SUN PHARMACEUTICAL INDUS (NSE: SUNPHARMA) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Abhishek Sharma — Vice President & Head, Investor Relations and Strategic Projects
C.S. Muralidharan — Chief Financial Officer
Kirti Ganorkar — Chief Executive Officer, India Business
Abhay Gandhi — Chief Executive Officer, North America
Dilip Shanghvi — Chairman and Managing Director
Analysts:
Damayanti Kerai — Analyst
Anubhav Agarwal — Analyst
Neha Manpuria — Analyst
Bino Pathiparampil — Analyst
Surya Narayan Patra — Analyst
Shashank Krishnakumar — Analyst
Vivek Agrawal — Analyst
Saion Mukherjee — Analyst
Rahul Jeewani — Analyst
Madhav Marda — Analyst
Naresh Suthar — Analyst
Gagan Thareja — Analyst
Ankush Mahajan — Analyst
Sudarshan Padmanabhan — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q2 FY ’25 Earnings Conference Call of Sun Pharmaceutical Industries Limited. [Operator Instructions]
I now hand the conference over to Dr. Abhishek Sharma, Vice President, Head, Investor Relations and Strategic Projects. Thank you, and over to you, sir.
Abhishek Sharma — Vice President & Head, Investor Relations and Strategic Projects
Thank you. Good evening and a warm welcome to our second quarter FY ’25 earnings call. I’m Abhishek from the Sun Pharma Investor Relations team. We hope you have received our Q2 financials and the press release that was sent out earlier in the day. These are also available on our website.
We have with us, Mr. Dilip Shanghvi, Chairman and Managing Director; Mr. C.S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO, North America; and Mr. Kirti Ganorkar, CEO, India Business. Today, the team will provide an update on financial performance and business highlights for the quarter, pipeline updates and respond to any queries — any questions that you may have. We will refer to the consolidated financials for management comments. The call recording and call transcript will also be put on our website shortly.
The discussion today might include certain forward-looking statements, and these must be viewed in conjunction with the risks that our business faces. You are requested to ask two questions in the initial round. I also request all of you to kindly send in your questions that may remain unanswered today.
I will now hand over the call to our CFO, Mr. C.S. Muralidharan.
C.S. Muralidharan — Chief Financial Officer
Welcome and thank you for joining us for this earnings call after the announcement of financial results for the second quarter FY ’25. Our Q2 financials are already with you. As usual, we will look at key consolidated financials.
Q2 FY ’25 sales were at INR132,642 million, an increase of 10.5% versus Q2 FY ’24 and an increase of 5.9% versus Q1 FY ’25. Besides the underlying business growth, we also had higher sales of Lenalidomide in U.S. in Q2 versus Q1. Material cost stands at 20.3% of sales, lower than the same period last year on account of better product mix. Staff cost stands at 18.7% of sales. Other expenses were at 32.5% of sales, higher year-on-year and Q-on-Q on account of higher selling and distribution expenses.
Forex gain for the quarter was INR1,281 million compared to a loss of INR341 million same period last year. EBITDA, including other operating revenues, was at INR39,390 million for Q2, an increase of 23.9% over Q2 last year, with EBITDA margins for the quarter at 29.6% against 26.1% for Q2 FY ’24 and 28.5% for Q1 FY ’25. Net profit after tax for Q2 FY ’25 was INR30,402 million, up 28% over reported net profit of Q2 last year. EPS for the quarter was INR12.7 per share. As of 30th September, 2024, net cash was $2.6 billion at the consolidated level.
Now, we will discuss the half-year performance. For the first-half, gross sales were at INR257,887 million, a growth of 8.4% over first-half last year. Material cost for H1 was at 20.8% of sales, lower than H1 last year, mainly due to product mix, including higher specialty sales. Staff cost stands at 19.1% of sales. Other expenses were at 31.7% of sales, higher than H1 last year on account of higher selling and distribution expenses. Forex gain for H1 was INR776 million compared to a loss of INR321 million for the same period last year. EBITDA for the first-half was at INR75,466 million, a growth of 15.9% over the first-half last year, with resulting EBITDA margin of 29.1%. Net profit for H1 was at INR58,758 million, up 24.5% over adjusted net profit of H1 last year, excluding the exceptional items of H1 FY ’24.
Now, over to Kirti, who will share the performance of our India business.
Kirti Ganorkar — Chief Executive Officer, India Business
Thank you, Murali. I shall take you through the performance of our India business.
For Q2, the sales of formulation in India were at INR42,652 million, recording a growth of 11% over Q2 last year. India formulation sales accounted for 32% of total consolidated sales for the quarter. Sun Pharma is ranked number one and holds 8.1% market share in the over INR2,170 billion Indian pharmaceutical market as per AIOCD AWACS MAT September 2024. Corresponding market share for the previous period was 7.7%.
A small note on the new AWACS market share series. From September ’24, AIOCD AWACS has rebased its data leading to lower market share reflections. Prior period data has also been rebased. Sun continues to show similar market share gains and volume-led growth in the new series. We are amongst the leading contributor to the volume-led growth of the IPM. In top 300 brands of the IPM, Sun Pharma has 28 brands, which is the highest number of brands by any company. For the quarter-ending September ’24, we grew higher than IPM and we have done well across all represented therapy areas. Majority of the Sun’s growth continues to be led by volumes and new product launches versus IPM growth, which is predominantly price-led.
As per SMSRC March-June 2024 report, we continue to be number one ranked company based on prescription volume. Sun Pharma is also ranked number one by prescription with 13 different doctor categories. For Q2 FY ’25, the Company launched 14 new products in India.
I will now hand over the call to Abhay.
Abhay Gandhi — Chief Executive Officer, North America
Thank you, Kirti. I will update on the performance highlights of our U.S. businesses, which includes the U.S. portion of Taro as well.
