Cipla Limited (CIPLA) Q3 FY22 Earnings Concall Transcript

Cipla Limited  (NSE:CIPLA) Q3 FY22 Earnings Concall dated Jan. 25, 2022

Corporate Participants:

Naveen Bansal — Investor Relations

Kedar Upadhye — Global Chief Financial Officer

Umang Vohra — Managing Director & Global Chief Executive Officer

Analysts:

Nikhil — SIMPL — Analyst

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

Prakash — Axis Capital — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Anubhav Aggarwal — Credit Suisse — Analyst

Surya Patra — PhillipCapital — Analyst

Nithya Balasubramanian — Bernstein Research — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Neha Manpuria — Bank of America — Analyst

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Cipla Limited Q3 FY ’22 Earnings Conference Call. From the Cipla management, we have with us, Mr. Umang Vohra, Managing Director & Global CEO; Mr. Kedar Upadhye, Global CFO; Mr. Naveen Bansal from the Investor Relations team.

[Operator Instructions] I now hand over the call to Mr. Naveen Bansal. Thank you, and over to you, sir.

Naveen Bansal — Investor Relations

Thank you, Faisal. Good evening, and a very warm welcome to Cipla’s Q3 earnings call. I’m Naveen from the Investor Relations team here at Cipla. Let me draw your attention to the fact that on this call our discussion will include certain forward-looking statements, which are predictions, projections, or other estimates about future events. These estimates reflect management’s current expectation of the future performance of the company. Please note that these estimates involve several risks and uncertainties, including the impact of COVID-19 that would cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement whether as a result of new confirmations, future events or otherwise.

With that I would like to request Kedar to take over, please.

Kedar Upadhye — Global Chief Financial Officer

Thank you, Naveen. Good evening to all of you and wish you a very Happy New Year. I hope that all of you and your families are safe and well. We appreciate your joining us today for the third quarter earnings call for FY ’22, and I hope you have received the investor presentation and other materials that we have posted on the website.

This quarter, we are pleased to report a healthy performance. For the last almost two years, we have been consistently beating our internal targets. We recorded revenue growth of 6%, driven by robust momentum in branded markets of India and South Africa and continued traction in the U.S. portfolio. Our EBITDA margin of 22.7% for the quarter tracks convincingly in terms of full year guidance despite cost headwinds on raw material and freight, offset by increased share of the complex and chronic lunches, continued rigor on cost control and operating efficiencies. Overall, our delivery on revenue and profitability, as I said, continues to be ahead of our targets.

Our One-India year-on-year growth of 13% continues the impressive run, driven by sustained momentum across all businesses. Healthy order flow in the prescription business continued across all the therapies as well as regions in the trade generics. The consumer business saw consistent uptick in core and traditional brands.

The U.S. revenue for the quarter was $150 million, one of the highest in recent quarters, led by strong traction in the respiratory and other portfolio. We have also received approval for the first 505 (b)(2) version of Lanreotide injection.

Our South Africa private business maintains market beating trajectory, driven by steady launch momentum. The YTD EBITDA for nine months is at 23.1% of sales, tracks quite ahead with our full year guidance. As you are aware, Q4 is a seasonally reverse quarter for India and our EBITDA appropriately will respond to the change in mix.

Our free cash generation and operating efficiency continues to drive our strong net cash position despite strategic inventory build-up for maintaining adequate supply of medicines. The return on invested capital of 21.2% for trailing 12 months continues to track well above the long-term sustainable range that we had highlighted earlier.

Coming to the financial performance, some of the specific highlights I would like to highlight. As expected, the revenue of contribution of COVID products at the company level was lower on year-on-year basis. The COVID portfolio declined by almost 10 percentage on year-on-year basis and 17% sequentially. We do expect to see some traction in the coming quarters in line with the case loads amid the ongoing third wave in India.

Our emerging market business continues to maintain strong growth in DTM markets. The order flow from developed markets in our API business has witnessed momentary slow down and our mix has responded accordingly. We’ll see traction in orders from emerging markets and API. Outlook remains robust.

The total revenue for the quarter is INR5,479 crores with a year-on-year growth of 6%. Gross margins were 60.9% on a reported basis. The marginal decline on year-on-year basis of 55 basis points and about 40 basis points on Q-on-Q basis is attributed to increase in freight and materials costs and certain provisions for the inventory, including COVID products. We expect gross margins to respond to launches from complex pipeline in the coming quarters.

Total expenses which include employee cost and others are at INR2,105 crores, declined by 2.4% on a sequential basis. Employee cost for the quarter is INR872 crores, which is flat on a sequential basis. Other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion are at INR1,232 crores, declined by 3.7% driven by strong cost control.

We have retained the efficiencies from our reimagination and operational efficiency initiatives from last year, while continuing our growth linked investments which are driving the Y-o-Y increase and other expenses.

Total R&D investments for the quarter at INR262 crores, all the priority projects spend continue to be on track. We expect these spends to increase as the respiratory assets progress in the clinical trials. Overall, reported EBITDA for the quarter is at INR1,243 crores or 22.7% to sales. Tax charges are INR295 crores and the ETR is 28%.

As of 31st December, our long-term debt stands at ZAR720 million. We also have working capital loans of $58 million, ZAR137 million, and AUD5 million, which act as natural hedges towards our receivables. Driven by our relentless focus on cash generation, we continue to be a net cash positive company as of December ’21. We continue to be appropriately hedged on key global currencies as per our policies.

