Cipla Limited (CIPLA) Q2 FY23 Earnings Concall Transcript

Cipla Limited (NSE: CIPLA) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Naveen Bansal — Head of Investor Relations

Ashish Adukia — Global Chief Financial Officer

Umang Vohra — Managing Director and Global Chief Executive Officer

Analysts:

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Prakash Agarwal — Axis Capital — Analyst

Kunal Dhamesha — Macquarie — Analyst

Neha Manpuria — Bank of America — Analyst

Surya Patra — PhillipCapital — Analyst

Damayanti Kerai — HSBC — Analyst

Nithya Balasubramanian — Bernstein — Analyst

Vivek Agrawal — Citigroup — Analyst

Ritesh Rathod — Nippon India — Analyst

Nitin Agarwal — DAM Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY ’23 Earnings Conference Call of Cipla Limited. We have with us today Mr. Umang Vohra, MD and Global CEO; Mr. Ashish Adukia, Global CFO; and Mr. Naveen Bansal, Head of Investor Relations. [Operator Instructions]

I now hand the conference over to Mr. Naveen Bansal, Head of Investor Relations from Cipla Limited. Thank you, and over to you, sir.

Naveen Bansal — Head of Investor Relations

Thank you, Steve. Good evening, everybody. A warm welcome to Cipla’s Quarter two FY ’23 Earnings Call. I’m Naveen from the Investor Relations team at Cipla. Let me draw your attention to the fact that on this call, our discussions will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management’s current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties, including impact of COVID-19 that could 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 Ashish to take over, please.

Ashish Adukia — Global Chief Financial Officer

Thank you. Thank you, Naveen. Thank you, Steve. And good evening to all of you. First of all, I’m pleased to join Cipla Limited as Global CFO and honored to be part of company’s rich legacy of caring for life. On the quarter results, I hope you’ve received the investor presentation that we posted on our website. For Cipla, the last three months have been tremendous learning in terms of navigating the business amid the ongoing geopolitical headwinds while continuing to make progress across all our strategic priorities. In a continuing volatile macro and geopolitical environment, we are very pleased to report historically the highest quarterly revenue of INR5,829 crores.

The overall revenue growth for the quarter was at 6% on a reported basis and a strong 12% on a COVID-adjusted base of last year. We continue to serve demand across all our markets and demonstrate robust commercial execution of new launches during the quarter. This was achieved despite a challenging operating environment and helped us deliver a robust EBITDA margin of over 22% for the quarter on a reported basis and approximately 24% on an adjusted basis. These adjustments I’ll come to later. Coming to key highlights of the quarter. The core revenue growth was driven by sustained momentum in One-India business and differentiated portfolio unlocking in the U.S. Our global inventory levels reflect our commitment to ensure the continuity of supply given the headwinds in the sourcing environment.

Our free cash flow generation and operating efficiency continue to drive our strong net cash position. Our operating margins of 22.3% for the quarter subsumed the impact of sharp moderation in COVID contribution in last year’s base and geopolitical uncertainties. As alluded earlier, the demand for COVID products is negligible in line with sharp drop in new infections. Accordingly, we have taken an inventory charge on all of the marginal COVID inventory we were carrying and we’re expecting to liquidate, which is in the materials cost line item in the P&L. Adjusted for this, our EBITDA margin would have been higher by nearly 150 basis points or at approximately 24%. The higher R&D cost investments driven by ongoing clinical trials on respiratory assets as well as other developmental assets is higher by INR61 crores versus last year, which is incremental 1% of our revenue.

Our reported gross margin after material costs stood at 63% for the quarter, which is 165 basis points above last year’s figures, driven by contribution from new launches and overall mix change. As alluded earlier, the reported gross margin subsumes the impact of inventory charge in the material cost line item. Total expenses, which include employee costs and other expenses, stood at INR2,366 crores, which has increased by 7.2% on sequential basis. Employee cost of the quarter stood at INR961 crores, flat on sequential basis. The other expenses, which includes R&D, regulatory, quality, manufacturing and sales promotions are at INR1,405 crores, increased by 12.3% sequentially, driven mainly by higher R&D costs, which I talked about, which is up 22% Y-o-Y, judicious promotional and growth rate-linked investments.

Total R&D investment for the quarter are at INR335 crores of 5.8% of revenue. The absolute trajectory remains intact with assets progressing in clinical trials and other portfolio developmental efforts continuing. Reported EBITDA for the quarter was at INR1,302 crores or 22.3% as I pointed earlier. The reported growth over last year’s base was 6%. While adjusting the onetime COVID inventory charge, our core operating profitability for the quarter was approximately 24% or at INR1,389 crores. At the current run rate, we are tracking in line with our full year guidance of 21% to about 22%. The profit after tax is at INR789 crores or at 13.5% of sales. As of 30th September 2022, our long-term debt primarily constitutes ZAR720 million in South Africa and working capital of $49 million in the U.S., apart from some of the other facilities that we have in the other geographies.

Driven by our relentless focus on cash generation and rigor in cost discipline, we continue to be net cash positive company at the end of this quarter. Importantly, we are constantly monitoring the current macroeconomic situation and proactively addressing the risks, including any ForEx downside impacting our revenue and profit and inflation as we see it. To close, we saw robust momentum across portfolio and geographies for half 1. Growth levers in the subsequent quarters will include continued growth momentum across branded and consumer business in India and South Africa, robust traction in our North America franchise across Comex portfolio and continued contribution from respiratory and peptide products. And thirdly, monitoring geopolitical headwinds driving elevated procurement, freight cost and foreign exchange appreciation led translation loss in INR.

