Sun Pharmaceutical Industries Ltd (SUNPHARMA) Q3 FY22 Earnings Concall Transcript

Sun Pharmaceutical Industries Limited (NSE: SUNPHARMA) Q3 FY22 Earnings Concall dated Jan. 31, 2022

Corporate Participants:

Nimish Desai — Head of Investor Relations

Dilip Shanghvi — Managing Director

C.S. Muralidharan — Chief Financial Officer

Kirti Ganorkar — Chief Executive Officer, India

Abhay Gandhi — Chief Executive Officer, North America

Analysts:

Neha Manpuria — Bank of America — Analyst

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Prakash Agarwal — Axis Capital — Analyst

Anubhav Aggarwal — Credit Suisse — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Krish Mehta — Enam Holdings — Analyst

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Surya Patra — Phillip Capital — Analyst

Ritesh Rathod — Nippon India AMC — Analyst

Anubhav Sahu — MC Research — Analyst

Saion Mukherjee — Nomura Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY22 Earnings Conference Call of Sun Pharmaceuticals Industries Limited. [Operator Instructions]

I now hand the conference over to Mr. Nimish Desai, Head of Investor Relations. Thank you, and over to you Mr. Desai.

Nimish Desai — Head of Investor Relations

Thank you. Good evening and a warm welcome to our third quarter FY22 earnings call. I’m Nimish from the Sun Pharma Investor Relations team. We hope you received the Q3 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 our Managing Director; Mr. 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 the consolidated financials. And just as a reminder, this call is being recorded and a replay will be available for the next few days. The call transcript 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. You are requested to ask two questions in the initial round. If you have any more questions you are requested to rejoin the queue. 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 Mr. Shanghvi.

Dilip Shanghvi — Managing Director

Thank you, Nimish. Welcome and thank you for joining u for this earnings call after the announcement of financial results for the third quarter of FY22. I hope you and your family are doing well.

Let me discuss some of the key highlights. Consolidated revenue for the quarter were at INR98,142 million, recording a growth of about to 11% year-on-year, driven by strong performance across markets.

Despite rising costs, we’ve achieved higher profitability. We continue to focus on top line growth, operational efficiencies and business continuity. For Q3, branded formulation business in India and emerging markets together now account for about 50% of global consolidated revenues.

Let me now update you on our global specialty business. I’m happy to inform you that our global specialty revenue for the first nine months have already crossed previous full year revenues. For Q3, our global specialty revenues were approximately USD183 million across all markets, up about 21% year-on-year. The global specialty revenues do not include ILUMETRI end market revenues.

As you all are aware we launched ILUMYA in Canada and WINLEVI in the U.S. during the quarter. Recently we also announced launch of CEQUA in Canada. Specialty R&D accounted for approximately 22% of our total R&D — [Technical Issue]

Operator

This is the operator. Sir, we are now able to hear your audio. Please go ahead.

Ladies and gentlemen the line from Mr. Dilip Shangvi has got disconnected. Request you all to please stay online while we reconnect him. Thank you.

Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you sir.

C.S. Muralidharan — Chief Financial Officer

This is Muralidharan, CFO. Sorry, we got disconnected. We are back again. Thank you Mr. Shanghvi. Good evening everyone and welcome to all of you. Our Q3 financials are already with you. As usual we will look at key consolidated financials. We recorded the highest ever quarterly revenues at INR98,142 million in Q3, up by about 11% over Q3 last year. Material cost as a percentage of revenues was 27%. Staff costs were up by 8% year-on-year and stands at 18.9% of revenues. Other expenses up 13% year-on-year and stands at 28.1% of revenues increase is attributed towards higher selling and distribution and traveling expenses while in Q3 of last year, these expense were lower on account of global pandemic.

As indicated in our past earnings calls, the expenses are seeing an increasing trend across all the markets as we reach full normalization. forex loss for the quarter was INR106 million compared to a gain of INR716 million for the Q3 last year.

EBITDA for Q3 was at INR25,574 million, up by 7.5% year-on-year with EBITDA margin at 26.1%. It is important to note that we have been able to record EBITDA growth despite a significant increase in other expenses and a negative swing in forex. Reported net profit for the quarter was at INR20,588 million, up 11% over net profit of Q3 last year. The reported EPS for the quarter was INR8.60.

Let me now discuss the key movements versus Q2 FY 22. Our consolidated revenues were up by 3% quarter-on-quarter at INR98,142 million, primarily driven by the specialty business. Material cost stands at 27% of revenues. For Q3, other expenses were at 28.1% of revenues higher than Q2 on account of higher selling and distribution expenses.

We had a forex loss of INR106 million for Q3 as against forex loss of INR764 million in Q2. EBITDA for Q3 stands at INR25,574 million which is flat compared to Q2. It is important to note that in Q2 we had a milestone income of USD10 million, excluding which we would have recorded a minor growth in EBITDA sequentially.

Other income for Q3 was higher compared to Q2 mainly due to settle income from DUSA Biofrontera litigation and interest on income tax refund. Reported net profit for Q3 was INR20,588 million marginally higher than Q2 this year.

Now, we will discuss the nine months performance. For the nine-month period, net revenues were at INR290,403 million a growth of 17% over the 9-month period last year. Staff cost stands at 18.6% of revenues, lower than nine months last year. However in absolute terms, the staff costs have increased on account of annual merit increases.