Finally, just to conclude, the Board at its meeting held on 25th January withdrew the scheme of — I mean, the Board at its meeting held on 26th October withdrew the scheme of arrangement for the proposed transfer of India-based U.S. business undertaking to Cipla Biotech Limited and the proposed transfer of the consumer business undertaking to Cipla Health Limited in favor of a more efficient mechanism for paying the transaction. Based on management proposal, post the in-depth revaluation, the Board has approved the proposed transfer of the U.S. business undertaking and consumer business undertaking by way of slump sale. We continue to believe that the transaction will simplify the structure, maximize the efficiencies, and has the potential to unlock value for all the stakeholders of the company.

To close, we saw impressive momentum across portfolio geographies for nine months. Growth levers in the subsequent quarters will include continued momentum across all regions, securing market share in peptide assets Lanreotide, coupled with traction in Albuterol and Arformoterol in U.S. and driving expansion in the operating profitability above FY ’21 base, but focusing on mix improvement and operating efficiencies.

I may now like to invite Umang to present the business and operation performance. Thank you.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you, Kedar. I would like to wish all of you and your families safety and well-being. COVID-19 continues to evolve across the globe with the new variants driving case loads. We continue to ensure availability of our COVID and other life-saving products.

Coming to our strategic updates and operational performance for the quarter, I’m proud of the strong launch and commercial momentum across our One-India business with a 13% year-on-year growth and 7% year-on-year growth in our U.S. business, underpinned by the expanding respiratory franchise. Our EBITDA margins for the quarter came in at 22.7%, as Kedar mentioned earlier, ahead of our internal target. And given the 23.1% YTD traction, we are well placed to close the year in line with our guidance.

In India, our One-India strategy is witnessing remarkable traction and achieving major milestones along the journey. The One-India business maintained double-digit growth momentum for the third quarter of this year coming in at 13% year-on-year. The core prescription business in India, excluding COVID, grew strongly by 16% on a year-on-year basis. The branded prescription business is on track to achieve the $1 billion mark, building a formidable franchise in our home market of India.

Our customer engagement levels in our trade generic business has driven healthy orders from Tier 2 and below towns in India. Some of our flagship generic brands in our trade generics business has grown fast than INR100 crore mark and few others are crossing the INR50 crore mark, which speaks about the brand equity in these markets. We also plan to add high growth categories like anti-diabetic and injectables to address unmet demand in the coming quarter.

The branded prescription business continued the market, beating growth for the third consecutive quarter in FY ’22 driven by sustained traction in almost all our therapies in core portfolio. As per IQVIA MAT December ’21, we continue to maintain healthy ranks and market shares in our key therapy areas across respiratory, urology, anti-infective, and cardiac. Our focus continues in creating debt in anti-diabetic and the oncolytic therapies, building on existing and new partnerships with global multinational corporation.

The trade generics business witnessed strong demand. We’ve launched 10 brands cross cardiac and the diabetic range this year. To further strengthen the franchise, we plan to continue this launch momentum in FY ’23.

Coming to our consumer businesses, we are very happy to see how the business has shaped both in India and South Africa, almost contributing 8% of the company top line on a YTD basis. The India consumer business has seen robust traction in the anchor brands during the quarter, driven by high consumer recall, benefiting from the robust media campaigns and meaningful consumer insights throughout the year.

Coming to North America. Our U.S. generic core formulation sales for the quarter came in at $150 million, beating the previous quarter high. This $150 million mark sets a new base for our business, which hopefully will grow from these levels in the back of our upcoming launches.

Our respiratory franchise continues with strong traction with 36% year-on-year growth. As per IQVIA week ending 21st December 2021, we have close to 15.9% share of the total Albuterol market and 26.8% share in the Arformoterol overall market and our shares have continued to move up from the earlier levels. We expect the business run rate to continue to inch up further as we enter into the next year, where we also expect to show growth over that base of the current year.

During the quarter, we have unlocked one major peptide asset in the U.S. with the approval of Lanreotide. We are expecting a sustainable ramp up over the medium term. Our focus will continue to expand our peptide portfolio through internal development and partnerships, strengthening our high value complex generics pipeline.

On Advair, we remained closely engaged with the U.S. FDA on our file and we will continue to share the updates on the progress. On our Goa plant, we are awaiting to hear from the FDA on the inspection schedule.

Coming to our SAGA region, which includes South Africa, sub-Saharan Africa, and our Access business, our South Africa private business reported a 16% robust growth over the last year for the quarter in local currency terms. In secondary terms, we continue to maintain market beating growth of 9.1% versus the 8% growth overall in the private market as per IQVIA MAT November ’21.

In the international markets, we maintain scale close to last year base in U.S. dollar terms. Our DTM franchise continue to witness strong momentum across markets with steady double-digit growth in secondary terms.

In FY ’22, we have made significant progress against our strategic priorities. We remain confident in our near to medium term outlook, change the strength of our growing branded franchises and launch pipeline in the U.S. and other markets. We had important launches in the coming quarters and we are gearing up for these launches in the near future. We are transforming our IPD manufacturing supply chain and quality operations to unlock efficiencies targeted to deliver higher performance and resilience serving our patients more effectively.

Our innovation engine seeks to capitalize on the opportunities across the healthcare ecosystem, leveraging data analytics and digital technologies to drive robust portfolio momentum and capital allocation.

Our near-term priorities include continued execution on the demand levers in chronic and acute therapies, improvement in manpower productivity across our branded markets of India and South Africa, active advancement of our innovative consumer centric products to accelerate the augmentation of a consumer wellness franchise across India and South Africa, grow our U.S. limited competition launches footprint, including peptides as we continue to expand both the injectable and respiratory categories in North America, focus on regulatory compliance across our manufacturing facilities and implement globally benchmarked ESG practices and continue our high vigil on cost and cash management while driving a sustainable expansion in operating margins and the return on capital employed.

I would like to thank you for your attention, wish you and your families good health and will request the moderator to open the session for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Nikhil from SIMPL. Please go ahead.

Nikhil — SIMPL — Analyst

Hi. Am I audible?

