Zydus Lifesciences Ltd (NSE: ZYDUSLIFE) Q3 2025 Earnings Call dated Feb. 05, 2025
Corporate Participants:
Ganesh N. Nayak — Executive Director
Sharvil P. Patel — Managing Director
Nitinkumar Parekh — Chief Financial Officer
Arvind Bothra — Head, Investor Relations
Analysts:
Surya Narayan Patra — Analyst
Neha Manpuria — Analyst
Anubhav Agarwal — Analyst
Bino Pathiparampil — Analyst
Vishal Manchanda — Analyst
Nitin Agarwal — Analyst
Saion Mukherjee — Analyst
Kunal Dhamesha — Analyst
Presentation:
Ganesh N. Nayak — Executive Director
Okay. Good evening, ladies and gentlemen. Welcome to our Post Results Teleconference for the Quarter Ended December 31, 2024.
For today’s call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Arvind Bothra, Head of Investor Relations; and Mr. Alok Garg from the Managing Director’s office.
Let me now give you a broad overview of the developments during the quarter. We are happy with another quarter of strong financial performance and remain on track to sustain the growth momentum going ahead. Our US Formulations business continued its upward revenue trajectory with a high year-on-year growth driven by volume expansion in base business, as well as new products launched over the last 12 months. Our India Formulations business grew faster than the market with a secondary sales growth of 8% year-on-year, the source being IQVIA. The Chronic segment outpaced the market growth driving the overall performance of the business. The Consumer Wellness business registered double-digit growth for yet another quarter aided by robust volume growth amidst a muted demand scenario in the industry. The International Formulations business comprising of the emerging markets and Europe, continued to deliver strong growth on the back of healthy demand across markets during the quarter and is emerging as a strong third growth engine for the Company.
With that, let me take you through the financial numbers for the quarter gone by. We registered consolidated revenues of INR52.7 billion, up 17% on a year-on-year basis. The EBITDA for the quarter was INR13.9 billion with a growth of 26% on a year-on-year basis.
Reported EBITDA for the quarter — EBITDA margin for the quarter was 26.3% versus 24.5% in quarter three FY ’24. EBITDA margin improved despite 250 basis points year-on-year increase in the R&D spend. Adjusted for certain non-recurring expenses, the EBITDA margin for the quarter stood at 28.1%.
Net profit for the quarter was INR10.2 billion, up by 30% on a year-on-year basis. Our net cash position improved further to INR30.9 billion as at 31 December 2024 against the net cash of — as against a net cash of INR6.5 billion — INR8.6 billion as at 31 March 2024.
Now, let me take you through the operating highlights for the third quarter of FY ’25 for our key business segments. The US business accounted for 47% of our consolidated revenues during the quarter with revenues of INR24.1 billion, up 31% year-on-year and a flat quarter-on-quarter. We filed 10 additional ANDAs and received approval for three new products during the quarter. We launched five new products during the quarter. New launches include, all three brands of sitagliptin 505(b)(2) franchise, namely Zituvio, Zituvimet and Zituvimet XR tablets. We entered into an agreement with CVS Caremark to add Zituvio, Zituvimet and Zituvimet XR tablets to its formulary. These products were added to the formulary from the 1st of January 2025.
Our India geography, which comprises of Formulations and the Consumer Wellness business accounted for 38% of the total revenues during the quarter and grew 7% year-on-year. On our India Formulations business, our India Formulations business delivered 5% growth during the quarter on a high base of the previous year. During the first nine months of the fiscal, the business grew by 9%, outpacing the market growth. Portfolio of innovation products sustained the growth momentum and continued to deliver strong volume growth during the quarter. The business gained market share in key therapies of cardiology, respiratory, anti-infectives and the super specialty therapy of oncology. On the super specialty front, we continue to strengthen our leadership position in the oncology and nephrology therapies. Contribution of the Chronic portfolio has increased consistently over the last several years and stood at 42.4% as per IQVIA MAT December 2024, an improvement of 370 basis points over the last three years.
Our Consumer Wellness business recorded revenues of INR4.5 billion, up 13% year-on-year with 4.8% volume growth. The Personal Care segment, which comprises of Nycil and EverYuth brands, witnessed strong demand and achieved a robust double-digit growth for the quarter. This segment has continued its upward trajectory over the last several quarters. The EverYuth brand continues to gain market share in the scrub, peel-off and overall facial cleansing category.
During the quarter, we completed the acquisition of Naturell India Private Limited, a leading healthy snacking company, having a portfolio of nutrition bars, protein cookies, protein chips and health food products, thereby foraying into the consumer snacking space.
Our International Markets Formulations business delivered robust growth during the quarter, with revenues of INR5.7 billion, up 16% year-on-year.
This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses, as well as initiatives in our innovation program. Thank you.
Sharvil P. Patel — Managing Director
Thank you, Mr. Nayak and good evening, ladies and gentlemen. It is a pleasure to have you all on the call today. We are happy to inform you that our clearly articulated strategy backed by careful portfolio selection, the deep innovation pipeline, execution excellence and supply chain resilience is yielding the desired results as we had ended the calendar year with a strong double-digit growth and robust profitability. We are confident of meeting our growth and profitability aspirations for the fiscal year of FY ’25. We remain committed to address diverse healthcare needs of the patients by expanding our offerings across therapies by leveraging our innovation engine and in turn, enhancing key stakeholder value.
In our US generics space, we have built a comprehensive product portfolio across different dosage forms and therapies and remain focused on streamlined execution of the same. On the specialty front, multiple levers, such as the 505(b)(2) products portfolio, the LiqMeds portfolio, the rare diseases assets are in place and aimed at fulfilling various unmet healthcare needs of patients globally. This, coupled with strong customer relationships, a pool of manufacturing facilities with capabilities to produce diverse dosage forms and an agile supply chain will ensure sustainable growth trajectory for our US business going forward.
On the India Formulations front, our business grew faster than the market on a YTD basis. Our endeavor is to strengthen the position across focused therapies through multiple levers. Our sustained thrust on innovation led by our patient-centric approach has enabled us to build a healthy pipeline of novel and differentiated products and solutions aimed at fulfilling the various unmet healthcare needs of the patients.
