opportunity. I would like to know in the outlook on the US generics, like what kind of price erosion that you are witnessing?

Pranav Amin — Managing Director

Yeah. So, US business is the most competitive I’ve seen at least in the last ten years or so. There is lot of oversupply in the market. I don’t know what the blended price erosion would be for the portfolio. I’m assuming it will be high-teens. But product wise if you see, I’m seeing erosion of upwards of 50% product-wise in specific products.

Sumit Gupta — Motilal Oswal Financial Services Ltd — Analyst

Okay, sir. Thank you.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Bharat Celly from Equirus Securities. Kindly proceed.

Bharat Celly — Equirus Securities Private Limited — Analyst

Yeah. Hi. Thanks for the opportunity and good evening everyone. So sir, just wanted to understand since we have already started getting approval from the new facilities, so just wanted to get a color, how many ANDAs are pending approval from F-2 and F-3 injectable facilities?

Pranav Amin — Managing Director

So, we’ve got like you know, 34 filings actually between these two facilities, and then we’ve got another 17-odd filings from the CMO, which eventually we will bring it to these facilities, so 50-odd at this point in time.

Bharat Celly — Equirus Securities Private Limited — Analyst

And this 50 includes onco oral as well? Or it is a just [Speech Overlap]

Pranav Amin — Managing Director

Yes, it does. It does.

Bharat Celly — Equirus Securities Private Limited — Analyst

Sorry, I didn’t get it.

Pranav Amin — Managing Director

Yes, it does. It does cover onco.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay. So, if I just talk about the injectables, not oral solids, so how many products that would be?

Pranav Amin — Managing Director

So we have, around seven, eight filings for OSB onco.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay, so, last part is injectable in that case?

Pranav Amin — Managing Director

Yeah.

Bharat Celly — Equirus Securities Private Limited — Analyst

Is it correct?

Pranav Amin — Managing Director

Yes.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay. And second on the overall US pricing, so are you seeing that the overall pricing pressures have started cooling off from the quarterly perspective, quarter-on-quarter perspective? I believe year-on year it may look still high, but on quarter-on-quarter basis, are you seeing some cool down?

Pranav Amin — Managing Director

Did not vary [Phonetic]. To be honest, as I mentioned where even quarter-on-quarter basis we are seeing price erosion compared to last year. It’s just there’s too much supply in the markets even quarter-on-quarter we are seeing price erosion.

Bharat Celly — Equirus Securities Private Limited — Analyst

Right. And last one from my end. So we have even settled for Revlimid. So, what are the timeline for us to launch if you could give some color, whether it is up for [Phonetic] ’24 launch or whether ’25. If you can give some color.

Pranav Amin — Managing Director

So, you know, we are not in the first or second wave for Revlimid. So we are way behind. I think Revlimid is [Technical Issues] for us. We were late to the game.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay. Thank you, and best of luck.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Sumit Gupta from Motilal Oswal. Kindly proceed.

Sumit Gupta — Motilal Oswal Financial Services Ltd — Analyst

Thanks again. I would like to know about the Brovana which was commercialized. Like, what kind of a traction date you’re seeing?

Pranav Amin — Managing Director

Yeah. So, this is a product we commercialized through CMO. We’re gradually picking up share, it’s a good market still. And we’ve picked up some share. I think we must see about 10% or so of market share right now.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay. So can you guide like what kind of market share is there? What is the market size?

Pranav Amin — Managing Director

I don’t have that figure with me on hand. I’ll have to just double check and get back to you.

Bharat Celly — Equirus Securities Private Limited — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Jainil Shah from JM Financial. Kindly proceed.

Jainil Shah — JM Financial — Analyst

Good evening. Thank you for the opportunity. I just want to ask on the API front. We have grown really well. So, what is driving this growth and how should we look at it going forward?