I would like to now hand over to Umang for business and operational performance. Thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you, Ashish, and welcome to all of you on the call. Our quarter two FY ’23 performance reflects strong execution in our One-India and a solid launch momentum from our differentiated U.S. portfolio, driving our overall revenue to a multi-quarter high of INR5,829 crores. The reported growth is 6% and 12% year-on-year after adjusting for COVID in our quarter two FY ’22 base. Ashish has already explained the numbers to you. Our core business continues to demonstrate sustained momentum despite the impact of geopolitical headwinds. I’m pleased to share that our reported EBITDA margin for the quarter came in at 22.3% and adjusted margins at approximately 24%, which continues to track in line with our guided range of 21% to 22% EBITDA. Coming to the detailed updates for the quarter by market.

In our One-India franchise, we are making strategic bold moves transforming into a holistic ecosystem driven by new science, better reach and a digital-first approach. We are significantly investing in investments in portfolio, diagnostics, channel and digital initiatives. Our global consumer franchise continues to witness strong traction across India and South Africa. The overall franchise is — now stands at 9% of the overall Cipla revenue for the quarter. There is a slide in our Investor deck that captures some of these distinctive structures and winning capabilities being added to fortify our One-India franchise under the wellness theme as well. In One-India, for this quarter, the One-India core portfolio delivered a 6% year-on-year reported growth despite the continued normalization of COVID contribution compared to the quarter in the last year.

After adjusting for COVID products, revenue growth stood at a robust 15% year-on-year, reflecting strong demand traction across our therapies and our businesses. The branded prescription business demonstrated double-digit growth across therapies and core portfolio driven by continued demand. The market beating growth trajectory continued for the sixth consecutive quarter with 15% growth for the quarter on an ex-COVID basis. This core revenue growth is underpinned by a healthy mix of price volume and contribution from new launches. During the quarter, we launched eight new brands in cardiology, diabetes, urology, gynecology and respiratory. As per IQVIA and mAbs, September 22, we continued to maintain healthy [Indecipherable] and market share in all our key therapies. The trade generics business continues to witness strong traction across the flagship brand with steady order flow from the Tier two to six rural towns and the demand fulfillment across regions, translating into double-digit growth over last year.

Our launch momentum continued with 10 products in key therapies within the generics franchise. Our Consumer Health business continues to do well and is tracking well in line with the INR600 crore-plus annualized revenue we alluded to previously. The transport brands are tracking at a robust 14% growth momentum during the quarter with the overall business delivering over 20% growth versus last year. Coming to our U.S. generics and Lung Leadership franchise. The U.S. core formulation sales for the quarter registered a high of $179 million. This is a 25% growth year-on-year. Our continued focus on driving business through strong execution of our differentiated pipeline is demonstrated by the launch of lenalidomide this quarter. We are committing to maintain sustainable supplies and maximize value. The contribution of differentiated dosage forms in our North America generics portfolio continues to expand, which translated into this 15% growth over the quarterly average run rate of $155 million over the last three quarters.

Our generic market shares in respiratory products continue to be healthy. Market share for albuterol and arformoterol stood at 16% and 38% respectively, as per IQVIA mAb ending September 30, 2022. Our peptide franchise continues to track well since its launch in quarter four of FY ’22. Lanreotide 505 (b) (2) has steadily gained market share with 4.6% share in quarter one, which was last quarter, moving to 9.6% in this quarter. We are tracking to our earlier guidance of reaching 15-odd percent market share by the end of this year in this category. On the pipeline front, clinical trials on the respiratory assets and filings on complex generics, including the peptide injectables are on track. For the launch perspective, we have geared up for some of the upcoming launches and closely working to secure our approvals. We have proactively responded to the SDN observations issued for our inspection of the Goa plant in August 22. As part of our business derisking practices, we had already initiated plans to derisk some of our key assets.

At this stage, we do not expect any material impact to our planned launches for FY ’23. We will continue to share material updates as the situation unfolds. Coming to SAGA, which includes South Africa, Sub-Saharan Africa and the CGA. As alluded earlier, the South Africa private business demonstrated continued recovery on a sequential basis. In secondary terms, strong demand continues with our South Africa private business outperforming our market by over two times. We continue to maintain the third position with a market share of 7.5% and grew by 7.2% versus a market growth of 2.8% as per IQVIA and mAbs August 22. Our International Markets business, despite the challenging operating environment and ForEx volatility maintained scale over last year’s COVID-base. Our reported numbers in dollar terms also subsumed the adverse impact of a depreciating euro, the British pound and other local currencies against United States dollar, which is offsetting the healthy double-digit secondary growth across our PPM markets.

We continue to monitor this volatile operating environment for currency and demand headwinds and are proactively exploring options to mitigate risks and protect our margins. To close, adjusted EBITDA margin of approximately 24% for the quarter tracks above our 21% to 20% — 21% to 22% guidance range. Unlocking of our complex pipeline while balancing incremental R&D investments in future is in progress and we are committing to accelerating our return on capital employed, which is currently tracking at a healthy 20% for the 12-month period in line with our commitment of a 17% to 20% range. Turning now to our outlook. Our near-term priorities include accelerating the growth in the One-India engine with building big prescription brands across chronic therapies, driving accessibility of the trade generic brands and a sustained portfolio expansion in the wellness categories.