On the International markets front, the focus remains on expanding presence in chosen therapy areas across key geographies by leveraging our global R&D portfolio of the differentiated and complex generics, as well as the specialty products. On our innovation front, we continue to make steady progress, paving the way for our healthier future. Our innovation engine has consistently delivered multiple treatment options in an affordable manner, making them accessible to a large set of patients and, in turn, strong volumes for us.
With this, let me take you through some of the material developments on our journey on innovation during the quarter. On our NCE front, we have received FDA approval to conduct a Phase IIb clinical trial of Usnoflast, a novel oral NLRP3 inflammasome inhibitor in patients with Amyotrophic Lateral Sclerosis, ALS. The study will evaluate the efficacy, safety, pharmacokinetic and pharmacodynamics of the molecule in the adult subjects with ALS. Recently, the FDA has granted an orphan drug designation to this molecule Usnoflast for the ALS indication. The orphan drug designation provides eligibility for certain development incentives, including tax credits for qualified clinical testing, prescription drug user-free exemptions and a potential seven-year exclusivity upon FDA approval.
Data monitoring and follow-up is ongoing on the post of completion of our patient recruitment of the Phase IIb, Phase III clinical trial for saroglitazar magnesium for the PBC indication and the Phase IIb clinical trial for the molecule for MASH indication for the US market. We are looking forward to the Phase IIb/III trial data readout for PBC indication towards the end of this calendar year.
In the biotech R&D space, we completed a Phase III clinical trial for one of the biosimilars and have submitted an application to the DCGI seeking permission to initiate DCGI. We have also initiated another ADC biosimilar which is antibody drug conjugate. On the novel biologics front, we received permission from the review committee, which is the RCGM to initiate preclinical study for one of our drug conjugate ADCs. On the vaccines front, we completed a Phase I clinical trial for a bivalent TCV vaccine during the quarter.
Now on to our Specialty business. The US FDA has accepted for filing and granted six months priority review to Sentynl Therapeutics for its NDA of CUTX-101, a copper histidinate product candidate for the treatment of Menkes disease. The NDA was supported by positive top line clinical efficacy results demonstrating statistically significant improvement in overall survival for the Menkes disease subjects, who received early treatment with CUTX-101.
I’m also very happy to inform you, recently our Chairman, Shri Pankaj R. Patel was conferred with the Padma Bhushan, one of the highest civilian honors by the Government of India for his contribution in the field of trade and industry. We extend our heartfelt gratitude to all our investors and business partners for their unwavering trust and continued support of the Zydus Group over the years.
Thank you. And now we’ll move over to the Q&A session. Over to the coordinator.
Questions and Answers:
Ganesh N. Nayak
Thank you, sir. We will now open the call for Q&A session. [Operator Instructions] The first question from Surya Narayan Patra.
Surya Narayan Patra
Am I audible? Hello?
Sharvil P. Patel
Yes. Yeah.
Surya Narayan Patra
Thank you, sir. Thanks for the opportunity. A couple of questions. First question is about the US business. Obviously, we have seen a sequential decline. So how much of that is because of the kind of competition in Asacol HD and how much is that because of, let’s say, the base business weakness? That is one part.
And the second part of the US question is that, the Mirabegron supply, the export momentum from India, if you see that looks really robust. While the execution, it seems not at par with the kind of export that we are making or the kind of inventory buildup that we have done. So how should we think and how longer this Mirabegron opportunity can be considered for us?
Sharvil P. Patel
Thank you, Mr. Surya. So I think, first of all, I don’t think we have had any critical or any sequential decline between the last quarter and this quarter. And last — this quarter, we have not had any sale of lenalidomide, which you would have been there in the earlier quarters. So actually, both the base business, as well as our new launches are doing well, and that has led to a better momentum for our business despite not having lenalidomide.
With respect to your second question, could you repeat the second question again?
Surya Narayan Patra
Yeah, this — the second part of the same question was that — about the Mirabegron. So the export momentum looks really robust for that from India. But the execution on that front in terms of the revenue that you would be booking look limited compared to the kind of inventory buildup that we are making there in US?
Sharvil P. Patel
There is no inventory buildup, which is not normal for an exclusive launch. So we don’t have inventory buildup. And we would keep a certain amount of inventory, obviously, which we do for every product. depending on between 90 days to 120 days, depending on what criticality of the product is, then there is no exceptional inventory buildup. And Mirabegron continues to have better offtakes.
Surya Narayan Patra
So that means, is it fair to believe sir, this is the kind of peak quarterly run rate in the Mirabegron, it has already been achieved and possibly as long as it continues the opportunity, we will be around this level?
Sharvil P. Patel
No, I would not say that.
Surya Narayan Patra
Okay. Second question is on the sitagliptin franchise, what we are building it up. So we have two opportunities in that. One is the government supply opportunity, what you have already indicated. And second is the kind of the arrangement — supply arrangement that we have done with the CVS. So how big this opportunity could be considering both because you would be there in this product before as a branded product before the genericization of the product? And what would happen post-genericization to this franchise? And, obviously, your US government supply will anyway continue. So how should one think this opportunity? Can it be a kind of the biggest product revenue contributor in the US given both these two opportunities?
Sharvil P. Patel
So sitagliptin combination on the — from the 505(b)(2) specialty place, I think, has been a great success for the Company and probably one of the rare successes that somebody has seen on an oral 505(b)(2). So, obviously, we have secured a long-term contract with the government, which will continue. We have also the CVS deal plus some smaller deals that will continue. And this would be a valuable product for us in terms of the revenue that we are going to generate as a new product launch. Also, this has led to the effort and success of sita is also leading to us being able to now have almost seven 505(b)(2)s commercialized in the US with patent exclusivity. And also, we continue to believe that in the next few quarters, we would have at least three to four more new licensees on 505(b)(2) for the future. So as a portfolio, I think the 505(b)(2) franchise with the success of our first seven launches, we are going to see a good amount of opportunity as an area of interest for Zydus as to build it out forward.
Surya Narayan Patra
Okay. But is — could you give some sense about the cumulative size of the opportunity that we can have?
Sharvil P. Patel
What [Technical Issues].