Operator

Yes, sir.

Nikhil — SIMPL — Analyst

Yes. Hi. Good evening. Congratulations on good set of numbers. I have two questions. One is, sir, if I look at our presentation where we save priorities for FY ’25 and in between India, South Africa, and Europe and other markets, we talk about driving sustainable growth through organic and inorganic levers. And over the last two, three years, we have been looking at that we’ve been doing tie-ups for onco or for biosimilars and these kinds of products to grow the market or present in these markets. So just want to understand when we talk of the levers for growth, is it like these tie-ups become a very important lever for us to continue growing? Or do you think from our own organic pipeline we have product launches which can sustain the growth? Or how should we understand between these tie-ups organic and probably inorganic acquisitions?

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you. I think it is a good question. I think the sources that there are — the answer is going to depend differently for different markets. So in the U.S., we would like to depend on our own organic momentum of products, in the U.S. and largely EU. Our own organic momentum of products will create a sustainable base. And we augment this with few partnerships where we think the partners bring very specific technology skills, which are very relevant, right? So Lanreotide is a great example of this where we will augment for a significant product and the partnership.

In India, in branded markets, the case is different. In India, in branded markets, though we are generic companies, we try to — all of us are almost like innovators in this market. So there we try and strike partnerships with innovative companies to bring their products even before the patent has expired. And this is important because under the patent regime in India, there will be hardly any sources of products unless innovative products are introduced into the market and most innovators now partner with Indian pharmaceutical companies to bring these products before patents expire. So we are also partnering with these companies in India.

So in the U.S., I think the partnership is around technology. In India, the partnership is around product source because of the patent regime. And I think both of these are important partnerships going forward.

Nikhil — SIMPL — Analyst

Okay. Just one thing. When we talk of India and ROW markets, we generally say that the markets — the branded growing at something in the range of 8% to 12% depending upon the years and all. So based on these partnerships and all, so not for the near term, but over a three to five years when you are talking about or thinking about this partnership, is it like that incremental 2% to 3% higher growth should come from the partnership and the rest — so the market beating growth when we talk about, so that’s incremental growth should come through the tie-ups and rest through our organic pipeline? Just to — as an investor, if you have to understand how we should evaluate — how these partnerships are like adding value to the company or to the business?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I don’t think we look at it that way, though it’s a very interesting perspective you’ve added. We are just looking at above market growth as a function of our own portfolio, function of partner portfolio and driving strong volume growth. So volume growth may come out of some product families, not from all. And just the partnership angle, I don’t think we are saying we will grow at par with market and then add the partnership revenues we get from others, which was difficult to split it that way. So our objective is to beat market growth and I think the way to do that is to probably look at our own portfolio plus partner portfolio plus the volume growth.

Nikhil — SIMPL — Analyst

Okay. Just last question. If you look at it now, when we talk of lung leadership and organic growth and the amount of cash which we are generating and if I divide it between three kinds of investment, one would be our own R&D in, as you mentioned, organic growth for Europe and U.S. led by own products. Second would be the riskier assets, like where probably the investment would happen, but we don’t know the exact outcomes. So outcome could be zero or one. And then the third is distribution towards the shareholders. So how is the management thinking about how the investment buckets would fall in based on the incremental cash which the company would be generating? How should we understand how you are thinking about the allocation?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I think, and maybe I can give a few statements that could help you. I understand where you’re going from this thing. Our first priority is to drive a sustainable growth of our business. To that effect, we have created certainty — we would like to — we have mentioned that we will grow — our attempt will be to grow both ROIC as well as our EBITDA in a certain range. And though we are now feeling confident that we can, that EBITDA could continue to increase on the back of launch momentum, etc. We are also taking calls to invest back in the business because right now we would like to see the growth journey of this business to be sustained over a period of time. So if the call is can you do 25% of EBITDA and 5% growth versus could you do 23.5% or 24% EBITDA and 10% growth, we are likely to fall back on getting more growth over the long term. So we are actively reinvesting back in the business.

The second question is, you asked about R&D. We have generally given a guidance range that we will not expect our R&D in years where we have bulky and chunky R&D to be more than 7%, 7.5%. So we’re very clear about how much money we will invest in R&D and where the focus will be to grow our top line.

So these are two broad yardsticks that you could use. While our objective is to improve our EBITDA trajectory further, we are going to try and reinvest money back into the business to support growth.

From a shareholder perspective, this is more the Board decides I think based on where they think the — depending on where — how we see our capital needs for the future and a benchmark performance of companies that we see in the market. And I think based on that, it’s been probably our first or first one and half year of cash surplus. Our dividend strategy is decided by the Board in terms of how to return money back to the shareholders.

Nikhil — SIMPL — Analyst

Sure, sir. I’ll return back to the queue. Thanks.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities & Capital Markets. Please go ahead.

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

Hi. Thank you for the opportunity and congratulations on good set of numbers. So my first question is on some of your key launches, which you are expecting to come in, say, second half of next fiscal. So can you update us on the status of your filing for Abraxane and Advair? Because last quarter you mentioned you need to do some study for Abraxane, so maybe on these two key assets you can share some update?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. Certainly. I think both we have — Advair, I had mentioned in our speech that we are waiting for the FDA. We are in correspondence with them and I think we are waiting for regular updates that come from them, and questions with regards to file. So I think that is on Advair.

And on Abraxane, which is nano paclitaxel, we are furnishing some more data to the FDA. Our belief is that the market could form in April with the first players launch, but we believe that the nature of this product may not result in the total market formation because of the supply that both the innovator and some of the generic companies will face in order to satisfy the market.

So we think this is a good asset for the long term and the market will stay limited for a very long period of time. And we still have some — the FDA has asked us questions, and we still have some data that we are submitting to the FDA.