Sustainable scale-up in the U.S. business, driven by maximizing contribution from complex upcoming launches and this includes the respiratory and peptide products. Continued execution in the branded and generic portfolio across our DTM markets in the emerging side of the world in SAGA, a continued focus on cost and offsetting the cost inflation through calibrated pricing actions and other interventions to navigate the procurement, freight and other cost inflation we are seeing and a focus on regulatory compliance across our manufacturing facilities and implementing globally benchmarked ESG practices.

I would like to thank you for your attention and request the moderator to open the session for Q&A.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Thanks for the opportunity. Sir, first on the generic revenue, there has been a stark difference in terms of the kind of business which has been done by the companies already launched the product, the competitor doing almost kind of $100 million. So is this more or less in line with the kind of agreement with the innovator or there has been some amount of kind of products or the supply chain management, which has led to the difference, if you could clarify?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, Tushar, I think the — I think the reporting universe numbers are still to come out. But I guess what you’re referring to is to competition. I think if you are first to file on this product and two companies are, obviously, the share allocation will be higher.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Got you. And just secondly, given that this was just maybe a month kind of a launch for a limited competition product and we are already tracking 64% gross margin. So if you could just add the outlook for the second half FY ’23 on the gross margin front? And subsequently, if at all any revision in EBITDA margin guidance for second half?

Ashish Adukia — Global Chief Financial Officer

Yes. So we don’t give the gross margin guidance. But EBITDA margin, we have given the guidance that will be in the range of 21% to 22%. So we will stay with that margin.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Given that in second quarter, we are already at 24% and it’s not a full quarter impact of the niche product launch?

Ashish Adukia — Global Chief Financial Officer

So when I’m saying 21% to 22%, it is for the full year, that’s one. And second, also — there is also seasonality quarter-on-quarter, which we have to take care of.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Got you. And just lastly on Lanreotide. Just if you could share some comment in terms of the kind of [Indecipherable] erosion that would have happened because of the competition?

Umang Vohra — Managing Director and Global Chief Executive Officer

Nothing significant over quarter — over quarter one, which is the previous quarter.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Thanks that’s it from me thanks a lot.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

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

Prakash Agarwal — Axis Capital — Analyst

Yeah thanks for the opportunity anybody be to all. Just one clarification first on the inventory write-off related to COVID, it is largely done or we have some bits left?

Umang Vohra — Managing Director and Global Chief Executive Officer

No, this is all done. All COVID-related inventory, it’s all been taken into the books.

Prakash Agarwal — Axis Capital — Analyst

And another clarification on Revlimid. So I heard one saying on, obviously, the competition has FDA understood. But for us, would it be well spread across the quarters to come by or is there a front-ended stuff or it is back-ended for us? Just a little color will help.

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, I think my — our sense at this point in time is that you — there will be repeatability at least for this year. And as we get closer to next year, we’ll be able to give more guidance. So it’s also linked to how players come into the market, etc. and the settlement. But yes, if your question is what you have seen in this quarter — if your question is whether this becomes a kind of a new base for the U.S. business, I would say yes.

Prakash Agarwal — Axis Capital — Analyst

Okay. And when you say this year, means financial year?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, this year, financial year, but I also think that this current level of our business at 175 to 180 unless there is something that goes dramatically wrong, I think this could be — this could — you could translate this to seeing this as a new base for the business.

Prakash Agarwal — Axis Capital — Analyst

Okay. And one question on your presentation. It talks about high-value launches in second half fiscal ’23. So you have talked about generic Advair, which also had an EIR from the facility side. So question is which other products we should plan in and what is the update on Advair that’s information?

Umang Vohra — Managing Director and Global Chief Executive Officer

So Advair update, as we had mentioned, we were looking at it in the second half of the year, of this year, fiscal year. And I think we are speaking pretty much to that guidance today. The — obviously, the FDA has to review any responses to questions or information they may have asked during the review period, which hopefully is the process that’s ongoing now. On Abraxane, obviously, it is linked to the Goa site approval. We have — we are in the process of derisking the asset as well. If the Goa site approval comes, then obviously, this will be in track with either late — the first quarter of the next financial year, which is the first half of the next calendar year. And if it is delayed, then it could be pushed out by six months.

Prakash Agarwal — Axis Capital — Analyst

Okay. Any other products you were pending in with the high-value launches?

Umang Vohra — Managing Director and Global Chief Executive Officer

Because at this stage, we are — I’m not sure we’re giving that level of guidance. I think we did disclose the pipeline. But because these products are in public domain, we talk about these. The other ones, obviously, there is — we have products in the pipeline, but they’re not giving granularity at this stage on their launches.

Prakash Agarwal — Axis Capital — Analyst

Okay. Okay. And pipeline, what we saw was under development on the filing, etc. So it might take some more time, right?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. You could assume there are a few, I think, that were in post-filing as well.

Prakash Agarwal — Axis Capital — Analyst

Okay lovely thank you and all the best thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Thank you for the opportunity. So on Lanreotide, we are kind of tracking well in terms of market share. So would we be kind of increasing our aspiration there in terms of gaining more market share from what we’ve guided at 15%?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. I think we’re at about — we were at 4% last quarter. We’re at 9%, close to 10% this quarter. We’re assuming an actual progression trying to get as close as possible to the guidance we gave, which was around 15%. And I think as we mentioned earlier, this is a very gradual ramp-up product. But — and so I think we will assess this closer to when we reach our — this goal of 15%.

Kunal Dhamesha — Macquarie — Analyst

Sure. And can you provide some kind of color on our launch of the Lupride Depot injection, what is the addressable market size, what are our aspirations there, any free force requirement?