Surya Narayan Patra
Hello?
Sharvil P. Patel
Yes. Am I audible, sir? So is it possible to quantify, sir, at least the government opportunity, is it in the range of, let’s say, a few tens or a couple of hundred million dollar opportunity over the period of contract? It’s a meaningful opportunity, but I think we are not going to do product-wise breakup of revenue, which we have always communicated. We can talk about the portfolio and how the portfolios are faring. And I said we have now seven 505(b)(2)s. And we continue to believe that in the next few quarters, we’ll have four more licensed products on the 505(b)(2).
Surya Narayan Patra
Sir, one bookkeeping question. See, in the presentation, what we do see that the employee cost and the R&D cost, it looks like that it has been adjusted among them. So reported — the BAC format employee cost number is not the same that is mentioned in the presentation. So are you doing any adjustment to that? And hence, your margin as it is reported in the presentation is different than what we do find?
Nitinkumar Parekh
R&D cost in this quarter is higher than the previous quarter, but R&D cost, we every time say that it should not be viewed for a particular quarter, it should be viewed on a running basis.
Surya Narayan Patra
No, even employee cost, I was talking about…
Nitinkumar Parekh
Which we have told 7% to 8%. We also told…
Surya Narayan Patra
I was talking about the employee cost.
Arvind Bothra
Surya, I think there is some misunderstanding on the SEBI format, the R&D cost and the employee costs are separated over there. I’ll take it off-line with you, so that others get a chance, maybe we can move on to the next participant. You can call me after this call.
Surya Narayan Patra
Sure. Sure.
Operator
Thank you, Surya. Requesting participant to limit questions to two. The next question is from Neha Manpuria.
Neha Manpuria
Yeah. Thanks for taking my question. It seems the — I think in the opening remark, you mentioned certain non-recurring costs in the quarter. If you could please quantify the same and where these are allocated to get to that adjusted margin that you talked about?
Nitinkumar Parekh
So these are classified in other expenses. Some of them are marketing related, more in terms of legal and professional fees and also some extraordinary expense like GST loss on inventory destruction.
Neha Manpuria
And how much would this be broadly?
Nitinkumar Parekh
We’ll share separate numbers with you later on. I don’t have right now with all the numbers with me.
Neha Manpuria
Okay. And I’m just wondering as to why a marketing spend or a legal or professional fee would be considered non-recurring because I’m assuming there is some amount of lumpiness in that spend quarter-on-quarter, right? So is there any specific reason why we are calling this as non-recurring?
Nitinkumar Parekh
So non-recurring because of some specific legal professional assignment related to some acquisitions that we have done and the GST loss on inventory destruct was INR17 crores.
Neha Manpuria
Okay. Got it.
Arvind Bothra
May I revert with the exact number in the line separately.
Neha Manpuria
Understood. Okay. Thank you so much. And my second question is on the 505(b)(2) portfolio and Specialty portfolio. In terms of the size, I don’t want product specific number, but in terms of the size, what is the 505(b)(2) like as a percentage of our revenue, whatever you’re comfortable with? And how big can this get for the Company as we launch more products? Could this be 5%, 10% of the business — of the US business? So any qualitative color in terms of how big this can be? I understand you have a lot of launches, but if I were to quantify that in terms of size as a percentage of the US business, that will help us understand the stickiness of this revenue.
Sharvil P. Patel
So on our 505(b)(2) front, there are two, three. One is, obviously, our sitagliptin franchise, which obviously is a significant value in the [Technical Issues] an important launch and product for calendar year ’25 and will continue in terms of post genericization with the — at least the government contracts. The other 505(b)(2)s are our partnered 505(b)(2)s that we have with partners. And those revenues are — I mean, more than the revenues, there are more profit sharing agreement. So they’re not high on revenue, but they’re very high on margins and profits and absolute amount of profits also. So that’s the current portfolio. Going forward, we have a few 505(b)(2)s as we believe market making can happen. We can discuss that, but it’s not going to happen in the next one year for sure. And so, overall, it’s still a modest revenue size other than sitagliptin being a very significant value.
Neha Manpuria
Understood. And my second question is on CUTX-101. Given that we have a date on — US FDA date on this in six months, how are we thinking about commercialization of this asset? I mean, just trying to understand if I have to put some value, how should I think about how — what we’re going to spend, how we’re going to commercialize the asset?
Sharvil P. Patel
So we are already ready for commercialization. The teams have already been created in Sentynl and it’s already been prepared for launch. We — I think from most of that point of view it’s all on track. And once we launch, we can give a better idea about how we are faring. But currently, in terms of preparedness for launch, we are prepared.
Neha Manpuria
And given this is a rare disease asset, how should we think about pricing? Typically, there are different metrics to use for pricing of a rare disease. So what would be — I’m not asking you for a price, but in terms of methodology, what should be the right way to look at pricing for this asset?
Sharvil P. Patel
So these are extremely rare diseases with very small patient population. So with looking at the investment and the thing, obviously, these are — in those — the price brackets are in those — products which are in those rare brackets. So that’s how you could look at it, right?
Neha Manpuria
So I can benchmark it against the usual rare disease assets?
Sharvil P. Patel
Yes.
Neha Manpuria
Okay. Perfect. And my last question on saro. I see that we have delayed the readout I think it was expected in the second quarter of this calendar year. Now if I heard it correctly, you mentioned end CY ’25. So just wanted to confirm that. Has there been a little bit of a delay in the [Speech Overlap]
Sharvil P. Patel
We will probably still see it in third quarter, end of third quarter. So we just meant to say this calendar year.
Neha Manpuria
Okay. Okay. Okay. Got it. Thank you so much.
Operator
Thank you. The next question is from Anubhav Agarwal.
Anubhav Agarwal
Hi. Good evening to all. One question is on the US market. So sequentially, would the US sales include a one quarter sales of sitagliptin? Because if you are starting for 1st Jan, you would have already supplied inventory. Have you already booked that revenue in this quarter? Hello, am I audible?
Sharvil P. Patel
Sorry?
Anubhav Agarwal
Am I audible?
Sharvil P. Patel
Yes.
Anubhav Agarwal
Sorry, was my question heard or should I repeat it?