For Q2, our overall sales in the U.S. business was up by about 20.3% over Q2 last year to $517 million. The U.S. accounted for over 33% of consolidated sales for the quarter. The U.S. specialty business has continued to do well and has grown over Q2 FY ’24. The underlying business and the prescription trend for the specialty business remains strong. For Q2, we launched two generic products in the U.S.
I will now hand over the call to Mr. Shanghvi.
Dilip Shanghvi — Chairman and Managing Director
Thank you, Abhay. I will now provide an update on performance highlights of our other businesses as well as give you an update on our R&D initiatives.
Our revenue in the emerging markets were at $293 million, up by 3.2% over Q2 last year. The underlying growth in constant currency terms was 5% year-on-year for Q2. All our large markets, bearing a few, have done well in local currency terms. Emerging markets accounted for 18% of total consolidated revenue for Q2. Formulation revenues in rest of the world were $199 million, lower by 3.5% over Q2 FY ’24. Japan price cuts, as mentioned in the previous quarter, are an important reason for revenue decline in ROW. We expect this pressure to flow-through next few quarters’ performance. ROW markets accounted for approximately 12.5% of consolidated Q2 revenues.
We continue to invest in building an R&D pipeline for both the global generics and the specialty businesses. Consolidated investments towards R&D for Q2 FY ’25 stands at INR7,929 million, overall 6% of sales. Specialty R&D accounted for 38% of our total R&D spend for the quarter. Due to delay in the start of some of our clinical studies, our R&D spend is trending below our guidance for the full-year. We expect our FY ’25 R&D spend to be in the range of 7% to 8% of our sales.
Moving to updates on global specialty. In Q2 FY ’25, our global specialty sales were up by 19.2% to reach $286 million. Sun recently entered into a global licensing agreement for commercializing Fibromun, a specialty product from Philogen. Fibromun is an anti — innovative anti-cancer immunotherapy, which is being investigated in registration trials for the treatment of soft tissue sarcoma and subsequently for glioblastoma.
With this, I would like to leave the floor open for questions. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]
The first question is from Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai
Hi, good evening, and thank you for the opportunity. My first question is on R&D spend. So, you mentioned delay in some clinical trials has led to lower R&D spend in first-half, and then you mentioned 7% to 8% range for the full-year. So, do you think there will be a significant uptick in second-half R&D spend? And are you seeing pick-up in clinical trials which are currently underway?
Dilip Shanghvi
Yeah. I think the new guidance is based on our reassessment of the money that we will need to spend during the second-half of the year. And we believe that — and we understand that for first-half, the spend is 6% for us to reach 7% or 8%, it needs to go up by a corresponding number, so that the annual number is reaching the guidance.
Damayanti Kerai
But any further delay or slow pick-up in trials could keep your R&D lower, like, as compared to like your anticipated levels?
Dilip Shanghvi
That is true.
Damayanti Kerai
Okay. My second question is on the litigation, which you mentioned in your press release for LEQSELVI. So, any timeline to look at the next update on the IP litigation front? And then, you can also please provide some update on your expectation for launch timeline for that product. Thank you.
Dilip Shanghvi
Yeah, Abhay?
Abhay Gandhi
So, we are awaiting the court judgment and really can’t put a time to it, so we do not know, hopefully, soon. And as far as the readiness for launch is concerned, post the judgment and depending on what that judgment is, we would be ready to launch the product in the market.
Damayanti Kerai
Okay. But have you, like, done, like, sufficient preparation to launch immediately once the court ruling comes favorably, or it will take some time?
Abhay Gandhi
So, it will be a couple of weeks, not definitely a couple of months. So, to that extent, we will be ready.
Damayanti Kerai
Okay. Thank you. I’ll get back in the queue.
Operator
Thank you. The next question is from Anubhav Agarwal from UBS. Please go ahead.
Anubhav Agarwal
Yeah, hi. Just making sure, am I audible properly?
Abhay Gandhi
Yes, Anubhav.
Anubhav Agarwal
Okay. Good. Yeah, good evening to all. Just first question is on LEQSELVI litigation itself. I’m just trying to understand the scope of this litigation. So, based on my reading, the litigation is mainly on C35 patent, where the expiry of this patent is December ’26, which is like two years from now. So, sub two parts to this question. One is, is the scope of litigation only for two years, or the scope of litigation is beyond the two years as well? That’s one part of my question.
And second part of the question is that, in terms of worst case outcome, what is the worst case outcome here that is — does Sun have to pay a higher royalty here, or you may not be able to launch the drug itself for two years?
Dilip Shanghvi
So, as we understand the litigation, I think, is — the scope of the litigation is correct. I think the patent which they are using to litigate has an expiry date. And up to that is the worst case situation is that in case if we get an unfavorable judgment and then even on appeal, if we lose, then that is the time to which our potential launch gets delayed.
Anubhav Agarwal
And Dilip bhai, on the second part of the question, so is this more the worst case on the extent of royalty that you need to pay with a 10%, 20%, or is it, like, do not launch at all for two years?
Dilip Shanghvi
No, I think, generally, royalty in symbols is [Phonetic] such a situation would be subject to a settlement. It cannot be arbitrarily defined as to what would be the royalty and whether with a royalty we can launch or not.
Anubhav Agarwal
Sure. That’s clear. And…
Dilip Shanghvi
It’s a binary outcome.
Anubhav Agarwal
Understood. And the second question was on the ILUMYA. Today, when you are in the Medicare Part B market, the medical benefit product, what percentage of prescriptions are you missing already because you do not have approval of psoriatic arthritis? So, I’m just trying to understand, let’s say, year down the line, if the Phase 3 results are good, you have the approval to what — let’s say, what percent of prescription we are missing today and what we can get, roughly?