Umang Vohra — Managing Director and Global Chief Executive Officer

So I think the — let me answer the last one because I think that’s easier. We have an infrastructure that we created for Lanreotide. And we are hoping that that infrastructure will be able to support leuprolide. Obviously, leuprolide is not a single brand market. There are almost 2, three brands in the market, two, three players. So we are — we will be launching the product any time now. And I think it will also ramp up slowly just like Lanreotide has, but we think it’s a fairly attractive product for us.

Kunal Dhamesha — Macquarie — Analyst

Any comments on the addressable market size?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think Lupride — the IMSs would probably suggest that the market is somewhere around — the full market is somewhere around $200-odd million. And I think, obviously, there’s the brand and both our brands and I think — so I think it’s a fairly attractive market. That’s what I would say at this stage.

Kunal Dhamesha — Macquarie — Analyst

One last housekeeping question. If I look at the launch of lenalidomide, it seems that you have just launched the smaller quantity bottles. Is there any reason that why you would not have launched a larger quantity to that?

Umang Vohra — Managing Director and Global Chief Executive Officer

No, I don’t think there is — I don’t think there is any specific reason for that. Yes, there’s no specific — I do know that there are a few strengths which we do not have first-to-file positions. The other thing that I would like to tell you is lenalidomide has a large number of SKUs. So I think from what I — if I recall, there are almost 15, 20 SKUs on lenalidomide by the brand. So people — I don’t think anyone would launch all 20. So between the different players, I think the market may get covered.

Kunal Dhamesha — Macquarie — Analyst

Okay. And your agreement to mention that like those kind of different SKUs or no?

Umang Vohra — Managing Director and Global Chief Executive Officer

I’m sorry?

Kunal Dhamesha — Macquarie — Analyst

Your agreement with innovator would mention the SKUs that you can launch or no, it is…

Umang Vohra — Managing Director and Global Chief Executive Officer

I don’t think — I don’t think there’s any specific mention on what you — other than what your part from launching because of FTF, I don’t think there’s anything there.

Kunal Dhamesha — Macquarie — Analyst

Thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

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

Neha Manpuria — Bank of America — Analyst

Yeah thank you for taking my question. Just on the EBITDA guidance. Given the 24% margin that we’re doing in this quarter adjusted for one-off and second half does seem to be seasonally strong in India, we’ll have the limit contribution Advair coming through. Any reason for keeping our guidance at the 21% to 22%? I mean, I’m just trying to understand if you are planning higher investment, higher R&D, any color there, please?

Ashish Adukia — Global Chief Financial Officer

Yes, sure. I think first of all, 24% is adjusted for the COVID provisioning, right? So if you look at after that, it’s 22%. Then quarter 3, it is expected to be a quarter where some of the therapies does well. But quarter 4, is generally a more muted quarter in comparison to others. So looking at all those things, the full year guidance is somewhere around the range of 21% to 22%.

Neha Manpuria — Bank of America — Analyst

And just on R&D, should we expect — we’ve already seen a fair bit of increase in this quarter. As we are progressing on our respiratory assets, should we expect a further increase from the run rate that we are doing in the quarter?

Ashish Adukia — Global Chief Financial Officer

So you will have this run rate continuing for rest of the year. So the 6%, the 5.8% that we have seen is something that is likely to continue because of the products and clinical trials that we are carrying out on some of the products.

Neha Manpuria — Bank of America — Analyst

Understood. And on the U.S. business, if I were to look at the base business ex-Revlimid, has there been — given we have grown Lanreotide very nicely, is it fair to assume that that trend has been more or less stable or has the rest of the portfolio seen higher erosion?

Ashish Adukia — Global Chief Financial Officer

Neha, I think every quarter that we see a little bit of erosion in the U.S., which is there in the past couple of quarters as well. So yes, I mean, it’s not as if we will not see erosion in any quarter. So there is erosion and then there’s Lanreotide increase and then there is Lena as a new launch.

Neha Manpuria — Bank of America — Analyst

It’s fair to assume that that — therefore, the base business would have been flat quarter-on-quarter?

Ashish Adukia — Global Chief Financial Officer

Yes, flat or it would — I mean there could be a little bit of a decline or anything. Yes, I mean it’s the regular trend. Nothing untoward, if that was your question. In terms of price erosion, nothing untoward.

Neha Manpuria — Bank of America — Analyst

And my last question on India. The generic generic business, we’ve seen a double-digit growth, seems pretty strong, especially with the COVID base that we had. Are we doing anything additionally to help maintain this growth momentum? And I ask this because it seems like a lot of our peers are also becoming — or launching trade generic business. So is that — are we going deeper and how difficult is it to grow that business from the base we are?

Ashish Adukia — Global Chief Financial Officer

I think if you were to just segment our businesses in India, the branded business, which is our prescription business grew — I think the overall growth was 12%. The branded business growth was higher than that, excluding COVID. Trade generics was roughly at the same mark. So I think the branded business is actually growing a little faster than trade in the second quarter. And I think what happens in quarter two, we always see a bump up on the growth rate and that’s because that is the season. So the same growth rate in a non-season you could take off 300 to 400 basis points from it. So I don’t think 15% is a representative growth for the rest of the year. But we are hoping that we would always continue to be higher than industry growth even in quarter three, quarter four adjusted for COVID.

