Zydus Lifesciences Ltd (ZYDUSLIFE) Q3 FY23 Earnings Concall Transcript

Zydus Lifesciences Ltd (NSE:ZYDUSLIFE) Q3 FY23 Earnings Concall dated Feb. 03, 2023.

Corporate Participants:

Ganesh N. Nayak — Executive Director

Sharvil P. Patel — Managing Director

Nitin D. Parekh — Chief Financial officer

Analysts:

Saion Mukherjee — — Analyst

Tarang Agarwal — — Analyst

Neha Manpuria — — Analyst

Bino Pathiparampil — — Analyst

Kunal Dhamesha — — Analyst

Damayanti Kerai — — Analyst

Surya Patra — — Analyst

Devang — — Analyst

Sameer Baisiwala — — Analyst

Prakash Agarwal — — Analyst

Vishal Manchanda — — Analyst

Ankush Mahajan — — Analyst

Deepa Ravi — — Analyst

Presentation:

Operator

Welcome to Zydus Lifesciences Limited Quarter Three FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ganesh Nayak, Executive Director of Zydus Lifesciences. Thank you and over to you, sir.

Ganesh N. Nayak — Executive Director

Good evening, ladies and gentlemen, welcome to our post results teleconference for the quarter ended December 31, 2022.

For today’s call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Arvind Bothra, Senior Vice President, Investor Relations; and Mr. Alok Garg, Senior Vice President, from the Managing Director’s Office.

I hope you have gone through the quarterly results investor presentation and press release, which are available on our website and also filed with the stock exchanges. First of all, let me quickly run you through the Q3 FY ’23 consolidated financial performance. We registered revenues of INR43.6 billion, up 20% year-on-year, led by a robust growth across businesses. Our key markets, namely India and the US also registered double-digit growth during the quarter.

Reported EBITDA for the quarter was INR9.6 billion, up 27% year-on-year and 17% quarter-on-quarter. EBITDA margin for the quarter stood at 21.9%, which is an improvement of 130 basis points on a year-on-year and 220 basis points on a quarter-on-quarter basis. EBITDA margin expanded in spite of a 180 basis points increase in R&D investment on a sequential basis as well as a certain one-time REMS setup cost during the quarter for an upcoming US launch. EBITDA margin for the nine months of FY ’23 stood at 20.7% profit after tax for the quarter was INR6.2 billion, up 24% on a year-on-year and 19% on a quarter-on-quarter basis, led by improved EBITDA margin. We are confident of sustaining the growth momentum across our key markets, led by strong product pipeline and focused execution efforts.

Now, let me take you through the operating highlights for the third quarter of FY ’23 for our key business segments. Our India Geography, which comprises of the Formulations and Consumer Wellness business accounted for 40% of the total revenues during the quarter and grew 13% year-on-year. The India Geography continues to deliver double-digit growth in the current fiscal adjusted for COVID-related revenues in the Formulations business last year. The Formulations business in the India Geography sustained strong momentum and posted revenues of INR12.3 billion, up 14% year-on-year. Excluding revenues from COVID-related products and divested brands during Q3 and for the first nine months of the current fiscal, the business delivered a robust growth of 16% and 12% respectively. Overall, we outpaced the market growth during the quarter.

We gained market share and improved our ranking in gynecology, anti-diabetic and nutraceutical portfolio during the quarter on a year-on-year basis. Our first new chemical entity, Lipaglyn continued to expand its reach by growing its patient base by 45% in 2022. It has now benefitted almost 1.5 million patients since its launch. The brand was ranked as the 59th largest brand in the Indian pharmaceutical market during Q3 FY ’23, a gain of 35 positions versus Q3 FY ’22. Our Consumer Products business — Consumer Wellness Products business recorded revenues of INR4.1 billion up, 8% year-on-year. Inflation, which hurts margins — which hurt margins over the last few quarters, is cooling down in key inputs, except milk, where it still remains high. However, we have taken appropriate price increases to counter this. The impact of which will be reflected from the next quarter.

Now, let me take you through the performance of our US Formulations business. The business accounted for 46% of the consolidated revenues during the quarter, with sales of INR19.3 billion and registered a robust 13% growth sequentially. Growth during the quarter was mainly led by volume expansion in our base portfolio as well as seasonality. The business delivered sequential growth during each quarter of the current financial year, which is a healthy sign for business momentum. We launched six new products during the quarter. Recently in the month of January 2023, we launched Topiramate Extended Release capsules, the first generic player to launch the product. We filed nine additional ANDAs and received 14 new product approvals including three tentative approvals during the quarter. Approvals for the quarter include the receipt of final approval for Estradiol Transdermal System twice weekly. It is the first transdermal product approval from our Moraiya site.

On the emerging markets front, the business continues to deliver double-digit growth as it posted revenues of INR3.1 billion, up 15% year-on-year, excluding revenues from COVID-related products. The business maintained growth momentum on the back of robust performance across key markets. During the quarter, we filed our first ANDA from the newly constructed oral solids formulation manufacturing in our Ahmedabad SEZ, known as SEZ II.

Now, this concludes the business review. I would now request Dr. Sharvil Patel, to take you through the key drivers across businesses and initiatives in our Innovation Program. Thank you.

Sharvil P. Patel — Managing Director

Thank you, Dr. Nayak, and good evening ladies and gentlemen. It’s a pleasure to have you on the call today.

We are pleased with the quarter three FY ’23 performance, particularly with the fact that the India and the US, the two largest geographies for us continue to deliver robust performance, led by the different strategic initiatives and focused execution. We remain committed to investing in our future to drive sustainable and profitable growth by building a diversified portfolio of differentiated products in generics, complex generics, biologics and NCEs. Over the last two years, our various strategic initiatives in India Formulations business that includes focused brand building initiatives, intense marketing efforts keeping patients need in the mind, expanding distribution reach, leveraging digital platforms and driving our innovation pipeline of novel molecules and biosimilars have enabled the business to deliver steady double-digit growth in the current fiscal year. Our aim is to outperform the market growth over time.