Abhay Gandhi
So, typically, you — I mean if I look at the other competitors in the market and their data and also from conversations with doctors, the split between psoriasis and psoriatic arthritis is somewhere, and you can use this as a ballpark figure, so don’t hold me to it, is like a 70%-30%. So, the 30% is the market you are roughly kept around with. And this is data that you can also validate in the public domain of the others.
Anubhav Agarwal
Abhay, that’s correct, but my question was that, is ILUMYA already being prescribed on off-label basis for those patients as well? So, is the incremental gain not 30% or is it lower, or your sense is that benchmark or heuristic benchmark of 30% is still valid for Sun as well?
Abhay Gandhi
I mean, Anubhav, how do you expect me to comment on any off-label use? So, I mean, when there are questions of other competitors, who are [Speech Overlap]…
Dilip Shanghvi
We have no prescription for — from rheumatologist. And if a — I mean if a dermatologist is prescribing for psoriatic arthritis, we wouldn’t know. But most likely, in the U.S. context, they wouldn’t prescribe.
Abhay Gandhi
Sure. And Anubhav, you need to also appreciate that if there are other products available whose label mentions the psoriatic arthritis, then the motivation of the doctor to use another product off-label is also very low.
Anubhav Agarwal
Sure. My confusion was only on the medical — Medicare Part B, where none of the other ILs are approved, that’s where my question was.
Abhay Gandhi
I mean, I think, I’ve answered the question with the best of my knowledge, Anubhav.
Anubhav Agarwal
No, thank you, guys. That’s helpful.
Abhay Gandhi
Thank you.
Operator
Thank you. The next question is from Neha Manpuria from Bank of America. Please go ahead.
Neha Manpuria
Yeah. Thanks for taking my question. My first question is on WINLEVI. Abhay sir, given the change that we had in strategy, you talked about it a few quarters back. If I look at the IQVIA data, obviously, the trends seem to be not reflecting that change. Are we seeing an improvement in WINLEVI sales quarter-on-quarter? Is it in-line with our expectation? And what should we expect in terms of when should we start seeing that prescription traction picking-up, given that we’ve changed the strategy only a couple of quarters back?
Abhay Gandhi
So, on the — so we did expect a fall in prescriptions based on [Phonetic] change in the strategy, which is what I had, I think, explained on the previous call as well. The focus was on generating a more profitable prescription. I think we have been able to achieve that. That’s why the numbers are all good. Now, on that lower base of prescription that we have, I think our task becomes to grow on that quarter-on-quarter.
Neha Manpuria
And are we seeing that quarter-on-quarter, month-on-month improvement in terms of prescriptions?
Abhay Gandhi
Yes, I do see that, yes.
Neha Manpuria
Okay. And when do you think we get to, let’s say, a sustainable level of prescription that you would be happy about? Would it take us a couple of quarters, a couple of years, when do you think we get there?
Abhay Gandhi
Honestly, I’m already happy with the traction that we see. And if I’m able to grow the revenues with a more profitable subscription, then I’m already happy. But having said that, I mean, the idea is to continue to grow prescriptions in whichever product we market, not only in the U.S., but in any other geography. I don’t have a set goal in mind that, at this point, I’ll be happy.
Neha Manpuria
Understood. Okay. And my second question is on the emerging market business. If you could give us some color on what the focus markets are for us in the emerging market and how we are thinking about growth in that business? Because it does tend to be fairly volatile. I understand, sir, currency is a big factor there. But otherwise, which are the key focus markets and how we should think about growth in the EM mainly?
Dilip Shanghvi
No, I think we’ve already shared the key markets, like Brazil, Romania, South Africa, Russia, and Mexico. Yeah, I think, those are there with you. And the focus would be to find a way to grow in this market. This — but at the same point of time, we have sales in many other geographies and many other markets. And all of them together make the emerging market business.
Neha Manpuria
And sir, the focus in these markets would be growth over profitability. I mean, because these are — each of them are separate markets, how should we think about the growth versus profitability in these markets? Because they’re fairly large mix of markets.
Dilip Shanghvi
So, the way our budgeting process works is that every country is expected to grow both top-line as well as bottom-line, irrespective of the size of the market. The focus from the business point-of-view would be that the corporate office, the business development team as well as the priority for R&D resources would be allocated to these geographies before they are available to the other geographies. So, that’s the essential difference.
Neha Manpuria
Understood. Okay. Got it. Thank you so much, sir.
Dilip Shanghvi
Yeah, thank you.
Operator
Thank you. Next question is from Bino Pathiparampil from Elara Capital. Please go ahead. Mr. Bino Pathiparampil, you may go ahead with your question.
Bino Pathiparampil
Am I audible? Hello?
Operator
Yes, we can hear you.
Bino Pathiparampil
Okay. Great. If I heard rightly, in the opening remarks, it was said that the Lenalidomide sales in Q2 was higher than Q1. Is that correct? And could you also give some color Y-o-Y?
C.S. Muralidharan
Yeah, it was also higher year-on-year.
Bino Pathiparampil
Okay. On the specialty side, this Fibromun which we have in-licensed recently, I believe it’s in registration trials. Any timeline regarding completion of those trials?
Dilip Shanghvi
No, I think we’ve also indicated that the trial is managed by the principal from whom we have licensed the product. So — and they are a public company. So, till they, what you call, disclose what is their timeline for filing. However, we have seen before we licensed the clinical outcome data and we feel that it’s an exciting opportunity for patients who are currently significantly under-treated for this disease.
Bino Pathiparampil
Got it. And in — for Utreglutide, you are planning to start a Phase 2 in second-half of this year. Is that on-track? Have you started it?
Abhay Gandhi
Yeah. No, I think if you see our disclosure, what we’ve said is that it will move to the first-half of next year.
Bino Pathiparampil
Okay. Understood. Great. Thank you. I’ll join back in the queue.