Neha Manpuria — Bank of America — Analyst

Understood thank you so much Umang.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

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

Surya Patra — PhillipCapital — Analyst

Yeah thank you for this opportunity sir my first question is on the kind of cash flow that we are likely to see from the Revlimid. So generally, Cipla is known for generating strong free cash flow. And now on the top of that, this relevant cash flow is likely to be kind of really robust. So given that our investment towards the specialty projects or about product development, are we going to see any kind of meaningful change to our developmental pipeline, strategic growth initiatives and all that? Could you give some color on that, sir?

Ashish Adukia — Global Chief Financial Officer

So let me cover the cash flow first and then I’ll hand over to Umang to talk about some of the strategic initiatives. So on the cash flow this quarter, of course, we did well. I think the couple of things that we need to bear in mind is that this was a dividend paying out quarter. So some of the cash that we generated went out of there. And the other is that with the launches in the U.S., etc, so there was increase in the debtors. So of course, that cash release will happen over next — over this quarter and the next.

So that’s broadly on the cash flow. On the strategic priorities, of course, we have — we constantly discussing various capital allocation priorities, which includes both investment into new lines of businesses as well as looking at some of the opportunities that are available in the market to grow some of our existing businesses. And there are capex proposals as well, which could be towards more modernization of our facilities or reducing cost, etc. But I would like Umang to come in out here as well.

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. I think other to what Ashish said, I think we have a — our strategy, at least for the U.S. is about being very selective with products. Maybe the average R&D spending per asset is higher, but we do not — we don’t subscribe to the breadth model of assets where we do more projects necessarily. So in that way, we keep a watch on how much we’re investing in R&D. I think specialty projects, we have a few in our pipeline as they begin to gain steam, the R&D spending will go up, as it will go up as a biosimilar programs advance. So long-term trend, we have said we can’t afford R&D higher than 7% in our financial model. And as these expenditures begin to ramp up, I think that’s roughly where — that’s roughly where we will go.

Surya Patra — PhillipCapital — Analyst

Okay. Sir, just one clarification about Revlimid. Do you expect a second wave of generic launches before the patent expiry?

Umang Vohra — Managing Director and Global Chief Executive Officer

Well, I do know — I can’t say that with certainty because I don’t know the terms of everyone’s settlement with the innovator. But I would like to believe that with everyone — now that the market has been created, with everyone who has filed for Revlimid, I would expect perhaps that they would have similar settlements with the innovator allowing them to launch at different time points. So yes, your assumption on that there could be more people entering the market, it may not be completely wrong.

Surya Patra — PhillipCapital — Analyst

Okay. Just two small questions, sir. One on the Advair. Do you find this price erosion scenario in the Advair is the kind of a much sharper than our expectation? That is one. And secondly, the Indo facility, which is — which has got for this fourth Industrial Revolution Lighthouse rating, whether it has got any kind of a commercial or any kind of a business benefit to us?

Umang Vohra — Managing Director and Global Chief Executive Officer

So fourth IR is just — you mean whether 4IR has resulted in any commercial benefit to us?

Surya Patra — PhillipCapital — Analyst

Correct. In the sense, any new contract in terms of CDM or — is there anything that we are getting out of it?

Umang Vohra — Managing Director and Global Chief Executive Officer

It’s too recent as a certification. But I can tell you that what has happened as a result of 4IR is that our overall yields have gone up and therefore, the cost per tablet has come down. And we’ve seen that almost impacting our cost per tablet there for most of our categories by about 15%, 20%. The second thing that we have also seen is that our greenhouse gases have reduced. And if you reduce greenhouse gas, obviously, your input quantity is lesser of what you consume. So I think those are the impacts of it. Has anyone signed a business because we had a lighthouse? I’m not sure. Lighthouse certifications are more to make sure that your internal processes are more holistic.

Surya Patra — PhillipCapital — Analyst

Okay. About Advair, please, sir?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. On Advair, I think, look, Advair from how we understand the price in the market even today is very attractive for us. And because we’re one of the players who’s localized this chain in India, we’d like to believe, just like for albuterol, that our cost position is fairly superior.

Surya Patra — PhillipCapital — Analyst

Sure sir okay thank you wish you all the best.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai — HSBC — Analyst

Hi good evening and thank you for the opportunity. My first question is on India business. So can you broadly give the split between the branded generic and then other companies, which is the trade generic plus consumer health business? And second part of that question is we have seen very strong growth in the trade generic part. So does it present some kind of risk in the future to the overall India business profitability?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think if you were to look at our overall growth rates, so we don’t give you specific by line of business. But I think what we are saying is that if you were to look at the consumer business of roughly INR650-odd crores and split that into quarters, that’s roughly what our consumer business will show you and that this business is growing the fastest right now. If you were to look at our trade generics business and our branded business, both are growing — the branded business is almost 60% to 70% of our India business. And that’s growing at the same rate as perhaps the generic business, the trade generic business. So I don’t think there’s too much of a lopsided impact on account of trade generics. But the trade generics business is not as big as a branded generic.

Damayanti Kerai — HSBC — Analyst

Okay. But in the future, you will continue to focus on growing these part of businesses also, the trade generics part of business [Indecipherable]?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, because the trade generic business is essentially a business that services our Tier two to six cities where actually growth is higher today than the metros and [Indecipherable]

Damayanti Kerai — HSBC — Analyst

Okay. My second question is on current comment on the input cost part. So have you seen any notable difference in payroll, material or logistics cost, etc, compared to first quarter?

