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Alkem Laboratories Ltd
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Ladies and gentlemen, good day, and welcome to the Alkem Laboratories Q2 FY '23 Earnings Conference Call, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane. Thank you, and over to you, sir.
Thank you, Mike. Welcome to 2Q FY '23 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, Chief Financial Officer; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Amit Khandelia, AVP Finance. Over to you, Amit, for the opening.
Thank you, Tushar. Good evening, afternoon, and thank you for joining us today for Alkem Laboratories Q2 FY '23 earnings call. Earlier during the day, we have released our financial results and investor presentation, and the same are also posted on our website. I hope you had a chance to have a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements and the same may be viewed in conviction of the risks that our business faces. At the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone back and strategy going forward. Over to you, Sandeep.
Thanks, Amit. Good evening, everyone. Since we have shared all the results, I'll keep my talk very short and spend more time on Q&A. But during the quarter, quarter 2, our India business delivered a strong growth of 14% year-on-year, while our U.S. business was impacted by significant price erosion and reported a year-on-year decline of 0.9% in rupee terms. However, our year-on-year growth in U.S. market has imparted a significant contribution in base business from a [indiscernible]. But a point to note is, on a sequential basis, U.S. business reported a growth of 8.5%. Our domestic franchise outperformed the Indian pharmaceutical market by 500 basis points, thereby increasing market share across all Acute therapy. Our growth in Antidiabetic segment is 4x the market growth rate on back of new launches. And I must share with you that we have had a remarkable execution on Sitagliptin launch on which Yogesh Kaushal can happily take questions later. We want to carry out this outperformance of domestic franchisee into the next half on the financial year. A lot of cost optimization projects under way in the organization, which will play out in the next 6 months to 2 years. Also during the quarter, we have generated cash of INR 400 crores, taking a cash position to about INR 1,350 crores as on September, end of September 2022. Thank you. With this, I'd like to open the floor for Q&A.
[Operator Instructions] We have the first question from the line of Saion Mukherjee from Nomura.
Sir, I would like you to talk about the cost pressures. The reason -- I mean, you mentioned last quarter how things have moved. It looks like the cost pressures are still very high. It is a seasonally strong quarter and the EBITDA margin that was recorded is probably the lowest we have seen in the past many years for the second quarter. So I just want to understand, is there a cyclical component here -- or there are structurally, those costs are higher. How should we think about margin? And in that context, the guidance that you've given for the EBITDA margin for the full year, where do we stand?
Yes. Thanks, Saion. I'll just answer some part of it, and I'll go to Mr. Dubey, our CFO, for some putting more details on it. So I think first things first Saion, I think you're right. The guidance which we gave of, I think, close to 16% for this financial year might be challenging looking at the scenarios. So I think there are multiple reasons for compressed gross margin to one-off that means that IQVIA price is high. One of the reasons also the price erosion we have in U.S. So I think cost is not going up further. It has stabilized, but I will let Mr. Dubey throw some more light on that.
Yes. Thank you, Sandeep ji. Saion, I think you want me to stick to quarter 2 or you want me to have YTD figures. So in fact, I will start with quarter. And as Managing Director, he rightly said, yes, of course, impact of material cost is there, but that is well compensated by our favorable mix. Actual hit in our gross margin, which is 4.7% in the quarter. More or less, it has come totally from price erosion what we have in the U.S. market. So price erosion impact on gross margin is to the tune of 4.8%. And as Managing Director, he already told you, our guidance of 16.5%, 16% to 16.5%, we feel if this situation is going to continue, then it will be difficult for us to be there and there could be the minus side to extent of 100 basis points or something like that.
Sir, just if I can ask for some elaboration. So if you were to -- you were mentioning price erosion in the U.S. But if you look at your domestic business, how has the profitability or margin for the domestic business moved? Is there a pressure in the domestic business as well?
Sandeep ji, I'm taking this.
Yes.
Actually, in domestic business, on overall basis, if you see, there is no pressure on the margin. So there, we have a higher material cost, which is having impact somewhere close to 1.7%, 1.8%. But that is well compensated by a better product mix. So that gets compensated. And in fact, there is no negative impact on our domestic margins. So as I said, this complete 4.7% downside we see in gross margin is on account of price erosion in USA.