Sharvil P. Patel
No, I think we missed the first-half of your question. I just heard then sitagliptin booked sale revenue. So…
Anubhav Agarwal
So the question is that in the US sales in the December quarter, have we already booked one quarter normalized sales of sitagliptin because if we’re starting with Jan ’25 with CVS, we should have already supplied that or built inventory in the US?
Sharvil P. Patel
No, we have not. We — though we have government sales that have been continuing, but the — we have not booked all the sales.
Nitinkumar Parekh
So on your — Anubhav, on the question of our supplying to US, that is not booked as a sales here because it only gets booked as sales only stand-alone accounts. But to the extent it is not sold in US, it is reversed in terms of consolidated accounts. So sales means only sales to third parties, that way.
Anubhav Agarwal
Yeah. Yeah. I’m with you on that. My question was that if contract is starting with CVS on 1st July, you would have already shipped to CVS before that.
Sharvil P. Patel
Yes, we’ve shipped but it’s not that we have shipped everything.
Anubhav Agarwal
Okay. And in this quarter, the gross margin sequentially were quite lower, while US sales was flattish. India was largely similar. So what is the reason that the gross margin declined sharply sequentially?
Nitinkumar Parekh
Business and product mix.
Anubhav Agarwal
But anything you want to…
Sharvil P. Patel
We don’t have Revlimid sales this quarter.
Anubhav Agarwal
But you didn’t have Revlimid in the September quarter as well?
Sharvil P. Patel
We had Revlimid sales last quarter.
Anubhav Agarwal
Oh, is it? Okay. Okay. So second question…
Sharvil P. Patel
And also Asacol has come down, right? So full quarter.
Anubhav Agarwal
So what has helped you guys maintain the US sales sequentially? What has gone up in this quarter for you guys versus September quarter?
Sharvil P. Patel
So there are three, four things. One is, obviously, the base business has done much better. We have also secured many long-term contracts because of supply surety that is required. The new product launches, all sort of some scaling up has happened in this quarter. And obviously, Mirabegron sales have also happened.
Anubhav Agarwal
So Mirabegron sales also have been higher sequentially, okay?
Sharvil P. Patel
Sequentially, yes.
Anubhav Agarwal
And between the two opportunities on sitagliptin government contracts versus CVS, which — qualitatively, which one will be larger of the two pieces?
Sharvil P. Patel
We have to see, but short term will be the CVS, long term maybe the government would be the one, accumulative.
Anubhav Agarwal
Sure. My last question is on Usnoflast. Are you — in terms of — when you see your molecule versus RADICAVA, for example, how is this molecule placed because RADICAVA is — I think is the only option right now for ALS. In the initial science, when you’ve seen it, so in the trial that you’ll plan it will be non-inferiority versus RADICAVA or will it be an absolute basis? How are you seeing this molecule versus RADICAVA?
Sharvil P. Patel
Today, the trial that has been designed — has been designed because there is no currently approved treatment for ALS. So it has to be a placebo-controlled trial. So this is not going to be a comparative trial because according to the FDA, there is no nothing approved today.
Anubhav Agarwal
That is fair. But patients are still being given RADICAVA in the market, right?
Sharvil P. Patel
Yeah. But the FDA is not going to give an unapproved treatment to test.
Anubhav Agarwal
So okay. It’s a fair point. I agree with that. Thank you.
Operator
Thank you. The next question is from Bino.
Bino Pathiparampil
Hi. Good afternoon. A couple of questions from my side. Sharvil bhai, what’s the latest update on Mirabegron litigation? How do you expect to pan out, any time lines?
Sharvil P. Patel
So it’s still under litigation. So I think it’s very difficult to give any time lines. But as I said, this potentially has the chance to continue for a longer period of time.
Bino Pathiparampil
Understood. Second, on your expenses if I put all — take all your expenses and employee, R&D, other expenses, etc., roughly, the expenses have gone up by 30% Y-o-Y for the nine months. Of course, you mentioned about some one-offs in the quarter, etc., etc. But still this 30% jump, how do we justify this and how we look at it going forward?
Sharvil P. Patel
You’re talking about R&D expense, sorry?
Bino Pathiparampil
All put together, R&D, other expense, employee expense, etc., all the fixed costs if I may put it that way.
Nitinkumar Parekh
So as we said, there are about INR95 crores worth of expenses in this quarter, which are non-recurring in nature, which includes INR51 crores provision for incentives, especially given our achievement in our US business. Also, incudes about INR27 crores of legal and professional fee of one-time nature. And INR17 crores of GST payment because of inventory destruction. So about INR95 crores is of one-off nature.
Also, when you look at expenses of this year versus previous year, previous year did not include the full impact of expenses of acquired units like LiqMeds, now Naturell. So those things are also playing their role. And our new sites, which were the additions of people in the current year.
Sharvil P. Patel
Manufacturing, side.
Nitinkumar Parekh
Manufacturing, side.
Bino Pathiparampil
Understood. And you said there is also some incentives related to the upsides in the US business. Is that right?
Nitinkumar Parekh
Yes. Yes.
Bino Pathiparampil
Okay. Got it. And one last question, if I may squeeze in. This quarter, you have a very high forex gain about INR182 crores out of size compared to other quarters. So how does that — where does that come from?
Nitinkumar Parekh
That’s because of how the dollar has behaved, how the dollar is strengthening or rupee has weakened. So it’s not a thing like — it’s a completely realized real gain. And we fortunately don’t have any foreign currency debt right now. So we don’t have anything in a negative side. We have everything on positive side. So yes, this is — the current rate seems like it’s likely to stay and continue strengthening dollar. And therefore, I think this gain is of business gain. It’s not a one-off gain.
Bino Pathiparampil
Understood. So for example, your receivables are completely unhedged, and because of the rupee depreciation, this gain has come? Receivables [Speech Overlap]
Nitinkumar Parekh
Yeah, it’s a completely open, natural hedge position for us. And that’s the position for last many years from now.
Bino Pathiparampil
Okay. You don’t hedge any receivables at all?
Nitinkumar Parekh
No, no.
Bino Pathiparampil
Okay. Understood. I’ll jump back in the queue. Thank you.