Pranav Amin — Managing Director

Yeah. So the API business, it’s been a good business for us. I think we’ve focused on quality and timelines kind of a thing. And as the world is looking at more, better suppliers with compliance facilities, so, we’ve been able to do that with our service levels. I mentioned we expect in the year or [Indecipherable] so we expect the API business to grow about 10% during the year. This was an exceptionally high quarter where we had about 23% growth. But yeah, I think, 10% is a fair enough growth that’s expected in the API business.

Jainil Shah — JM Financial — Analyst

And on the US front, you did mention that there were certain one-time opportunities. So ex of that, what would be our sustainable US-based business run-rate?

Pranav Amin — Managing Director

So, as I’ve said in the calls earlier, about $45 million to $50 million, anywhere between that is a sustainable US run rate. You know, it really depends if we lose out an award or what we get or how the pricing behaves, but $45 million to $50 million is what I am seeing currently.

Jainil Shah — JM Financial — Analyst

And, when you know, in your view it could change and we could move to a higher base of $55 million, $60 million?

Pranav Amin — Managing Director

Yeah. It’s a good question and I hope we can go soon. But I think it’s going to take some time. I think only way it will happen is, as we get more products in the market and slowly, slowly get market-based opportunities, once some of the injectables come in. That’s the second thing. Thirdly, if there is disruptions in the market, right, as I’ve been saying there’s a lot of supply in the market currently. But we may see some disruptions moving forward.

Once that happens, then it will be opportunity for some price, you can get some really better prices and some market share as well. So I would say a couple of quarters at least it will be stable.

Jainil Shah — JM Financial — Analyst

Yeah. Thank you so much.

Operator

Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Kindly proceed.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Yeah, hi. Good evening. Sorry, I’ve joined late so, I’m not sure if this question has been asked. So now we are seeing some products getting approved from the onco injectables facility. So does that mean that some part of opex and depreciation which was capitalized starts hitting the P&L from 3Q onwards?

Shaunak Amin — Managing Director

And so, once we start commerce [Phonetic] starting with the fall commercial batch that would be the due date. From that, we won’t capitalize it and it would be part of expenses. So we can expect that to happen by Q4.

Nikhil Mathur — HDFC Mutual Fund — Analyst

By Q4, okay. And in the last call, the numbers mentioned that in the P&L around INR180 crores, INR200 crores was on the opex side and I think INR150 odd crores on the depreciation around INR180 odd crores. Are these numbers right? Am I putting the exact numbers there though I think a buildup will be a bit more steady than everything coming at one go.

Shaunak Amin — Managing Director

Yeah, Nikhil, that one was for all the three plants, F-2, F-3, and F-4 actually. SSo somebody just asked, Prakash asked this question, that was the first question and I’ll for the sake of repetition I’ll still do it. It was for these two plants, the expenditure is around INR160 crores, INR170 crores, which is a cash burn and then the INR100 crores of depreciation for these two plants.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Understood and also do you mind commenting on — I don’t know, you might have shared it, but if you can reiterate it. What is the R&D outlook? What is the spend on a quarterly basis that we are looking at from FERA [Phonetic].

Pranav Amin — Managing Director

So the R&D outlook, this quarter, the total R&D was INR168 crores, which includes the Aleor. As I mentioned in the start of the year, we will get through an R&D about INR650 odd crores this year including the Aleor R&D and then we’ll — it will be flat, but we’ll try reducing it a little bit going forward as well.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay, got it and then one final question. India has done recently welll on a pretty strong adverse base. I mean 23% growth versus last year same quarter. This quarter is 8% growth. Are they the usual products that have been or something some new products are picking up and that has contributed to this growth that has been recorded?

Shaunak Amin — Managing Director

It’s a combination of both. On the acute side, we have had of course, obviously the traditional brands have done well despite the market being quite flat based on all the brand building efforts we put it in the last one year. On the specialty side, yes, the traditional portfolio also has done well, but there have been some very good launches in the gynecology space for us along with a couple of good launches in anti-diabetic space. It’s a combination of both prescribing it.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay and there will be usual seasonality in second half, right, wherein 3Q and 4Q would be weaker than 2Q. I mean the normal seasonality that happens in your portfolio.

