Sun Pharmaceutical Industries Limited (SUNPHARMA) Q2 FY23 Earnings Concall Transcript

Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) Q2 FY23 Earnings Concall dated Nov. 01, 2022 

Corporate Participants:

Nimish Desai — Investor Relations

Dilip S. Shanghvi — Managing Director

C. S. Muralidharan — Chief Financial Officer

Kirti Ganorkar — Head (India Business)

Abhay Gandhi — Chief Executive Officer (North America Business)

Analysts:

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Prakash Agarwal — Axis Capital Limited — Analyst

Neha Manpuria — Bank of America Corporation — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Sriraam Rathi — BNP Paribas — Analyst

Tarang Agarwal — Old Bridge Capital Management Pvt Ltd. — Analyst

Vivek Agarwal — Citigroup Inc. — Analyst

Krish Mehta — Enam Holdings Pvt. Ltd. — Analyst

Damayanti Kerai — HSBC Bank USA — Analyst

Nithya Balasubramanian — AllianceBernstein Holding L.P. — Analyst

Kunal Dhamesha — Macquarie Group Limited — Analyst

Kunal Randeria — Neo AMA — Analyst

Sayantan Maji — Credit Suisse Group AG — Analyst

Surya Patra — PhillipCapital — Analyst

Harith Ahamed — Spark Capital Advisors India Private Limited — Analyst

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 Earnings Conference Call of Sun Pharmaceutical Industries Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nimish Desai. Thank you and over to you, sir.

Nimish Desai — Investor Relations

Thank you. Good evening and a warm welcome to our second quarter FY ’23 earnings calls. I’m Nimish from the Sun Pharma Investor Relations team. We hope you have received the 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, Managing Director, Mr. C. S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO of North-America and Mr. Kirti Ganorkar, CEO of India business.

Today the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for the ease of discussion we will look at consolidated financials. Just as a reminder, this call is being recorded and a replay will be available for the next few days. The call transcript will be — will also be put up on our website shortly. The discussion today might include certain forward-looking statements and this must be viewed in conjunction with the risks that our business faces. [Operator Instructions]

I will now hand over the call to Mr. Shanghvi.

Dilip S. Shanghvi — Managing Director

Thank you, Nimish. Welcome and thank you for joining us for this earnings call after the announcement of financial results of the second quarter FY ’23. Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR180,092 million up 13.1% year-on-year. Most of our businesses witnessed good growth led by global specialty business, India and emerging markets. For Q2, our global specialty revenues were up 27.5% year-on-year to about $201 million. Ilumya, Cequa and Winlevi were the growth drivers for the quarter. Abhay will give you more details on the specialty business later.

I will now hand over the call to Murali for discussion of the Q2 financial performance.

C. S. Muralidharan — Chief Financial Officer

Thank you, Mr. Shanghvi. Good evening everyone and welcome to all of you. Our Q2 financials are already with you. As usual, we will look at key consolidated financials. Gross sales for Q2 are at INR108,092 million by 13.1% year-on-year. Material cost as a percentage of sales was 25.1% lower than Q2 last year due to higher specialty sales. Staff cost stands at 18.1% [Phonetic] of sales. While staff cost in percentage sales were lower over Q2 last year, the increase in absolute values attributed towards merit increase, consolidation of the Alcami, business and expansion of the sales force in India. Other expenditure stands at 28.1% of sales higher than Q2 of last year. The increase in other expenditure is attributed towards higher selling and distribution expenses on consolidation of the Alcami business.

As indicated in our past earnings call, the expenses are seeing an increasing trend across all the markets as we reach full normalization. Forex loss for the quarter was INR2,415 million compared to a loss of INR764 million for Q2 last year. This was driven by adverse movement across various currency pass during the quarter. EBITDA for Q2 was at INR29,565 million, including other operating revenues up by 12.4% over Q2 last year, with EBITDA margins at 27%. We have reported strong margins despite rising expenses.

Reported net profit for Q2 was at INR22,622 million, up 10.5% year-on-year compared to Q2 last year. Reported EPS for the quarter was at INR9.40 per shares.

Let me discuss the key movements versus Q1 FY ’23. Our consolidated gross sales were higher by about 1.6% quarter-on-quarter at INR108,092 million. Material cost at 25.1% of sales were lower than Q1 mainly due to product mix. Staff costs at 18.1% [Phonetic] of sales and other expenses at 28.1% of sales were lower compared to Q1 FY ’23. EBITDA for Q2 at INR29,565 million was higher by 2.5% compared to Q1 mainly impacted the forex loss of INR2,415 million in Q2 compared to a forex gain of INR1,457 million in Q1. EBITDA margin for Q2 was 27% compared to 26.8% for Q1. Reported net profit for Q2 at INR22,622 million, while higher on the net profit of Q1 by about 10%.

Now we will discuss the half-yearly performance. For the first half, gross of sales were at INR214,532 million, the growth of 11.6% over first half last year. Material cost by H1 was at 26.1% of sales lower than H1 last year, mainly due to higher specialty sales. Staff cost stands at 19% of sales higher than H1 last year, on account of annual merit increase, consolidation of the Alcami business and expansion of sales force in India. Other expenses were 28.4% of sales, higher than H1 of last year on account of higher selling and distribution expenses and consolidation of the Alcami business.