Abhay Gandhi
Yeah.
Dilip Shanghvi
Thank you.
Operator
Thank you. Next question is from Surya Narayan Patra from PhillipCapital. Please go ahead.
Surya Narayan Patra
Thank you for this opportunity. Sir, first question is on the R&D spend. While we have become bit aggressive about adding more and more specialty pipeline, and we had indicated about 8% to 10% kind of R&D spend, and now we are cutting down to 7%, 8% kind of for the current year. So, how should one think, whether it is because of the savings that is coming from the announced capability — clinical capability, what you have indicated that you are building it up. So, is it a benefit of that, or it is just deferral of certain things that we have seen in the first-half that is — that as a result of that is the number is reducing?
Dilip Shanghvi
So, what your question is, whether it’s an intentional delay or whether it’s a reason why because of any other reason the…
Surya Narayan Patra
Yeah, I mean, whether it is the saving that is coming from the enhanced clinical capabilities, what you are building it up. So, that has brought in this kind of saving, or it is something else?
Dilip Shanghvi
No, I think, there is also a delay in commissioning some of the studies. So, it’s not only in-house saving from managing the studies. It’s still a long time before we get to know whether there is any significant saving because of the change in the, what you call, organizational capability.
Surya Narayan Patra
Okay. And the second question is, on the U.S. sales growth. See, interestingly, sir, after many, many quarters, what we are seeing that, overall U.S. sales growth is higher than the global specialty sales growth. So, generally, the reverse used to be the trend.
Dilip Shanghvi
We have not shared the U.S. specialty sales.
Surya Narayan Patra
No, I mean, since U.S. is the majority of the global specialty. So, the — if I reframe that, U.S. sales growth is higher than the global specialty growth. The trend used to be the — the reverse trend used to be the kind of a trend. So, what is driving this U.S. business? Because the base business, the plain vanilla generic is, obviously, facing its own challenges. So, what is driving, whether it is coming — something coming from the Taro side, or any — what is driving that — the forces, if you can just indicate and your outlook for the base business also?
Abhay Gandhi
I think the reason is pretty obvious. Our major products, whether it is ILUMYA, WINLEVI, Odomzo or CEQUAa, we have done well, and the team continues to perform and deliver. That’s the reason.
Dilip Shanghvi
See, my understanding, they are trying to reconstruct specialty and generic separately. In the past, they were doing because Taro numbers were public, so they were able to reconstruct. So, now, I think we need to internally debate and understand whether we want to share more information than what we are already sharing.
Surya Narayan Patra
Sure, sir. Just one last update, sir. How is this Chinese ILUMETRI launch, whether we have seen any meaningful progress there, any influence that we can see to our ROW sales?
Dilip Shanghvi
No, I think, we are very happy with the kind of traction ILUMETRI has received in a relatively short period of time after launching the product in China. And we expect it to become a more meaningful product as the time progresses.
Surya Narayan Patra
Sure. Okay. Yeah. Thank you, sir.
Dilip Shanghvi
Thank you.
Operator
Thank you. The next question is from Shashank Krishnakumar from Emkay Global. Please go ahead.
Shashank Krishnakumar
Hi. Thanks for taking my questions. Am I audible?
Dilip Shanghvi
Yes.
Shashank Krishnakumar
Yeah, hi. My first question was on the domestic piece. So, when we are alluding to volume-led growth, would there be a meaningful difference in terms of volume growth across town classes that you’re seeing in our portfolio, would volume growth be meaningfully higher in metros and Tier-1 towns for us as opposed to say Class 2 to Class 4 towns and rural markets?
Kirti Ganorkar
So, broadly, it will be difficult to share whether it’s higher in Tier-1, Tier-2 cities compared to some metros. But what I can tell you our volume growth is quite strong and the volume growth for the industry is — on MAT’s September ’24 basis, is 0.7% and we are 5.3% [Phonetic], so strong. And I see that is across the businesses, maybe geography-wise. I don’t have the data to share with you, but it is across the businesses.
Shashank Krishnakumar
Okay. Thanks. That’s helpful. My second question was on SCD-044. So, I understand that Amgen has received an approval for Otezla for pediatric use and perhaps this is an age group there is no other approved option right now. So, is that a patient population group that we could also potentially target?
Dilip Shanghvi
Yeah. I think we are waiting for the Phase 2 data to come and then we’ll decide whether the size of the — because many times, agency also requires that — on approval that you have to do a pediatric study to get the product approved for pediatric patients. And psoriasis as well as atopic dermatitis are both conditions for which there is a sizable number of pediatric patients. So, in this case, there is a business case, but we have to take a decision looking at the Phase 2 data. But in any case, most of the people that develop the product first for adult population and then go back to the pediatric.
Shashank Krishnakumar
Thanks.
Operator
Thank you. Next question is from Anubhav Agarwal from UBS. Please go ahead.
Anubhav Agarwal
Yeah. I have two questions. One is on other expenses. So, in this quarter, other expenses were pretty high. Just trying to understand, is there any one-off here, for example, when you in-licensed Fibromun, have you paid some one-off milestone, which is included in other expenses, or any other one-off there in other expense?
C.S. Muralidharan
So, there is no one-off in the other expenses in the quarter.
Anubhav Agarwal
So, what explains this almost INR450 crores increase quarter-over-quarter…
C.S. Muralidharan
That is mainly driven by the higher selling and distribution expenses in U.S. and EMs [Phonetic] and other geographies.
Dilip Shanghvi
No, there would also be ramp-up cost for launching LEQSELVI and — which are coming to the expenses for first time.
Anubhav Agarwal
But would you say, Dilip bhai, that this is the new base of other expense for us?
Dilip Shanghvi
I mean, generally, we don’t guide for expenses. But I think our focus would be to run the business most efficiently.