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

Very broadly, you remain on your, I would say, earlier expected timing of these launches in second half next fiscal or should we work with that assumption?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, each launch is different. Both of these are different, but yes, we have guided better second half of the year. We’ll have more launches compared to the first.

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

My second question is on Lanreotide approvals. So have you launched the product in market and how many such peptide products you have in your pipeline?

Umang Vohra — Managing Director & Global Chief Executive Officer

I can’t give you the specific numbers. And as I mentioned, we will try Lanreotide to build a sustainable share over the medium term. And right now, we are in the process of assessing the market and there will be a launch correspondingly in this quarter sooner rather than later.

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

Okay. And where this product will be manufactured?

Umang Vohra — Managing Director & Global Chief Executive Officer

We are not disclosing that, but it is at our partner site.

Damayanti Kerai — HSBC Securities & Capital Markets — Analyst

Okay. Thank you. I will get back in the queue.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prakash from Axis Capital. Please go ahead.

Prakash — Axis Capital — Analyst

Yes. Hi. Good evening. And thanks for the opportunity. My question on the India business. Since we had a large — over nine months if we see that there has been COVID contribution, how do we see this business for next year given that we are doing fairly well in our base portfolio? Do we expect flattish performance or how do we look at it? And what is the COVID contribution for nine months, please?

Umang Vohra — Managing Director & Global Chief Executive Officer

Kedar?

Kedar Upadhye — Global Chief Financial Officer

Yes. So Prakash, we are not disclosing specifically in the COVID contribution for one specific business. But as I mentioned from Q2 to Q3, there is a large decline at a company level in terms of the contribution. And depending upon how Q4 evolves, the number of cases evolves, I think that could get weak. Obviously, our responsibility is to service at first demand as we say in India and other markets.

Regarding the next year, our thoughts are still being shaked by all the evolving development. What we are happy is that you would have seen that in our presentation, Prakash, is all the key therapies: respiratory, urology, cardio, oral, chronic, acute, I think we are experiencing strong growth. So it could be tough for us to exclude COVID and talk only on non-COVID because some part of COVID on our view might continue in the next year as well.

So maybe in the May call, when we — and our full year results, that may be a baseline for us to give some clue into next year, but growth continues strong in Rx business, Gx business and consumer health business.

Prakash — Axis Capital — Analyst

Okay. Perfect. Thank you for that elaborate answer. My second question —

Kedar Upadhye — Global Chief Financial Officer

Sorry. Yes, just to add, I think couple of deals we had announced, so I think maybe it should factor the contribution from some of these deals that we have announced in the past, which will get commercialized now hereafter.

Prakash — Axis Capital — Analyst

Okay. Fair enough. And secondly moving to R&D, so the peptide approval that you’ve got must be like two, three years back kind of R&D work you might have done. I am trying to understand what is the next level of R&D work you’re doing which we will see approvals, filings over the next two to five years. So one is peptide, one is respiratory in addition. What are the other areas we have already worked on and what we plan to work for the next two, five years?

Umang Vohra — Managing Director & Global Chief Executive Officer

I don’t think, Prakash — I’m not sure we’ll give this level of information. I can just say that on respiratory, of course, we will want to cover as many assets as we can. On some of the other injectable assets, there are — outside of peptide, there are different technology platforms around the release characteristics of this drug and the encapsulation of injectable products. Those are some of the things we will begin to build out. They are not easy technology platforms and some of these may be partners, some may be our own and it will take us time to internalize this. So I think longer term that is where we want to go and I think we are working towards it, but it’s quite a leap product also to make in terms of getting there and I think we are confident that with the right focus we will be able to do it.

Prakash — Axis Capital — Analyst

When you say partnered, how do we see the financial aspect of it? I mean, these are just contract manufactures or these also have contribution in terms of funding and doing some trials?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, there could be both. Some of these could be early partnerships where the risk is largely taken by Cipla. Some of these are in the nature of partnerships where Cipla and the partner both take equal risk. And some others could basically manufacture, you know. So I think it will be all three depending on the asset and our relative ability to do it ourselves versus the need to bring in a partner who has mastered the technical complexity of the asset.

Prakash — Axis Capital — Analyst

Okay. Perfect. And R&D, we should build it 4% to 5% only or do you think with these kind of more deals happening, etc. —

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I think it will go up. It should go up. I think next year definitely we are penciling in a slightly higher R&D. And whatever it may be, never be higher than the 7% to 7.5% that we’ve set as a target for offset. So it will be slightly higher than this.

Prakash — Axis Capital — Analyst

Understood. Perfect. Thank you.

Operator

Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Congratulations, Umang and Kedar on good set of numbers and thanks for the opportunity. My question is on One-India play. So what is the really — where we are seeing the benefit of One-India in, say, Rx, Gx and consumer?

And second question is now we have been seeing that stable platform-based pharma company, I mean, pharma launches are happening in trade generics. So how that will kind of list up the whole trade generic business and what are our strategy to meet that kind of disruption?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. Kedar, do you want to take it?

Kedar Upadhye — Global Chief Financial Officer

Yes. So Bharat-ji, between our prescription generics and consumer healthcare business, I think the synergy exist on several columns. I think portfolio is one, supply chain and distribution is another. Some of the capabilities for campaigns, advertisements, ATS spends is third and overall branding and expertise in terms of digital analytic, that is four. So I think there are several angles Bharat-ji in which we could leverage and we are leveraging between these three businesses. This is an active work stream which we have been speaking about for some of the brands which are in generics business, which have very high recall and those are actually consumer brands. And those are being contributed heavily by CHL business either through their own channel, modern trade and in terms of approaching consumers, converting it to almost like a B2C kind of a brands.