Forex loss for H1 was INR958 million compared to gain of INR37 million for the previous period. EBITDA for the first half was at INR58,409 million, a growth of 7.2% over the first half last year, with resulting EBITDA margin of 26.9%. Net profit by H1 was at INR43,231 million up 7.4% over adjusted net profit of H1 last year. As of 30 September 2022, net cash was $1.6 billion at consolidated level and about $398 million in ex-Taro level. This has increased compared to 31 March 2022 as we had temporary borrowings to fund the settlement of Ranbaxy antitrust litigation of the U.S. which was announced in March ’22.

Let me now briefly discuss Taro’s performance. Taro posted Q2 FY ’23 sales $130 million, marginally lower over Q2 last year and net loss of $2.8 million. For the first half, sales were at $287 million up by 2.9% over H1 last year. Net profit for H1 FY ’23 was $11.3 million compared to $4.6 million in FY ’22. Taro’s financials include the consolidation of the Alcami business.

I will now hand over to Kirti Ganorkar, who will share the performance of our India business.

Kirti Ganorkar — Head (India Business)

Thank you, Murali. Let me take you through the performance of our India business. For Q2, the sales of formulations in India were INR34,600 million up 10.9% on like-to-like basis excluding COVID product sales of Q2 last year. On reported basis, the growth is 8.5% over Q2 last year. For the first half, the sales were INR68,471 million up 11.9% on like-to-like basis excluding COVID product sales of H1 last year.

India formulations sales accounted for about 32% of the total consolidated sales. There were no COVID product sales in Q2 FY ’23. In terms of core business growth, we continue to witness good growth across multiple therapy areas in chronic and the sub-chronic segment for the quarter.

For Q2, the therapies which did well for us includes CNS, gastro, gynaecology, urology, respiratory and ophthalmology. We continue to outperform the average industry growth, which has led to increase in our overall market share. As per AIOCD, AWACS September ’22 MAT data, we are ranked number 1 in India and our market share has improved by about 0.5% over the last one year for approximately 8.6%. As per SMSRC MAT August ’22 report, we are number 1 brand by prescription share. Though Sun being a specialty company with limited coverage with GPs, we have become number 1 in terms of prescription share. In addition, Sun has a leadership position across 12 doctor specialties.

For Q2, we have launched 32 new products in Indian market. We continue to increase our reach and access. We are also focused on continuously increasing our share across key therapy areas and improving overall productivity.

I will now hand over the call to Abhay.

Abhay Gandhi — Chief Executive Officer (North America Business)

Thank you, Kirti. I will briefly discuss the performance highlights for U.S. businesses. For Q2, our overall sales in the U.S. grew by about 14.1% over Q2 last year, $412 million. The main driver of growth was the specialty business driven by Ilumya, Cequa and Winlevi. U.S. accounted for over 30% of consolidated sales for the quarter. Specialty sales have also grown compared to June ’22 quarter. With new indications expected in the future, the current growth trajectory of Ilumya would be sustained. With, improving access coupled with geographical expansion into other market, we expect Winlevi to continue to grow.

Our rep activities and doctor visits in the U.S. have a reason to pre-COVID levels. Globally in all the new geographies where we have launched our specialty products, we have received good response and have done well. Let me now update you on our U.S. generics business.

While the U.S. generic business continues to be competitive as ever, the Sun ex-Taro generics business has recorded growth on a year-on-year basis. This growth is driven by a combination of new launches, market share gains for existing products and better supply chain management. For quarter two, we launched three new generic products in the U.S. market.

I will now hand over the call to Mr. Shanghvi.

Dilip S. Shanghvi — Managing Director

Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our formulation sales in emerging markets where at $259 million for Q2 up by about 6.7% year-on-year. There has been a significant volatility in various emerging market currencies which has impacted our reported growth. The underlying growth in constant currency terms was about 13%. Emerging markets accounted for about 19% of total sales for Q2.

Formulation sales in rest of the world markets excluding U.S. and emerging markets were $181 million in Q2 lower by around 3.8% over Q2 last year. Growth was impacted by adverse currency movement. ROW markets accounted for about 13% of consolidated Q2 revenue. API sales were — for Q2 were at INR4,730 million up by about 8.5% over Q2 last year.

We continue to invest in building R&D pipeline for both the global generics and specialty business. R&D efforts are ongoing for the U.S. emerging market, ROW markets and for India. Consolidated investments towards R&D for Q1 FY ’23 was INR4,608 million, 4.3% to sales while for Q2 FY ’23, it stands at INR5,710 million, 5.3% to sales, and this compares to INR5,364 million, 5.6% of sales for Q2 last year. We expect the R&D spend to gain momentum in coming quarters. This quarter, the total R&D spend for specialty products was 22% of our total R&D spend.

Our current generic pipeline for the U.S. market includes 92 ANDAs and 13 ANDAs awaiting approval with the U.S. FDA. Our specialty R&D pipeline includes four molecules undergoing clinical trials. Our R&D investments have increased compared to Q1 and we expect continued ramp-up of the same. R&D investments are likely to increase both for our specialty and generic businesses.

With this, I would like to leave the floor open for questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [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

Yes. Thanks for the opportunity. Sir, just on the U.S. generics business first, was the pace of ANDA approval that has piling has kind of reduced over the past couple of quarters, and despite that and even excluding specialty portfolio as well as Taro scenes, the U.S. generic sales backing even in USD term. So, how sustainable is this growth momentum given that the price erosion is very much ongoing and our pace of approval/filing is kind of slowing down. It’s my first question.