Anubhav Agarwal
Sure. Second question is on LEQSELVI, actually not just on LEQSELVI drug, but on the alopecia areata market. So, just trying to understand that when you — there are two existing drugs in the market and the ramp-up has been slow in last two years of the market formation. So, out of the two factors which I can think of, just trying to understand which is the biggest factor which is leading to a slower ramp-up of the market. One is insurance access or insurance coverage as factor one. And second is doctors’ lack of willingness to write — prescribe this category because of the black-box warning on the JAK inhibitor class. So, out of these two factors, or maybe third or fourth factor, which you guys can help think about that? Because when I see the two drugs on IQVIA, I only see less than 15,000 patients being treated in total on this category. And that’s what I meant by a slow ramp-up here.
Abhay Gandhi
So, see in the U.S., access always builds up gradually. It is not that today you launch, you will get unrestricted full access across all the payer groups, some of them have a new-to-market block. So, I think you should also look at access as a continuum rather than a event upon launch.
Anubhav Agarwal
But Abhay, is access the only reason why the…
Abhay Gandhi
See, one of the products also has multiple indications. It also depends on where a company may or may not focus. I cannot speak for anybody else. But our focus will be on growing both awareness as well as usage of our product in that indication. So, waiting to get to market and then we will see whether we can grow the market as well.
Anubhav Agarwal
Sure. Very clear. One, just some clarity on the other expense question which I asked. Let’s say, when you include the milestone payment that you paid for Fibromun, where would you capture it? Would it be captured in the R&D expense, or would it be captured in the other expenses?
C.S. Muralidharan
No, it’s part of — not part of other expenses. It is part of the balance sheet item.
Anubhav Agarwal
Part of the balance sheet item. But have you paid anything for it so far?
C.S. Muralidharan
So, we’ve provided for it based on the contract.
Anubhav Agarwal
Okay. Sure. Thank you.
Operator
Thank you. The next question is from Vivek Agarwal from Citigroup. Please go ahead. Vivek? Vivek, please go ahead with the question. Vivek, can you…
Vivek Agrawal
Hello?
Operator
Yes, please go ahead, Vivek.
Vivek Agrawal
Yeah. Sure. So, my question is related to your obesity molecule GL0034, right, you presented the Phase 1 data in June 2023 and now you post the Phase 2 trials in 2025, right? So, it’s more than two years and the gap seems to be substantial, right? So, just trying to understand why there is a big gap of two years, either you lack confidence in the asset or are you looking to out-license the products to any big pharma to take it forward? So, how to look at this asset? Thank you.
Dilip Shanghvi
No, I think we are very excited. I don’t know whether you’ve kept track, but otherwise, we’ve been consistently presenting the clinical outcome data both in healthy subjects as well as in patients. And I think we believe that we have a very, what I would call, best-in-class product. There is a certain amount of delay in terms of starting the large Phase 2 study, but we hope that we will be able to make-up as — during the conduct of the study.
Vivek Agrawal
Understood, sir. And sir, is it also fair to understand that your R&D spends are expected to move up substantially once you start the Phase 2 trial of this particular molecule, or irrespective of this particular molecule, we should expect R&D spend to go up substantially and to go up in the 8%, 9% kind of range?
Dilip Shanghvi
Yeah, we will cover it in our guidance.
Vivek Agrawal
Okay, sir. Thank you.
Dilip Shanghvi
Thank you.
Vivek Agrawal
That’s it from my side.
Dilip Shanghvi
Thank you.
Operator
Thank you. Next question is from Saion Mukherjee.
Saion Mukherjee
Yeah, hi, thanks for taking my question. Sir, my first question is the intangible assets under development that we see has risen quite a lot in six months. So, can you explain what is driving this?
C.S. Muralidharan
So, this increase in the intangible assets [Phonetic] development, as I just said now, is for the Fibromun product which we have contracted licensed from Philogen.
Saion Mukherjee
Understood. And my second question is on the psoriatic arthritis indication for ILUMYA. Would this require approaching rheumatologists separately? I mean, I understand that — I mean, do you need to make any additional investments for that indication?
Abhay Gandhi
So, we will definitely have to cover the rheumatologists. Now, we are still trying to figure out how. So, we — I don’t have a complete fix on what will we need to do. We still have time, but it’s work-in-progress. But yes, we will have to cover the rheum segment definitely.
Saion Mukherjee
Okay. But is it possible, sir, to sort of license-out or work with some existing player in that segment?
Abhay Gandhi
I don’t think whether — it will be necessary. I think on our own, we’ll be able to do a good job.
Saion Mukherjee
Understood. Okay. Thank you.
Operator
Thank you. Next question is from Rahul Jeewani from IIFL Securities. Please go ahead.
Rahul Jeewani
Yeah. Thanks for taking my question. Sir, the sequential growth which we saw in the U.S. business, so apart from specialty and Revlimid quarter-on-quarter growth, was there any other driver which led to the growth in the U.S. business on a sequential basis?
Abhay Gandhi
So, I think, in more ways than one I have answered the question, but the last way I can attempt is, year-on-year, the generic business without Revlimid has shown growth, but quarter-on-quarter, it’s a small decline.
Rahul Jeewani
Okay. So, I was just trying to check that whether there were any one-off NBO opportunities sitting for us in the U.S. generic business this quarter. So, that wasn’t the case, I believe?
Abhay Gandhi
I don’t think so.
Rahul Jeewani
Sure, sir. Sure. And the second question which I had was on the domestic business. So, can you talk about your rep expansion plans for the domestic market, given that, let’s say, a year back, we had added almost 1,000 new reps to the domestic business. So, what are your rep expansion plans going forward? Thank you.
Kirti Ganorkar
I think — yeah, as shared in the past is, like, we have expanded our field force, and today, we have 14,000 people on-the-ground was promoting product to the doctors. So, about future plan, we can’t comment it, but whatever expansion we have done in the past, I’m thinking that it is helping us to grow faster than the market.