Other expenses were at 27.3% of revenues lower than nine-month period last year. However in absolute terms, the other expenses have increased on account of higher selling, distribution and traveling expenses, while in the nine months of last year, these expenses are lower on account of pandemic-related restrictions across markets.

As a result of the above, the EBITDA for the nine months was at INR78,900 million, a growth of 26.5% over the nine months last year with EBITDA margins of 27.2% compared with 25.2% year-on-year. Excluding the exceptional items, adjusted net profit for nine-month FY22 was INR60,851 million, up by about 33% year-on-year. Reported net profit for nine-month FY22 was INR55,500 million. The company has repaid debt of about USD254 million in the first nine months of the current fiscal.

As of 31 December, 2021, we continue to remain net cash positive even at the ex-Taro level with USD767 million of net cash. At consolidated level including Taro, the company has a net cash of about USD2.1 billion.

Let me now briefly discuss Taro’s performance. Taro posted Q3 FY22 revenues of USD139 million and net profit of USD26.3 million, higher by 5% and 6% respectively over Q2 FY22. On a year-on-year basis, revenues for Q3 FY22 were flat while the net profit was lowered by about 20%. For the nine months revenues were at USD418 million, up 4% year-on-year and adjusted net profit was at USD99.2 million, down by about 7% year-on-year.

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

Kirti Ganorkar — Chief Executive Officer, India

Thank you, Murali. Let me take you through the performance of our India business. For Q3, the formulation revenues in India were INR31,676 million, recording a strong growth of about 15% over Q3 last year. India business accounted for about 32% of consolidated revenue for Q3.

Despite the challenging and competitive environment, we have maintained the trend of the past few quarters of outperforming the average industry growth, which has led to increase in market share. Our market share has been gradually increasing over the past few quarters. For Q3, it was 8.6% compared to 8.1% in Q2 as per AIOCD AWACS data.

On MAT basis, as per AIOCD AWACS data for December 2021, our market share was 8.2%. We have witnessed growth across most of our therapies. The growth was driven by a combination of factors like improved demand for non-COVID treatments, which led to higher growth in chronic, semi-chronic segment, better patient flow to doctors’ clinics and increased healthcare awareness.

As per AIOCD AWACS data for Q3, for some of our key therapy areas like CNS, CVD and gastro, we outperformed the segment growth. As per the data, our growth in CNS was 7.8% against 7.5% for overall CNS segment. In CVD also against 3.3% segment growth, our growth was 12%. Also in gastro, the therapy grew by 15.7% against the segment growth of 10.8%.

We had a negligible revenues of COVID products in Q3. Field force operations were near to normal in Q3 with almost all doctor clinics operational. The productivity of the new field force which has started improving and about 70% of the territories for the new field force are performing as per our expectation, while the performance for the remaining 30% is likely to improve going forward.

Travel costs for medical representatives was near to normal, while we continue to see some savings in terms of cost of medical conferences. For Q3, we launched 25 new products in Indian market. Sun Pharma is the largest pharmaceutical company in India and as per SMSRC report we are number 1 ranked by prescription with 11 different doctor categories. We also continue to remain the partner of choice for in-licensing of products given our strong number 1 position in many therapy areas including therapies for the treatment of COVID infection coupled with our large distribution network.

I will now hand over the call to Abhay.

Abhay Gandhi — Chief Executive Officer, North America

Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q3, our overall formulation revenues in the U.S. grew by about 6% over Q3 last year to about USD397 million. The main driver of growth was the specialty business. U.S. accounted for about 30% of consolidated revenues for the quarter. While doctor clinics were open in the U.S. during the quarter, the situation is yet to fully normalize. Patients go to doctor clinics as well as frequency of doctor calls by our medical representatives are still both below pre-COVID levels.

Our specialty revenues in U.S. have grown over Q3 last year, mainly driven by ILUMYA, CEQUA and LEVULAN. Specialty revenues are significantly higher compared to September 2021 quarter, mainly driven by ILUMYA, CEQUA, LEVULAN and ABSORICA. We have done well in the specialty business in U.S. as well as globally over the last few years. Global specialty revenue contribution has doubled from about 7% in FY18 to about 14% in Q3 FY22.

As you’re all aware, we launched WINLEVI in the U.S. in November 2021. We have received a good response from doctors for the product as well as a need in the market for a new mechanism of action to treat acne, which WINLEVI is addressing. It is the first time that an androgen inhibitor is being used for treating acne. Our established presence in the dermatology market will help in ramping up WINLEVI going forward. For competitive and strategic reasons, we will not be able to share granular details on WINLEVI on this call.

Let me now update you on our U.S. generics business. While the U.S. generic business continues to be competitive, the Sun ex-Taro generic business has stabilized. While we do experience price erosion, we have been able to counter it by a combination of new launches and better supply chain management. During the quarter, we launched five generic products in the U.S. market. We have received approval for generic Amphotericin B Liposome injection and we are eligible for 180 days of exclusivity for the product under the Competitive Generic Therapy designation by the U.S. FDA. We will be launching the product shortly in the U.S.

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

Dilip 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 branded formulation revenues in emerging markets were at USD239 million for third quarter, up by about 17% year-on-year and lower by about 2% over second quarter this year. The underlying growth in constant currency terms were about 15% year-on-year. Emerging markets accounted for about 18% of total revenue for third quarter.