Right. So what you're saying, sir, is that it seems to be structural here. So we are sort of guiding towards somewhat lower margins in the years to come. Is that right?
No, no, no. I'll comment here. So Saion, no, this is only for this financial year. We have identified some good cost-cutting parameters, which I think I briefly just kind of test upon in the opening speech, which we will implement over the next 1 year, a large part of it, if not all of it. We see that our EBITDA margins will go up next year. And a very concrete step Saion. So some of the things that it's too early to say, but in the next 2, 3 months itself, you'll hear then some networking optimization, something to do with the plant restructuring and things like that. So very concrete steps very, very close to kind of triggering it. The only reason we are not kind of elaborating is because it's not happened yet. But we understand and we acknowledge that our margins have to improve and we are very close to kind of implementing it.
And you want to quantify that number, Sandeep, in terms of…
We have identified around INR 200 crores to INR 250 crores of cost savings, which we do in the next 12 months.
We have the next question from the line of Kunal Randeria from Nuvama.
So Sandeep, U.S. has been a big drag now for a business that is 25% of revenue. I mean having a -- and playing a havoc on your gross margins, and it seems that new launches aren't compensating for price erosion. So I mean what's going wrong over here? Aren't you getting approvals on time? Or is the fact the approval that you are getting are highly competitive? And how do you sort of plan to -- have you enough ammunition in your pipeline for the next 6 to 12 months to start up, at least stop this kind of erosion?
So I think Amit Ghare will come on the details, but I'll just quickly say that. See, I think next 6 to 12 months, we don't go by the 30% price erosion this quarter, which we had for some reasons, this will happen every quarter and [indiscernible] stands with you on that. So that's point number one. Second, honestly, next 6 to 12 months, we don't see anything dramatically changing that something can kind of turn the tables. As [indiscernible] with approvals, it's just the market condition. And it's just it's just what is playing for most of the guys. So Amit, do you want to comment, please?
[indiscernible] we can see year-over-year growth is 1%. So we are...
Sorry to interrupt sir, but your audio is not coming very clear. So if you'll come closer to the mic once.
[indiscernible]
It's still muffled, sir.
Okay.
Yes, this is much better.
[indiscernible] last price solution, we've been able to revenue side of it [indiscernible] market share increases. Obviously, that is [indiscernible] doing all the cost cutting measures that we are trying to do. We hope that the business or the right solution we will see, and this will grow and the margin will grow by the U.S. side.
So I can -- I mean, I understand this [indiscernible] I mean other companies haven't faced this kind of price erosion on a consistent basis, right? So it's just that for a lot of companies with new products that come in and tend to just help and cover up whatever has been happening in the base portfolio. So I mean, my question is, maybe there were some approvals you would have penciled in. They're not coming or it's the competition as expected. And maybe just some more color on the kind of, let's say, pipeline that you have in the next 12 months.
Really pipeline, I don't want to comment on. But obviously, each company always looks upon 2 things to come through, and we are no different. And we hope that some of those things will come through for us, which will then obviously help us going forward. So you're absolutely right. In a way, we have to see how our pipeline does. So we get our approvals on time, so we get our launches on time and if we do that [indiscernible] overall without a doubt.
My second question is on the domestic business. So maybe if you can just highlight on how different divisions have performed in the quarter. I mean has maybe pointers and stage you have done exceptionally well, all 3 divisions have grown in double digits. Some color will be helpful.
Mr. Yogesh, if you can take this it will be great.
Okay. Yes. So particularly, some of the divisions in Acute front, which are gastro dependent because in Acute the COVID last year extended till almost previously COVID, then Omicron, then dengue. So last year, if you see, there was very heavy sales of anti infectives pain and multi vitamins. And those are muted. So those regions which have these portfolio in Acute, they did reasonably they have just sustained the base or have grown by a single digit. But the divisions in Acute, which are based on orthopedics or gastrointestinal, they have delivered a very healthy double-digit growth. So this is on Acute front. On Chronic front, barring Cardiology, almost all divisions -- this I am telling you internal number, not IQVIA number. So barring our Cardiology, diabetology, dermatology, CNS and uro, all have delivered a very healthy double-digit growth in the first and the second quarter both. So overall, as the Chronic there is a reason we are showing around 19% to 20%. So this is how the division wise summary or therapy wise summary.