Operator
Thank you. The next question is from Vishal Manchanda.
Vishal Manchanda
Thank you for the opportunity. Hope I’m audible.
Sharvil P. Patel
Can you be a little louder? Thank you.
Vishal Manchanda
I have a question one CUTX-101. So basically, I wanted to understand whether we have been able to qualify for a screening test here? So kind of is the screening test approved for neonatal?
Sharvil P. Patel
You said screening test, right? Hello?
Operator
Vishal, we are not able to hear you clearly. Hi, Vishal, are you there?
Sharvil P. Patel
Maybe we can take the next question and wait for Vishal.
Operator
Okay. And the next question is from Bino.
Bino Pathiparampil
Hi. Thanks again for getting me onboard again. In terms of Asacol HD, is the intensity of competition fully visible in Q3 numbers, assuming there is no further entry of competition?
Arvind Bothra
Which product, Bino, we could not hear you properly?
Bino Pathiparampil
Asacol HD.
Sharvil P. Patel
Yeah. Currently — no, currently, Asacol, we will see further competition in Asacol once the CGT exclusivity gets over. So potentially at least one more player.
Bino Pathiparampil
Oh, okay, understood. And second, on Revlimid, how do we think going forward, typically, your revenues come in Q1 and Q4? So I assume that Q4 will have a good chunk of lenalidomide. Going into FY ’26, by Q4, the exclusivity of the generic settlers will be over. So should we assume that we will have Revlimid only in Q1 next year and would that mean that for the full year, it will be less than this year?
Sharvil P. Patel
I think it’s still a moving scenario. We can’t 100% say exactly how it will happen, but our best estimate to Revlimid sales for this calendar year will be, it will be spread across the year. It will not be just one month or two month or one quarter kind of phenomenon because the buying will [Technical Issues] not happen all together is our best estimate right now.
Bino Pathiparampil
Understood. But for the financial year — next financial year, would lenalidomide be equal to below or higher than the current financial year?
Sharvil P. Patel
So a lot of scenarios to play out, but with more share, even with lower price, we hope to — at least we can maintain this year’s momentum.
Bino Pathiparampil
Understood. Thank you.
Operator
Thank you. The next question is from Nitin Agarwal.
Sharvil P. Patel
Hello?
Nitin Agarwal
Hi. Can you hear me?
Sharvil P. Patel
Yes, I can hear you.
Nitin Agarwal
First thing on the — just taking off on the previous question, sir, our — in the last call, you shared a couple of large launches in F ’27 that will come through for us. That’s more like a second half F ’27 opportunity, the way — at least that’s the sense we have. So after Revlimid — bulk of the Revlimid is sort of done, are we looking at essentially a situation or potentially whether there’s going to be a period where there are not any big launches or these types of launches will sort of take care of a lot of the delta between Revlimid and the ex-Revlimid business for till the time as some of the bigger launches being kicked?
Sharvil P. Patel
So I can — so I think one is obviously [Technical Issues]. So I think, see, one thing — we have a portfolio of products that we still continue to launch beyond these one-offs that we have. And looking forward, if you look at FY ’26 also, we still believe that assuming some of the scenarios, whichever may pan out, we will still see high single-digit kind of growth at least for the US overall geography for us. And that is what our best estimate is. But going forward, we do have 25 to 30 plus new launches that will continue to happen with some of them being important as well.
So I think with that and also base portfolio continuing to remain resilient and strengthening and the new products gaining more share, which we have launched in this year and the earlier year. I still believe that the portfolio wise, we are still very comfortable. Obviously, we’ll see big jumps in FY ’27 because of exclusive launches that we will get to see, but we should be able to still have a healthy portfolio in the coming year.
Nitin Agarwal
That’s very encouraging, sir. Because ’25 is a pretty large year for us. We have got a large Revlimid component plus Mirabegron and on that, if you’re able to grow in single digits next year, that’s pretty commendable, if that’s the outlook that we’re running with.
Sharvil P. Patel
Yeah, that is the best estimate right now, yeah.
Nitin Agarwal
That’s great. And sir, secondly, on the emerging market piece, so what has really changed in this business over the last three or four quarters? You’ve seen very meaningful pickup and consistent pickup coming through on that part of the business?
Sharvil P. Patel
I think it’s — I would say most of the geographies are doing extremely well. We did have a hiccup in Brazil, which has also recovered. So I think even that was the only market that was underperforming to some extent. And that has also recovered. So I think it is a strong execution across markets. It’s been the portfolio of products that we have launched in these markets, which are — some are complex, some are first generics and other areas of interest. And we have added new markets also in the Middle East and Saudi. So I think expansion, same markets doing also better, branded business, so better margin profile and also risk mitigating some of the difficult markets. I think all in all, I think the mix of geographies and the portfolio has helped the EM. And we’ll continue to, I think, continue — we see good visibility of strong growth and improvement in profitability further.
Nitin Agarwal
And sir, this business as well, this is above corporate — in line with corporate profitability? Or this is — how should you — if you were to just broadly collectively assess, give us a sense on the profitability of this business overall?
Sharvil P. Patel
No, it is not above Company’s profitability, but I very strongly believe that it can achieve 23-plus percent EBITDA margins in the next one or two years.
Nitin Agarwal
That’s great. And the last one, sir, on the GLP-1, especially semaglutide. Sir, how are we approaching this opportunity? Is this a relevant opportunity for us? I mean, which in India, emerging markets, US obviously follows in much later. But how should we think about our play in GLP-1?
Sharvil P. Patel
So the first is US, obviously, we have one for — we have filed in the US and that opportunity is much later. In India, we hope to be in the first wave launches with our own semaglutide franchise with some unique differentiation. And so, similarly, we would like to build this differentiation in the emerging markets also, both with the current formats and new formats. So yeah, we will be playing in the semaglutide market, starting with India first.
Nitin Agarwal
And sir, what is the level of integration here? Are we making our own API as well as the formulation or…
Sharvil P. Patel
We are making our own API and formulation. And we have a second source also. So we are backed — we have derisked also, including devices.
Nitin Agarwal
There has been a lot of talk about some of the large markets like Canada, Brazil opening up in F ’27. Would we be there in the first wave of launches in these markets or are we going to be following later?
