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Alembic Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to Alembic Pharmaceuticals ltd. Q3 FY '22 Financial Results Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. RJ Baheti, Director Finance and CFO; Alembic Pharmaceuticals Ltd. Thank you, and over to you, sir.
Thank you. Good afternoon, friends. Thank you for joining the third quarter results conference call. I'm sure most of you would have received our results by now. However, let me take you through the numbers for the quarter and 9 months ended 31st December 2021.During the quarter, our total revenue down by 3% to INR 1,272 crores. EBITDA was INR 269 crores, which is 21% of sales. Profit before tax and profit after tax is INR 209 crores and INR 176 crores, respectively. EPS for the quarter is INR 8.9 per share versus INR 14.88 per share in the corresponding quarter in the previous year. As I explained in the previous quarter's call, the comparison with previous year's numbers are not of much relevance, as previously it was an exceptionally strong year on back of Sartans and other product shortages in USA. However, when we are happy about is, that our Q-on-Q performance is now stabilized and going forward, it gives us confidence that work is behind us and we'll continue to improve from here.During 9 months for the year, [indiscernible], our total revenue was down by 5% to INR 3,890 crores. EBITDA was INR 791 crores, which is 20% of sales. Profit before tax and profit after tax are INR 616 crores and INR 510 crores, respectively. EPS for the 9-month period is INR 25.96 per share, this is for 9 months period; versus INR 48.10 in the corresponding 9 months ended financial year 2021 in the previous year.Coming to borrowings; our gross borrowing at consolidated level is INR 615 crores versus INR 815 crores in September 2021, and the company had INR 102 crores in cash on hand versus September 2021 numbers was INR 329 crores. So our net debt to equity stands at 0.10.I will now request Pranav to take the presentation forward on the international business.
Thank you, Mr. Baheti. As you know, let me start with the largest market, the U.S. business. So the U.S. business, as you all know, is coming off a high base of last year, actually last couple of years have been very good for us, and I think we've had a CAGR of almost 25% over the last 4, 5 years, where we saw a lot of market-based opportunities. Having said that, I believe that the price erosions are more normalized now, and we can grow with the new launches. We have some new launches coming up, including our first inhalation product, as well as a couple of first-to-file launches in the next 6 months, which should help grow in this market.In addition, in Q3, we saw some supply chain disruptions and higher freight costs. I think freight costs will continue to remain in Q4, but hopefully the supply chain disruptions on the U.S. side will become lesser in terms of Q4. As I have mentioned in the last couple of quarters, we've been focusing on cost rationalization, and that exercise has also started yielding results. As we move forward, we are hopeful of better performance backed by new products, as well as picking up share in existing products. I continue to remain bullish on the U.S. market.R&D expense was about 12% of sales at INR 154 crores for the quarter. We filed 6 ANDAs and the cumulative ANDA filings are at 220. We received 4 approvals in the quarter and 22 tentative. We also launched 6 products during the quarter, and we plan to launch around 5 more in the fourth quarter. FDA inspection of our injectables facility, F3, took place, as you know, and [indiscernible] observations. We have submitted responses to the FDA, we hope to hear from them.The U.S. generics, degrew by 23% to INR 393 crores for the quarter and by 34% to INR 1,100 crores on a 9-month basis. The ex-USA generics grew by 13% to INR 193 crores for the quarter and it grew by 8% to INR 587 crores. This was quite happening, considering that this business has come off a high base of last year's level. The API business grew by -- degrew by 7% to INR 198 crores for the quarter and by 3% to INR 716 crores. As you know, API, of course, has high base last year, due to the COVID-related azithromycin.With that, I request Shaunak, to take you through the India branded business.
Yes. Good afternoon, everyone. For the India branded business or India formulation business for this quarter, we continue to see the momentum that we've been seeing now for the last 2 quarters, and on the back of a decent market growth numbers, we could deliver good numbers. So on a 10% growth of the market, our sales numbers grew by 17% over the previous year. And this is just on our straight portfolio, per se, without any COVID-related one-off benefit as a part of the 17%.For the -- for 9 months for this year, India-branded business grew by 17% and 30% -- sorry, we grew by 30% on a 9-month basis, and I think the split between the 2 for the quarter in terms of growth numbers are 12% and acute was 22%. -- for the quarter.The Animal Health business, which has been performing significantly well for a long time, it continues to maintain that rate of growth, and we grew by 24% in Q3 on a very high base of last year also. And keeping these things in mind, I think we're quite confident going forward that we are on the right point to look at higher growth numbers going forward, with our ability to extract better operational efficiencies from all the restructuring we've done.At this point, I'll hand over the floor for Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
Question is on the statement made on the few launches in inhalation and complex products in the next 6 months. So if you could give some more color?