Ashish Adukia — Global Chief Financial Officer

So what we’re seeing is that on the procurement cost, there has been some pressure, but we’re seeing a trend of stabilization out there. On freight, we have taken certain steps to mitigate the cost increase. So we have very closely looked at the mix of freight to see, etc, to bring down the cost at the same time, making sure that we’re able to service the market with no compromise. So overall, on the cost side, I think we’ve been able to maintain that discipline through certain actions from our side, even if we are seeing some trend outside to ensure that we are able to maintain our margins.

On the product, I think already, Umang has covered, we have certain imports and we have certain underlying currencies in which we — in some of the markets that we have, right? So that also on one hand, we lose out on those because of those currencies depreciating against dollar. But at the same time, we have changed when we report our potentials — when we make our dollar revenue. So overall, we are the big items of cost that we focus on closely to ensure that we are well within our desire approach.

Damayanti Kerai — HSBC — Analyst

Okay. And my last question is, you mentioned that your R&D projects, including the types are on track. So how soon we can see any one of those products coming into your launch portfolio in next two years, three years, any time line?

Umang Vohra — Managing Director and Global Chief Executive Officer

Well, actually, the first set of launches there hopefully will be towards the later half of the first half of — to the later part of the first half of next fiscal.

Damayanti Kerai — HSBC — Analyst

Okay. Next fiscal, later half of the first half?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes.

Damayanti Kerai — HSBC — Analyst

Okay thank you, I’ll get back-in the queue.

Operator

The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.

Nithya Balasubramanian — Bernstein — Analyst

Thank you congratulations on another strong quarter. I had one on [Indecipherable]

Operator

Ms. Balasubramanian, your audio is bit muffled, if you can take the phone on handset, please?

Nithya Balasubramanian — Bernstein — Analyst

Is this is any better?

Operator

It’s still a little, if you can just speak a little loud.

Nithya Balasubramanian — Bernstein — Analyst

Can you hear me now?

Operator

Yes.

Nithya Balasubramanian — Bernstein — Analyst

Yes. So one on leuprolide. So you have approval for the 25 — 22.5 mg, which is about 40% volumes of Lupron. Now given that you are a [Indecipherable] should — how do you look at your target market? Do you look at the other strengths as well as fair game? Do you also look at the other brand Enguard as fair game? So how are you defining the target market and should we expect to see some of the other strengths as well?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. Nithya, as of now it’s just a single stent launch. The — you could address the market — you could calculate the addressable market by looking at — by looking at the 22.5 length strength across the two brands. I think that’s one way to look at the market. And then take a phased — I mean, some kind of a B2 type share uptake for modeling purposes.

Nithya Balasubramanian — Bernstein — Analyst

Got it. A quick one on the partner asset among any updates there, when are you expecting the partner respiratory asset to be launched in the market?

Umang Vohra — Managing Director and Global Chief Executive Officer

So Nithya, I think there were some questions that the FDA had, which I believe the partners responded to. But — so I think it’s probably going to take — may take, I would think, at least since — based on the regulatory thing, it’s another nine-month time period. So this has responded, I think, some time back. So we’re in that nine-month time period.

Nithya Balasubramanian — Bernstein — Analyst

And One-India, I think, Umang, you were alluding to stronger growth from chronic therapies. So if you can give us a bit more color on which therapies are actually supporting growth. And what is actually supporting growth, is it new launches, is it because you’ve expanded your doctor coverage? Or is it actually because now you have brands that are no longer exclusive in the plug and participate. If you can give us a bit of color on what is driving growth in branded generics?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, certainly. Nithya, I think respiratory has shown strong growth over the last, I would say, over a two-year, three-year period. Initially, it was aided by COVID. But now the market is also responding to some of the work that Cipla has been putting in for awareness and diagnosis. So I think that’s expanded. On the other chronic therapies, cardio diabetes, very strong growth. We’re also seeing growth back in urology, where for some time we had an issue in terms of our execution. That growth is back as well. And our emerging therapies are growing also very strongly. So all — and of course, in this last quarter, acute has done well because it’s also the season quarter for India. So across therapies, Nithya, pretty much across all therapies.

Nithya Balasubramanian — Bernstein — Analyst

And would this be market share gain or new launches or market expansion?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think in the case of respiratory, it’s both expansion as well as market share gain. I think in the case of cardiology and diabetes, it’s a function of very high-volume growth as products have become generic I think and more people have launched the markets really expanded because we believe that some of this market has shifted from other — from other sub-therapies to the therapy that went up — that became generic. So it’s largely a function of these two. And the third is versus the last two years, the — what do you call that? When you go to clinic? The clinics have increased because of just a lot of people who sat out from the treatment now coming back to seek active treatment.

Nithya Balasubramanian — Bernstein — Analyst

Sir, thank you so much and all the best. Thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

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

Prakash Agarwal — Axis Capital — Analyst

Yeah hi thanks for the follow-up just, two quick ones. One is on Advair, just to think this better. So once approval comes through, is it the NRx which will be more critical or we have a chance to take share from the other players as well? And how fast is the ramp-up in market share, if you could guide what is the expectation there?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think it logically should be from both sources, but we are also cognizant of the fact that the brand still holds over 40% share on — in Advair. So obviously, the share should start converting from there. But also, there would be some amount of share that we take from existing players. And I think because the market is — there are three players in the market, I think over a period of time, the share would come. So we are not guiding specifically, but it would take — the shares uptick would come in due time.

Prakash Agarwal — Axis Capital — Analyst

And do you expect competition to pick up there as well? I mean more players or it could stay less competed for some time?