Our US Formulations business too delivered good performance in all quarters so far, driven by timely launches of new products and volume gains in existing products. Our wide product pipeline and focus BD&L efforts lend good visibility on new products, which are critical to offset the impact of price erosions in the base portfolio and boost growth prospects in our US generics. Our nimble and agile supply chain and a network of regulatory compliant manufacturing facilities equip us to capitalize on opportunities, which keep arising in the US generics market.

Going forward, we remain focused on adhering to highest quality standards across our manufacturing footprint and to monetize our deep product portfolio in the US generics business. We are taking calibrated measures to build out our specialty business over the medium term. Our goal is to improve the health outcomes for patients in dire need of therapies to treat the rare and orphan diseases. On the innovation front, we continue to make steady progress, which help us move further in our mission to improve the patients’ health in an affordable manner. Lipaglyn, our first NCE continues to improve its rank in IPM with the addition of new patients. Bilypsa, which is the only available treatment for NASH indication has picked pace at as it addresses an unmet medical need. Our biosimilars portfolio has made the treatments affordable and accessible for patients and averages strong volume growth consistently.

With this, let me talk to you about some material developments on our innovation front. On the NCEs front, as you all know Saroglitazar magnesium is currently undergoing Phase 2b/3 clinical trial for PBC indication for the US market. During the quarter, we also received approval from the Ministry of Health of Spain, Iceland and Argentina to conduct a Phase 1, Phase 3 clinical trials for PBC indication. This will help us recruit patients faster and complete our trials on a given time. So far 54 patients have been enrolled for the clinical trials of Saroglitazar magnesium in the US for polycystic ovary syndrome and non-alcoholic fatty liver disease indications. Currently, it’s the only ongoing trial in the world for PCOS and NAFLD indications. We initiated Phase 2 clinical trial in India for ZYIN489, a novel, potential single dose cure and cure for anti-malaria — for cure for malaria, an anti-malarial drug candidate.

Coming to our Biologics and Vaccines pipeline, we initiated clinical trials in India for biosimilar of two monoclonal antibodies in the oncologists’ space during the quarter. We continue to add more programs to build a robust biologics pipeline to aid future growth. We have also received approval from the DCGI to fit — initiate Phase 2 clinical trial for one of our vaccines during the quarter. On the Specialty front, our wholly-owned subsidiary Sentynl Therapeutics launched an early access program for Nulibry to improve global distribution network for the product and in turn expedite delivery of life critical medications to the patients across the world. We filed a new drug application for one of our products in the areas of metabolic disorder through the 505(b)(2) route.

Thank you. And now we can start the Q&A session over to the coordinator.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] So the first question will be from Saion Mukherjee.

Saion Mukherjee — — Analyst

Yeah. Am I audible? Hello?

Ganesh N. Nayak — Executive Director

Yes.

Saion Mukherjee — — Analyst

Yeah, hi. So just wanted to understand the domestic business growth. We have seen good growth now for some time. In your commentary you mentioned about market share gain in some of the areas like gynecology, diabetes, nutraceuticals, but you know, the bigger segments that you have cardio, anti-infectives, so I’m just wondering how the growth has come without those segments delivering? If you can give some more color, just wanted to understand sustainability of this growth? And secondly, on your innovation molecule particularly Saroglitazar, how should we think about the penetration of the molecule? You’ve got approval for various indications here, you mentioned 1.5 million patients. So what’s the kind of peak level of patient volume and revenues that you are looking from this product, how should we think about that? Thank you.

Sharvil P. Patel — Managing Director

So I think on the overall side, first the important thing is our secondary sales have shown a good double-digit growth and have grown faster than the market. So I think overall, we have shown strong growth. The other market shares on other therapies is not that we are down or anything, they are nearby to the levels of what the market growth has been, but we are talking about where we have significantly gained share.

With respect to Saroglitazar. Saroglitazar, as I’ve already said, is doing significantly well. It has jumped almost 40 plus ranks to become the 59 product and we believe — as I had always said that we believe this product will become the top 25 products of India in terms of its capacity and can grow beyond that. These are just very initial days, we have got full indications of NASH and NAFLD now and that will allow us to significantly expand the patient base. So the product is growing very well and contributing well to the growth and overall volumes of the business. And as a strong patient assistance program that we run on Saroglitazar, so that is helping us track the effectiveness of the molecule, which will continuously aid to the further growth of the product.

Saion Mukherjee — — Analyst

Sir, just one clarification if I can ask, my understanding is that this product is materially big in the diabetes and associated indication and for the liver diseases NASH and liver — a fatty liver, it’s not very large is that understanding correct? And incrementally is that going to change, particularly fatty liver being a bigger indication, how should we think about that?

Sharvil P. Patel — Managing Director

So there are two, three indications, one is the metabolic — I mean if it works in the whole of metabolic syndrome. So if you first take the fats and triglycerides, it has a tremendous impact on that and the earlier indications work for patients who were diabetic and who had slightly dyslipidemia. So that is definitely a good market. But the prescription size — prescription length and duration of that indication sometimes is not as long. With the indication of NASH and NAFLD, you — the prescription period is very long in terms of treatment protocols you have to go for years of treatment to reverse NASH and NAFLD. So that is one important aspect of this.

And if you look at competing molecules, they are significantly larger currently and these are not even approved indications for them. So we believe that the NASH and NAFLD is a very big indication in India. There is a high amount of undiagnosed patients in this area. We run the largest number of FibroScans in the country now, and we want to even double that down. So with the strong level of diagnosis that we’re running, we believe that the patient pool is quite significant, and early on, we’re seeing good traction on this.