And just one more, if I can. On the trade generics market, several of your peers have now started to enter this space. So what is it about this market at this stage that people are also interested in expanding their presence here?
Yogesh you can take that.
So see, we have been consistently saying this for a couple of quarters and enclosed by Mr. Sandeep Singh as well our Managing Director see there are certain core competencies in generic business as well. So whether it is distribution, relationship, team penetration and various other competencies, which are required. So while some of the new entrants will come, but those core competencies we have, we are very confident that traditionally, the way generic has delivered, they will continue to do so. This year, you are seeing quite muted growth. This is because of very heavy base of last year.
Yogesh, your question was why are other people coming on? What's in that market that's driving it?
Yes. Okay. So I'm sorry, I misunderstood the question. So see, the generic will -- see now with so many stores coming up and being promoted by government, so there may be those purchase patterns, which are changing, and there are options being given to patients that they can change their brands and ask chemists to give a cheaper version. So that is one way. Second -- that is one reason. Second, of course, is generic, generally, you'll see operates in those markets where the branded either are not reachable or there's no overlap of branded, particularly in our organization. So generic also reach in those class Tier 3 or Tier 4 towns, where the branded business may not go. And there's a reason that many players now or not many, quite a few are now strengthening their generic business. These are the 2 major reasons.
[Operator Instructions] We have the next question from the line of Prakash Agarwal from Axis Capital.
Just trying to understand, again, this is better. So our India share went up last time, we had said that the price hike benefit will flow through from Q2 onwards. It's not flown fully in Q1. And we had some one-off expenses, which was launch expenses relating to Sitagliptin, plus there were ForEx one-off ForEx, which was unlikely to recur. So all these 4, 5 things are -- have they still played out? And obviously, we've seen margin improvement, but not to that extent, which was expected. So are these launch expenses continuing and ForEx expenses continuing?
Mr. Dubey, you can take that?
Yes, Prakash, actually, yes, we discussed in our quarter 1 call. And there -- we did not see complete impact of our price increase in quarter 1. You are very right. But if you see quarter 2, our growth, NRV component is 5.3% out of our total growth, what 10% growth we have shown. So that is the biggest component. So it is a clear indication, impact of price increases definitely coming in. And I think all these 3 levers NRV, new launches and volume, it's a reasonably good number in quarter 2. So we have a very clear indication. Impact of price increases is coming in. Yes, as far as material cost impact is there, obviously, we discussed in our quarter 1 call also. Some of the materials we already consumed in quarter 1 and something is going to follow in quarter 2. And that's exactly happened. That is the reason impacting to our gross margin. I'm not very clear about your second question, Prakash.
So launch expenses, which was related to Sitagliptin, as you see Q1, there was a spike in cost. I think it was mentioned that it is due to new launches, in India market. So that kind of cost would have continued is what I'm asking, and there was a ForEx element also. So is there a ForEx element sitting in other expenses for this quarter also?
ForEx losses actually that was mainly from Chile, but it's unlike quarter 1. Quarter 1, it was a bigger component, it is small in quarter 2. As far as launch this is - you referred, I think that is going as per our business plan only, nothing abnormal. So that's already factored in our estimate and nothing abnormal we have noticed.
And with respect to input prices that you mentioned, so since about 40% of the business is anti-infective antibiotics, et cetera, so penicillin prices remain pretty elevated levels is one of the few things which have not come down. So is that a direct correlation with our raw material prices? Or is there more to it?
Yes, you are very right. Actually, most of the anti-infective we have not seen pre-COVID level of pricing coming to that level. So you are very right more or less all anti infective prices, it's unlike November, December of last year, but it has not come back. So -- and whatever material we procured in November, December and January, sale has happened against that consumption. So that is another reason. But I think going forward, this 2% impact on gross margin, it is going to come down, definitely, it is going to come down. And then NRV positive, we are going to have -- continue going forward. So we are going to have advantage there.