So some of this is already in the numbers, Bharat-ji, and we believe that going forward there is very strong synergy across all these angles. We are particularly excited and interested on two counts. One is the consumerization, as I mentioned. Second is the digital aspect. So digital analytics reaching healthcare practitioners, reaching channel partners, analyzing brick-by-brick throughout the Indian demography and geography and targeting specifically for a particular region, particular therapy. I think those are the avenues in which we are seeing an enormous forward for all our three businesses. And obviously as I said, I think the performance is in the current numbers as well and we are hopeful that it will shape up to become a more dominant engine in the coming year.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And the several platform company which are, I mean, owned by large industry and they are planning to launch several private label, so how that can affect our trade generic business?

Kedar Upadhye — Global Chief Financial Officer

See, actually we do have — I mean, we have been watching — all of us are watching some of this evolving developments in the e-pharmacy or other — be it teleconferencing or other avenues and platforms in which newer companies are reaching patients directly, not even channel partners. I think we are watching. We have our plans in mind. Some of those plans are being executed as we speak.

In our view, I think, the key — the strength of the reputation, the corporate reputation, the strength of individual brands in all these three businesses and the execution engine that we have built in is one hedge for us to offset. And going forward, I think, we have to deploy several strategies which will be tough to innumerate today, all of those, but we are conscious of that possibility of disruption and we are working on for it.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Thank you and all the best.

Operator

Thank you. The next question is from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead.

Anubhav Aggarwal — Credit Suisse — Analyst

Hi. Good evening, guys. First question, Lanreotide, I’m just trying to understand this product. In general, how many new patients start on this Lanreotide annually as a percentage of total patients? Can you give some rough idea?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. Anubhav, it’s a little complicated and I’ll tell you why. There is a historical average which we have, but the historical average is also changing because there is octreotide which also we have heard there will be generic competition on and there has been some supply issues with octreotide in the market as well. So the two products at some points over lack an interface for few indications in the market and I think that’s the issue why we have seen that Lanreotide growth has been high. And of course, there’s also been value growth to that every year innovators take on their portfolio.

So little difficult to estimate what are true new starts because of this mix, but we have a historical average and I don’t — I mean of the total patient pool, I don’t think the number of new starts is very significant from a Lanreotide perspective. But right now the data is convoluted because of some amount of interference with octreotide.

Anubhav Aggarwal — Credit Suisse — Analyst

But even just to get some idea that historical number will be 10%, 20% or even less than that?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, I would think that ballpark you’re on the right range, maybe towards the lower aspect of the 10%, 20% number that you mentioned.

Anubhav Aggarwal — Credit Suisse — Analyst

And would it be safe to assume that your Albuterol take market share new starts will be very high? And existing guys may not shift to your products and that’s the reason you’re guiding for a very, let’s say, lower ramp up here?

Umang Vohra — Managing Director & Global Chief Executive Officer

Well, I don’t — I’m not sure that we look at the market necessarily from the new and the old. I think we are also learning in this market. And our objective is to build a sustainable share over a medium term. Sustainable from a perspective of what we can supply as well as where we think this equation was to hand out in the market. So, yes, I mean I’m not sure that it will just — the division will only be new versus old, but it will be also guided by the way we can supply the market and how much we believe we can ramp up.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. And just couple of more questions on this. So in terms of, let’s say, going and talking to each of the hospitals, so will it be like just talking to some of the GPOs like promoting a normal injectable product? Or pushing a normal injectable product versus pushing Lanreotide, is there any difference? Or is it the same thing that’s going to GPO and [indecipherable]?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I think this is also very significant clinic product, Anubhav. So I think it will be a mixture of the clinics and the GPOs. And the market — even I think the market is generally for these fairly well established in terms of this. So I don’t think the outreach is more significant than a conventional health system approach to the market. So I don’t think it will require, if your question is that would it require significantly more than the way you operate in the health system space today? No, it won’t.

Anubhav Aggarwal — Credit Suisse — Analyst

And in terms of the formulary coverage, assuming typically these get an advantage. But in this one, that’s something doctors thinking about in existing patient, will we be incentivized enough, not by you by let’s work on the formulary [indecipherable] are subjected to, let’s say, to use a generic versus a brand?

Umang Vohra — Managing Director & Global Chief Executive Officer

I’m not sure we understand that part of the market that well and I don’t know how the — I don’t know whether that could work. I think our primary route could still be through the clinics and the GPUs.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. And second question is, you mentioned about one of the context injectable launching in fiscal 2024 on your portfolio and presentation. Just wanted to understand that broadly can that be as meaningful as Lanreotide or in that stature in terms of contribution?

Umang Vohra — Managing Director & Global Chief Executive Officer

You are referring to, Anubhav, our presentation?

Anubhav Aggarwal — Credit Suisse — Analyst

Yes, which you made in mid of January, yes.

Umang Vohra — Managing Director & Global Chief Executive Officer

With JPM?

Anubhav Aggarwal — Credit Suisse — Analyst

Yes, correct.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. See, I think, Lanreotide because of the timing could — obviously because they’re the only generic player, I think the connotation is different. I think that other products may have more competition than just us being alone in the market, but it’s a question of timing. When we started Lanreotide, we also thought we may not be the first to enter this market, but — so I think it depends on the number of competition, but it is a meaningful asset, maybe not as meaningful as Lanreotide, but it is definitely meaningful.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. Can I ask one more question on Consumer Wellness portfolio?

Umang Vohra — Managing Director & Global Chief Executive Officer

Please.

Anubhav Aggarwal — Credit Suisse — Analyst

So you have transitioned certain products to Cipla Health. You already done 10, 12 product over there, but let’s say some of the larger products which are yet to be transitioned, just as an example, what is stopping you from transferring this right now from Gx to Cipla Health? That’s one question.