Rahul Jeewani
Sure, sir. So, sir, just a follow-up on that. So, do you think that the existing field force which we have, that can continue this volume-led outperformance for us in the domestic market, or let’s say, when do you anticipate the next round of expansion happening on the rep side, even if you are not willing to call out the exact number as such?
Kirti Ganorkar
No, that’s what I said. We can’t disclose our strategic plan when we want to expand its [Phonetic] business. These are the calls we take during our budget schedule [Phonetic].
Rahul Jeewani
Sure, sir. Thank you. That’s it from my side.
Operator
Thank you. The next question is from Madhav from Fidelity. Please go ahead.
Madhav Marda
Yeah, just two questions. First one was on the PsA indication, in case, we get the favorable Phase 3 data in H2 CY ’25, what could be the earliest launch for the PsA indication for ILUMYA?
Abhay Gandhi
So, the attempt always is that, whether it’s a launch of a new product or a new indication, I mean, you can only maximize your return if you’re able to launch immediately after receiving it. So, we will always attempt to do it as soon as we get the approval.
Madhav Marda
Sorry, my question was that in case the Phase 3 data is favorable, what’s the time gap between the Phase 3 data readout and the approval? Is there like a — is it like six months or 12 months before that happens, or the approval…
Abhay Gandhi
Direct [Speech Overlap] when the FDA will approve.
Madhav Marda
Yeah. In case the Phase 3 is favorable, yeah.
Abhay Gandhi
No, we will launch as soon as we get an approval in the new indication. And as I said — like I said for another product which was asked, it will be a matter of a of a few weeks and not a few months.
Madhav Marda
Okay. Sure. Okay. And the second question was on the staff cost. In the first-half, if I have it right, it grew 3%, 4% only year-over-year. So, do we expect that sort of trend to continue for rest of the year, or do we expect some acceleration in the staff cost spending? Thank you.
C.S. Muralidharan
As such, we do not expect any material movement in the staff cost.
Madhav Marda
Got it. Thank you.
Operator
Thank you. The next question is from Naresh Suthar from SBI Life Insurance Company. Please go ahead.
Naresh Suthar
Yeah. Thank you for taking my question. Sir, when we — when Taro used to announce results, the R&D cost was around $60 million, $65 million at that time. So — and we have seen so many quarters, they have not done good in terms of the U.S. sales which is good — which is predominantly derma portfolio. So, is there any thought process wherein we want to reduce the R&D significantly for Taro?
Dilip Shanghvi
Is your question — is the R&D to be reduced for Taro?
Naresh Suthar
Right.
Dilip Shanghvi
Now we have to look at the overall R&D investment. We can’t look at separately, we can’t run two separate businesses, no. It’s now part of Sun. So, we should at look at the holistic R&D capability and R&D spend.
Naresh Suthar
So, my question was also related to whether the reduction in the R&D guidance includes some part of this rationalization in of R&D, because the portfolio itself was not growing good and foreseeing competition every quarter before we take-over.
Dilip Shanghvi
I don’t think your assessment and our understanding is correct. Our understanding is that the new product that Taro used to file and launch justified the money that was spent. But there was a steep price cut across other products, which was made up by this, but the overall rate of decline was significantly faster compared to the other products that we had in our portfolio.
Naresh Suthar
Okay. Understood. Thank you.
Operator
Thank you. Next question is from Neha Manpuria from Bank of America. Please go ahead.
Neha Manpuria
Thanks for taking my follow-up. My first question is on M&A. Given that, that’s been a core part of our strategy in building out the specialty pipeline so far, just wanted to get your sense on the environment today for specialty assets in the U.S. We’ve heard about the biotech funding fronts, big pharma is sort of looking at assets given there are — they’re sort of considering the R&D. Is it more difficult to get specialty assets for acquisition? And is that the reason for us becoming more aggressive in terms of building our own clinical capabilities? Just wanted to understand the long-term pipeline strategy for the specialty business.
Dilip Shanghvi
So, I think, the concept [Phonetic] of the clinical capability is more a function of at which stage we are able to or actually decide to license a product. If we decide to license a product which is, let’s say, completed Phase 3, then we don’t have a big asset, I mean, organization. If we license a product in Phase 2 or earlier, then we will need an organization, which can bring the product to market from Phase 2. So, it’s all a — and our sense is that it’s better for us to also look at a mix of products which are close to market, or also products that we can develop on our own.
Neha Manpuria
And sir, is it becoming more difficult for us to get, let’s say, near commercial products for acquisition in the existing focus areas that we have, ophtha, derma, oncology. Is that the sense that you get when you look at the market, M&A market?
Dilip Shanghvi
I mean, actually, I have no historical context. So, I can’t compare that 10 years back, it was easier and now it is difficult. But I don’t see a situation where if we are interested in an asset. So — and since our area of focus is relatively narrow, there are too many competing potential leaders.
Neha Manpuria
Understood. Okay. That’s helpful. And my second question is on ILUMYA, because ILUMYA prescription traction continues to be very good. Obviously, we had skepticism about biosimilars impacting that we have another biosimilar launch coming next year. What’s essentially driving the growth in ILUMYA prescription? And do you think despite these biosimilar launch, we could continue to maintain the growth momentum in ILUMYA prescription?
Dilip Shanghvi
I would — I mean many factors go into it. But at the end-of-the day, it’s about execution on the strategy, and it’s a multi-factorial product cell. It’s not an easy cell. And I think we’re able to execute on multiple fronts to keep that engine moving.
Neha Manpuria
And you don’t think another biosimilar in one of the larger — other large products, sort of, impact ILUMYA prescription growth?