And lastly for Sandeep. On Sitagliptin, I mean, you are among the top 5 players so congratulations there. But what is the growth plan ahead in terms of diabetes franchise? Are we going for more molecules in a similar way. So we did stop 3 in 1 of the CNS products now Sitagliptin, so what is the growth plan here?
Yes. So growth plan, things have to go off patent for us to launch because we are not the top licenser for a lot of reasons. And we can get into it our growth strategy linked with expiry of innovative brands. And without taking names, you know there's one big one coming up in Jan-Feb. It's not diabetes, but it's cardiovascular. So I think we'd have to play the game. Ultimately, we are a generic company, so we are bound by whenever there is the generic. And I would -- maybe Yogesh wants to comment there. I think we are the #1 or 2 in generics if we forget Sun Pharma and the innovator. What do you think, Yogesh? Are we top 5 or are we better.
No, sir, you're perfectly right, Sandeep. In generic market, we are #1. We have outperformed all the top diabetes players in the industry. And for the last 3 months, we are sustaining #1 position in both the [indiscernible] and Sitagliptin.
In volume, I guess, Yogesh.
Yes.
To be clear to them so that they…
In both we are leading the market in among generics.
We are driven by the market fundamentals, I mean, we don't have anything out of the blue, which would execute better, and then we'll have to fight it out.
And lastly, on the M&A side, given the cash generation is still very strong. I keep on asking this, but are you seeing actively some of the acquisition, which is strategically fit into your portfolio? Or you...
I think -- yes I think [indiscernible] will be asking and my answer also is continue for a second. Not much for cash, we will do it things organically. Even if we do something, we be very kind of small compared to what others are doing [indiscernible] in the next possible future.
We have the next question from the line of Sumit Gupta from Motilal Oswal.
I have just one question on other expenses, which are going at a much higher rate than the revenue. So if you can comment on this.
Yes, Mr. Dubey, please take it.
Yes. Yes. So I think -- Sumit, you are looking for our comment on other expenses. So other expenses, as you know, other expense, it includes everything. And if you take marketing expenses, plant expenses, corporate overhead and most of the R&D expenses, everything it goes in other expenses. So I think you would like to know why our other expenses, they are on higher side. Last year's quarter 2, it was 22.3% and now it is 24.3%. So actually, some of the marketing expenses, it was on a higher side. And then last year, it was very close to COVID and traveling they were not normalized, 80% to 85% only traveling it has happened. But this time, this environment is clear and all marketing activities are happening. So both these marketing expenses as well as traveling expenses, these are on hire, right? So that's why it is 24.3%. Generally, our other expenses is in the range of 23.5% to 24%, Sumit. So we are not very far off. Yes, if you compare with last year's quarter 2, definitely, it will look a little bit on the higher side, but it is within range.
So going forward also, it will be maintained in this range, 23% to 24%?
Yes. Generally, it is 23% to 24%.
We have the next question from the line of Pujan Shah from Congruence Advisers.
Can you just get a sales bifurcation for specific therapies like for Chronic and Acute could we just get this possible?
What is it? Acute therapy.
[indiscernible] for Chronic and Acute?
This is -- see, we are 84,16, so our Acute is 84% and Chronic is 16%.
And sir, could you just get us the gross margin for different geographies?
You mean to say in domestic business or...
I'm talking about all geographies, like India, Australia, U.S. and yes, so Australia and US.
Understood, Pujan. Actually, in fact, we are not talking gross margin on geography wise. But definitely, each business is different. So gross margin has to be different to respective geographies.
We have the next question from the line of Nikhil Mathur from HDFC Mutual Fund.
My first question is on procurement. What is the dependence on Chinese companies for [indiscernible] procurement what is the percentage looking like today?
Mr. Dubey, you can take that, sir?
Yes. Nikhil, our direct import from China or Chinese supplier, it is not much. It is in the Q nothing to 12%. But yes, whatever API we purchase, our API suppliers, they have intermediate dependency on Chinese suppliers. So indirectly, if you see somewhere around 65% to 70% of our API is getting in place because of China.