Second question is — and that’s more general question. Once the product transferred from Gx to, let’s say, consume portfolio, do you reduce channel discount because now you’re putting more resources behind [Indecipherable] pricing rate or, let’s say, that’s the most phased out process. At some point of time you go ahead and reduce the discount to the channel margin. Can you just talk about each?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. I think — so firstly what’s stopping us is I don’t think there is specifically anything stopping. The Board has today approved the scheme of the — through the slump sale. So I don’t think there is anything stopping us. The question is how do we grade this over a period of time considering the timing of the shift as well as considering what we believe could be the impact on several other businesses that we have done. So one is the ability of the business we are transferring to their ability to absolve it. The second would be the ability of the transferring business to split and the timing in the market on when is the right time to do it. So I think there’s nothing stopping us. It’s a function of how we grade the transfer.

I think on the margin piece, I would just say that it’s a mixture. There is no — it is product to product. Sometimes margin corrections happen overnight, sometimes they happen over a period of time depending on how much we think that the equity of the product in the market is. And I think it’s a function of both of these. But yes, the general trend is that we transfer. You would kind of reduce margins and you take up your advertising spend to create demand.

Anubhav Aggarwal — Credit Suisse — Analyst

Thank you, Umang.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital — Analyst

Congratulation for the good set of numbers, sir. And my first question is on the outlook FY ’25 or till the time the outlook that you have given for the U.S. market that you are saying that incrementally $300 million to $500 million odd revenue can be added annually. So by that are we a bit more conservative considering the potential of Revlimid and products like Advair? And so considering these two products potential contributes in itself, either we are bit more conservative here or we are anticipating larger than expected competition for Revlimid. Could you please clarify on this, sir?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. I think Kedar maybe you can take this question.

Kedar Upadhye — Global Chief Financial Officer

Yes. Surya, we had spoken about these targets about a year back in the last years January month. And from that vantage point, we have said there is a possibility of $300 million to $500 million. Look when you pan out future launches and multiple variables, we can shape those launches and incremental growth in a market like U.S. Over a five-year timeframe, you are going to be right for some assumptions and you’re probably not going to be right for some assumptions. So I think how competition would evolve, how pricing will evolve, how our ability to take share would increase in some pockets or not, I think all of these factors depend and eventually will determine where you will get into it.

We feel that $300 million to $500 million is ambitious enough because our base that time was around $500 million or so, if you just go by a year back. And as things stand today, we have progressed well. The early indicators are quite positive. Our ability to take share, our ability to service the needs of the market, our ability to aimlessly ensure supply chain and compete wherever we have to compete in case of additional competition. And most importantly, the development and regulatory engine, I think everything is working fine, Surya.

Now this is, the $300 million to $500 million is a congregation of several assets and some of those are filed, some of those are yet to be filed. Some of those are quite ahead in the review process. So what we would not do probably is to attach any word with the conservative or not conservative, but what I’d be saying the external business environment and our ability to respond to it would shape up this opportunity. In our view, it is ambitious enough. There is no conservatism in anything. We have — internally for every launch, we take it very seriously and very meaningfully and there is no conservatism. We go all out. What we avoid is getting very disruptive on pricing. I think our attempt is to be very responsible on pricing. So that’s the only thing I would caveat. And — yes, that’s it, Surya.

Surya Patra — PhillipCapital — Analyst

Fine. And my second point, if you can just give some clarity about your China thought process. So how critical that could be for the — in the overall revenue mix, how critical that could be, let’s say, three years down the line?

Kedar Upadhye — Global Chief Financial Officer

Yes. So projects when you expand into new countries and especially where there are multiple layers for approval and listings in hospitals and regions and then several regulatory pathways of filing through local manufacturing or through Indian manufacturing, I think those plants often play out, Surya, over fairly long term. So I mean to answer your question from a one to three-year standpoint, it may not be as meaningful, but we have the plant ready now, as you know, and the capability has been built in, the initial set of batches are being taken. We are excited because it’s — what the second largest pharma market globally. So we are excited and there is lot of respiratory potential in that market.

We are excited, but to answer your specific question from one, two, three-year standpoint, it may not be relevant. I think going forward, it would shift several years to be probably meaningful for our emerging market franchise.

Surya Patra — PhillipCapital — Analyst

Sure, Kedar. Thank you. Thanks, everyone.

Kedar Upadhye — Global Chief Financial Officer

Thanks, Surya.

Operator

Thank you. [Operator Instructions] The next question is from the line of Nithya Balasubramanian from Bernstein Research. Please go ahead.

Nithya Balasubramanian — Bernstein Research — Analyst

Thank you and congratulations on another strong quarter. So I have a follow-up on Lanreotide. I’m going to squeeze in one more. So Lanreotide, one is given that it’s a complex product and it’s relatively difficult manufacturing, is your partner geared up to, let’s say, help you get like 20%, 25% of the market, is the manufacturing ready? Two, given that you’re not therapeutically equivalent product, what incremental commercial infrastructure investment will this product require? And the next one is actually on expenses. So excluding R&D, your expenses seems to be trending down. Should we assume that 3Q was largely a normal quarter in terms of India sales force expenses, etc.? Is this a new normal?

Umang Vohra — Managing Director & Global Chief Executive Officer

Maybe can I request Kedar to take on the third one first and then maybe, Nithya, I will come back to answer the first two.

Kedar Upadhye — Global Chief Financial Officer

Yes. So I think most part on the quarter, Nithya, the large part of prepose was in operation. And as we keep saying that our attempt was to secure and safeguard some of the efficiencies that we delivered last year through [indecipherable] and some of the digital initiatives. So I think some of those seem to be working. And I mean business model across the regions and at overall company level is fairly optimal now, although we still feel there are some opportunities to execute. So given all of this, I think you should treat Q3 as a base and subsequent to — as you know that we have often said large part of our opex is very responsive to the sales in multiple geographies based upon the commission, discount and other arrangements that we have. So I think the expenses would respond to the sales volume and value. But overall, I think you should see Q3 as a base quarter, Nithya.