Saion Mukherjee — — Analyst

Okay, sir. My second question would be on the US. There is a good growth quarter-on-quarter. Now you mentioned about some expenditure on an upcoming launch. You are putting some money on the REMS program. So if you can share some color on that launch, is that significant? And in general, given the seasonality et cetera, and contribution from Revlimid, how should we think about US numbers for the coming quarters?

Sharvil P. Patel — Managing Director

So the US numbers, we believe, for the coming quarters will continue to be strong with the launches of new products. And specific to the REMS, that is an important REMS program that we have initiated because we believe we will have a launch in the coming year and for that we had to go and pay for that REMS. So those — that it has a good business plan and a good growth potential for that REMS program product. And with Topiramate Trokendi launch also we’ll see further value addition to the US business. So I think, overall the business will track well quarter-on-quarter going forward, at least for the next two to three quarters.

Saion Mukherjee — — Analyst

Okay. Thank you, sir. I’ll join back.

Operator

Thank you very much. The next question is from Tarang Agarwal.

Tarang Agarwal — — Analyst

Hi, good evening. I have two questions, one, you spoke about — for the US business, you spoke about volume expansion, so was it perhaps because of the current flu conditions in the US or you see overall market to be improving in terms of channel having destock? That’s one. The second is, in terms of biosimilars, you’ve got a broad portfolio, but the portfolio for the time being seems to be restricted to India and lesser regulated markets. So how should we see a journey here in terms of trying to approach the developed markets? That’s it from me. Thank you.

Sharvil P. Patel — Managing Director

Yeah. So first to the US. The seasonality of the portfolio is only $5 million, so the overall contribution is not significant, but it is there. The overall growth as I said, has been driven from all three areas, the new products, the base business, both have contributed meaningfully to the growth of the business and higher run rate that we are now running. With respect to biologics and biosimilars are always our strategy has been in India/some emerging market plan, and currently we are tracking extremely well on India. And overall the business is in good health in India, both in terms of, obviously our business in terms of revenue, but also profits.

And going forward once we get more approvals in developing countries, we would see that number increasing. So, our strategy is only linked to these two geographies. The rest of the world and India, and that is where we want to build for it. And we have a lot of plans for more launches, at least two to three new launches coming up over the next two years. So the portfolio, which is currently 14, will continue to expand.

Operator

Thank you very much. The next question is from Neha Manpuria.

Neha Manpuria — — Analyst

Yeah, thanks for taking my question. Sir, we saw an increase in the R&D spend in the quarter, which I understand is related to the progress on the pipeline. As we make more progress on the trials for Saroglitazar, how should we see this number? Could this trend up further? I know it’s within our guidance range of 7% to 8%, but from on an absolute basis, how much could it trend up further as we make progress?

Nitin D. Parekh — Chief Financial officer

So, R&D –for the R&D spend, we believe that our investments will remain in that 7% to 8% range by FY ’23. The lumpiness of this quarter is just, I mean R&D spends are not even all throughout the year, so you do see that. But our guidance for the current financial year remains intact. Going forward, also we have said that our R&D spend will be 8 — around 8% to 9% maximum in the medium to long term, but currently we are comfortable at the 7% to 8% R&D spend range.

Neha Manpuria — — Analyst

Understood, and thereafter probably in the 8% to 9% range?

Nitin D. Parekh — Chief Financial officer

Much later, probably. We’ll see. I mean it’s very difficult to predict two, three years down the line, but at least short-term we are looking at around 8%.

Neha Manpuria — — Analyst

Understood. And my second question is the REMS one-time costs that you mentioned, would it be possible to quantify that, how much of the other expenses increase is because of this REMS cost?

Nitin D. Parekh — Chief Financial officer

It’s $8 million.

Neha Manpuria — — Analyst

$8 million. Understood. And we don’t see this — this is just a set-up, but we don’t see this recurring?

Nitin D. Parekh — Chief Financial officer

There is a recurring, but it’s not significant. This is mainly the set-up costs.

Neha Manpuria — — Analyst

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

Operator

Thank you. The next question is from Bino Pathiparampil.

Bino Pathiparampil — — Analyst

Hi, good afternoon and congrats on a good set of numbers. Just one question on this 505(b)(2) that you filed. You say that it’s for a metabolic disorder. When you say metabolic disorder, are you talking about the diabetes, obesity sort of things or is it a genetic enzyme deficiencies sort of disorder?

Sharvil P. Patel — Managing Director

So, we have a portfolio in this, we already had filed one product earlier and this is the combination products that we’re filing. So we will — in this franchise, we’ll will have maybe around three filings total. So this is the second filing.

Bino Pathiparampil — — Analyst

Okay. And is it like a peptide or something?

Sharvil P. Patel — Managing Director

No, it’s a small molecule.

Bino Pathiparampil — — Analyst

Small molecule, okay. Okay, great I’ll join back the queue. Thanks.

Operator

Thank you very much. Next question is from Kunal Dhamesha.

Kunal Dhamesha — — Analyst

Thank you for the opportunity and congratulations on the good set of numbers. First, just one clarification, I think as far as I remember, earlier we were pursuing NASH indication for Saroglitazar in US as well. So is it still continuing or we are kind of pivoting towards more towards NAFLD?

Sharvil P. Patel — Managing Director

So, currently the trials in the US, the most immediate ones our PBC trials, which we believe are the near-term ones and we are still continuing with the Phase 2 trials for NASH and as we progress on the key milestones on NASH, we’ll come back to you. But we are also testing for other indications like PCOS and NAFLD also, but the NASH trial is ongoing.