Abhay Gandhi — Chief Executive Officer (North America Business)

So, I would not say the pace of approvals is going down. I think in the last two, three years, we have made a very conscious efforts to look at the R&D portfolio and focus on only certain larger opportunities of products where we feel that we can hold on to a certain sensible level of pricing over the medium-term if not the long-term. So, I think it is a strategic decision to focus on what products we wish to launch rather than focus on just the sheer number of products. So, it’s a conscious call that we took.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay, sir. Just on the revenue, do you guys have settlement taking place? Any queries pending at our end?

Abhay Gandhi — Chief Executive Officer (North America Business)

I think we are on track to meet our obligations and launch.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Great. And just sir lastly on the India business, the pace of launches have been quite aggressive over the past few quarters, 30 launches in 1Q, 2Q or — 30 in 2Q, 20 above in 1Q, so is there any rethink in terms of shift of focus on top brands to more growth-based goods?

Dilip S. Shanghvi — Managing Director

Launching new products is one of our growth levers, so what we’re focusing is that how do we increase the contribution of new products overall India business. And as you rightly pointed in Q1, Q2, you have seen the large number of new product introduction because we have launched many anti-diabetic products and their combinations. So that is also helping us to grow the CBD business.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

All right, sir. That’s all I have. Thank you, sir.

Operator

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

Prakash Agarwal — Axis Capital Limited — Analyst

Yeah. Hi, this is Prakash. Good evening to all. Hope I am audible.

Abhay Gandhi — Chief Executive Officer (North America Business)

You are very clear, Prakash.

Prakash Agarwal — Axis Capital Limited — Analyst

Yeah. Thank you. Sir, first question on one of the core assets on Ilumya for psoriasis arthritis. So, primary endpoint showing in March ’23, given the R&D run rate has been slower than expected. Are we on track for the primary endpoints for psoriasis arthritis?

Dilip S. Shanghvi — Managing Director

So, can you repeat the question I missed some?

Prakash Agarwal — Axis Capital Limited — Analyst

Sure, sir. So, I’m asking as per clinical trial’s data your primary endpoints for psoriasis arthritis clinical trial that has been done that is expected to end by March ’23. So question was that given the run rate of R&D, is this slower than expected versus guidance also? Are we on track to achieve that primary endpoint? There is an update to that.

Dilip S. Shanghvi — Managing Director

I am confused about your use of terminology primary endpoint. Basically what you’re asking is whether we’ll meet timelines or not is what you are saying.

Prakash Agarwal — Axis Capital Limited — Analyst

That’s right. That is right.

Dilip S. Shanghvi — Managing Director

Because in context of clinical trial, primary endpoints means whether I will achieve the therapeutic efficacy based on which we will achieve the approval or not. So, no, I think we’ve in the past also indicated that there has been some challenges for us in the recruitment, especially in some of the geographies which are disturbed because of political uncertainty. So, we haven’t worked out. We are in the process of working out the new schedule and timeline this year only.

Prakash Agarwal — Axis Capital Limited — Analyst

And what is the size of the plant, sir? Recruitment etc.?

Dilip S. Shanghvi — Managing Director

So, I think the trial size and everything, I don’t have the detail but that wherever you got the details about the clinical plan, that would have the number of subjects and broad clinical trial design.

Prakash Agarwal — Axis Capital Limited — Analyst

It does. So, it says 472 patients enrolled, so I am just trying to understand what is the target that you have? I mean is it like 3 times higher which is yet to achieve or it is nearing the target or?

Dilip S. Shanghvi — Managing Director

No, I explained to you that we are in the process of working out the new timelines, so I don’t want to respond to a question with incomplete information and create unnecessary expectations.

Prakash Agarwal — Axis Capital Limited — Analyst

No worries, sir. Okay. Understood. And secondly is again related. So, as you are — again mentioned that R&D is expected to scale up while in the last few quarters, we have seen that R&D because of obviously external reasons you mentioned. How do we see margins playing out once the R&D starts coming up? Is there any color to that given especially the scale up in specialty has been pretty solid, so would the scale up would be able to offset the R&D increase in cost or — so how — just some color on margins would help from that context.

Dilip S. Shanghvi — Managing Director

So generally we don’t guide for what you call EBITDA and margins but broad guidance is that our focus would be to find a way to improve our overall profit in it. And you would have seen over the last few quarters is that we are consistently improving our overall profitability and EBITDA and that effort will continue. We see opportunities to be able to do that.

Prakash Agarwal — Axis Capital Limited — Analyst

Okay. And lastly, within seasonally Q3, Q4 are stronger for the specialty business, is that understanding correct?

Abhay Gandhi — Chief Executive Officer (North America Business)

It depends on the product. So, if you look at some of the derm indications your understanding is correct. But if I — but we also have products which are non-dermatology…

Prakash Agarwal — Axis Capital Limited — Analyst

Cequa, yeah.

Abhay Gandhi — Chief Executive Officer (North America Business)

So there it does not.

Prakash Agarwal — Axis Capital Limited — Analyst

Okay. Got it, sir. Thank you so much and all the best.

Operator

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

Neha Manpuria — Bank of America Corporation — Analyst

Yeah. Thanks for taking my question. Abhay, my first question is on Ilumya. I think in the opening comments you mentioned that the current growth trajectory for Ilumya can be maintained with addition of new indication. But given the delay in psoriatic arthritis trial, how confident are we of growth in Ilumya just for psoriasis till the time this additional indication, we get approval for that and launch it?

Abhay Gandhi — Chief Executive Officer (North America Business)

Neha, we see a significant opportunity and headroom to continuing to grow even in the existing indications so.

Neha Manpuria — Bank of America Corporation — Analyst

Okay. So, even without psoriatic arthritis, we should be able to maintain the growth.