So sir, I mean, we are not fully sure how things are panning out in China when the lockdowns will open -- so are you in touch with the vendors on a derisking kind of a strategy? Are they also equally focused on trying to have multiple sources. Are you seeing on the ground that there are many other chemical companies based in India who are setting up investments into intermediate with better element for your portfolio?
Yes, I think that is happening. But it takes time to set up CapEx, which already started happening last year. Wasn’t going to take a lot of time, and there will always be Chinese dependency, we'll never be out of it very honestly. If not we will get --
Okay. So nothing disruptive. Things will certainly improve, but it's just not going to change but not in next 2 years.
Yes, I think so. But these are very -- we can't ponder much about it. We don't know honestly.
Second question, can you help me what is the total MR strength today? And how many MRs have been added in the most recent quarters they left in the last 2 quarters.
Yogesh, you can take that, sir?
And net addition lesions.
Yes. So we have around 11,000 representatives across the company, and we have added around 1,000 this year as well. Last months -- not this financial year but last 12 months.
1,000, Okay. And sir, can you also help you with what is the fully loaded cost of a medical rep today looking like? I mean including both fixed and variable [indiscernible]. Is it more like INR 12 lakh, INR 14 lakh, INR 15 lakh how much crores in that?
Yogesh.
Generally, our loaded cost needs to include only the CTC of a representative versus operational cost. I exclude the marketing and cost with the website. So CTC plus his operation cost tools and all would be average, I would say, will be roughly around 6.5 lakh to 7 lakh.
So we are looking at INR 70 crores kind of a drag basis the recent MR additions, which obviously they will breakeven at some point and then they will start contributing to. Is that the right way of looking at it?
No, let me -- can you repeat because your voice is patchy still? I'm not able to hear you properly. Can you repeat.
Is my voice clear now?
Go ahead. I will try to understand your question, yes. It is not so clear, but please repeat.
Okay. So my question is that whatever these MRs have been added last 6 months or so, last 1 year or so, they wouldn't have very broken even by now, right? I mean, it takes a bit of time, 1, 1.5, 2 years. So to that extent, that is the level of costs that is still sitting in the P&L in the last couple of quarters.
Yes. Because to reach is, normally, what we do in the business is, whenever we hire such large teams, we don't give them completely new brands. So there is product rationalization also which happens. But of course, this breakeven takes time. So any reps which we had 1,000-odd reps will take at least 2, 3 years to reach a breakeven.
And sir, are there any competitive forces that play which is pushing up the medical rep costs as well because when we hear from many of your peers, almost -- I think most of the companies are in a field for expansion mode after almost 1.5, 2 years. So is that also dragging the profitability a bit?
Very few on a case-to-case basis, we do address. But generally, we stay to the -- we stick to the broad guidelines in the company of hiring. So very rare cases where we succumb to those requirements. For one we stick to guidelines of the organization.
And one final question, if I may. What is the mix between metros and non-metro cities for the -- for Alkem's domestic business today? What was it, let's say, 4 years, 5 years back? And are we in a situation where new age molecules, especially in diabetes, which are going off patent a company like Alkem, which might be having lesser share of -- more share in non metros, be possibly in a better position to commercialize such products at [indiscernible] irrespective of whether there is legacy product presence or not?
So see, Acute will always have a high salience towards non-metro towns because of antibiotics being written by largely GPs and non-MBBS. So they will always have a bigger field changes in nonmetros. But our metro coverage by Acute also is at par with competition. There's no less. But yes, because of our demography we'll always have more reps in Acute working in nonmetro-towns. Coming to Chronic, by strategy, we have chosen to strengthen metro and Class 1 towns. So we have a very niche marketing approach to the specialist. So metro and class 1 in Chronic, I don't have accurate data, but roughly around 60%, 65% team would be in a metro and Class 1 towns. And... your third question yes, please. Yes, tell me.
Yes. Sir, basically, what I'm trying to understand is that, is there a market still -- is the market being formed for product likes Sitagliptin in the nonmetros or for the market formation for these products in these markets, it will take some time.