Kunal Dhamesha — — Analyst

Sure. Perfect. And on the PBC trial, when do you expect in terms of read out or if you can share any progress in terms of the enrollment, et cetera, where are we currently?

Sharvil P. Patel — Managing Director

So we hope to finish enrollment in the next two quarters, if everything goes right. And then after the follow through, we hope early ’20 — late ’24 or early ’25 filing. If we are able to achieve that timeline.

Kunal Dhamesha — — Analyst

Okay. Perfect. Perfect. And the second question on the same thing like, earlier we were thinking about having a strategic partner, so is that still on the cards for these kind of specialty R&D or we are going to do it on our own?

Sharvil P. Patel — Managing Director

So our current strategy on Saro for PBC is to do it on our own. But as we move forward and as we evaluate our timelines and competitive intensity, we will take appropriate call. But currently, we are preparing for our own launch for Saroglitazar.

Kunal Dhamesha — — Analyst

Okay, perfect. And last, if I may, on the Revlimid side, would you — I’m not asking for any number, but on a qualitative or directionally, would the quarter three numbers be better than quarter two for us or how should we think about it? And whatever trend we are seeing right now, contribution, would that continue for the let’s say next two quarters?

Sharvil P. Patel — Managing Director

So quarter two, quarter three were similar, quarter four, we’ll see higher numbers.

Kunal Dhamesha — — Analyst

Okay, perfect. And that is because of some player coming out of exclusivity, et cetera, would that be the case?

Sharvil P. Patel — Managing Director

No, it’s the way — see there is our market share volume plan, so accordingly, we are able to take more share.

Kunal Dhamesha — — Analyst

Perfect. Thank you, I’ll join back the queue.

Operator

Thank you very much. The next question is from Damayanti Kerai.

Damayanti Kerai — — Analyst

Hi, good evening. Am I audible?

Operator

Yes.

Damayanti Kerai — — Analyst

Okay, great. My first question is on your Topiramate XR launch. So you are the first one to enter the market. So how do you see this opportunity in terms of competition over next two, three quarters?

Sharvil P. Patel — Managing Director

So, very difficult to estimate, but currently we are alone in the market and we still believe, we hope that we still have the exclusivity, but we’re not seeing any immediate launches. So currently we remain exclusive.

Damayanti Kerai — — Analyst

So you launched in January, so six months, you believe you will be the only generic market and…

Sharvil P. Patel — Managing Director

That we can’t predict because FDA will not make a sort of a decision until they see our next generic. So — because there are no next generic yet, FDA has not made that decision.

Damayanti Kerai — — Analyst

Okay. And my second question is, now you have two transdermal approvals from Moraiya, what are the launch plan and when do you see meaningful pickup from these opportunities?

Sharvil P. Patel — Managing Director

So, if everything goes well, we believe we will launch at least two transdermal in the next financial year. And if we’re — even if we do better, than maybe up to three. So, currently, that is the plan and that would — all three of them are meaningful launches.

Damayanti Kerai — — Analyst

Okay. And you have like all required setup from Moraiya and you might not need to invest anything additional for these launches?

Sharvil P. Patel — Managing Director

We have already made the investments earlier.

Damayanti Kerai — — Analyst

Okay. My final question is, your capex is currently trending at around INR10 billion for year, so where are the major spends happening?

Sharvil P. Patel — Managing Director

So the major capex is happening on our expansion of our overall SEZ II facility. Some expansion that happened in the ZIPL, the transdermal area, we had a new line — injectable line that is getting commissioned and also the new pre-qualified — I mean the new plant for MR for WHO prequalification, which is getting ready now, and some API projects.

Damayanti Kerai — — Analyst

Okay. And how do we see capex trending for coming years, will it remain in similar range or you are like broadly done with some of the major spend?

Sharvil P. Patel — Managing Director

No, I think our — this kind of base will remain because we have — are investing for our growth in different areas, so that — his kind of range will remain.

Damayanti Kerai — — Analyst

Okay, that’s helpful. Thank you.

Operator

Thank you very much. The next question is from Surya Patra.

Surya Patra — — Analyst

Yeah. Thank you, sir. Congratulations for the good set of numbers. Sir, my first question is on the domestic formulation business. Sir, is it possible to share excluding this biosimilar and the NCE portfolio, what is the growth for the quarter and nine-month period?

Sharvil P. Patel — Managing Director

No, I don’t think we are segmenting our business like that. So when we push something, we’re obviously doing it as a portfolio play. So I think we don’t do business like that, but we go to one business and then look at other businesses.

Surya Patra — — Analyst

Basically sir, what — sometime back that we have been emphasizing about our — the new launches, means basically the specialty and mass kind of approach we had some time back had followed and discussed. So now since we are not talking that way, so that is why I was trying to understand on the core portfolio…

Sharvil P. Patel — Managing Director

I think for us the — we look at India Geography and the Formulation business as a whole. So the no other strategy and investments will depend on where we feel the maximum growth will be driven from. So it’s — we don’t bifurcate like that. But, overall to say, even the base business, which is or the established products business of the company has done better than market.

Surya Patra — — Analyst

Okay. Yeah. Thank you. And the second question is on, let’s say, on the Moraiya front. Sir, whether we have seen any kind of advantages in the current quarter from the Moraiya side? I’m not talking about the product launches, let’s say, in terms of the cost or something like that or increment…

Sharvil P. Patel — Managing Director

No. In Moraiya, the main launches are the transdermals, It will come.

Surya Patra — — Analyst

Yeah, but in the cost front also there is — there has been no saving, right?

Sharvil P. Patel — Managing Director

There is no saving.

Surya Patra — — Analyst

Okay. And sir, is it possible to discuss something more about the Revlimid outlook? Like, how should we be thinking that or how meaningful it could be. So not giving any number, but at least of the overall kind of a run rate, what we have been seeing for our US business, so how meaningful this could be?