Abhay Gandhi — Chief Executive Officer (North America Business)

That’s correct.

Neha Manpuria — Bank of America Corporation — Analyst

Okay. And my second question is on Winlevi. If I were to look at the prescription data, it does so moderation in the prescription trends in the last few weeks in Winlevi. Just trying to get up with the comment that you mentioned on increasing coverage. How are you reading that? Are you seeing — does the promotion rule off traction picking up with doctors. Any color there would be helpful.

Abhay Gandhi — Chief Executive Officer (North America Business)

Neha, wait for one more quarter and you will see that this is just a uplift that is not to be expected to go into the future.

Neha Manpuria — Bank of America Corporation — Analyst

Understood. Okay. So, I shouldn’t read too much in the slowdown that we’re seeing.

Abhay Gandhi — Chief Executive Officer (North America Business)

I’m personally not reading too much into it.

Neha Manpuria — Bank of America Corporation — Analyst

All right, sir. And last on gross margins. There seem to be a fair bit of expansion quarter-on-quarter and what drove this? I mean product mix, was it any specific regions with where we saw improvement in gross margins? what’s contributing to this?

Dilip S. Shanghvi — Managing Director

Neha, we already said that it is driven by the higher specialty revenues and also product revenue to some extent.

Neha Manpuria — Bank of America Corporation — Analyst

On a quarter-on-quarter basis also, sir?

Dilip S. Shanghvi — Managing Director

Yes, yes, yes.

Neha Manpuria — Bank of America Corporation — Analyst

Okay, sir. Then, is it fair to assume that this level of gross margin is sustainable as specialty continues to grow?

Dilip S. Shanghvi — Managing Director

We will continue to maintain the efficiency in the business to maintain the margins, that’s what we said and we have been consistently lengthening our EBITDA margins last four, five quarters so.

Neha Manpuria — Bank of America Corporation — Analyst

Understood. Thank you so much, sir.

Operator

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

Sameer Baisiwala — Morgan Stanley — Analyst

Sir, thank you very much and good evening everyone. Sir, any update on how long especially given that FDA gave OAI status in August?

Abhay Gandhi — Chief Executive Officer (North America Business)

I mean my understanding broadly, Sameer, is that if you get an OAI then depending on the FDA’s expectation we will continue to address all the observations and remediation preferred. But most of the time they will revisit the facility before it becomes a VAI.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, okay. So that means potentially it can take a bit more longer than what we had thought?

Abhay Gandhi — Chief Executive Officer (North America Business)

That’s correct. With a OAI, it would take longer than what we had thought, yes.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Sir, second question is on Revlimid. Abhay, I got your comment but is it — the launch is expected in the current fiscal year, if you can clarify on that?

Abhay Gandhi — Chief Executive Officer (North America Business)

There are many ways to skin the cat, you are trying one more.

Sameer Baisiwala — Morgan Stanley — Analyst

It’s just that, Abhay, that there has only been market formation in a second way and we’ve not seen Sun then and hence the question, that’s all.

Abhay Gandhi — Chief Executive Officer (North America Business)

I mean all I will say is what I said earlier, we are on track as per whatever we have agreed to — with the innovator and fingers crossed.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Yeah. And final question is on Winlevi. I mean how is the progress with the reimbursement coverage? And for such products, I know it takes time but if you were to see one, two year ahead, what’s the kind of a peak coverage that you can achieve?

Abhay Gandhi — Chief Executive Officer (North America Business)

Sameer, frankly I don’t even know how to define peak coverage. What constitutes peak coverage, I don’t know. But definitely, you are, right. I mean it takes a little bit of time for the payers to start covering a product. We will see improvement, we are seeing improvement and it’s always work in progress. So, I’m pretty confident that more players will see the value that the prescriptions written by doctors are generating for them and help us to get the product on their formulas.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Maybe I can restate, it’s not peak but say a more mature, I mean — do such products hit 80, 90 or do they…

Abhay Gandhi — Chief Executive Officer (North America Business)

Oh no, I think 80, 90, you really should not even be expecting, it is not realistic, Sameer.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Much lower than that. Got it. Okay, thank you so much.

Operator

Thank you. The next question is from the line of Tauseef from BNP Paribas. Please go ahead.

Sriraam Rathi — BNP Paribas — Analyst

Yeah. Sriraam here. So, firstly on R&D spend that we are guiding for around 8% kind of R&D sales rep in the future. Currently we are more close to 5%. Sir, do we have visibility on the R&D expenses that in absolute amount it can go up by almost 50% on year-on? Because I wanted clarity because we have been guiding for this number but it continues to be around 5% for several quarters now.

Dilip S. Shanghvi — Managing Director

Yeah, I think you are right. Even though on absolute terms it is going up in percentage terms, it’s what in as per the guidance. So, I think we have guided that we expect the R&D spend in the next two quarters to go up.

Sriraam Rathi — BNP Paribas — Analyst

Okay, okay. Got it. And secondly on specialty like a $200 million sales, I mean is it possible to share if we are EBITDA-positive on getting now? Given you will thoroughly spend…

Dilip S. Shanghvi — Managing Director

We actually don’t, we don’t break down profitability by business.

Sriraam Rathi — BNP Paribas — Analyst

Okay. Because R&D spend is like less than 10% of specialty sales. So, I mean, any indication would be helpful, like whether we are making positive EBITDA or not, that’s it.

Dilip S. Shanghvi — Managing Director

Well, I mean I wish to help you. I can remember that’s why we are trying to give you as much information so that you can reconstruct. I think we really said that the reason why the cost of goods has gone down is because of the increase in the specialty business. So, I think we’re trying to help you understand without giving specific guidance.