Nithya Balasubramanian — Bernstein Research — Analyst

Got it. Thank you.

Kedar Upadhye — Global Chief Financial Officer

Thanks.

Operator

Thanks.

Umang Vohra — Managing Director & Global Chief Executive Officer

And Nithya — no, no, there are two more questions she’s asked. I think the second one that you asked was on whether that we believe there is an incremental amount of infrastructure required to drive this and our understanding of the market right now is normal, our current infrastructure and drivers. The first question was on the capacity, etc. Look, I think the partner that we have is also a partner that understand these products well. And we have a certain internal target of where we want to get, and I think the partner is geared up to supply to that target. And we’ve guided it will be sustainable over the mid-term.

Nithya Balasubramanian — Bernstein Research — Analyst

Got it. Thank you, Umang and Kedar, and all the best.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Hey. Thanks, and good evening, everyone. I think even I need to ask few questions on Lanreotide, so here I go. So Umang, can you just share how is the product different from the innovator if you had to take 505 (b)(2) route? And second is, you mentioned sustainable market share over mid-term, but if I just have to have some inkling, so are you looking at double-digit market share say by — exit market share by end of next year fiscal, is that realistic?

Umang Vohra — Managing Director & Global Chief Executive Officer

And what is the — so, Sameer, let me mention, I think we will not divulge information on the specific targets per share, etc. All I can say is that, as I mentioned, will be whatever is sustainable over the medium term. I think that’s where we go. Because I think at this point, the product is also comparator in the market deals and we don’t want to divulge too much of information on it.

The first part on how the product is different, I think we can have a separate discussion. We will be happy to provide that visibility to you, but it’s largely around things we have used to offset the patents, etc., that is sometimes around the product.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Umang, just — is your device ready to use or is it needle assembled?

Umang Vohra — Managing Director & Global Chief Executive Officer

The device? What do you mean by ready to use, Sameer?

Sameer Baisiwala — Morgan Stanley — Analyst

So that’s the new form that the innovator has transitioned to, where you don’t need to assemble the needle while injecting. Older form —

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. In that manner, we are ready to use. Sorry, can you go back and tell me what is the — what was your earlier thing? So the innovator is — so your question is, are we — so we are not — there is no need of mixing any diluent or anything into the product, is that’s the question you’re raising? If you’re saying does the needle have to be affixed on the product? Yes, the needle has to be a affixed on the product.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Got it. Versus I think the innovator device where that you don’t need to, so that’s a bit different.

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, they have changed some part of device in the past as well and that is correct that right now they are all pre-assembled. The ready-to-use connotation is actually different in the injectable space, which is why I asked you what you meant. Because when our dues are more, no need of diluent, no need of anything else within the clinic setting. So that’s why assembly wise we need to assemble until the innovator product is preassembled.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. No, that’s fair enough, Umang. But I mean, keeping the semantics aside, does the device difference makes a difference from the commercialization?

Umang Vohra — Managing Director & Global Chief Executive Officer

We believe not Sameer. But I think it is a function of acceptability of the product in the market. So we don’t think so. But that is out of our experience so far in this area of the market and I think as the market, as we look into, as we begin to understand the market more and launch in the market, there will be more information, but right now our assumption is no.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And just one final on this, Umang. I know you can’t say much, but what’s the commercial arrangement between you and your partner? Is it like more or less the industry standards, 50/50 profit shares plus or minus, or is it very different from that?

Umang Vohra — Managing Director & Global Chief Executive Officer

I would say broadly we are there, but there are some nuances here, so broadly.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Just one final question with your permission, if I may. I saw that you have filed for two respiratory products in Europe. So just broadly taking three or four-year view, how do you compare the respiratory opportunity in Europe versus the U.S. in terms of addressable market and the competitive dynamic? If you make $100 in U.S., would you make $20, $30 in Europe or much more than that?

Umang Vohra — Managing Director & Global Chief Executive Officer

Sameer, it’s again a function of our market entry. I think Europe is more sensitive to market entry than the U.S. is on these products. In the U.S. if you are even third or fourth player because of the volumes in the market and people can carve out their own shares and stay sustainable. So Albuterol, for example, have so many people who have launched into the market, but the market is still attractive for many players. There isn’t lot of — I think that equation changes very rapidly after the second or third entrant. I think the market begins to be more responsive on price than we’ve seen in the U.S. So yes, I think the Europe potential is significantly lower compared to the U.S., but it depends on your market entry and your timing. So if you are number two or number three in Europe, I think it can still be an asset which could well be 20%, 30% of the U.S. like you mentioned.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Great. Thank you so much and all the very best.

Umang Vohra — Managing Director & Global Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Thanks for taking my questions. Umang, we had the investment in Avenue which obviously we have terminated, but I think that investment will continue. In lot of your presentations and of late, when it comes to the U.S. business, we’ve talked about respiratory and injectables largely being the areas that we’re investing in. So is it fair to assume that specialty is something that we are not looking at? It’s completely out of question or do you think that is still open and you will explore that based on what opportunities come your way?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes, Neha, I think on the specialty part, the Pulmatrix asset which is the respiratory anti-fungal inhaled, anti-fungal asset for aspergillosis, that is continuing on its path. We had continued to sell Plazomicin in the U.S. It was intended to be our second asset after the tramadol asset from Avenue. And I think Avenue, unfortunately the asset has not progressed forward. Through specialty, the strategy is always built around an asset, central asset. And now Plazomicin is taking the load for everything. And the asset Plazomicin was never intended to be a big asset. So we are discussing strategically in the absence — let’s say in the case that tramadol does not go ahead any further as an asset.