Amongst the largest market in local currency terms, Romania has grown by about 25%; Russia by 17%; South Africa by 33% and Brazil by 29%. Formulation revenues in Rest of the World market excluding the U.S. and emerging markets were USD181 million in the third quarter, up by about 3% over third quarter last year. Rest of the World market accounted for approximately 14% of consolidated third quarter revenues. API revenues for the third quarter were at INR4,710 million higher by about 5% over third quarter last year and by about 8% over second quarter.

We continue to invest in building an R&D pipeline for both the global generics and the specialty businesses. R&D efforts are ongoing for the U.S., Emerging markets, ROW markets and for India. Consolidated R&D investment for third quarter were at INR5,471 million compared to INR5,593 million for third quarter last year. Our current generic pipeline for the U.S. market includes 88 ANDAs and 13 NDAs awaiting approval with the U.S. FDA.

Lastly, the Board of Directors today declared an interim dividend of INR7 per share against INR5.5 per share declared last year, keeping distribution percentage of the profit constant.

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

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] First question is from the line of Neha from Bank of America.

Neha Manpuria — Bank of America — Analyst

Thank you for taking my question. My first question is on the U.S. specialty business. Abhay, if I heard correctly most of the quarter-on-quarter increase you indicated were some your other products other than WINLEVI. Is it fair to assume that the $183 million does not include any large launch quantity sort of supplies and therefore should not normalize, is that a fair understanding?

Abhay Gandhi — Chief Executive Officer, North America

What I understood from whatever I could hear Neha is you’re asking as if it was an extra-large stock up during the launch of WINLEVI. Is that the question?

Neha Manpuria — Bank of America — Analyst

Yes. That’s right.

Abhay Gandhi — Chief Executive Officer, North America

No, I don’t think so because I think what we are seeing today is buying from the wholesalers is almost as per what they are selling out of their warehouses. So it’s like, there is no buying that you are seeing at the launch which we’ll have to carry forward. No.

Neha Manpuria — Bank of America — Analyst

Understood. And in terms of LEVULAN and ABSORICA particularly for LEVULAN has the momentum improves back to what we were doing pre-COVID level particularly given there was a spike in cases again in December. So, was there some sort of an impact in December and therefore you could see more buildup in LEVULAN as we go ahead?

Abhay Gandhi — Chief Executive Officer, North America

I think the number of elective surgeries has clearly come down. So if I look at it from a — on a 3-year basis, we are nowhere near where we were say two years ago. So, and that’s not because we have lost share. It’s mainly because the number of patients who are treated have come down because of new requirements of how many cases you take in a day and can you postpone surgery. So, it’s definitely not normalized. We see a seasonal uptick in this quarter which is normal, but the numbers for maybe the last year or even the previous would be higher.

Neha Manpuria — Bank of America — Analyst

Understood. In WINLEVI, I know you don’t want to say granular details, but in terms of initial launch it’s fairly early days. Any feedback that you think you would like to highlight? Is it in line with expectations? And also, we got uptick in SG&A. Was that related to WINLEVI launch?

Abhay Gandhi — Chief Executive Officer, North America

So WINLEVI launch clearly would have increased our SG&A because during the launch you would have a higher expenditure that’s for sure. See, as I said in my readout itself for competitive reasons, I wouldn’t give too many granular details on this call. But the only thing which I will definitely say is that the initial response has not just met but maybe exceeded expectation. So, of the doctors that we covered for the product in the first three months, 80% of them have given at least one prescription for WINLEVI which is a very good indicator. At the interest level at the customers for a new mode of action is very high. And then of course, it’s for us to be able to use that as our base and increase the depth of pristine prescriptions from these doctors and continue to improve on our launch performance.

Neha Manpuria — Bank of America — Analyst

Understood. That’s helpful. Thanks, Abhay.

Abhay Gandhi — Chief Executive Officer, North America

Thanks, Neha.

Operator

The next question is from the line of Kunal Dhamesha from Emkay Global Financial Services. Please go ahead.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Good evening, and thank you for the opportunity. So just one question on the — how we account the specialty sales? Do you kind of account these sales as a pre-coupon rate, or we kind of net out the coupon or any assistance that we provide to customers in our sales numbers?

C.S. Muralidharan — Chief Financial Officer

So this is account that was net off the top line.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Net of top line. Okay. Okay. Because I think as far as I remember when we had ABSORICA coupon program, I think at that time we were accounting the gross phase and then I think coupon was netted in marketing expense, if I remember it correctly.

Dilip Shanghvi — Managing Director

No. I do not think so. We have been having a policy of accounting towards the coupon.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Okay, sure. And if I look at — second question is on, if I look at the ex-Taro numbers, the gross margins are kind of sequentially compressed by roughly 100 bps. So would you apply this to geographic mix shift or does the higher raw material prices, or any particular mix of both the items?

C.S. Muralidharan — Chief Financial Officer

So my suggestion would be that we should look at annually instead of quarter, and further Taro’s also published the results and given the press release in terms of their results.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Okay. And lastly if I may squeeze, so, we have said our specialty sales are doing well. But would it be fair to say that ILUMYA nine month sales are comfortably above the FY21 level?

Abhay Gandhi — Chief Executive Officer, North America

Yes, they will be.

Kunal Dhamesha — Emkay Global Financial Services — Analyst

Sure. Thank you.

Abhay Gandhi — Chief Executive Officer, North America

Thank you.