Sriraam Rathi — BNP Paribas — Analyst

Okay. Got it. That’s helpful, sir. Thank you, sir.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead.

Tarang Agarwal — Old Bridge Capital Management Pvt Ltd. — Analyst

Hello, good evening. Three questions from me. One, if you could split the H1 FY ’23 India growth in volume price and new introductions. That’s one. The rest of two questions are related to specialty business. In speciality, just wanted to understand what is the kind of front end infrastructure that the business has created maybe in terms of number of reps, in terms of divisions is — some sense in that. And in terms of the target addressable prescribers, where are we? Have we probably reached 40%, 50%? Some shade on that would be helpful for us to understand [Technical Issues]

Dilip S. Shanghvi — Managing Director

Kirti will respond.

Kirti Ganorkar — Head (India Business)

I think you are asking for a level of retailing information that we generally won’t share because this information is not only for investors also potentially for competitors.

Tarang Agarwal — Old Bridge Capital Management Pvt Ltd. — Analyst

Okay. In both the questions, is it?

Kirti Ganorkar — Head (India Business)

For this, I am talking specific to India business, yeah.

Abhay Gandhi — Chief Executive Officer (North America Business)

I think the same really applies to the specialty business, we haven’t really given anything, number of sales force and all that.

Kirti Ganorkar — Head (India Business)

Support organization.

Abhay Gandhi — Chief Executive Officer (North America Business)

Support organization, so we really can’t answer that question.

Tarang Agarwal — Old Bridge Capital Management Pvt Ltd. — Analyst

Okay. Yeah, that’s it from me.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Vivek Agarwal from Citigroup. Please go ahead.

Vivek Agarwal — Citigroup Inc. — Analyst

Yeah. Many thanks for the opportunity. Sir, I have a question on the U.S. psoriasis biologic market and there are two part to the question. The first is what percentage of the population that is on the biologics required to get the drug administered in the medical setting? Or the sales administration is not a viable option for this patient population. Any quantitative color will be helpful here.

And the second part is when there are lot of sales administered drugs in the market like majority of the IL-23, IL-17 inhibitor and what are the factors or the reasons that are driving the patients to go for the drug administered in clinical for the medical setting? Thank you.

Abhay Gandhi — Chief Executive Officer (North America Business)

I mean the first part of the question if, you’re asking about the epidemiology, then I really don’t know what percentage of the population is on medically administered biologic. I don’t have that data. The second part is easier for me to answer because there are specific doctors who prefer to inject in the clinic so that’s the second dose or the third dose of the patients also happens in front of their eyes, and they are able to see whether the drug has any impact or not. So, there are many self-administered drugs, no doubt, but there is a certain value prop that a drug-like Ilumya brings in which doctor depreciate life and therefore they use it.

Vivek Agarwal — Citigroup Inc. — Analyst

Okay, sir. Understood, understood. Even the self-administered drugs are being injected or administered by the doctor in the medical setting, is it right understanding to predict?

Dilip S. Shanghvi — Managing Director

No, because most of the self-administered drugs will have in-house or at-home usage. It is possible that during the first visit may be a nurse administrator or somebody in the doctor’s chamber may teach the patient how to self-inject but subsequently, it will be at-home use.

Vivek Agarwal — Citigroup Inc. — Analyst

Okay. Thank you, sir. This is really helpful. Thank you.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.

Krish Mehta — Enam Holdings Pvt. Ltd. — Analyst

Hi. Congratulations on a great set of numbers and thank you for taking my questions. The first question I had was just if you could provide a broad directional view on Taro and meanwhile generics business in terms of if you assume this business kind of bottoming out. How we can view this going forward let’s say in the next one to three years? So, how would you think about this trajectory going forward?

Abhay Gandhi — Chief Executive Officer (North America Business)

So that Taro — beyond what Taro declares, I mean on the Sun calls we really don’t take any Taro questions.

Krish Mehta — Enam Holdings Pvt. Ltd. — Analyst

So would it be possible to provide I guess a broader commentary on the U.S. generics market in that sense in terms of if you see pricing bottoming out…

Abhay Gandhi — Chief Executive Officer (North America Business)

Sure. I mean overall, generic market I think it’s been a few years since I’m hoping to see the bottom. I have not. And I keep hoping but now it’s becoming like faint hope.

Krish Mehta — Enam Holdings Pvt. Ltd. — Analyst

Okay. Thank you for that. And my second question is on the specialty R&D. Given that it’s come down say in the last nine quarters from 26% to around 22% of your total R&D, what would be the kind of level to assume on a steady state on specialty R&D? Do we have a percent of total R&D?

Dilip S. Shanghvi — Managing Director

No, we will share with investors every quarter how much is the spend. In the past I think we’ve indicated that one of the reason why the spend has been lower is that clinical trial costs which were planned we were unable to execute on those plans. So. I think the idea is to find a way to increase and that’s also possibly the reason for the delta between our guidance and our actual spend.

Krish Mehta — Enam Holdings Pvt. Ltd. — Analyst

Okay. Thank you so much and good luck.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

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

Damayanti Kerai — HSBC Bank USA — Analyst

Hi. Thank you for the opportunity. My question is on other specialty brands Odomzo, Levulan, Cequa, etc. So can you update us on like how these products are performing in terms of having better market access or pickup, etc.?