See, to penetrate the Sita and all current molecules largely are sold up to Class 1 town only or maybe Class 2, but we don't know see Diabetes has -- there's no study which says that it will restrict only to metro and not metros, it will go below everywhere. But yes, for doctors, specialists are largely in metros and class 1 towns. If you go below, there are more generalists, so they will still continue to write older anti-diabetic drugs, but metro and class 1 will shift to the current guidelines, AGA guidelines, at least talk about empagliflozin and Sitagliptin, this will become core in these -- at least these towns, up to Class 1 towns.
[Operator Instructions] We have the next question of the line of Prashant Nair from AMBIT Capital.
So can you give us a sense of what is the quarterly spend on your biosimilars initiatives? And is this likely to increase some share? Or would this be the current -- would the focus be the steady state for some time?
Mr. Dubey, you can take that?
Yes, sir. Yes. So biosimilar, I think you are more interested in biosimilar R&D or composite.
No composite, if you would just give us --
Yes. So annually, we have a total budget for biosimilar somewhere in the range of INR 140 crores total OpEx and revenues close to INR 150 crores, kind of. So out of that R&D is somewhere close to INR 100 crores.
And is this likely to be the range going forward as well? Or do we see some pickup in.
It is as per our business plan an so...
So going forward, they're asking. So going forward, no, it will be steady, not picking up.
All right. And a question on the cost reduction initiatives you mentioned earlier. Just if you could give us a sense whether -- so these costs that you're reducing would relate to any specific business like the U.S.? Or would it be at an overall corporate level? How do we think about that?
Yes, I'll talk about it. And Mr. Dubey, you can please add on if I forgot something. So these are for international business as well as overall corporate. So some of -- I think there was in the procurement, some of the levers are in supply chain, it's inventories reduction and some of -- a large part of it is also in savings in plant overheads and R&D expenditure. So pretty much touching base everywhere.
We have the next question from the line of Sonal Gupta from L&T Mutual Fund.
So just on -- I mean, just trying to understand, right, like on the U.S. business, given the -- I mean, what is your longer-term outlook. I understand that you're still optimistic. But I mean, clearly, some of these cost cutting measures that you've outlined seem to pertain to that as well. And I mean, like is this -- just trying to understand what is the longer-term strategy? Is it going to be a calibrated investment based on the sort of revenue throughput? Or how are you looking at it?
Sure. So I'll take this. So and Amit, you can add on to this, if I miss some point. So you're right. I mean, most of the cost initiatives are, let's say, for international -- and when I said R&D and things like we are calibrating our investments to U.S. So we are kind of controlling the capital allocation we do there. Hoping that this can become slightly better in a couple of years. And longer term outlook, see again, to be honest, no one knows, this is going through a real tough times for the entire industry. If things don't improve in some time, then, of course, we could again discuss what needs to be done. But as of now, we are going aggressive on cost-cutting and allocating lesser capital.
And so even at the -- so does this mean that even at current level of revenue, do you expect that your U.S. profitability will improve by next year?
It will improve. It has suddenly improved. But is it like improving enough to kind of justify how much capital we put in, is a bigger question, but certainly, it will improve because I think -- and it would sound funny in hindsight, but we do think we have hit rock bottom. I hope I'm correct, but -- so it will certainly improve from now, but could it get worse, we don't know.
And just related to that, so what is the R&D spend you're looking at now for this year and next year?
I think Sonal you said last time, in terms of kind of percentage so because we have biosimilars and all that our self. So even if we are controlling it as the same percentage means we are cutting back on traditional U.S. investments, right, generic.
So it will remain, I think, in the 5% to 6% range in that...
That's correct. Yes, that's the safe estimate, absolutely.
We have the next question from the line of Binu P. from InCreed Capital.
Just 2 questions. You've launched generics products with exclusivity in the U.S. Did it benefit in any material way in the U.S. business this quarter?
Amit, can you take that, please?
Sure. We haven't had any exclusive, exclusive launch in the U.S. this quarter. We've hired a shared exclusive to do that. Any launch, which is either is the exclusive period, of course, it's not exclusive, the only person in -- only generic in market, it will definitely help. And even those where you are within the 180 days and you've launched which is a shared exclusivity with other generics generally the margins tend to be better. And that's a very generic statement, but that's true. Any new launches generally come at a better gross margin than the existing business. But then the downside is, they also go through a rapid price erosion.