Operator

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

Prakash Agarwal — Axis Capital — Analyst

Hi good evening. Thanks for the opportunity. My question is on R&D. Just trying to understand better, we’ve been talking about higher R&D and also expected trials to start further trials for ILUMYA et cetera. How do we think about it? I mean if you see the run rate is still about 5.5%, under 6%. In the past we have talked about 8%. So how do we expect the year to close and what’s the outlook for the next year? And what kind of price we’re talking about for next year?

Dilip Shanghvi — Managing Director

No. I think the objective is to spend that kind of money. I think like what Abhay said is that, some of the challenges in terms of patient recruitment especially in the kind of studies that we are doing which are extremely competitive trials where competition for all potential patients to participate in study from multiple companies is very high. So it’s kind of leading to a much lower recruitment and that thereby — so we are making multiple efforts including diversifying the geography in which we are doing the studies, so that we can spend the intended money. What I think we share with you every year is the plan to spend. I think your assessment as to we have not been able to spend this effect. But hopefully, we should kind of go back to the kind of money that we wanted to spend.

Prakash Agarwal — Axis Capital — Analyst

And does that impact sir some delay as the trials are getting delayed in terms of the the new trials starting and closing and hence the commercialization?

Dilip Shanghvi — Managing Director

It would have impact, yes. I mean that’s what the effort would be to find a way to minimize that impact.

Prakash Agarwal — Axis Capital — Analyst

Perfect. Thank you. And second one was on the U.S. So there was a comment that kind of bottoming out and with the new launches and supply chain improvement we expect things are bottoming out and to improve from here. But what we heard from the different other companies also is about that pricing pressure has been continued. In fact, we talked about more supply chain challenges like freight cost, et cetera. So I mean what is changing for us? Are we seeing a spate of new launches? And there are some corrective action being done, or what exactly gives us confidence on the base business ex-Taro for the U.S.?

Abhay Gandhi — Chief Executive Officer, North America

Typically in the quarter, we have been able to launch close to five or six products each quarter. That’s one thing which helps us. And of course, we have been consistently saying on every single we call in the past few years actually. But pricing pressure which is product-specific, we continue to face. But then we have to be able to overcome that with launch of new products which we have been able to, and better supply chain management. So these are the only two tools which can help us stabilize our business and find a way to grow in a competitive market.

Prakash Agarwal — Axis Capital — Analyst

Okay. So we’re expecting launch rate to improve or what is exactly changing?

Abhay Gandhi — Chief Executive Officer, North America

Launch rate may not improve. I mean we are very clear on what are the products we have in our R&D portfolio, when are we supposed to launch them. And I think the visibility I have as of now, going ahead is also we should be, I mean don’t look at it as each quarter but average for each quarter should be in the same range of anywhere from five to six products.

Prakash Agarwal — Axis Capital — Analyst

Okay. Okay. Great. Thank you.

Abhay Gandhi — Chief Executive Officer, North America

Thank you.

Operator

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

Anubhav Aggarwal — Credit Suisse — Analyst

Yes. Thank you. Good evening to all. One question is on the U.S. Specialty business. So this $183 million run rate, would you say, Abhay that this is a new base that one which you can grow even in the March quarter? I’m asking because I remember last year in December we had some stocking benefit and March quarter number was much lower than the December quarter. Would you say that was just one-off last year which is not the case this year?

Abhay Gandhi — Chief Executive Officer, North America

So it’s a combination of not just one or two products but we also need to see how in Q3 the overall ABSORICA franchise contributes or does not. But the whole idea is I mean, when we run the business we don’t look at it on a quarter-on-quarter basis necessarily. We look at it that long-term, do we have headroom to grow. And what do we need to do to continuously grow on each of our franchises. And I think the way I look at it each business has opportunities to grow their own franchise and their own products. So rather than answer it as a next quarter question, I would look at enough headroom for the businesses to grow their own franchises.

Anubhav Aggarwal — Credit Suisse — Analyst

But just a clarity on that like you mentioned that LEVULAN typically has the seasonality which peaks out in December quarter. But any other product.

Abhay Gandhi — Chief Executive Officer, North America

A little bit spills over to Jan-Feb. A little bit spills over to Jan and Feb also, which typically in the winter months, which goes up to at least February, where you see a seasonal impact on a lot of derm products not just LEVULAN but even acne, there is a seasonal impact.

Anubhav Aggarwal — Credit Suisse — Analyst

So but other than the derm product, the other portfolio normally does not see any spike in these numbers significantly important.

Abhay Gandhi — Chief Executive Officer, North America

Not as prominent of course. Not as prominently.

Anubhav Aggarwal — Credit Suisse — Analyst

Sure. Second question is on the other expenses. So as Murali sir was saying that we have seen increase across the —

Dilip Shanghvi — Managing Director

Sorry, I’m not able to — I’m hearing a sort of a mechanical sound when you are speaking, so I’m not very sure I’m catching your question.

Anubhav Aggarwal — Credit Suisse — Analyst

Yes. This second question is outside the U.S. That’s on the overall company. This is on other expenses. This question is that, as in the initial commentary it was mentioned that, we have seen increase in other expenses across the business segments. But just trying to understand how far away or close we are to the normalized level of the company? Like, we’ve been talking about pre-COVID, we had a better level, we will not go back to the pre-COVID level, but how close we are to that number? Are we very close, because we’ve seen, let’s say, surprising increase sequentially, which we were not expecting, but are you very much close to that normalized number, sir?