Dilip Shanghvi
So, to be perfectly honest, I mean, we are in the overall market, a relatively small player as compared to the big ones. I think any biosimilar will go after the big fish, and not necessarily where the space that we are playing. So, I guess, to that extent, I mean, we are relatively insulated as compared to the bigger products.
Neha Manpuria
Understood. Okay. No, that’s helpful. Thanks.
Dilip Shanghvi
And one more issue, you need to keep in mind is that the overall penetration of biologics in the market is also relatively low. So, with biosimilars, we also expect the penetration to go up.
Neha Manpuria
Fair enough. That’s a good point, sir. Thank you so much.
Operator
Thank you. Next question is from Gagan Thareja from ASK Investment Managers. Please go ahead.
Gagan Thareja
Yeah, good evening. I hope, I’m audible. Hello?
Dilip Shanghvi
Yes.
Gagan Thareja
Yeah. Sir, the first question is, Taro comparable quarter last year would have been consolidated at 80%, and this year, it’s fully consolidated. Would that roughly add $25 million to $30 million of sales even if Taro sales wouldn’t have grown year-on-year, simply because of the additional consolidation?
C.S. Muralidharan
So, as part of the transaction, Taro has become part of Sun and is increasing our overall U.S. sales [Speech Overlap]. Earlier, we were getting separately the Taro numbers.
Dilip Shanghvi
They were giving separate numbers.
C.S. Muralidharan
So, now, it is — we have — since no more public company, part of the Sun, we are just showing the overall net sales of the U.S. business, which includes Taro.
Gagan Thareja
No, I get that. But in principle, I’m simply talking about the arithmetic, a 20% extra consolidation would have added to sales, assuming that there is no precipitous drop in Taro sales at all?
Dilip Shanghvi
No, there is no impact on the top-line post consolidation, because as a subsidiary, we were capturing the top-line. At the end, we were providing for minority interest in the profit.
Gagan Thareja
Okay. I get it. Second question is on NIDLEGY and ILUMETRI and ILUMYA in China, is it possible to give some insight into how these have evolved and developed?
Dilip Shanghvi
No, we do not give country-specific sales detail. Broadly, we think — I mean, overall, looking at the offtake as well as the projections we are getting from our partner in China, we think that the product is doing quite well.
Gagan Thareja
And sir, final one, on the post-grant review which went in favor of Incyte on Patent 335. On the legal document, pertaining to that, they seem to indicate that they would be looking for a higher royalty post, if there is an approval for your product. Do you see a circumstance where payments — royalty payments will be higher than what you had previously anticipated, and therefore, the overall profitability on the product could be different from an initial base case?
Dilip Shanghvi
You have access to information, which I don’t have. So — because I haven’t seen any disclosure from Incyte, which says that they are expecting a higher royalty.
Gagan Thareja
No, sir. This is just the transcript of the District Court New Jersey hearing on this matter in July.
Dilip Shanghvi
No, since the matter is subdued, at this point of time, we are not responding to specific questions.
Gagan Thareja
Okay. Thanks.
Dilip Shanghvi
Thank you.
Operator
Thank you. Next question is from Saion Mukherjee from Nomura. Please go ahead.
Saion Mukherjee
Yeah, thanks for the follow up. Sir, I remember, sometime back, you had mentioned about the regulatory approval on some of your complex products on the generic side in the U.S. There were uncertainties in terms of the regulatory guidelines which were delaying things. In the recent past, we have seen some complex generics getting approved. Has the landscape improved? And to that extent, how do you think about the pipeline for Sun Pharma?
Abhay Gandhi
I personally don’t recall any such comment or disclosure in any of our calls. As we said…
Dilip Shanghvi
No, we’ve indicated that there are products for which there is lack of clarity from a regulatory point of view. I think for specific product, there would be guidances, which will help. And we see an effort by the agency to work towards clarifying and sharing specific guidances, so that industry has a greater visibility on the process to follow for approval of those products.
Saion Mukherjee
Right, sir. Would you like to comment how does it impact Sun? I mean, should we therefore mean that the chances of you sort of crossing the hurdle on the regulatory front is much more now?
Dilip Shanghvi
No, I think, it’s very difficult to give non-specific response, but our view is that anything which has greater clarity for industry is always helpful for bringing a generic product to the market only.
Saion Mukherjee
Okay. And sir, my second question, if you can respond, like, on the GLP-1 opportunity, both from the regulated and from an emerging market perspective, how should we think about that and Sun’s preparedness to address that opportunity?
Dilip Shanghvi
No, I think, we are very excited. Only issue is, how fast can we bring the product to market, and what kind of clinical outcome benefit we are able to show while the product is in registration. That is what will ultimately help us in terms of working towards getting a fair share of the product globally.
Saion Mukherjee
Understood, sir. And see, the emerging market opportunity because you’re present, have a footprint in most of the markets, the key markets. So, you expect that to unfold over the next, say, two, three years for you, I mean, much ahead of the regulated markets?
Dilip Shanghvi
Currently, the trial is being done in such a way that we will get approval in regulated and emerging market in a phased manner, but starting with the regulated market. If there is a change in the strategy, we will share that with you. But as on today, that is the approach.
Saion Mukherjee
Understood.
Dilip Shanghvi
And also, another thing which I’m sure you’re aware is that some of the current GLP-1s will start losing patent protection in emerging market much earlier than the regulated market.
Saion Mukherjee
Yeah, sir. Thank you.
Dilip Shanghvi
Yeah, thank you.
Operator
Thank you. Next question is from Ankush Mahajan from Axis Securities. Please go ahead.
Ankush Mahajan
Sir, congrats for a good set of number. Sir, I’m just looking at, sir, a very good set of number for the specialty, there is a 7.5% growth on Q-on-Q basis also. So, if I, sir, take a two of — two divisions, like, one is the U.S. market and other is other market. So, can we say, sir, that other market is growing faster for the specialty and still there is a scope that we are looking for the new geographies to enter for the specialty?