Sir, in this current quarter's number, is it a significant number?
We launched -- yes, no, it's not a significant number from a revenue or from a margin perspective for that particular product.
And one just follow-up. There is generic [ Supreb ] which you have filed in the U.S. and the exclusivity is getting over in another 3, 4 months. Do you -- are you on -- are you in line to launch right after the exclusivity period?
We are hoping, but I don't want to comment anything more than that at this time.
We have the next question from the line of Madhav Marda from Fidelity.
Just wanted to understand that given we are -- seem to be holding back on the capital allocation towards the U.S. business, would it be fair to say that earlier we were sort of expecting 10%, 12% growth, given that price erosion is an us holding back on capital allocation there, like growth might not be that much and could be a bit slower. Is that a fair assumption to make at this point?
Amit will you take that, sir?
Fair assumption, obviously, if you hold back the R&D investment, it definitely will have some impact. So now our task obviously is to see how we can do smarter investment so that we can still expect revenue that -- revenue growth that we expected and margin growth as well.
We have the next question from the line of Harith Ahamed from Spark Capital.
On the generic products are launched again. Given that it's a 2 generic player market currently our market share, what I can see is that in single digits seems to be on the lower side and the innovator seems to be holding on to close to 80% market share there. So anything that is unique about this product or anything that is challenging about this particular launch that a market share hasn't really ramped up to the way we expect in a generic player market
Amit.
I'm sorry, I didn't get the question. Was that for a particular product there did you mean?
Yes. It was about the generic version of Pradaxa, where we've been in the market for almost 3 months. Question is about whether the market --
Sure. We've done sort of a limited launch on products by called Dabigatran. And to some extent, the full extent it is because of our supply chain. We are not able to get our raw materials, and I don't want to elaborate anything further here. So whatever we are able to manufacture and supply, we are able to sell that in the market, obviously. There are only 2 generics in the market, as you know. So we'll be doing the best we can, and we are working on our supply chain.
And on our biosimilar denosumab, I see that we have a Phase I trial move on for this product. So will we be looking for a partner for this product before we get into Phase III? And if you can share some time lines around this product, particularly from a U.S. standpoint.
Yes, I'll just take that. And if need be Amit will come in. So we -- right now, we're not looking for any partner. We believe by 2026, whatever requirements you have of field force and all that will go off in a way. And we are not willing to do phase till we find a partner. We kind of have to run Phase III Phase I, both partially, and we are kind of doing that already.
We have the next question from the line of Naushad Chaudhary from Aditya Birla.
First, a clarification on the margin side, sir, you indicated from the earlier guidance of 3.5% you indicated a few bps, 100 or 200 bps down for a full year, you maintained that guidance, which comes to around 14.5% to 15%. So that implies around 17, 18 kind of percentage kind of margin in second half and despite second half being simply weak for us. Can you clarify on that? Do we still maintain that 14.5% or 15%? Or was that for second half?
No. I think we mentioned for overall, Mr. Dubey, I think what do you think?
For overall basis we are going through to be somewhere close to 15%, 15.5%. And obviously, in second half, our EBITDA margin is going to be on higher side. So if you see first half, our EBITDA margin is 11.6%. And for second half, we expect our EBITDA margin to be much more higher, which is ultimately going to land somewhere close to 15%, 15.5%.
And that much more higher is only because of that cost initiatives we have taken? Or is there something else which would lead to because...
It's on overall basis. Actually, complete impact of price increase we see in quarter 3. Then material costs also, we see some betterment there and our estimate is there. Besides this, in the second half, we expect our sales incentive to be a little bit on lower side compared to first half. And then our accounting cutoff also, that also is another major factor, which is going to come ultimately in quarter 3 and a major portion in quarter 4. So all these are the factors, which is going to give us additional EBITDA margin in second half.
And one quick one on the cost saving initiatives. Would there be any impact on the existing revenue there?
I'm not very clear on your question. You said costs in initial impact on revenue, you want...
Existing revenue base, is there anything which we want to discontinue and that would bring more cost having anything like that?