C.S. Muralidharan — Chief Financial Officer

So all about the thing is that, as I said in the detail that, yes, we have been guiding the future, as market operations normalize, so which we have witnessed. But more importantly is that, the product mix and the job mix also helped us to maintain the margin despite the cost pressure increase. However, having said that, we are having a close watch on that, so that we can contain and maintain the momentum of growth of inventory.

Anubhav Aggarwal — Credit Suisse — Analyst

Sorry, there was some disturbance. So net-net, what’s the response? Are we closer to the normalized level, or are we still far away from that?

C.S. Muralidharan — Chief Financial Officer

They go up slightly higher than the current level, but not anything significant.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay, sir. Thank you.

Operator

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

Sameer Baisiwala — Morgan Stanley — Analyst

Yes. Hi. Thanks. Good evening, everyone. Abhay, just on the U.S. Specialty business, when do you expect the footfalls in the doctor clinic to sort of normalize to pre-COVID level and which products are getting impacted because of that. I guess, it’s LEVULAN and ILUMYA, anything else?

Abhay Gandhi — Chief Executive Officer, North America

So, first of all, I mean, the first question, I mean, I can — I really cannot give, Sameer, because even today, I mean, I saw the morning news. The average seven-day cases are still like 500,000. So that’s not small. So footfalls at the doctors levels are restricted and clearly access to reps also much lower than pre-COVID.

When will it stabilize? I mean, your guess is as good as mine, so I don’t know. And if I look at it very broadly then, now every single product does get impacted. Only the extent of one over the other really changes. Elective is where we’re worst hit, but really speaking the impact is on all products.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. So it’s quite commendable that despite lower activity you are able to grow your specialties so well.

Abhay Gandhi — Chief Executive Officer, North America

Thank you. I’ll definitely communicate your comment to my team members. It’s nice of you to say that. But the way I look at it and I guess this is true for everybody, when you have a level playing field it impacts everybody. So that way we are not disadvantaged over anyone else. So it’s a common scenario for everybody. I think it’s all a question about how you execute in a changed environment as a team and as a company, which eventually makes citizens.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. And the second question is on WINLEVI. I know you won’t give any specific detail, but you did not cite WINLEVI as one of the specialty product that drove quarter-on-quarter growth. So was WINLEVI not an important contributor, because you have prescription trends in IQVIA shows a pretty good traction over there.

Abhay Gandhi — Chief Executive Officer, North America

If you recall, I mean, we launched the product only on the 1st of November. So we didn’t have the full quarter, that’s one. Secondly, I think, November and December are also many days of holidays. So the real impact of WINLEVI sales will not be seen in Q3. Some of it may actually be seen in Q4.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Just final one on WINLEVI — that was quite helpful — is what’s the typical duration of treatment if the patient is using WINLEVI, in the sense, is it a chronic use there is an argument for a lot of repeat uses or no?

Abhay Gandhi — Chief Executive Officer, North America

Too soon for me to really give you a quick handle on that, because of — one tube is supposed to be used by a patient for a month. But — and then even if it is not used, the patient is supposed to discard that and use the next one. So whether that is really happening, whether they are — this product unlike an ABSORICA for example doesn’t have a REMS program. So the patient may or may not visit the doctor every month. So what kind of prescribing and adherence behavior is being demonstrated, we are also trying to understand more, and I don’t think I have a very accurate answer for you, Sameer, but it’s a great question. It’s something that I am also trying to get an accurate answer to.

Sameer Baisiwala — Morgan Stanley — Analyst

Sorry, I’ll just take one second more. So, Abhay this is helpful. But I guess what I’m trying to say is fine real life situation is different. We don’t know what’s going on. But just medically speaking, scientifically speaking, what do you think would be a typical duration? I know it varies from patient to patient but on an average, is it a three-month treatment cycle, six-month treatment cycle? Just any range would work.

Abhay Gandhi — Chief Executive Officer, North America

I don’t know, Sameer. So, I don’t want to like give you an answer, which I cannot back it up with scientific data. Because even today I’m not 100% clear in my own mind whether this has been used in a majority of patients as a first-line monotherapy or in combination with existing therapies. And, therefore, if you’ve used as a, sort of, a combination therapy with other products. Then what the doctor decides to continue what the doctor decides to maybe stop or lean away from, yeah, these are the questions or ad boards we try and get answers to. As of now the information is so sketchy, if I give you a clear answer on this, I may be misleading you.

Dilip Shanghvi — Managing Director

Sameer, I think if it’s helpful then WINLEVI like most of the acne products, the clinical trial is a 12-week trial and the primary endpoint is reduction in the severity of acne. Now along with that all products also have to do 12-month safety study in a certain subset of patients. So my sense is that depending on the severity of patient and the type of acne that they suffer from, the duration of treatment will be different. So I think the challenge is to understand what is the percentage of severe, moderate or mild acne patients and how doctors treat them. So — if it’s helpful.

Sameer Baisiwala — Morgan Stanley — Analyst

Yes, absolutely Dilip bhai. Very helpful. Ive got few more, I’ll get back in the queue. Thank you so much.

Abhay Gandhi — Chief Executive Officer, North America

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 — Analyst

Yeah, thank you for taking my question, and congratulations on a great set of numbers. I have two questions. The first of which is on the psoriatic arthritis trial. Could you provide any update on how you’re seeing footfalls for enrollment or how we are progressing on that front?