Shaunak Amin — Managing Director

Yes. So historically, yes, traditionally Q2 is the highest in terms of phasing, but I think more and more with the weather patterns and the climate changing and also with delayed monsoons, I think these trends are changing where Q2 and Q3 seem to be almost blending into each other per se. So yes, there is a bias in [Indecipherable] used to be.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay, understood.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Also Shaunak, as the revenue percentage from specialty segments are going up, the impact on us, on Alembic Pharma, the seasonal impact is now gradually would go down.

Shaunak Amin — Managing Director

Yes.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Sure, sir. Understood.

Operator

The next question is from the line of Cyndrella Carvalho from JM Financial.

Cyndrella Carvalho — JM Financial — Analyst

Sir, if we look at the other expenses for this quarter, is there any kind of one-off or is there any kind of additional trend which has come only in this quarter? And do we see the opportunity to have some rationalization in this number going ahead?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Sure. The INR16 crores which I said, we charge in this quarter, which was out of previously amortized R&D expense of [Indecipherable] and this quarter our numbers are okay. I mean I don’t think there is any exceptional or high number.

Cyndrella Carvalho — JM Financial — Analyst

Any scope to improve it for this, sir?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

I cannot say that, I mean, that effort to contain expenses continues. The particular area of focus at this moment is of course R&D, but it takes time because when you evaluate projects to decide what to continue, what to drop, even when you decide to downsize, it takes time. So it’s a process that they will, happen overnight, but we are constantly at it.

Cyndrella Carvalho — JM Financial — Analyst

Any quantum that we would like to specify over a year, any certain amount that we would expect due to these activities?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

So on an annualized basis, I think we plan to save about INR100 crore this year versus what we spent last year.

Cyndrella Carvalho — JM Financial — Analyst

Okay and sir, if we look at the domestic business, you did mention that the seasonality has been not the factor going ahead. So how is the chronic segment doing? And how should we

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Shaunak would respond, I didn’t say that there is no impact. I said that impact now is getting diluted because our specialty business is showing more number as a percentage of business but of course we still have about 35% of the business from acute. So there will be some impact, but Shaunak, would you like to talk about the specialty growth?

Shaunak Amin — Managing Director

Yes. So I think for this quarter, I think I mentioned them in the call, I think the specialty overall we will call it, I think, at 11% growth. Going forward, I expect is to significantly ramp up, especially [Indecipherable] space. We’ve had quite a few new launches and some of these new launches have diverted focus from our traditional drugs. So little bit of impact has happened in that process, but like I said, I always maintain, I think our specialty business could be clocking in a very strong double-digit growth more or less as we know the market doesn’t turn into a very low growth kind of situation.

Cyndrella Carvalho — JM Financial — Analyst

Any new products that you see apart from what we have discussed?

Shaunak Amin — Managing Director

Yes. So I think we’ve had a couple of launches in the gynecology space, and we’ve had a couple of launches in the diabetology space, but these were launched in this quarter, these were both — most of these products were launched over the last six months.

Cyndrella Carvalho — JM Financial — Analyst

Okay. That’s helpful and if we can get some more detail on the API segment, which products are these that are doing well?

Pranav Amin — Managing Director

It’s not to give a difference — it’s product. There’s no particular product per se, but the entire basket because we sell the basket across territories and no particular territory also. We have seen very good growth across all the territories all over the world that we’re selling.

Cyndrella Carvalho — JM Financial — Analyst

Any particular therapy that you can highlight, if not —

Pranav Amin — Managing Director

API, we don’t go by therapy wise, we just go by what makes commercial sense and what our capabilities are.

Cyndrella Carvalho — JM Financial — Analyst

Okay and any benefit of raw material easing or logistic cost easing that we see which would slow in coming quarters?

Pranav Amin — Managing Director

No, no, not at all. Actually the logistics costs have been pretty high and we’re not seeing any easing of that as of yet.