Sharvil P. Patel — Managing Director

It is going to be meaningful and Revlimid as I said in the next quarters will be better than the preceding quarters.

Surya Patra — — Analyst

Okay. Just last one question, sir. See, obviously you are one of the integrated — one of the largest integrated manufacturer for formulation as well as APIs. And obviously currently the trend, what we are witnessing bit challenging trend for even API business. So, could you share something, your view about the pricing, volume trends in that API side to be specific?

Sharvil P. Patel — Managing Director

So I think for us, currently, a large part of our strategic initiative is for our backward integration for our formulations and driving our first-to-market launches and first-to-file. So the API strategy that we are generally following is for largely driven for internal consumption. Having said so, we also want to expand in the other markets, but we are not a very large player in terms of third-party sales. There has been some slowdown overall in the market as we see because of last two years, but for us, the major critical part of the API business is for internal consumption. And — but, we hope going forward, we will see a growth coming back for us, because we are on a lower base.

Surya Patra — — Analyst

Sure sir. Okay. Yeah, thank you sir.

Operator

Thank you very much. The next question is from Devang.

Devang — — Analyst

Yeah. Hi, sir. My first query is regarding the last quarters where we’ve seen some of the pressures on the US market, the pricing of the drugs. So is it continuing in the current quarter or like, is it like — what is the — for next two quarters, what was the view for that?

Sharvil P. Patel — Managing Director

So, our view still continue. We see a single-digit price erosion in the US market and we are not seeing anything majorly changing other than this guidance that we’ve given.

Devang — — Analyst

Okay. And the second question is like, the growth was seen as the mid-teen high levels, like that would be of nearby 18% or something near to that. So is it — the continue with the same prospects or there are going to be the changes in the coming quarters or something like that? For the like quarter four also and for any two, three quarters for update?

Sharvil P. Patel — Managing Director

As I said, at least — it’s difficult to predict the full year, but the next two quarters are looking better than the current quarter.

Devang — — Analyst

Okay, sir. Thank you very much.

Operator

Thank you. The next question is from Sameer Baisiwala.

Ganesh N. Nayak — Executive Director

Sameer, you are on mute.

Sameer Baisiwala — — Analyst

Yeah, got it. Good evening, everyone.

Sharvil P. Patel — Managing Director

Good evening.

Sameer Baisiwala — — Analyst

So first question is on the working capital side. Over the last nine months, looks like it has gone up much more than the sales growth. So if you can talk about it?

Sharvil P. Patel — Managing Director

So, Sameer, partly it’s also because of the business mix with higher growth coming from US. And US obviously has a longer working capital cycle compared to India business. And also the growth in emerging market, where also relatively compared to India business, the working capital cycle is higher. I think it’s some business mix, which is responsive, but there are no other factors.

Sameer Baisiwala — — Analyst

Okay, got it. And on transdermal from Moraiya, one is Estradiol, the second you got the PAI inspection in January, is that correct? And the third one may come and that’s over and above this, and what about — I think that we…

Sharvil P. Patel — Managing Director

We got one Estradiol approval and we had a PAI for three products and that’s the kind of portfolio right now that is being inspected.

Sameer Baisiwala — — Analyst

I see. Okay. Okay, so which means that you may have four approvals in a short order of time, yeah?

Sharvil P. Patel — Managing Director

It is potentially possible, yes.

Sameer Baisiwala — — Analyst

And as you said, all four of them are going to be meaningful, yeah?

Sharvil P. Patel — Managing Director

Three out of the four at least, if I have to hedge.

Sameer Baisiwala — — Analyst

Okay, that’s great. And Sharvil bhai what’s the outlook for margins? I know you’ve guided ’21, ’22 types, but you see this now change going forward?

Sharvil P. Patel — Managing Director

So right now we’re trending on the higher margins. And as you know, we have some exclusive products and all of that. So current outlook for the margins are looking much better at ’20, ’21 plus. But I think for the full year at least we believe we will be better than the last year.

Sameer Baisiwala — — Analyst

Okay, great. And one final question and I have to ask this, so in your assessment, in your outlook for US, how are you thinking about Asacol HD competition, sir?

Sharvil P. Patel — Managing Director

We — so I think the good thing is obviously for us is that there is no competition right now. And with the new products that we’re launching, where we have also sort of exclusivities as well as maybe differentiation as well as some of the new launches, I believe with that base will continue to grow and we will — as I had, I’ve always said we will find ways to make up for the losses on Asacol also. I think that is already happening, but we are not lost as full yet.

Sameer Baisiwala — — Analyst

Six months to 12 months is what you would guess, if you have…

Nitin D. Parekh — Chief Financial officer

Whatever number Sameer, you want to take

Sharvil P. Patel — Managing Director

It’s very difficult to answer.

Nitin D. Parekh — Chief Financial officer

And just to mention…

Sharvil P. Patel — Managing Director

Short term, I can only say first at least the next quarter nobody is there. Every quarter, maybe I can add.

Sameer Baisiwala — — Analyst

Okay. Got it, sir. Thank you very much. Good luck.

Sharvil P. Patel — Managing Director

Thank you.

Operator

Thank you. The next question is from Prakash Agarwal.

Prakash Agarwal — — Analyst

Yeah, hi, good evening. Am I audible.

Sharvil P. Patel — Managing Director

Yeah.

Prakash Agarwal — — Analyst

Yeah. Just trying to understand this upcoming REMS product better. So there is a large investment that we have done, I mean how to think about this product, could it be our largest product, billion dollar kind of product and would it have exclusivity? Some color would really help given we are making some large investments?

Sharvil P. Patel — Managing Director

It is not exclusive. It will have some limited competition, but it is meaningful in terms of the investments that we’ve made.