Sharvil P. Patel
Currently, we don’t have immediate China plan, so I doubt we’ll be in any first wave, but we do have plans for the other EM markets.
Nitin Agarwal
Okay. Thank you so much.
Operator
Thank you. The next question is from Vishal Manchanda.
Vishal Manchanda
Hello?
Sharvil P. Patel
Yeah, hello.
Vishal Manchanda
So I have a question on CUTX-101, so one thing I want to understand is what is the duration of treatment? Is this a chronic treatment that infants will — that children will have to take life long? Or will this be a fixed duration treatment, say, two, three years?
Sharvil P. Patel
Lifelong.
Vishal Manchanda
Lifelong. Okay. And second, like do we have a neonatal screening test that’s approved for Menkes as of now?
Sharvil P. Patel
No. That’s something that we have been working with the professionals to build a sensitive test for neonatal screening. But because this product has been under clinical trial for a very long period of time with a strong patient registry, there is already a set of significant amount of patients who will be on treatment and new patients are getting identified.
Vishal Manchanda
Like as you had discovered in the clinical trial, early treatment can significantly prolong survival. So would this not mean you need to kind of identify the patient immediately at birth?
Sharvil P. Patel
Yes. Well, not at birth, but very soon.
Vishal Manchanda
Okay. So any chance you would have the test approved this year prior to approval or will that take longer?
Sharvil P. Patel
No, I think the test is — it’s not a question of only doing the test. The test has to be — the test needs to go through every state approval. It needs to go through, make sure that the dry blood spot test, they can detect this and with the current equipment that the centers use. So it’s still — it’s not a short-term opportunity. We’ve been working on this for two years. So we believe that it’s an important area to succeed in, but we currently — I don’t think at launch, we will have that yet.
Vishal Manchanda
Okay. Okay. And second one is on the LiqMeds portfolio. Do you expect any large launch this year or next year?
Sharvil P. Patel
Yeah, there are two products.
Vishal Manchanda
Okay. So this year — they are scheduled for launch this year?
Sharvil P. Patel
Yeah, one is just launched and one is about to be launched.
Vishal Manchanda
The one that you’re talking about is imatinib oral solution?
Sharvil P. Patel
That is to be launched now, yeah.
Vishal Manchanda
Okay. And would these be large opportunities since you’ve paid a large premium for the acquisition?
Sharvil P. Patel
Yeah. So because you just said the second statement of large premium, I do not believe we have paid any large premium to this acquisition. But I think it’s a very — I would say, it’s a good acquisition that we have done, and it’s doing better than what we expected. So definitely, there is — in the beginning of [Technical Issues] so we haven’t paid any significant premium. It’s sizable profitable [Speech Overlap]
Vishal Manchanda
So just one final one. So when you –. Right. So just one final one. So when you in-license a product or partner a product, you would pay an upfront payment. So is that upfront payment capitalized on the balance sheet or you expense it on the P&L?
Sharvil P. Patel
I mean, current all whatever we have done licensing, most of them are — all of them are expensed out right now. But if we have very, very large long-term programs, which will take years [Speech Overlap]
Nitinkumar Parekh
So product acquisition and product is capitalized in books. Anything which is under development and we are acquiring and thereafter, there is a spend, everything is revenue expenditures.
Vishal Manchanda
Got it, sir. Thank you. That’s all from my side. Thank you.
Operator
Thank you. The next question is from Surya Narayan Patra.
Surya Narayan Patra
Yeah. Thanks for the opportunity again, sir. One clarification or update rather. Sir, what is the update about the pact with the CMS, what we have done for desidustat and when this could be a kind of a revenue-generating opportunity for us?
Sharvil P. Patel
So the milestone in terms of filing with the Chinese regulators has already happened and, obviously, the new product approvals do take time. So if best case scenario is this year or the coming year — this or next year, we should see approval.
Surya Narayan Patra
Okay. And regards the domestic business, in the opening remarks that you had mentioned that, okay, the secondary sales growth looks better than the kind of a market trend. But what are the trends that you are facing in the primary side, it is looking relatively modest growth, it looks like?
Sharvil P. Patel
On a YTD basis, we have grown at 9% with this quarter’s growth of 5% and — which is better than market. And I said last year, we had a high base of growth of almost 17% on the corresponding quarter to that. So that’s the base effect. But we are on track to deliver better than market growth.
Surya Narayan Patra
Okay. Sure. Yeah. Thank you.
Operator
Thank you. The next question is from Saion Mukherjee.
Saion Mukherjee
Yeah, hi. Good afternoon. Dr. Sharvil, one question on the Specialty business. I just want to understand what’s the P&L impact currently? Specifically, if you can highlight the front-end expense that you’re currently incurring at Sentynl in this financial year? And also, on the research and development, how much you are spending? And going forward, how should we think about the spend?
And in that context, we have done some inorganic moves with respect to Specialty. Any thought, any color you want to because now you have a good cash on books as well. So if you can just take us through your thoughts on spending on Specialty, both on acquisition and through the P&L what is currently and how you’re thinking going forward?
Sharvil P. Patel
So I’ll add, and maybe then Nitin bhai, if he wants to add anything more so on. We have two front-end businesses the Sentynl Therapeutics and Zydus Therapeutics. Sentynl is already a commercial stage Company, but with currently two products, which is scaling up. I think post-CUTX launch, we believe that FY ’26, we can see breakeven for this business. So currently, there is still — I mean, commercialization cost going on. But with the three products, the Company — the business will break even and turn profitable.
With respect to Zydus Therapeutic, currently, majority of our investments are in clinical nature. In FY ’26 and FY ’27, we would see commercial expenditure coming up for launch of saro. I think the better time for us to give an update would be after we do a readout of saro and then talk about how fast we’re going to build the commercial footprint. But currently, most of the cost has been clinical cost in nature with small commercial costs in terms of critical [Technical Issues] talent being hired, but the large amount of expansion will only happen after a readout and maybe we can give that guidance after that.
Saion Mukherjee
If you can share the numbers, Nitin Bhai, in terms of like R&D spend and also the Sentynl losses, if you can highlight for this year?