Abhay Gandhi
You’re setting my goals for next year.
Dilip Shanghvi
I think he’s trying to understand the split between U.S. and non-U.S. [Phonetic].
Abhay Gandhi
So, I can only speak on the U.S. business. And I think there, as I said earlier, most of our key products, we have grown level on, as you know, this quarter is always a softer quarter. So, I believe that Q3, given that product will come up to where it should be, because that’s traditionally a big quarter for that product. So, I think, I’m personally confident that we can continue to grow our specialty business in the U.S.
Ankush Mahajan
Thank you, sir. Thank you.
Operator
Thank you. Next question is from Anubhav Agarwal from UBS. Please go ahead.
Anubhav Agarwal
Yeah, guys. And just last question from me. Yeah, just on the ramp-up of the specialty portfolio. So, we have derma products, then we added derma-oncology products. So, just trying to understand, how you’re thinking about the other oncology products, which are not derma-onco? And what about ophthalmic? So, that’s one set of question.
Second set of question is, thereby, you mentioned in the press release that you want to leverage your strong cash position to strengthen pipeline portfolio. So, largest deal you have done is close to $600 million when we acquired LEQSELVI. Are you okay acquiring a platform with a broader thing, or you still want to go drug-wise in these three areas, or you want to expand the scope? Can you give some broad comments here?
Dilip Shanghvi
No, I think our approach to acquisition is that we need to find a way to manage that business much better than the current owner and it needs to help us — strategically help us grow our top-line and bottom-line in a strategic kind of way. So, that will continue to remain our priority and focus. I don’t want to take a view about the size of the product or the size of the market, because I think it’s better for us to play in a market in which we compete for products which are not aggressively competed by big pharma. So, we have a relatively small subset, because we are a small company and we need to recognize and reflect that in our action and plan.
So — and your question as to whether we will get into pure oncology business. I think, as on today, that is not the intention. We will remain — because the moment we get into, let’s say, first-line breast cancer or head-and-neck cancer or anything, we then end-up competing with all large companies in the world and that’s where we will not be able to compete.
Anubhav Agarwal
So, the — and how about ophthalmology? So, we have a dry-eyed drug, but what about the other areas in ophthalmology?
Dilip Shanghvi
No, I think we continue to look at opportunities which can enhance our basket in ophthalmology. And we are very disciplined about our acquisition approach, is that we don’t get emotionally committed to any product. So, unless and until it makes business sense, we don’t approve this. We haven’t unfortunately been able to identify something which is both exciting and something that we think will help us create long-term value.
Anubhav Agarwal
So, just a very naive question, but in dermatology, you think, let’s say with the current pipeline that you have it and the molecules that you’re thinking about it, can this be ultimately, not putting a timeline, that if you stay in derma and oncology — or derma-oncology segment, can you be like three times, four times of the size what you are today, just staying in with this derma and derma-oncology of therapy?
Dilip Shanghvi
I mean, you’re talking of my desire or what we wish to disclose? [Speech Overlap] Because I think, as a company, we don’t make long-term projections. But I think if we are playing in this field, it is with a view to become successful. And success means different things in different businesses. And for us to be successful, we will have to gain scale in specialty, that there is no confusion. But it’s difficult for us to commit timelines as well as this, because we — otherwise, it will end-up creating unnecessary pressure for us to do transactions.
Anubhav Agarwal
Yeah, Dilip bhai, the question was not on timeline, actually, I put it wrongly, sorry. The question was simply that, does the derma and derma-oncology in terms of molecules that you want to target that you do not want to, let’s say, compete directly with big pharma, does the space has so much potential that you can keep launching and becoming three times, four times eventually? That was the essence of the question.
Dilip Shanghvi
I think if you look at our current pipeline, we have a product — oral product which we are developing, or Phase 2, for psoriasis, same product we are also developing for atopic dermatitis. So, these are all fairly large market with potential to do much better than what — and augment our relationship with the doctors in the market.
Anubhav Agarwal
Sure. Thank you very much.
Dilip Shanghvi
Thank you.
Operator
Thank you. Next question is from Sudarshan Padmanabhan from JM Financial. Please go ahead.
Sudarshan Padmanabhan
Yeah. Sir, my question is a little bit more on the house-keeping side. The first-half, we have seen our gross margin significantly higher than expectations. I just wanted to know would we be looking at, say, for the full-year, given that the specialty is doing well, the gross margins will trend more towards 79%, 80% as compared to what we initially thought?
C.S. Muralidharan
So, we are not giving any specific guidance on gross margins.
Dilip Shanghvi
Yeah, I think, even in the past, people have said whether when will your EBITDA reach 30%. I think it’s — our focus is to find a way to do our business in a way whereby our EBITDA and profitability improves, but that’s not the intention. Intention is to grow both top-line and bottom-line, and run business more efficiently.
Sudarshan Padmanabhan
Sure, sir. And with the R&D spend probably coming back in the second-half, I mean, should we be looking at more or less, margins at around 28%, which is what you initially guided for or do we see that the R&D spend can be still a little slower, kind of, giving some kind of flip to the margins in the second-half?
C.S. Muralidharan
So, I think, we have not guided for any margins as such. So, we refrain to comment anything based on the margins for H2.
Sudarshan Padmanabhan
Sure. I’ll join back in the queue.
Dilip Shanghvi
Yeah, thank you.
Operator
Thank you very much. That was the last question in queue. I would now like to hand the conference back to Dr. Abhishek Sharma for closing comments.
Abhishek Sharma
Thank you, everyone, for joining us at this late hour. If any of your questions have remained unanswered, you can reach-out to me or Investor Relations team. Thank you and good evening.
Dilip Shanghvi
Bye.
Operator
[Operator Closing Remarks]