Nitin D. Parekh — Chief Financial officer

And these are setup costs so…

Sharvil P. Patel — Managing Director

And they’re just setup costs, but the revenue we currently expect obviously made that investment, assuming we’re going to have a better revenues.

Prakash Agarwal — — Analyst

Okay. And this is like a first half calendar year kind of opportunity or it’s already been there?

Sharvil P. Patel — Managing Director

It’s definitely FY ’24 opportunity, maybe the second or third quarter.

Prakash Agarwal — — Analyst

Understood. Fair enough. And in the opening remarks, there was a mention of market share gains. So any particular trends we are seeing and these are like little longer-term trends are we seeing or is it like one to two large orders, which have triggered this or it could percolate to next many quarters?

Sharvil P. Patel — Managing Director

So consistently we have managed our base business well, so that is the strategy. And with the disruptions in the marketplace, we believe that we will continuously strive hard to not only manage it, but also make sure we don’t do it profitably.

Prakash Agarwal — — Analyst

But when you say disruptions, you mean US FDA issues with others or you mean other trends?

Sharvil P. Patel — Managing Director

Mostly, it’s to do with the supply chain, yes.

Prakash Agarwal — — Analyst

Okay, understood. And just wanted to understand transdermal opportunity better so there is already some answer on two or three of the four opportunities and we have taken some time to get the approvals. So I mean, is the market already mature — the ramp up is slow or there is definite position for the third and fourth player, how do we think about that opportunity over 6, 12 months?

Sharvil P. Patel — Managing Director

No, the next 12 months, our current plans are showing that these will be a meaningful launches for us.

Prakash Agarwal — — Analyst

Okay, and just to sum it up. So what I understand is there are few large meaningful opportunities, which can take us to a sizeable step up. Then in terms of margins and R&D investments that we are doing, so margins, you gave some color, but I mean, does it take us to 300 basis points, 400 basis points higher, or we have a step-up in R&D, which will keep the margins at the current levels?

Sharvil P. Patel — Managing Director

So I think first let us complete the current year, maybe in the next quarter we can give some better understanding. But as I said R&D investments on the generic side is sort of almost stable and you don’t see any major growth on that. So the investment that will have to — we will be making, will be on the NCEs and — NCEs and biologics, which are — which gradually going to scale up. And the EBITDA margins, as you’ve seen, there is room for improvement and we hope we can continue to deliver better EBITDA margin.

Prakash Agarwal — — Analyst

Yeah, I mean it is quite evident right. I mean the step up, just trying to understand the scale of step-up that we can see?

Sharvil P. Patel — Managing Director

Currently our estimates are looking that there will be a step-up, but we can’t predict the whole year.

Prakash Agarwal — — Analyst

Okay, understood. And top two, three priorities, apart from NCE, any other large investment or gaps that you see and balance sheet is pretty strong?

Sharvil P. Patel — Managing Director

No, for us now the main thing is to execute on the new launches and continue to make sure what we’re doing in India, we’re able to keep on executing well there and at the same time grow these strategic brands that we have decided to do so.

Prakash Agarwal — — Analyst

Okay. Lovely. Great. And all the best.

Sharvil P. Patel — Managing Director

Thank you.

Operator

Thank very much. Next question from Vishal Manchanda.

Vishal Manchanda — — Analyst

Thanks for the opportunity. Hope I am audible?

Sharvil P. Patel — Managing Director

Yes.

Vishal Manchanda — — Analyst

So my question is on Oxemia, have you kind of — have you kind of — can you share any feedback in terms of how the product is being accepted in the market?

Sharvil P. Patel — Managing Director

So the product acceptance is very good. Right now, we’re seeing a lot of patients on people who are not on dialysis. Slowly we would also want to add people who are on dialysis. So it will be a gradual build up once the — once we’re able to do enough work with the medical fraternity as well as the patients to show the better safety as well as the better care that — better compliance that we can see with an oral product. Also with the approval of the same — similar class of products with by the USFDA, we also believe that some of the questions will get answered and we will see better traction going forward.

Vishal Manchanda — — Analyst

Got it. So the US approval will help you promote the drug better in India.

Sharvil P. Patel — Managing Director

Yeah. This class of molecules as US FDA has approved it. Obviously all products are not the same, but at least one small overhang will sort of reduce.

Vishal Manchanda — — Analyst

Yeah, so, GSK got that approval a few days back?

Sharvil P. Patel — Managing Director

Yes.

Vishal Manchanda — — Analyst

Okay. And second one on Asacol HD, so there is a settlement agreement in public that says, you pay a royalty to the innovator. So since the patent has expired in November 2021, is the royalty still payable or that royalty is been discontinued?

Sharvil P. Patel — Managing Director

So, I don’t think we can discuss the confidential agreements, right now, but that will be difficult to answer.

Vishal Manchanda — — Analyst

Okay. And third one on biosimilars, what was the growth you achieved in the nine-month FY ’23?

Sharvil P. Patel — Managing Director

As I said the biosimilars is part of the branded generics business. So I don’t think we will give different numbers on that, but definitely it’s trending better.

Vishal Manchanda — — Analyst

So, better in the company growth is that…

Sharvil P. Patel — Managing Director

Better than the market growth.

Vishal Manchanda — — Analyst

Okay. And — sir, you also launched a drug called rucaparib in India, which is a cancer drug and you are among the few players to have launched that. Is that a large opportunity for you?

Sharvil P. Patel — Managing Director

From the overall oncology play, yes this will significantly add importance with the practitioners and the patient. And we also believe we would be adding three, four more products, which are unique. So our oncology pipeline will continue to evolve in terms of being a meaningful one for all types of cancers, beyond just the solid tumors.

Vishal Manchanda — — Analyst

Okay. And just one final one on Can Assist, which you in-licensed from a company for breast cancer basically, that’s a diagnostic sort of product. So, has that been launched in any — how is the product shaping up?