Sharvil P. Patel
Could you repeat? Sorry, the question?
Saion Mukherjee
Yeah. I mean, I’m looking for the R&D spend on specialty overall, which probably is largely in Zydus Therapeutics and also the Sentynl loss — EBITDA loss this year?
Nitinkumar Parekh
So once we have our calendar year accounts of 2024 ready, we’ll share that number because we’ll have subsidiary accounts of Sentynl available. We’ll be able to share the number. Otherwise, R&D of Zydus Therapeutic is a part of overall R&D spend.
Saion Mukherjee
Yeah. Can you share approximately what percentage of R&D you’re spending on specialty?
Sharvil P. Patel
So I think it changes, right? Because our — most of our cost on saro are over in terms of recruitment and follow-up now, and then the next cost will be on continuing the trial post our data. So I think it’s not that — it sometimes can be there, sometimes it’s not there at all. So my point is, it’s in the overall R&D spend that we do as part of that cost. And Sentynl doesn’t have any major R&D spend.
Saion Mukherjee
Yeah. I mean, I’m just wondering, your R&D spend has gone up this year versus last year. So I’m wondering is…
Sharvil P. Patel
I mean, as a portfolio of specialty complex products is about 35% of our spend. NCEs, biologics, some vaccines and specialty products from the April, December period.
Saion Mukherjee
Okay. And just another question, if I can ask on GLP-1. So Dr. Sharvil, how are you sensing this opportunity in India and other emerging markets because most of the companies are indicating they would be in the first wave. So is the dynamics going to be any different? Any color you can provide where the challenges are and how you think Zydus is sort of placed in all the complexities that this product presents?
Sharvil P. Patel
So I think — I would say first is the complex — I mean, I can talk a little bit about India first. First is the complexity of the API, which is sort of now readily available for most companies. So I would say that challenge is gone. For us, we are backwards. So only good part is we will see less disruption, but we also have an alternate source. So we have both options. The second is the formulation, and we have been — we have two formulations for the franchise, and we look forward to creating some differentiation for us. The third is obviously the device, and we believe the device will also play an important role and I think we are sort of good on the device, not that we are exclusive, but we are good on that device. So I would say that’s the first part.
The second is to finish the clinical trial in India and be ready for launch on time. So while many companies will do it, all companies will not be able to do it. So we’ll see how that plays out. But I still believe it will be a very competitive disruptive time for the launch in India. So we have to wait and see. But I think we are fully geared to at least have the product ready and launched.
How the market pans out will depend on, obviously, individual company strategy and any differentiation that they can bring for more compliance or how more compatible and friendly the dosing can be. And I think in some of those things, if what we are thinking is successful, then we’ll have some differentiation.
With respect to the international markets, we are also going with the dual strategy of that, of doing what is current and doing something different. And we’ll have to wait and see how that pans out for us in the global market, what works better for us.
Saion Mukherjee
Okay. So different, Sharvil, means sort of device. The differentiation is primarily on the device front?
Sharvil P. Patel
No.
Saion Mukherjee
Okay. I mean, is it possible to share anything on that?
Sharvil P. Patel
No. That would be a very competitive differentiation, which is difficult to share.
Saion Mukherjee
Understood. Okay. Thank you.
Operator
Thank you. The next question is from Kunal Dhamesha.
Kunal Dhamesha
Can you hear me?
Sharvil P. Patel
Yes.
Operator
Yes.
Kunal Dhamesha
Yeah. Thank you for the opportunity. Sharvil bhai, first question on capital allocation. Now we have almost around INR4,000 crores cash. So how are we looking at it, would we be deploying more towards specialty efforts for the US market? Or is it more doubling down on 505(b)(2), how should we think about it? And relative to that, how are the, let’s say, overall environment in terms of valuations of these specialty deals or 505(b(2) deals have kind of evolved in the last one year?
Sharvil P. Patel
So I think, yeah, I also missed to answer some part to the earlier speaker’s question also. So I think on the capital allocation side, there are two, three things that are important for us over the next two to three years. On the 505(b)(2) first, I think we are completely — I don’t think there is, in the sense and in terms of meaningful and significant capital allocation, any change in strategy. So we should be able to license or file one or two new 505(b)(2)s in the next one to two to three years. So we have a pipeline that we believe is quite robust on the conservative side.
With respect to the specialty — sorry, then there’s a second angle of we do believe that with our scaling up happening in different markets, both in India, international and US, we do believe we need higher capacities with different complex dosage forms. So there is going to be a higher cycle of capital — capex at least for this coming year and maybe one more. So we would be using a little bit of additional capex over the next two years. And beyond that, I think our efforts are going to be on acquiring a commercially capable ready asset in the US or a product to sort of synergize with our launches on the orphan and rare disease side. So that is something that we continue to look for. And if anything appropriate is there, we would use our — we’ll allocate some capital to that. Beyond that, I think international markets also offers an opportunity for us to expand and that we tactically do look at, and we have some ideas.
And the final is our foray into med devices. And we do want to build a different — another leg of business of med devices for Zydus. And that is where we would also be allocating both on the capex side, as well as also looking for other opportunities to partner or co-build or buy.
Kunal Dhamesha
Sure. So this higher capex would be up to the tune of what. Maybe 20%, 30% higher than the last five years or how should we think about it?
Sharvil P. Patel
Yeah.
Kunal Dhamesha
Okay. Sure. And my second question is, we have kind of launched many NCEs in India market. And these products are doing well, saro has multiple indications and doing well. Desidustat is also there, right? But from a new product launches, let’s say, in India from super specialty or specialty perspective, how is that pipeline looking on that front?
Sharvil P. Patel
So we have — I mean, for us, India, we continue to have a very robust launch pipeline. It comprises of three things. One is the day one launches of patent molecules. And we are happy that we are most — almost most of the time succeeded in launching day one generics to branded generics to off-patent molecules. The second is launching complex generics, including biologics, which are biosimilars. I think, again, in that, we have been most of the time, day one in launching these molecules in the respective therapies, largely oncology right now.