Any way our rights to tramadol have ceased. We are now only an equity investor. So if you don’t have tramadol in our portfolio, then there has to be some amount of we think on what we do with Plazomicin and what would be the asset that would come in its place. So we are actively in discussion on this, but the asset on the respiratory space which is the inhaled anti-fungal, that is proceeding — in its clinics is proceeding ahead with the partner.

Neha Manpuria — Bank of America — Analyst

Okay. So depending — so just to understand this correctly, we are looking at opportunities and depending on what comes, we will decide whether we would like to invest further in this business or not assuming tramadol does not happen?

Umang Vohra — Managing Director & Global Chief Executive Officer

Yes. So assuming tramadol does not happen, we will need to find a lead asset because inventory is not a lead asset. It’s a smaller niche asset. And it can’t take the load up the whole portfolio. So that is a stage we are in with respect to those two assets, but the respiratory asset that we had, that is in the clinic and it’s going up.

Neha Manpuria — Bank of America — Analyst

Understood. And when we’re looking at these opportunities, is that, for example, we already have one respiratory assets, tramadol was more a pain asset, but it was a fairly large opportunity. How are we thinking about what opportunities we could look at? I mean, is it fair to assume it would be tramadol type opportunity which might not necessarily require a large commercial footprint?

Umang Vohra — Managing Director & Global Chief Executive Officer

No, I think we don’t want to invest too much money on the huge commercial footprints, I think that we are clear about. But one of the things we’ve also gone back and tried to tweak and change and we are actually in the middle of that is that we must have our own — some pipeline assets that come from our own labs, they may be small, there may be 30 million or 40 million in size or 20 million — between 20 million to 50 million in size. But what happens is when you have the disappointment — when you have an asset that does not come or the asset disappoints in the late Phase 3 trial, you have the ability to at least cover it with something that is within your stable, right? So when we did tramadol, etc., we didn’t have this pipeline backing, right? And now we are at a point wherein in about a year and a half, two years, we might have at least some of these assets close to filing. They may not be big, but at least they add the portfolio base and momentum for our specialty journey.

Neha Manpuria — Bank of America — Analyst

Understood. And, sorry, one other question, on the India business. Given that we’re talking about entering into new categories, you talked about anti-diabetic and injectable in your opening remark and even in the recent presentation. So is it fair to understand that the penetration level of our existing brand will — is getting slower and therefore we need more such launches and probably these partnered products to maintain the strong momentum that we started seeing in India? Is that one of the changes or am I reading that incorrectly?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think it’s both, Neha, because really there is no product source unless we partner with an innovator, right? I think the days where you could do changed formulation or the addition of an excipient and relaunch the formulation, I mean, those days are there, but realistically the bank that you get out of that is now much lesser. So if you really want to bring more products and more innovative products into the — more products which are patent protected and innovation-driven, you have to partner with the multinational corporations is my view because there are no other way to get innovation into India.

So it’s a mix of both. It gives us growth and it’s certainly is driving growth for us, but it’s also — in my view, also an absolute necessity because why would, for example, yesterday there was news that Novo Nordisk is launching the oral semaglutide in the market in India, right? It’s a great product, right. Now if it was not Novo themselves and supposing Novo was looking for a partner, many Indian companies would have offered the partnership for this because the therapy is a game changer, right? So why would anyone sit out when there is innovation that we can bring to this market, which can spur the market growth and create an unmet need demand.

Neha Manpuria — Bank of America — Analyst

In that case, the fact that we need to get more such partnered products and that we are launching new divisions which would probably require investment in expanding our MR coverage, would that mean that incremental growth in India is coming at lower margin?

Umang Vohra — Managing Director & Global Chief Executive Officer

I think to some extent you could say that because the partner also shares here, right, in the thing. But I think what is changing is Neha, there is a very active reallocation of capital that’s happening across India by all the Indian company. And I think what the reallocation of capital is doing if that is taking capital and putting it around the assets on the brands that you want to create formidable franchises. So what happens is I don’t think the infrastructure requirements of launching products from innovators is anything new for the top 10 or 15 Indian companies because everyone will have a cardiac field force, everyone will have a diabetic field force. And every time there’s a new product that comes in, I think they kind of eliminate the tail, all of us eliminate the tail of products that we’re selling currently so that productivity is maintained.

Neha Manpuria — Bank of America — Analyst

Understood. Thank you so much, Umang.

Operator

Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Yes. Thanks for the opportunity. Sir, just would like to understand again on the India part like how is the profitability now in terms of the branded prescription and consumer health and trade generics, either in terms of the pecking order or maybe a broad range if you could highlight?

Umang Vohra — Managing Director & Global Chief Executive Officer

See, Tushar, more or less prescription business and generic business profitability was close to each other, although not equal. So prescription business is a bit higher than generics business. Both are convincingly higher than the company EBITDA. And consumer business, as you know, will reach breakeven path with the current state of portfolio, which means what? Which means the earlier launched products are breakeven, in fact generating significant money which funds the subsequent launches. So I think that engine is working well, Tushar.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Got it. And lastly, also maybe for nine months or for three months if you could break down this India business proportion into branded trade and consumer end and combine year growth?

Umang Vohra — Managing Director & Global Chief Executive Officer

Tushar, I can come back on this with you.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay, sir. That’s it from me.

Operator

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Naveen for closing comments. Thank you, and over to you, sir.

Naveen Bansal — Investor Relations

Thank you so much, Faisal. Thank you everyone for joining us today for our Q3 earnings call. In case you have any follow-on questions, please feel free to reach out to either myself or Ankit or write to us at investor.relations@cipla.com. Have a good evening. Thank you so much for joining.

Operator

[Operator Closing Remarks]