No, not any significant or we are thinking purely on cost saving front. So having impact on revenue, I don't think -- and we also don't have anything in our mind.
[Operator Instructions] We have the next question from the line of [ Yash Dhanav from PMS ].
Can you set the MR productivity breakup for Acute versus Chronic? And how do we see the growth in Chronic productivity as Chronic is scaling up well for us?
Yogesh?
Yes. Sure, Sandeep. So Acute productivity is around INR 6.5 lakhs and Chronic is around INR 3.8 lakhs to INR 3.9 lakhs. And so whatever growth we have taken for the year, accordingly, the productivity will increase. So this is all.
So over like 2 to 3 years, so how do we see growth for this productivity and overall productivity?
Yes. So as per our guidance, if I go by around 10% to 12% growth for next 3 years, accordingly, the productivity will grow. Yes. In Chronic, of course, we will try to drive faster growth, which is around 1.5% to 2% of market -- so that we may be slightly more than Chronic in terms of absolutely.
My second question is also we have reduced guidance on margins for the current year. But I think last quarter, we had mentioned that next year, maybe you get back to about 18% margin. So do we still hold that guidance?
Sandeep ji, you want me to take the...
Sorry, sorry, what is the question? Can you repeat, please?
Yes, sure. So for this year, we have reduced our guidance 100 basis points odd. But I think last quarter, you mentioned that FY '24 onwards, we'll get back to 18% or 18% last do we hold that guidance?
Yes, yes. Hold it.
And one last question, if I may. So usually, we have seen outperformance in all therapies on but maybe there's a slight split in this quarter in cardiac and pure therapy. And I think even on a half-year basis, we've lost one rank in cardiac. So how should we look into this -- is it something that we have to look into or is it just normal for --
Yogesh, you can take that.
So in Cardiology, if you look at our product portfolio, our major challenge has been through anticoagulant. So we sold very well Dabigatran during COVID time. So our first 6 months was going very well for Cardiology, and the focus was also more on Dabigatran. But with the change in COVID and the change in approach of anti-COVID and the new anti-coagulants are coming, that has impacted largely the business. So we have changed that strategic approach. We will be certainly focusing on the molecules, which has a large prescriber base, particularly anti-hypertensives and lipid management. So these 2 will be our core focus in Cardiology segment to drive the growth. And of course, we have launched a new anticoagulant, which is challenging Dabigatran is apixaban. So there in the first IQVIA, we are in unit #1. So this will give us some color. But our large focus will be on anti-hypertensives, we have already started in Telmisartan, and we will also focus on our lipid management, which is our [indiscernible] strategy. So this would be the good driver for Cardiology. And of course, just to add what Sandeep said in the beginning, we are launching [indiscernible] for heart failure, and that can be another blockbuster in Cardiology.
We have the next question from the line of [ Shrikant from Colker ].
This is Shrikant from [ Asian Markets plc. ] Can you please highlight what was the price erosion during the quarter? And where do we think this will move in the next 6 months to 1 year?
You're talking about U.S., I assume.
Yes, U.S. prices.
I'm sorry, can you repeat the question, please?
Yes, sure. So just wanted to know what was the price erosion, U.S. price erosion during this quarter? And where do you see this moving in the next 6 months or 1 year time?
Yes. So current quarter price erosion numbers sort of its bit all over the place, I'm sorry about that because of the way we have done from a tough line but we certainly were higher in double digits. I mean we are somewhere between 10% to 15% and probably more than 15%. We are expecting last quarter, if you remember, we had reported a high number in the range of 20%. Q2 last year, we had launched a couple of products which were first to market exclusive, obviously, they've gone to a rapid price erosion. So long-story short, this particular quarter, quarter 2, we had a large price erosion. You can only hope that this doesn't stay the initial time was that the price erosion is still there but not of the same nature. Specifically answering, I will be happy with a single digit price erosion.
That was the last question due to time constraints. I would now like to hand over to Mr. Amit Khandelia for closing comments.
Thank you, everyone, for joining the call. If any of your queries are unanswered, please feel free to get in touch with me. Thank you. Have a great weekend.
Thank you. Have a great weekend. Bye, bye.
Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.