Cyndrella Carvalho — JM Financial — Analyst

Even on the raw material side, it’s a similar scenario?

Pranav Amin — Managing Director

Yes and there’s no easing on any of the costs.

Operator

The next question is from the line of Bhagwan Chaudhary from Sunidhi Securities.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

Sir, how many filings we have done from the F-4 and when do we expect this facility to get the approval from US FDA you said?

Pranav Amin — Managing Director

F-4 is another oral solid OSD facility. We have done two site transfers and one filing from F-4. So we’ll wait until the FDA comes to audit and then we’ll add more products over that.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

And sir, in terms of F-2 and F-3, do we have the filings in EU and other countries than the U.S.?

Pranav Amin — Managing Director

No, not as yet. Our goal is to do some filings for these 2, but the priority was first to take on the U.S., which we’ve done, and now we’ll extend it to other territories as well.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

When we got the approval, this [Indecipherable] franchisee. Can you please share what is the market opportunity and size for this product? And have we launched it?

Pranav Amin — Managing Director

No, we haven’t launched it as yet. Volume-wise is not a very large product. There’s a team of about five, six, seven people already in the market, but it’s an interesting opportunity, and we will launch it in Q4.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

And sir, lastly, have we filed or have we got any approval on the Derma [Indecipherable] and if not yet, by what time we can expect?

Pranav Amin — Managing Director

No, Derma, we’ve already got. We’ve got about good 15 odd products, which have got approved from the Derma facility and which already commercialized, which we’re already selling in the market. Even ophthalmic, we’ve got about 10 to 15 ophthalmic products, which are approved. These, of course, the first phase of ophthalmic were all acquired from a CMO, not from our own facility, but even from our own facility, we have some filings which hopefully in the next two quarters, we will see some approvals coming from there as well.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

And this Derma is from the F-1?

Pranav Amin — Managing Director

No. So Derma is a separate because Derma was a separate company earlier, Allure, which we amalgamated. So it’s from that facility. So we don’t call it at one, two, three, we just call it Allure.

Bhagwan Chaudhary — Sunidhi Securities — Analyst

And for [Indecipherable] this is from which facility?

Pranav Amin — Managing Director

That is from — I’d say the CMO.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Our own language, F-3.

Operator

The next question is from the line of Puneet Pujara from IIFL Securities.

Puneet Pujara — IIFL Securities — Analyst

I have a couple of questions, starting with pre-operative expenses. So how much of this INR1,100 crores would pertain to F-2 and F-3, which will charge to P&L once the facilities are commercialized?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yes. So almost INR950 crores pertain to F-2 and F-3.

Puneet Pujara — IIFL Securities — Analyst

That’s helpful. Now we saw some good growth in our anti-diabetes franchise in India. Currently we have launched Sitagliptin after the patent expiry. So how has been the traction so far? And can you speak a little bit about market formation?

Shaunak Amin — Managing Director

Sitagliptin is it’s too early. It’s just been launched. I think it’s hard to give you an indication at this point in time, but I think we’ve just — we launched it and we’re getting good traction, but I would honestly like to comment on market formation, maybe a quarter down the road because it’s literally like one or two months is very hard to kind of gauge what’s going on because most of the Sita and the Sita combos were launched in the last quarter early, in the last quarter, current quarter.

Puneet Pujara — IIFL Securities — Analyst

Sure and gynaec therapy has also done well. So do we have any launch of Dydrogesterone [Phonetic] product?

Shaunak Amin — Managing Director

Yes, we already have a brand in the market. We were as the second — part of the second phase that launched Dydro. Of the current launches or second phase launches, we already reached number fourth rank and we’re getting tremendous traction on it and are quite confident of building it because of our leadership position in gynecology as a therapy area, they get extremely strong traction, and we continue to keep building on this therapeutic space, in this product, sorry.