Dilip S. Shanghvi — Managing Director

The product price, we haven’t given much of details in the past but for Cequa clearly, I think I must mention that despite the launch of Restasis generics. We’re pretty happy that we’ve been able to hold our own and actually grow the product in the current fiscal. And I think after Ilumya that would be our biggest product and therefore, I think that commentary I am sure would be useful to anybody on this call.

Damayanti Kerai — HSBC Bank USA — Analyst

So I was just asking from these products performance was at pre-COVID level. Are these products probably back to what we had before the pandemic? Just make some qualitative color will be helpful.

Dilip S. Shanghvi — Managing Director

So all three products have grown year-on-year. Whichever period you look at year-onyear or a half year to half year or quarter-on-quarter, all three products that you mentioned have grown.

Damayanti Kerai — HSBC Bank USA — Analyst

Okay. That’s helpful. My second question is on operating costs. So let’s say R&D which you mentioned would likely catch up with progressing of clinical trials for some products. How should we look at other pieces for the operating expenses because now you mentioned we have actually costs included there, then most of SM cost are back to pre-pandemic level. So should we assume 2Q numbers are broadly now the new cost phase or?

C. S. Muralidharan — Chief Financial Officer

So, the other expenses as you see in Q2 is somewhat level at which we are today. However, as we said that we are not giving any specific guidance on other expenses or margins, since it also depends upon the overall ramp-up we are having in the generics markets as the markets are normalizing.

Damayanti Kerai — HSBC Bank USA — Analyst

Okay. My last question is are you done with sales team expansion for India business or still going on?

Kirti Ganorkar — Head (India Business)

Yeah, yeah, we have done the expansion.

Damayanti Kerai — HSBC Bank USA — Analyst

Okay. So whatever target you had settle in, it’s now in-place and now focusing on ramping up the productivity.

Kirti Ganorkar — Head (India Business)

Correct.

Damayanti Kerai — HSBC Bank USA — Analyst

Okay. Sir, that’s it. Thank you.

Operator

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

Nithya Balasubramanian — AllianceBernstein Holding L.P. — Analyst

Thank you. I have two questions on specialty. The first one on Ilumya. How much of a threat do you believe Humira and Stelara biosimilars with respect to hit the market in 2025 most potentially? Second one is on Winlevi. I think in your one comment make us believes that the gross to net is quite high. So, do we view — you see that improving next year? How should we think about that?

Dilip S. Shanghvi — Managing Director

I couldn’t get the second question.

Nithya Balasubramanian — AllianceBernstein Holding L.P. — Analyst

The gross price to net price difference is quite tight. So in the…

Dilip S. Shanghvi — Managing Director

But I don’t think on any call we have spoken about the gross to net, so I don’t know how you got that number from.

Nithya Balasubramanian — AllianceBernstein Holding L.P. — Analyst

Part of your presentations has comments in their last earnings call, it’s actually helpful in doing some basic calculation and that makes us believe that gross to net is low. So do you see that improving and color on that would be helpful.

Dilip S. Shanghvi — Managing Director

I mean if they — I mean, what they have said really I am not aware, so I think, I would defer it to them. As far as I’m concerned, I mean we had a certain business case which we are trying to meet and beat and I think we are on track to do that. As far as the first part of your question on hitting the biosimilars, I think it’s too soon for me to comment. I mean we have done our own modeling, looked at various scenarios of what can and cannot impact but things in the U.S. unlike in Europe are pretty fluid as when it comes to the uptake of biosimilars, and it has clearly not been as quick as what you saw in Europe and as rampant. So how these things will pan out, I mean there is certain lack of clarity even on my part, and part of the overall branded industry as such. So, we have to always keep watching and keep re-calibrating our own strategies to meet those challenges if and when they arise.

Nithya Balasubramanian — AllianceBernstein Holding L.P. — Analyst

Thank you.

Dilip S. Shanghvi — Managing Director

Yeah.

Operator

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

Kunal Dhamesha — Macquarie Group Limited — Analyst

Hi. Thank you for taking my question. Couple of housekeeping question. Is there any PLI-related benefit in the quarter for us?

Dilip S. Shanghvi — Managing Director

Yes, it doesn’t concern the quarter. yeah.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Can you quantify?

Abhay Gandhi — Chief Executive Officer (North America Business)

We normally don’t quantify such items.

Kunal Dhamesha — Macquarie Group Limited — Analyst

But would it be material or?

Abhay Gandhi — Chief Executive Officer (North America Business)

In the overall scheme of revenue, I don’t think that revenue from operations, that’s a material earning.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Okay. And secondly, if I see on the cash flow treatment there is — on the provision side, we have some big breath our, so is it related to the Valsartan settlement that we did in quarter four?

Dilip S. Shanghvi — Managing Director

Yeah, you’re right that’s the settlement amount that have been settled, that’s why the downward.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Okay. And our trade receivable has also gone higher vis-a-vis March, any particular reason for that? Many parts of the geography from where it is coming?

Dilip S. Shanghvi — Managing Director

No, as our top line and overall business grown which you have seen in the grids. Our value perspective, I do agree that there will be some delay overall. And from number of days of increase at the group level which are looking at to further optimize.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Sure. And the second question is Ilumya. So we have been saying that it’s currently in the growth phase but is it primarily because of the break the economy certain channels in the U.S. market work out where we are benefiting.

Dilip S. Shanghvi — Managing Director

Kirti?

Kirti Ganorkar — Head (India Business)

I think doing well with the product in any geographies we’re dependent on one particular factor and it’s a combination of all things you know, launching a product in the right manner, sales, marketing, market access, medical. So, I think it’s not just one reason which makes our product secular and best sell. So, I would give credit to every department and function working together within the organization to really make the product grow.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Okay. And can you just help us understand our data exclusivity on Ilumya, till what year it runs, sir?