Dilip Shanghvi — Managing Director

So when I explained about the relative challenge in terms of recruitment of patients, psoriatic arthritis one such trial. So we are not on schedule — and we are trying to find a way by which we can catch up a multiple strategy.

Krish Mehta — Enam Holdings — Analyst

Okay. And my second question was actually on the R&D front. As you’ve seen that the quarterly spends have gone down as a percentage and you explained that it’s due to the lower footfall. But assuming that the footfall is normalized after a few quarters, how do you see R&D going forward in terms of building a steady state increase in organic R&D versus more acquisitions or partnerships that we saw with WINLEVI. So what’s the strategy in terms of R&D going forward?

Dilip Shanghvi — Managing Director

I think our sense is that the steady-state R&D should be around 8%, 9%, because like we have this SCD-044 study in Phase 2, after the Phase 2 is complete we will then have to enroll subjects for Phase 3 and that will be much more expensive than Phase 2. So like that there are potential indications that will keep on increasing the cost going forward.

Krish Mehta — Enam Holdings — Analyst

Okay. Thank you so much.

Operator

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

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Hi. Thank you for the opportunity. My question is on specialty spend. So, with pickup in all the key brands, how should we see costs moving ahead? And are you near to cost be given for your specialty portfolio.

Abhay Gandhi — Chief Executive Officer, North America

Murali, you will refer to the cost or should I?

Dilip Shanghvi — Managing Director

No. Generally, I think, Abhay, we haven’t been sharing segment-wise profitability and cost. But in the past I think we have indicated that we are in an investment phase in this business. And I think depending on how the clinical trial costs continue and how we capture the clinical trial costs, it will require significant investments going forward. But I think overall I’m happy with the margins that we’ve been able to improve in the whole business.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Okay. Just to clarify, on the clinical trial part, obviously, it depends on progress in the pipeline asset. But has like — have you optimized cost more in the marketing and promotional part for the key brands?

Dilip Shanghvi — Managing Director

So, Abhay, that you need to respond.

Abhay Gandhi — Chief Executive Officer, North America

Yes, I think for most of the major products we are clear now what is it the input for U.S. to succeed and stable expenses. But for a new product like WINLEVI of course there will be disproportionate investment going in.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Thank you. My second question is on your capital allocation strategies here. Like where are you looking to invest mostly, say for next one or two years?

Dilip Shanghvi — Managing Director

So, I think philosophically as a company we have always looked at our preference for investing in businesses or creating businesses with ability to grow steadily year-after-year. And I think that philosophy will continue to drive our future investment.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Okay. Can you call out like what are your capex plan for FY22 and ’23?

Dilip Shanghvi — Managing Director

I think this year we haven’t given any specific guidance. But in the past I think we’ve indicated that our major capex plan has been kind of complete till our volumes go up significantly. So, till that point of time I think we will have marginal new capex in all businesses — all facilities.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Thank you. I’ll get back in the queue.

Dilip Shanghvi — Managing Director

Thank you.

Operator

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

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Thanks for the opportunity. Sir, just on the U.S. generics ex-Taro, if you could share what kind of price erosion you’re experiencing on the base portfolio.

Abhay Gandhi — Chief Executive Officer, North America

We look at it on a product-to-product basis. It’s never on a portfolio. And each product has a different kind of scenario. Like I think in the last call, Mr. Shanghvi also mentioned that it’s not a basket, there are some products in which we face pricing pressure; on some products, we’re able to take a small price increase as well. So, net-net, we always — there’s a pricing pressure, but obviously we wouldn’t give a number to say in that we have this percentage of price erosion on the base business.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. Because — if like what that net number is and the kind of launches we have and the kind of base at which currently we are, like if I normalize the 3Q U.S. ex-Taro sales, then we are more or less at a $1 million kind of a number. So, going forward will the new launches be able to offset the price erosion is what I’m trying to understand.

Abhay Gandhi — Chief Executive Officer, North America

I mean that will be our attempt.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. Okay. And just on the ILUMYA per se, like the conditions of mild to severe psoriasis and the psoriatic arthritis are quite often related and the peer having now approval for both the indications. So you see the change in the way the doctors look at like let’s say ILUMYA and the peer products, or you will see still continued restriction rate on a single indication?

Abhay Gandhi — Chief Executive Officer, North America

Anyway Mr. Shanghvi has answered this question in response to a question asked on this call earlier that not having the indication, does have an impact clearly, and that’s why we are trying to speed up our trial so that we are not disadvantaged versus the peer products.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

I’m sorry I would have — I missed that, so sorry.

Abhay Gandhi — Chief Executive Officer, North America

No no. Thank you, thank you.

Operator

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

Surya Patra — Phillip Capital — Analyst

Yes, thank you for taking the question. This Amphotericin B exclusivity what you have been working for, so how big is this opportunity that you think because it’s a old product and discontinued by many. But the prescription progression and all that if you can see then it looks like a larger product than that is looking like? And is it a kind of a rightly timed product approval that we can see considering the COVID trend that is — what we are witnessing in the U.S.?

Dilip Shanghvi — Managing Director

No I don’t know what information you have that is a discontinued product because that’s not my understanding. Now it’s the only approved generic and because it is a difficult product for which no generic was approved, the FDA by separate direction, that the first approved generic will get six-month exclusivity. Once its approved, it’s launched within 75 days. So we should be able to launch this shortly. It’s an interesting product. It’s not a very large product but the sales as well as the growth of the product are in public domain. So you should be able to see that. And at the same point of time I think in the U.S. it has never been used for COVID. So because this Mucormycosis is a problems that we faced in India. It is not a problem faced by any patient in other geographies. So it’s not been used for COVID.