Sharvil P. Patel — Managing Director

It has been launched and it’s tracking very well. And I think it is the same for us the most important strategic drive for the future is to how do we bring better value for the patients. So this is our — one of our attempts now that we can bring the right advice and right diagnostic and prognosis markers for the patients to make the right choice and for the doctors to make the right choice, whether chemotherapy is required and if required then what could be the chemotherapy protocols. So I think it’s a good step forward in terms of giving patients better — patient and the doctors better access and better decision-making capability.

Vishal Manchanda — — Analyst

Sir, patients have started to use this option to kind of go forward with the doctors — basically doctors use this option?

Sharvil P. Patel — Managing Director

Yes.

Vishal Manchanda — — Analyst

Got it. Thank you. That’s all from me.

Operator

Thank you very much. Next question from Ankush Mahajan.

Ankush Mahajan — — Analyst

Yeah. Am I audible, sir?

Sharvil P. Patel — Managing Director

Yes.

Ankush Mahajan — — Analyst

Sir, I have checked the list of drugs that we got approval from US FDA from the last one year. So there are few drugs like, cariprazine and mirabegron, lenalidomide, that’s gRevlimid and this or brexpiprazole, so can you tell me the status of these four drugs?

Sharvil P. Patel — Managing Director

So, Revlimid you already know, it’s launched. Many of the products that get approved have settlement dates for launch. So all products that get approved don’t get launched on that approval date.

Ankush Mahajan — — Analyst

So when we can expect such — the drugs in the market?

Sharvil P. Patel — Managing Director

These are not in short term, these are much later.

Ankush Mahajan — — Analyst

Okay. Thank you sir. That’s it from my side. Thank you.

Operator

Thank you very much. Next question is from Kunal Randeria. Well, we’ll move on to Neha Manpuria.

Neha Manpuria — — Analyst

My questions have been answered. Thank you.

Operator

Thank you very much. Bino Pathiparampil.

Bino Pathiparampil — — Analyst

Hi, thanks for the follow-up. Sharvil bhai, this product for which you’ve invested in REMS, is that transdermal, transmucosal sort of product?

Sharvil P. Patel — Managing Director

No, it’s not a transdermal product.

Bino Pathiparampil — — Analyst

Okay, thank you.

Operator

Thank you. Let’s move on to Kunal Dhamesha.

Kunal Dhamesha — — Analyst

Thank you for the follow-up. I just wanted to understand if you could provide a number in terms of how much we are spending on the specialty products, specifically for Saroglitazar in US, at least for first nine months, so that we can better understand what is the P&L burn right now on this business, which is not generating revenue as of now?

Sharvil P. Patel — Managing Director

So, overall 30% of our R&D spend is on all of these clinical programs that we’re running, of the total spend that we’re doing.

Kunal Dhamesha — — Analyst

Okay, great. And second on again going back on the REMS that we have done, is it shared REMS program, which we’ll be sharing with other generic companies?

Sharvil P. Patel — Managing Director

Yes.

Kunal Dhamesha — — Analyst

Okay. So others would have also put in the similar amount?

Sharvil P. Patel — Managing Director

I can’t disclose all of that, but it is a shared REMS.

Kunal Dhamesha — — Analyst

Okay. Or is it like we have put in higher amount, but we get them later on to pay some kind of fees?

Sharvil P. Patel — Managing Director

So it’s a shared REMS program. So I think — I think you’ll be able to understand the meaning of that, yeah.

Kunal Dhamesha — — Analyst

Okay, perfect. Thank you.

Operator

Thank you very much. Now we have question on Saion Mukherjee.

Saion Mukherjee — — Analyst

Yeah. Thanks for the follow-up. Sir, on the transdermal what is the total number of filings you mentioned with one approval already coming from Moraiya, you’ll have four approvals. So I just wanted to know what is the total number of pending approvals now on transformer side.

Sharvil P. Patel — Managing Director

We have filed nine products, out of which six are pending approval and one of them we are not going to commercialize, which is the approval for Fentanyl patch.

Saion Mukherjee — — Analyst

Okay.

Sharvil P. Patel — Managing Director

And we do continue to file — we do have expectation to fine two, at least immediate near two more products.

Saion Mukherjee — — Analyst

Two more products, okay. And sir, I think a few quarters back you mentioned around your partnership pipeline on injectables certain exclusive products, likely to be commercialized in calendar 2023, are you on track for those launches?

Sharvil P. Patel — Managing Director

Yes, we are hopeful that we will see at least one to two partner products launches.

Saion Mukherjee — — Analyst

So those would be exclusive, I mean 180-day exclusive kind of products?

Sharvil P. Patel — Managing Director

Not exclusive, but at least some of them have no generics.

Saion Mukherjee — — Analyst

And when do you expect, sir, first half or second half?

Sharvil P. Patel — Managing Director

See its approval cycle and these are complex products, but definitely in this calendar year.

Saion Mukherjee — — Analyst

Okay. And sir, one last question on your R&D program. 30% of program — I mean, R&D, you are saying on clinical programs. So this proportion is going to go up in the next few years, right?

Sharvil P. Patel — Managing Director

Yes.

Saion Mukherjee — — Analyst

So, is it going to be closer to 40%, 50% anything you can comment on?

Sharvil P. Patel — Managing Director

So again, for — like a three-year, I don’t have that exact thing. But as you first guided to speaking, it will definitely go up as a percentage of overall R&D spend. But, now whether it becomes 40% or 50% is still too early to say, but I don’t think it’ll be a drastic jump, because every year, we are recruiting similar number of patients and so it will be gradual, unless we are seeing some major thrust on any critical program. But most of our programs are an — are an indication that are not requiring a lot of patients. So we hope that we’ll be able to manage our R&D expenses.