Dilip S. Shanghvi — Managing Director

Talking about the IP.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Yeah, the IP. Yeah, yeah.

Dilip S. Shanghvi — Managing Director

I mean we don’t exact number because there are many statements which would we have filed also which are not publicly-visible. So we don’t wish to give any specific guidance on up to which period we expect exclusivity. However, if the question is with in view to understand potential what you call competitive association for things like that and we still have a long time.

Kunal Dhamesha — Macquarie Group Limited — Analyst

Sure, sure. Thank you.

Dilip S. Shanghvi — Managing Director

Thanks you.

Operator

Thank you. The next question is from the line of Kunal Randeria from Neo AMA. Please go ahead.

Kunal Randeria — Neo AMA — Analyst

Good evening, and thanks for taking my questions. Abhay, see first question again on IlumyaI. The several limited label that say that the prevalence of arthritis in patients with psoriasis is much higher than previously what people accepted. Assuming we do that approval in psoriasis arthritis setting, does it also — do you expect the volumes to improve for psoriasis setting also?

Abhay Gandhi — Chief Executive Officer (North America Business)

If we some halo effect, I won’t deny that that there will be an increase because we’ll have new data to speak about, that itself helps with doctors. So to that extent, I think the halo effect will help us both in the existing indications as well as into the new indications, so I would agree with you.

Kunal Randeria — Neo AMA — Analyst

Sure. Thanks. And secondly, see while you did share that the U.S. generic market remains challenging but on the other hand on the specialty side, you have been doing fairly well and now we have a good infrastructure in place. So from an R&D perspective the fact that you are spending around 20% to 25% R&D on specialty, in the next three to four years should we expect the specialty contribution in R&D to increase meaningfully?

Dilip S. Shanghvi — Managing Director

Yeah. I think we’ve indicated that the specialty R&D even today if we were able to execute on some of the studies would have been much higher than what it is today. So it will continue to be an important component of our future investment.

Kunal Randeria — Neo AMA — Analyst

Sure, sir. And just to clarify and this assumes some may be inorganic maybe move that you may make and acquire assets in derma, opthal. Does it sort of — you baked it in your calculations?

Dilip S. Shanghvi — Managing Director

So what is the question?

Kunal Randeria — Neo AMA — Analyst

So my question, sir, is that since you said that specialty R&D will increase going forward, so are you also assuming that three, four years down the line, we’ll have a lot more products acquiring them?

Dilip S. Shanghvi — Managing Director

No, I think whatever that I speak about is for business that we have. What we don’t have I can’t plan for.

Kunal Randeria — Neo AMA — Analyst

Okay. Got it, sir. Thank you so much.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

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

Sayantan Maji — Credit Suisse Group AG — Analyst

Yeah. Thank you for taking my question. My first question is on Winlevi. So what caused temporary blip in prescriptions in 2Q? And what would basically reverse that can aid in the growth going ahead? And basically, the second question is that what proportion of sales are we now getting from repeat customers in Winlevi?

Abhay Gandhi — Chief Executive Officer (North America Business)

I was waiting for you to ask the first question anyway. I mean as I said, it is a continuous process and I think if one quarter there is a — not a significant growth in the number of TRx. I mean I watch it as carefully as you do, I mean, more than you actually because that’s the only thing. I do. And I’m sure it’s only a temporary blip. I think next quarter onwards we will see increase as we used to, that’s my personal sense. To the second part of your question, I think we have typically around a third of our customers who are regular users.

Sayantan Maji — Credit Suisse Group AG — Analyst

Okay. That’s helpful. And my last question is on R&D. So we had given a guidance of 7% to 8% of sales. So after completion of half of the year, do we want to revise it down or do we still expect that based on the pickup in R&D in the second half, we will be closer to the guidance that we had given earlier?

Dilip S. Shanghvi — Managing Director

So, I think our guidance is 6% to 8% and I think we are not changing the guidance at this point.

Sayantan Maji — Credit Suisse Group AG — Analyst

Sure. Thank you so much for taking my questions.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

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

Surya Patra — PhillipCapital — Analyst

Thank you for taking the questions and congrats on the great set of numbers, sir. Couple of quick question, sir. Sir, first is that…

Operator

Sorry to interrupt you, Mr. Surya. The audio is not clear from your line. Please use the handset mode.

Surya Patra — PhillipCapital — Analyst

Yeah. Is it right? Am I audible?

Operator

Yes, sir.

Surya Patra — PhillipCapital — Analyst

Sir, couple of quick questions. Sir, first is that on the — when we are talking about psoriatic arthritis indications for Ilumya, so the target market would be for this indication will be similar to that of psoriasis or it is higher or bigger, some sense will be useful.

Abhay Gandhi — Chief Executive Officer (North America Business)

You say target market, you are talking to — referring to doctors?

Surya Patra — PhillipCapital — Analyst

No. In fact, the potential of this indication in the U.S. market if I think compared to the psoriasis indication.

Abhay Gandhi — Chief Executive Officer (North America Business)

So, psoriasis is definitely the larger indication. Now, depending on what data you look at in the psoriatic arthritis, in the U.S. I’m speaking. I do not know about other market. It can be something like depending on what data you’re looking at anywhere from 20% to 30% of the psoriasis [Indecipherable].