Surya Patra — Phillip Capital — Analyst

Sure, sir. Sir, secondly on the — can you split the R&D spend between the specialty and the normal generic?

Dilip Shanghvi — Managing Director

I think it was part of my readout.

Surya Patra — Phillip Capital — Analyst

Sure. Sorry. Yes. Okay. I’ll read that. And just last one question, sir. Sir is the price erosion trends for the Taro portfolio is meaningfully different than the non-Taro portfolio? You commented obviously, it is the price erosion cannot be portfolio-based but…

Dilip Shanghvi — Managing Director

No. Also we can’t share any information about Taro beyond what they have shared.

Surya Patra — Phillip Capital — Analyst

Sure, sir.

Dilip Shanghvi — Managing Director

Thanks.

Surya Patra — Phillip Capital — Analyst

Thank you, sir. Wish you all the best.

Dilip Shanghvi — Managing Director

Yes. Thank you.

Operator

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

Sameer Baisiwala — Morgan Stanley — Analyst

Hi. Thanks for the repeat. Just a couple of them. Any update on Halol reinspection?

Dilip Shanghvi — Managing Director

No, I think we haven’t heard that. I think last time also I said that is that we’ve requested them for inspecting the facility and we are yet to get any indication as to when they will be inspecting and — so hopefully, soon is our expectation.

Sameer Baisiwala — Morgan Stanley — Analyst

Sir, is it hurting our business a fair bit in terms of not getting new launch, new approvals specially some complex products?

Dilip Shanghvi — Managing Director

I believe so. Because it would be affecting our business and growth.

Sameer Baisiwala — Morgan Stanley — Analyst

Sir, one final one. For other income INR430 crores, I don’t know if you have given the breakup or is there any one-offs in this?

C.S. Muralidharan — Chief Financial Officer

We have given the breakup in the readout, I just said, Sameer.

Sameer Baisiwala — Morgan Stanley — Analyst

I missed that.

C.S. Muralidharan — Chief Financial Officer

It’s a settlement income for DUSA Biofrontera of $22.5 million and interest on income tax refund.

Sameer Baisiwala — Morgan Stanley — Analyst

Yes. But how much is the income tax refund?

C.S. Muralidharan — Chief Financial Officer

So that we have not disclosed, but the Biofrontera settlement amount $22.5 million is disclosed.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. That’s fine. Thank you.

Operator

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

Ritesh Rathod — Nippon India AMC — Analyst

Hi, thanks for the opportunity. Can you give some quantitative color on the India outperformance in terms of the — we had done MR addition. We have launched a number of products. So how much increase has been on the doctor coverage, how effective has been this product launches in the last 12 months?

Kirti Ganorkar — Chief Executive Officer, India

Sure. yes. I think India business as all three quarters has done well. I think we are doing well in India business is a combination of a lot of things. One is, across strategies we thought during this financial has worked well. The team has executed all the strategies. And the team is also performing above the expectation in most of the territories. We’re also focusing on building brands. So that’s also working in the right direction. As far as the prescription is concerned, we are already leading into 11 doctor categories where we are number 1.

And the new product launch momentum has also gone up substantially in the last two, three quarters which is also helping us to grow the business. As I said in my readout — we have expanded two years back and that has also worked well for us. Almost 70% of the territories are meeting our expectation. And what we are seeing is that the remaining 30%, how they will improve their performance in the next one or two years. So, India business performance is a combination of all of these things which are working well and we are gaining market share after from quarter 1 to quarter 2 to quarter 3. In quarter 3, we have most with market share of 8.6%. That’s the highest in the recent times.

Ritesh Rathod — Nippon India AMC — Analyst

Yes. On the second question on the derma sales force in U.S., from WINLEVI you will leverage the existing sales force. MR, or would you have — would you set up a separate thing for that?

Abhay Gandhi — Chief Executive Officer, North America

We have a separate sales force for WINLEVI and ABSORICA front.

Ritesh Rathod — Nippon India AMC — Analyst

So would there be an opportunity for cross leveraging or you would be deploying ABSORICA sales force and basically there won’t be any incremental cost at?

Abhay Gandhi — Chief Executive Officer, North America

There was an existing ABSORICA sales force and we expanded that to be able to meet the requirement for the WINLEVI launch.

Ritesh Rathod — Nippon India AMC — Analyst

Okay. Thanks.

Abhay Gandhi — Chief Executive Officer, North America

Thank you.

Operator

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

Anubhav Aggarwal — Credit Suisse — Analyst

Thank you. One question to Muralidharan, on the accounting for the specialty sales. I think you mentioned on the coupons that you report sales net of coupons, but what are the royalty? For example ILUMYA that you paid to Merck or WINLEVI that you’ll be to the partner? Where is the royalty component shown?

C.S. Muralidharan — Chief Financial Officer

The royalty expenses are expensed out data.

Anubhav Aggarwal — Credit Suisse — Analyst

Sorry, can you say that again.

C.S. Muralidharan — Chief Financial Officer

Royalty payments or expensed out payment.

Anubhav Aggarwal — Credit Suisse — Analyst

So that will be captured in other expenses?