Umang Vohra — Managing Director and Global Chief Executive Officer

Actually, we are only aware of — we’re only aware of one subsequent filing. So I think there was some guidance they provided recently about their file. We haven’t heard of anybody else after that as yet. So I think based on that, at least for the next two years or so if we think that it will be limited.

Prakash Agarwal — Axis Capital — Analyst

And SKU, what is the addressable market currently? I mean innovator plus the competition, it should be what’s up INR700 crores, INR800 crores or less than that?

Umang Vohra — Managing Director and Global Chief Executive Officer

No, I think it is less than that. I think INR700 crores is possibly a little higher of that. So it would be less than that.

Prakash Agarwal — Axis Capital — Analyst

Perfect. And lastly, on the PLI, is there a benefit that we get or we started booking already or what is the outlook there?

Umang Vohra — Managing Director and Global Chief Executive Officer

There are a marginal benefit that is coming in our — also, some of our launches are not exactly from our facilities in India. So we do not — so we don’t have a huge benefit coming on account of that.

Prakash Agarwal — Axis Capital — Analyst

And the outlook, sir?

Umang Vohra — Managing Director and Global Chief Executive Officer

Outlook as in — it’s like — for example, if Advair launches and Advair is the product that will have that benefit. It is very product-specific.

Prakash Agarwal — Axis Capital — Analyst

Okay understood fair enough perfect thank you and all the best thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

The next question is from the line of Nitin Agarwal from DAM Capital. Seems like we lost the connection for the current participant. We move to the next question from the line of Vivek from Citi. Please go ahead.

Vivek Agrawal — Citigroup — Analyst

Yeah thanks for the opportunity sir my question is related to the U.S. market. When we expect to file the next inhaler asset that is currently under clinical trials?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think towards second half of next calendar year.

Vivek Agrawal — Citigroup — Analyst

And would you like to highlight what is the addressable market of this particular product?

Umang Vohra — Managing Director and Global Chief Executive Officer

I don’t think we’ll give that level of detail.

Vivek Agrawal — Citigroup — Analyst

No problem, sir. And just one more thing. You have alluded that $170 million to $180 million number in U.S., that is more or less sustainable. So are you comfortable with this number even after, let’s say, Revlimid comes down maybe a few quarters away?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes, I think Revlimid, we also have other launches. So they should hopefully be able to offset this. And I think what range we are guiding to is $175 million to $180 million as a new base.

Vivek Agrawal — Citigroup — Analyst

Okay sir thank you that’s all from my side thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Thank you for the follow. So one of the branded player in albuterol market is going to stop marketing. Do you believe that that could offer a small opportunity in that product or any dynamic change because of that?

Umang Vohra — Managing Director and Global Chief Executive Officer

Are you referring to a change that is being made by one of the innovators for a climate-friendly version or what…

Kunal Dhamesha — Macquarie — Analyst

Not really. So they have said that they would stop — so they would stop marketing that product in a way that they would cut down on the field force for that product?

Umang Vohra — Managing Director and Global Chief Executive Officer

I’m not sure — I’m not sure we have heard that. Do you know the name of the company? Sorry, we’ve not — we are not current with this.

Kunal Dhamesha — Macquarie — Analyst

And so Teva said…

Umang Vohra — Managing Director and Global Chief Executive Officer

Oh, you’re talking about ProAir.

Kunal Dhamesha — Macquarie — Analyst

Yes, ProAir.

Umang Vohra — Managing Director and Global Chief Executive Officer

So I think basically, from how we understand, Teva has an AG also to the same product that they sell. So which means they will move the whole market generic.

Kunal Dhamesha — Macquarie — Analyst

But then is this stop marketing…

Umang Vohra — Managing Director and Global Chief Executive Officer

[Indecipherable] to their generic is essentially what’s going to happen.

Kunal Dhamesha — Macquarie — Analyst

Okay. Okay. But then the new prescription would also be just written as maybe albuterol. So earlier that…

Umang Vohra — Managing Director and Global Chief Executive Officer

Today, a large share of the prescriptions are already generic.

Kunal Dhamesha — Macquarie — Analyst

Okay. I think as a start, we used to say it’s around 55, 60. Has it changed [Indecipherable]?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. It is significantly higher. Once we authorized generic versions have come and our belief it’s the large share of the prescriptions today are generic. And where they are not generic, they are dispensed generically.

Kunal Dhamesha — Macquarie — Analyst

Okay. And the second question on the trade generic business on the consumer health business. So I think as we transferred some of the brands from trade generic to consumer health where we had good brand equity, is it going to be a continuous process where you launch the trade generic products and two years, three years down the line then you — once the demand is strong, then you move to consumer health?

Umang Vohra — Managing Director and Global Chief Executive Officer

Well, it is a progression. We realized that some of our trade generic portfolio has very strong customer equity. And it is those products which — where we think that the customer equity is strong and where potentially new users and formats can be derived for the product. So those products, we feel have a very active consumer potential. So yes, depending on product to product, we will evaluate and see.

Kunal Dhamesha — Macquarie — Analyst

Okay. But as of now let’s say, when you look at your trade generic, do you see a meaningful portion of that you see potential?

Umang Vohra — Managing Director and Global Chief Executive Officer

Yes. Not meaningful. I think there is — obviously, we have been working within these two products that sit today in our generics division, but which we — where we see inputs from our consumer division. So that work is already on. So at overall Cipla level, the transfer creates a new phase of life for these brands.

Kunal Dhamesha — Macquarie — Analyst

Sure thank you.