Saion Mukherjee — — Analyst

Okay. Sir, I have just one last question, if you can — if you can take that. It is on M&A, I mean you’ve done M&A in the past in consumer business, but we haven’t seen much action on the formulation side and there is lot of assets, which people are acquiring. What are your thoughts, because there are gaps in your portfolio currently, so, any thoughts on sort of plugging those through acquisitions?

Sharvil P. Patel — Managing Director

So on the India business, I think our first priority that we believe that we have our portfolio and the new pipeline of our own launches, we believe are sufficient for us to deliver better than market growth and that’s what we’re driving towards executing. We do have gaps, but I think currently we believe that our own portfolio — concentrating on our own business would be more better. Having said so we do evaluate all opportunities, but I think many of them at the prior multiples don’t make sense for us to do because the growth will be challenged, if they are more established. So I think focusing on our — on our new launches and the products that we believe are important, like those 20 plus product, I think can drive substantial growth that we want to drive for the medium term.

Saion Mukherjee — — Analyst

Okay, sir. Thank you.

Operator

Thank you very much. Next question from Surya Patra.

Surya Patra — — Analyst

Hello?

Sharvil P. Patel — Managing Director

Yes, I can hear you.

Surya Patra — — Analyst

Yeah. Sir, just — can you clarify what is the gross debt number that’s currently we are having right now? In fact, I think in the quarter, it seems that you’ve paid something as for the credit rating report, so that’s why?

Nitin D. Parekh — Chief Financial officer

Yes, as on 31st December gross debt was INR1,816 crores and net debt is INR604 crores.

Surya Patra — — Analyst

Okay. Yeah, fine. Thank you sir.

Operator

Thank you very much. Next question from Vishal Manchanda.

Vishal Manchanda — — Analyst

Yeah, hi. On Saroglitazar, on the ongoing trial in primary biliary cholangitis, since you are recruiting patients from Europe as well. Does that mean you can do a global filing if it is — if the trials are successful?

Sharvil P. Patel — Managing Director

Yes. For Saro, obviously, we’re — as I said, we have recruited across different centers in US and Europe. So our initial plan is for the US market in terms of commercialization. But we will also be looking at how do we take it through partnership in other European markets.

Vishal Manchanda — — Analyst

Okay. And since this is a Phase 2 — Phase 2, Phase 3 trial, so would you be separately reading out the Phase 2 data or it’ll kind of go into Phase 3 and then you will share the data?

Sharvil P. Patel — Managing Director

So most — it will — the Phase 2 will continue into the Phase 3, so the meaningful readout will be after the Phase 3 is completed. So, because the patients continue into the Phase 3.

Vishal Manchanda — — Analyst

Okay. So that will — that should happen in FY ’25, the readout?

Sharvil P. Patel — Managing Director

Yes.

Vishal Manchanda — — Analyst

Okay. And just one on CUTX101, is that approval due anytime now? And is that — any progress on the testing on clinical stages?

Sharvil P. Patel — Managing Director

So the — yeah, the newborn screening testing, we have — had some good progress and we hope by the time we have an approval, we are at least near to getting that test through. The test — the approval is still pending and because we have a licensed in-product where it’ll be manufactured by the licensing partner. So until they are able to get through with the filing and approval, we have to still wait.

Vishal Manchanda — — Analyst

Okay.

Sharvil P. Patel — Managing Director

But the exclusively gets only triggered after launch.

Vishal Manchanda — — Analyst

Understood. Thanks. That’s all from my side.

Operator

Thank you very much. Next question from Deepa Ravi.

Deepa Ravi — — Analyst

Hello? Hi.

Sharvil P. Patel — Managing Director

Hi.

Deepa Ravi — — Analyst

Sir, this is with regard to SEZ II, you spoke about a few projects there. You said there is a new oral solid plant, then there is expansion of the transdermal area and some API projects. And — so this — did you also mentioned this MMR vaccine plant for which you’re seeking a PQ from WHO?

Sharvil P. Patel — Managing Director

Yes, that also.

Deepa Ravi — — Analyst

Okay. So what’s the capex and what’s the kind of expenditure for these projects here at SEZ II?

Sharvil P. Patel — Managing Director

So we are not breaking up individual capex. SEZ II is a meaningful capex overall in the overall scheme of things. But as said, the overall INR900 crore to INR1,000 crore capex is broken up into these major factors.

Deepa Ravi — — Analyst

Okay. And by when do you expect this PQ? Do you have any kind of a clue there?

Sharvil P. Patel — Managing Director

So, this is little bit down the line. It’s nothing on the immediate term. The first PQ for us will be the typhoid conjugate vaccine and then we will do the filing for the MR. So it’s definitely not in this calendar year.

Deepa Ravi — — Analyst

Okay. Fine. So could you just talk a bit more about how significant you expect this vaccine, you have spoken a bit in the past about it? But do you see that given post COVID, the importance of vaccines has shot up considerably. What are your plans here and how big do you see this business growing?

Sharvil P. Patel — Managing Director

So the business is, as I said for both the PQ vaccines, which is the MR and TCV, they’re part of the global immunization plans including India immunization. The volumes that have been stated in terms of requirements are significant and large. And as I said, we were looking at — looking at taking about 11% to 20% share of that. And that — if you’re able to be successful with the pre-qualification and meet the timelines of the tenders, it will be meaningful and profitable.

Deepa Ravi — — Analyst

Okay, thanks.

Sharvil P. Patel — Managing Director

Thank you.

Operator

Thank you very much. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

Ganesh N. Nayak — Executive Director

Thank you very much and look forward to interacting with you again in the month of May for the last quarter results. Thank you and good night, and enjoy your weekend.

Operator

[Operator Closing Remarks]