The third is, we still [Technical Issues] have a pipeline of an anti-malaria molecule coming up in the next two years. An ALS study, which will complete Phase II, which is not a long Phase II. We have a follow-up — we have few ABCs, which are entering clinical trial, including a novel biologic for some of the specialty indication. So we have a pipeline in the next three to four years that we would hope to build at least two to three more NCEs as commercial launches for India.
And beyond that, we are obviously doing life cycle management and better patient adherence through packaging and other methods to innovate on our sort of large brands. And I think those will be the areas which will continue to sort of put efforts behind.
Kunal Dhamesha
Sure. Thank you for that. And the last one, if I may. On the US, did I hear it correctly that we expect FY ’27 also to grow on FY ’26 base by mid-single-digit if things some of the key molecules come in? Is that correct way to understand?
Sharvil P. Patel
I only spoke about FY ’26. FY ’27 is a little out there to right now predict. But as I said in that year, late part of that year, we have important large product launches, which are exclusive.
Kunal Dhamesha
Sure. So FY ’26, earlier, we had said that it would be at least in line with FY ’25, right? And then now you are saying that there could be growth as well.
Sharvil P. Patel
So FY ’26, sorry?
Kunal Dhamesha
Earlier, we had said that FY ’26 would be at least in line…
Sharvil P. Patel
Yeah, we expect some growth in FY ’26.
Kunal Dhamesha
Perfect. Okay. Thank you and all the best, sir.
Sharvil P. Patel
Thank you.
Operator
Thank you. The next question is from Anubhav Agarwal.
Anubhav Agarwal
Yeah, thank you for taking my follow-up question. I want to understand the CVS arrangement here, not the terms between two of you, but how would it happen in reality? So let’s say, a patient, a doctor has prescribed Januvia or Janumet, a patient goes to CVS pharmacy. Would the pharmacy have to call up the doctor that I’m substituting because it’s not allowed by the FDA or default substitution can happen? Or what percentage default substitution can happen?
Sharvil P. Patel
It’s an important question, which I don’t have immediate answer, but the way to look at it is, it’s a formulary that the CVS plans and decides. So there would be certain training and decision made in the formulary as to how they will make the choice between one brand versus the other. So it’s a brand-to-brand switch. So that’s what — how it will happen. It’s not a generic switch.
Anubhav Agarwal
Yes. But would the prescriber needs to be involved here? Or it’s just a decision of the pharmacy?
Sharvil P. Patel
I’m sure the prescriber is involved.
Anubhav Agarwal
Okay. And then what’s the incentive for Merck, if they are out of formulary for CVS? I mean, to promote the brand, would it not lead to prescriptions falling significantly. They’re already impacted by GLP, would sitagliptin prescriptions not fall dramatically?
Sharvil P. Patel
I think we can — currently, for us obviously, it’s a win. I don’t know what will happen for Merck. But for us, it’s a good win because we would see a significant amount of prescriptions switched.
Anubhav Agarwal
Okay. Thank you, guys.
Operator
Thank you. The last question is from Nitin Agarwal.
Nitin Agarwal
I had one quick question on so do we have animal health business in the US?
Sharvil P. Patel
Yes.
Nitin Agarwal
Any thoughts around it? Because that’s one interesting space, not too many Indian companies have explored that. And what is the size of our business, roughly, you can give us some sense on that?
Sharvil P. Patel
It’s part of our overall business. It’s just — we are almost 15 months of launch only. So it’s not very old. But the good thing is that, in the first short period, it has broken even also, which is very positive. So we hope to build it, but it will be — it’s not in the lines of what human formulation business is. So it’s going to be a niche business. The good part is that, the portfolio, we are growing very well, and it should be profitable. But I don’t think it will be very large.
Nitin Agarwal
Okay, sir. And sir, on the LiqMeds business, this is what is largely going to be a US opportunity or this is an opportunity that you leverage across various markets?
Sharvil P. Patel
This is only — right now, only a US opportunity and focused towards the US.
Nitin Agarwal
And how big can this piece really get for us over a period of time? If there is any — I mean, is it like a — the business can get to triple digits or it’s a double-digit growth business in size where it can get to over a period of time?
Sharvil P. Patel
So I think, as I said, we have just really commercialized and the growth has been very good. So we have to wait for the next few years to give you a better feedback. But as I said, as a portfolio, it will be a very interesting and a good fit for us. In terms of individually it becoming a large business right now, it’s very difficult to sort of say that because we have still a lot of products to develop and develop and then file and launch.
Nitin Agarwal
And sir, last one, on the biosimilars, so far, we’ve been largely focused on India emerging markets. Any thoughts on sort of taking on the developed markets with the portfolio and how?
Sharvil P. Patel
Not yet. No. We are currently mostly focused on India and developing markets. If we — once we have a thought process on how to build it for other markets, once the regulatory process changes or the clinical development program changes, we will probably take the development, but [Technical Issues] currently, it’s — we don’t want to do a full-blown efficacy trial for biosimilar.
Nitin Agarwal
And sir, what would be the size of this global business — the biologics business right now for us on a — approximately across India and emerging markets where you’re doing right now?
Sharvil P. Patel
So currently, a large part of it is India, and we are building the emerging marketplace. And it’s a good profitable business with the brands that are large, and as I said, in some markets like even Mexico, we are amongst the only generic biosimilars. So it should be a good business, both from the tender and private markets and Russia also.
Nitin Agarwal
Okay. Sir, any color on the size of the business right now?
Sharvil P. Patel
No, we’re not giving individual breakup because I think while biosimilar is a technology, we don’t sell biosimilars as that, we sell biosimilars as a therapeutic area. So it’s oncology, it’s all of that, so I think to say how much is a type of product sale does not make sense. But as a — in a therapy, it is going to dominate as it’s doing in India. Hopefully, we’ll build that kind of capability in international markets. I think the way to look at it is we look at the large market tenders that happen in this market, and we hope to participate in them as one of the few or only generics.
Nitin Agarwal
Okay. Thank you so much and best of luck.
Operator
Thank you. I would request management for their closing remarks.
Ganesh N. Nayak
Yeah. So thank you very much, and look forward to interacting with you again for the first quarter in the month of May 2025. Thank you, and goodbye.
Operator
[Operator Closing Remarks]