Puneet Pujara — IIFL Securities — Analyst

Sure. So given that Dydrogesterone, Sitagliptin, both the products were launched a few months down the line after the patent expiry. So do we — in terms of launch, it’s actually a little bit after the patent expiry coming over the next few months?

Shaunak Amin — Managing Director

Sorry, could you repeat the question?

Puneet Pujara — IIFL Securities — Analyst

Yes. So given that we have launched Dydrogesterone and Sitagliptin after the patent expiry, I understand that we are targeting on molecule patent. Do we intend to file — do we intend to launch Sacubitril/Valsartan which is high failure therapy after the patent expiry?

Shaunak Amin — Managing Director

Yes, so Sacubitril/Valsartan combo we are planning to launch and we are quiet on it. The challenge with Valsartan/Sacubitril is only that there are multiple SKUs in this product. So it’s not a single product launch, but we’re gearing up for that. I think we’ll be ready to launch in a dedicated manner, I think immediately on expiry, we’re ready to launch all the SKUs.

Puneet Pujara — IIFL Securities — Analyst

And do you intend to expand Dydrogesterone [Phonetic] to support these launches?

Shaunak Amin — Managing Director

Yes. So I think at this point in time, from the existing divisions, we have limited space now remaining with the amount of launches we’ve done. At this point in time for Valsartan/Sacubitril, we are looking at a specialized task force just to launch this product, looking at the unique specialty nature of it as well as the bias — as well as the opportunity that it puts forward. So yes, we will be launching a fourth task. For division it should be like a task force to just to launch Valsartan/Sacubitril and more so to address the whole heart failure market.

Puneet Pujara — IIFL Securities — Analyst

And would you like to quantify the number?

Shaunak Amin — Managing Director

I’ll let you know next time when we meet, post launch.

Puneet Pujara — IIFL Securities — Analyst

Sure and given that the POs are commenting that the cost have been moderating. So our comment suggest that it is not the case. So it is because of the mix of air freighting again or is it something else going on?

Shaunak Amin — Managing Director

I think this is only international point, right, not domestic.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yes, like, I mean, bulk of our shipments are sea shipments, but we have seen a major cost escalation on the sea shipment for the last five quarters now and if that’s not taken — I mean it continues to be at a very, very high level.

Puneet Pujara — IIFL Securities — Analyst

But from the current cost side, the container cost should moderate, right? I mean some of the [Indecipherable]?

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

We have seen very minor, mild reduction, but if you see what was there seven quarters back and today, I mean, there is no comparison. It’s still very, very high.

Puneet Pujara — IIFL Securities — Analyst

And the last question is on the U.S. side. So given that we got approval for [Indecipherable] product. Are we in the process of developing stroke filing Asacol, HD or Pentasa, both are really limited competition product? And Pentasa.

Pranav Amin — Managing Director

We don’t really disclose any of our filing grid, what we are or we aren’t filing. So I mean if we get approval, then you now we have it.

Puneet Pujara — IIFL Securities — Analyst

So without putting any name, do we intend to file any other [Indecipherable] Asacol, Pentasa?

Pranav Amin — Managing Director

[Indecipherable] if it’s an interesting opportunity, we will file and if it’s still an interesting opportunity, we’ll file. If there is no competition, we may not.

Puneet Pujara — IIFL Securities — Analyst

Sure. That’s helpful.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Coordinator I think there are no new questioners, there are some follow-up question which I think Mitanshu can take up with them separately. There are no new question on the whole, we can conclude the call.

Operator

All right, sir. There are no new questions in the queue right now. I would now like to hand the conference over to Mr. R.K. Baheti, Director, Finance and CFO, for closing comments.

Raj Kumar Baheti — Director – Finance and Chief Financial Officer

Yes, thanks. I can understand lesser number of questions this time because it’s a Friday evening, and you guys have attended almost multiple calls, but thank you at the same time, I mean, for all of you who have joined and an interesting session, and I think look forward to seeing, interacting with all of you next quarter. Thank you.

Operator

[Operator Closing Remarks]

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