Umang Vohra — Managing Director and Global Chief Executive Officer

Thank you.

Operator

The next question is from the line of Ritesh Rathod from Nippon India. Please go ahead.

Ritesh Rathod — Nippon India — Analyst

Yeah hi everyone just on the — this guidance of U.S. business of $175 million to $180 million, I need to clarify, you’re not assuming any revenue from the upcoming respiratory launch in Q4?

Umang Vohra — Managing Director and Global Chief Executive Officer

No, no. This is — we have guided towards what is a new base for us.

Ritesh Rathod — Nippon India — Analyst

Okay. And how would be the — any annual — in a yearly cycle for Revlimid, the revenue booking would be more frontloaded, like assuming September or October is the start of the year for Revlimid?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think it is following how any regular generic product is launched. No difference.

Ritesh Rathod — Nippon India — Analyst

Okay. And maybe one last one on albuterol, can you share how pricing has behaved in last 1.5, two years? And how it has been in line with your internal expectations or it has been more than that, can you share something over that?

Ashish Adukia — Global Chief Financial Officer

No, we have obviously witnessed competition and therefore, there is some erosion. And that’s true with generally the base business, as Umang had talked about earlier of the three components of U.S. business.

Ritesh Rathod — Nippon India — Analyst

Yes. I was talking more from albuterol-specific, is it product regeneration entry of a couple of players and the way pricing has played out in the last 2.5 years? Was it more than your internal expectation, how it has panned out? If you can give any color, it would be really good.

Ashish Adukia — Global Chief Financial Officer

I think it’s more or less in line with our internal estimate.

Ritesh Rathod — Nippon India — Analyst

Okay. And would Advair be larger than albuterol, would that be a fair assumption on its peak revenue, if one want to see?

Umang Vohra — Managing Director and Global Chief Executive Officer

I’m not sure we can give that level of detail. And not because we don’t want to, but because there are multiple factors that will go into the launch. So even with albuterol, though right now we are in line with our internal estimates, but we’ve gone through a cycle where there were periods where we were higher, and there were periods when we were lower than our internal estimates. And also, COVID was a factor that was playing out as well at that time.

Ritesh Rathod — Nippon India — Analyst

Thank you.

Operator

The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Right thanks for taking my question, Umang, on the U.S. business, I think with the new base that we’ve created and with the growth that are expected to come through with some of the newer launches, we’re getting to a point about $200 million plus quarterly revenues. I mean, a point where most of the other competitors have typically faced — started to face growth issue at some point — I mean, in the growth trajectory. So when you’re philosophically looking at the U.S. business [Indecipherable] for us over the next three to five years, I mean, is — I mean, how are you approaching this in terms of a point where — does the business get to a point from where on incremental sales start to become — growth begins to become a challenge? And how we look to sort of tackle that at a point two, three years down the line?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think Nitin, we are not going to be any different or immune from what is an industry phenomenon. So I think at some point in time, as we become larger, we’ll also — our growth will also not be as high as we have seen in the past. And it’s not — and I think we have a base effect plus we have two things for us going for us right now. One is a very smaller base compared to the other companies. And the second is that we’ve made some pipeline choices, which probably have helped us, including respiratory and the peptide. So I think at some point in time, the base becomes larger, but the pipeline choices will continue to be — hopefully be distinctive. But yes, I don’t think we will see that level of growth that we may have seen in the past after two to three years.

Nitin Agarwal — DAM Capital — Analyst

Right. And how do you propose to sort of reach — either do we go to specialty way or U.S. remains as a business, doesn’t grow much beyond that? And the — any focus on growing other parts of the business?

Umang Vohra — Managing Director and Global Chief Executive Officer

I think it’s — well, I don’t think — other parts of the business to grow and they are independent of the U.S. I don’t think we’ll make a choice to say that the India business should grow faster than the U.S. because they pretty much are — have different resources allocated to them. So we will try and grow the U.S. as much as we can. Specialty is definitely an option. We have a pipeline that we are building out between organic and we already have one asset. So is — if you look at the ’28 to ’30 time period, that’s the time the biosimilars we are working on will be launched in the market.

So that’s one way to take a look at the problem while continuing to invest in some of our respiratory assets. And we changed — Cipla really changed its model to get into its own frontend sometime in 2015, ’16 time period. And then that’s when we started the albuterol [Indecipherable] journey. And it took us to six, seven years to launch. And by the time we launched, we were already number two or number three in the market. Our goal would be for subsequent products to try and reach the market faster than our position today. So I think the — if you are able to do that, then also there is a — then the market is fairly attractive for players.

Nitin Agarwal — DAM Capital — Analyst

Just one housekeeping. On the — there is a sharp increase in depreciation cost on a Q-o-Q basis. Any specific reason driving that?

Ashish Adukia — Global Chief Financial Officer

That has some COVID-related impairment also sitting there. So that’s why it is higher. We go back to a more normal depreciation amount from next quarter onwards.

Nitin Agarwal — DAM Capital — Analyst

Thank you, Ashish.

Ashish Adukia — Global Chief Financial Officer

Thank you.

Operator

As there are no further questions, I would now like to hand the conference over to Mr. Naveen Bansal for closing comments. Over to you, sir.

Naveen Bansal — Head of Investor Relations

Thank you, Steve. Thank you, everyone, for your attention today and for joining us for the earnings call. In case you have a follow-on question, feel free to reach out to the Investor Relations team. Thank you and have a good evening ahead.

Operator

[Operator Closing Remarks]