C.S. Muralidharan — Chief Financial Officer

Correct. Other expenses.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. Thank you. And second question is to Abhay. On the ILUMYA, just want to understand that for this product roughly, Medicare and Medicaid put together will be, what percentage of the product? I’m not interesting the exact number, but will it be less than 50%, close to 50%, some indication?

Abhay Gandhi — Chief Executive Officer, North America

Sorry, what is the question?

Anubhav Aggarwal — Credit Suisse — Analyst

ILUMYA revenue, how big is Medicare and Medicaid put together?

Abhay Gandhi — Chief Executive Officer, North America

It is a significant portion, but I would not be able to give you an exact percentage, but it’s meaningful.

Anubhav Aggarwal — Credit Suisse — Analyst

So I was trying to say, will it be more than half or less than half, when you say meaningful?

Abhay Gandhi — Chief Executive Officer, North America

I really don’t want to get into that granular detail, because what you’re asking is a question of strategy and that information may hurt us.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Anubhav from MC Research. Please go ahead.

Anubhav Sahu — MC Research — Analyst

Yeah. Hi. A couple of questions on specialty. One, could you share views on competitive landscape for ABSORICA as such? And what could be the market share now? Is it still around 7%?

Abhay Gandhi — Chief Executive Officer, North America

So all our forms of ABSORICA, the original brand, LD and the authorized generic put together, we are more or less maintaining the market share we had earlier. I think marginal bit, but more or less there.

Anubhav Sahu — MC Research — Analyst

Okay, okay. That’s great. And secondly, last quarter you mentioned that for LEVULAN there was some supply chain issue, if you can just mention what was the issue. It was more from the supply or raw material side kind of or distribution side? And is that issue — are we over with that issue?

Abhay Gandhi — Chief Executive Officer, North America

So more to do with the quality testing, which is outsourced, and because of COVID, they had their own issues. But this quarter has been much better and I think the next quarter we’ll be able to improve further.

Anubhav Sahu — MC Research — Analyst

Okay. That’s great. Quite comforting.

Operator

Thank you. The next question is from the line of Saion Mukherjee from Nomura Securities. Please go ahead.

Saion Mukherjee — Nomura Securities — Analyst

Yes sir, good evening. Sir on emerging markets. In your initial comments you mentioned some strong growth across markets and we have seen that traction in the recent past. Sir can you provide some color what is driving it? Is there a COVID-related element there? And how sustainable the growth in the emerging markets that you’re seeing?

Dilip Shanghvi — Managing Director

I think a large part of our emerging market business is branded generic business and they are all based on generation of prescriptions. So there is a certain amount of consistency and continuity in that business. Now, I don’t have that level of granular understanding of different markets that whether the markets are positively impacted because of what you call COVID or not. Generally in most of the geographies that I am familiar with COVID has a negative impact on overall business, and we don’t have a large portfolio of COVID-specific products in emerging market. And also if you see over the last few years, emerging market has been consistently growing year-after-year. So hopefully we should be able to maintain that continued growth.

Saion Mukherjee — Nomura Securities — Analyst

Okay. No sir I’ mean, saying because despite COVID, we are seeing good growth in those markets. So sir are you — in terms of strategy are you looking at own development products or partnerships, is it new products or market share gain in existing products? Broadly speaking, I know it may be different for different geographies. But any broad trend that is there driving the growth?

Dilip Shanghvi — Managing Director

So actually I think it will be both the increased share of business and new product. What I think the business has made up in spite of significant erosion in currency of some of the key geographies say like Russia, South Africa, Brazil which are important geographies which have seen significant erosion in the value of their local currency. So, if we actually adjust for — or at a constant currency, actually every year emerging market has grown at double-digit.

Saion Mukherjee — Nomura Securities — Analyst

Okay. Just one question on capital allocation because your cash generation is quite strong. So, you have been investing in specialty quite a lot as you were building it out. At the same time you — what kind of opportunities you’re seeing let’s say in branded business in India or emerging markets or even in U.S. generics. I mean given all the pressures that are there in these markets, do you think there is a possibility of opportunities beyond specialty? And if there are would it make sense for Sun to sort of pursue such acquisitions, especially meaningful ones?

Dilip Shanghvi — Managing Director

No, I think in the past, we have indicated that we are continuing to look at specialty assets either existing products or products close to market. Our existing businesses where we believe that we can add value and the product business is of strategic long-term importance for the company. So, that philosophy continues to be the same is that we want to find a way to put our capital to use where it can help us grow profitably year-after-year.

Challenge for us has been to be able to get businesses which we believe that will help us. Hopefully, I think we should be able to break this, what you call, drought of potential acquisitions that we’ve seen in the last few years in next maybe one or two years.

Saion Mukherjee — Nomura Securities — Analyst

Okay sir. That’s helpful. And sir last question if I can, that specialty number. Is it possible to break up between U.S. and non-U.S., or any color in terms of growth that you want to give between U.S. and non-U.S. geographies?

C.S. Muralidharan — Chief Financial Officer

So, we are sharing the global specialty revenues for competitive reasons. We would like to stick to our current disclosure.

Saion Mukherjee — Nomura Securities — Analyst

Okay. Thank you sir.

Dilip Shanghvi — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen that was the last question for today. I now hand the conference over to Mr. Nimish Desai for closing comments.

Nimish Desai — Head of Investor Relations

Thank you everybody for taking time out to join this call. If any of your questions have remained unanswered, please do send them across. We will have them answered. Thank you, and have a good day.

Operator

[Operator Closing Remarks]