Surya Patra — PhillipCapital — Analyst

Okay, okay. Thanks for that. And second question is on the overall margin trend. Although you have commented something on that but here I am trying to understand that this quarter sequentially, whatever the improvement that we have witnessed this is obviously led by the studies specialty performance despite of the Taro’s underperformance what we have seen. And believing that this specialty performance is likely to remain steady and improving only, and we would will believe in some improvement in Taro going ahead. And on the top of that the Revlimid opportunity if we factor, then I think the margin visibility, it looks really robust, much beyond 30% kind of margin profile. So, any commentary on that, sir? How do you feel? If this understanding is right?

Dilip S. Shanghvi — Managing Director

So as we said earlier, we are not giving any guidance on [Indecipherable] But based on what you say, we should all take — go on long holidays so that business will take care of itself.

Surya Patra — PhillipCapital — Analyst

Obviously no, sir. So then, sir, in the other expenses front to some extent if I try to understand in, the Q2 there is a decline despite that there is a normalcy in the overall operations across Sun post-COVID. There is Alcami addition and also the expanded operations generally that we have seen. So, despite that, we have seen a sequential reduction in other expenses. So, how should we read this?

Dilip S. Shanghvi — Managing Director

First of all, if you see this equation of expenditure, I don’t think this is a very material belief. I will not read much.

Surya Patra — PhillipCapital — Analyst

Okay, okay. And just a quick one. Even — so since last few quarters that we have been seeing the kind of study deduction in the debt driven, in this quarter there is a kind of right but to the tune of around 350. Any specific reason or looking for that, sir?

Dilip S. Shanghvi — Managing Director

So we have said no, we will take a temporary borrowing for the settlement of the litigation, the readout.

Surya Patra — PhillipCapital — Analyst

Okay. Sorry I didn’t hear that. Okay. Thank you, sir. Thank you for answering my questions.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Harith Ahamed From Spark Capital. Please go ahead.

Harith Ahamed — Spark Capital Advisors India Private Limited — Analyst

Good evening, everyone. Thanks for the opportunity. Sir, my first question is on Alcami because of which we acquired Taro. So will the — with the acquisition we had disclosed annualized revenue of around $165 million from the disbursement calendar ’21. So, I’m trying to understand if we are tracking at those levels on a like basis. I’m asking because there were a couple of millions of decline prior to our acquisition, so trying to understand if the business stabilized.

Abhay Gandhi — Chief Executive Officer (North America Business)

So, I think unfortunately we can’t share anything beyond what Taro has shared. But — and also, I don’t think Taro has specifically shared the revenue numbers that — there in Alcami before they acquired. But — I mean we’ll not be able to the respond to specific questions which is beyond what Taro has shared in their press release.

Harith Ahamed — Spark Capital Advisors India Private Limited — Analyst

Okay. Sir, next one is on other operating income for the quarter which is INR140 crores we’ve seen a step-up in the run rate there. Is it related to the PLI scheme approvals that we’ve been booking that’s step up for in other operating income versus the 0.22 run rate?

Dilip S. Shanghvi — Managing Director

So the other operating revenues step up is mainly the PLI, we have recognized the PLI approval.

Harith Ahamed — Spark Capital Advisors India Private Limited — Analyst

Okay. And then last one. When I think about the product additions for specialty business, can you comment a bit on the availability of potential licensing candidates in our specialty which is [Indecipherable] primarily. And are we pursuing some of those medical opportunities if they are available? Or should we expect the next leg of product additions to come through our own organic R&D efforts in the specialty businesses?

Dilip S. Shanghvi — Managing Director

I think as everybody would inform you that there is a potential opportunity to license or acquire product of companies but there is a fair bit of competition to acquire these assets. So — and we need to feel comfortable with the potential value that we might have to give to acquire those assets. But we will continue to look at those investment opportunities to strengthen our portfolio.

Harith Ahamed — Spark Capital Advisors India Private Limited — Analyst

All right, sir. Thanks for taking my questions.

Dilip S. Shanghvi — Managing Director

Thank you.

Abhay Gandhi — Chief Executive Officer (North America Business)

Thank you. The next question is from the line of Ritwik Sheth from One-Up Financial. Please go ahead.

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Yeah. Hi, good evening, sir, and thanks for the opportunity. I just have one question.

Operator

Mr. Sheth, sorry to interrupt you. The volume is very low from your line, sir. Please increase.

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Yeah. Is this better?

Operator

Yes, sir. Thank you.

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Sir, my question is on the tax rate. First half tax rate is about 7%, so what could be going forward the tax rate for the second half and FY ’24 onwards?

Dilip S. Shanghvi — Managing Director

We have always said that please look at the tax on a full-year basis and for per intel working, we also expect it to go up as per [Indecipherable]

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Okay. So, it should be in the range of last year full year rate, right?

Dilip S. Shanghvi — Managing Director

We are saying that it will inch up compared to the last fiscal full year.

Ritwik Sheth — One-up Financial Consultants Pvt Ltd. — Analyst

Okay. Fine. Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraint we will take that as a last question. I now hand the conference over to Mr. Nimish Desai for closing comments.

Nimish Desai — Investor Relations

Yeah, thank you. A small update from our side before we end the call. Abhishek has joined us as Head of Investor Relations and will be taking over the IR responsibility from the next quarter onwards. For the next few months, both of us will work together for a smooth transition. And it has been an absolute pleasure interacting with all of you. I’m extremely grateful to all of you for the support that you all given to me for the past 10 years. Thank you and have a good day.

Operator

Thank you.

Dilip S. Shanghvi — Managing Director

Thank you.

Operator

[Operator Closing Remarks]