Prakash, I don't -- whatever is in the public domain. As you've seen, we've got some approvals, I think in the inhalation, one is Formoterol, which is in the public domain. We should launch that maybe -- end of Q4 or early Q1. The other ones are the FTFs, I think we have vilazodone, which is an interesting launch that should happen in Q2 -- Q1 of FY '23.
Okay. And how many of these like these are -- some of them are approved and you're expecting some approvals, would they require some USFDA inspection, or they are irrespective?
No, these are from sites already inspected.
So currently, from an U.S. FDA side, only the injectable Karkhadi plant is under evaluation?
Yes. So the -- from an FDA perspective, the only one where we haven't got an EIR for, is the injectable plant at Karkhadi. The injectable plant at Panelav, that has not been offered for inspection as yet. We've just done the filing, so they haven't gone for an inspection as yet.
And when do you think your -- in the past, we have talked about 100 to 150-plus products in the -- R&D, and we have seen the filing date also improving. But from an approval side, what we have seen are mostly the plain vanilla ones. When you think, when sales of these complex products can start coming in?
So I think it's tough to say what's going to be a complex and what not. But injectables, we haven't seen any approvals as yet, right? I think from -- what we said as a number of filings, if you've seen, we have said we should get -- roughly file and get approval of about 100-odd products in a 4-year perspective. And I think we must be close to that because we've been finding over 25 products every year. In terms of approvals also, we're getting about 20, 25 approvals every year. So that's on track. Some of them were FTFs, which we have seeing approval, of course, there's no competition in that. And injectables will happen once the facilities are inspected.
Okay. And any timelines on that, sir? I mean when do you expect the resolution and the remediation to finish?
Yes. So all the responses have been submitted to the FDA. I think we'll wait to hear from them. I think hopefully in the next couple of months in this quarter, we should hear from them and then we'll get a better idea.
Okay. And lastly, when we heard the worst is behind us, is the commentary, both from the U.S. sales run rate perspective, as well as our gross margin and EBITDA margin perspective? Because both seems very interlinked?
No, I will say more from a U.S. erosion perspective, I think, on a year-on-year drop. So you see Q-on-Q, I feel now this is what the new base that we're looking at, about $45 million, $50 million-odd is the base that we should look at, and then slowly we keep adding products and slowly get market share. That should help.
Would Mr. Baheti, you want to comment on the margin trajectory?
So this quarter, we have 21% EBITDA margin. For the 9 months period, it's about 20%. I think for EBITDA of 20%, we have at this moment, we look comfortable.
And would we say that the worst is behind in terms of 20%, 21% and we come back, inching up?
I think it's too tough to say right now. It's too early. I think let's just stick to what we believe right now and in the near future. If we get 20%, it is a fair kind of margin for us.
The next question is from the line of Damayanti Kerai from HSBC Securities.
My first question is on the U.S. So you obviously have seen a good sequential recovery and mentioned that the worse is behind us. So can you elaborate a bit like, now the excess inventory in channel which are dragging down price, has it been cleared in your observation? Or what has led to the pricing stability seen in the third quarter?
Actually, to be honest, I don't know what the channel inventory, and I'm not aware of that. So I don't think that's affected us. What I'm saying is, if you see the last 2 years, we had a very high base. And when you have something, for example, going from a $70 million-odd in the third quarter, where as we came down to $50 million. That's the kind of drop that we had. Now coming to $45 million, $50 million, I don't see erosion from this level going to more than a mid-to-low single-digit kind of erosion. That's what I'm saying. It's not going to be a drastic fall. I believe it's stabilized at these levels. So even if there was erosion, it will be taken care of by the increase in market share or by new launches. That's what I was trying to say.
Okay. So in terms of pricing erosion, it's broadly back to the historical range of mid-to-low single digit in your observation?
I believe so, yes.
Okay. And have you like heard, I will say, more communication from the FDA in terms of facility inspection in India. Obviously, you mentioned like you have offered Panelav facility for inspection. But in general, how has been the communication ongoing with FDA, in terms of some of the pending inflection?
For our facilities, we haven't heard anything, except for the injectable facility. From the FDA, we have not heard anything from them.
Okay. And my last question is on India business. So last 3 quarters or so, good performance. And I understand, barring third quarter, in the previous quarter, we had some tailwinds from COVID-related demand also. So on back of that, how we should look at growth in next fiscal and beyond?
So I think the growth was only -- if there was any growth that was mainly only in Q1, not in Q2 or Q3. So there was no COVID-related tailwinds per se. Going forward, I mean, the simplest way I would look at my growth is, whatever the market grows at, I should grow at least 5to 6 -- minimum 5 to 6 basis points higher than the IPM growth rate. I mean that's the simplest way I can explain it.
Okay. So market is growing at 10%, you should be achieving 5 to 6 percentage points ahead of a market?
Yes. Minimum 5% to 6% or perhaps...
And what will be a key driver for that kind of big outperformance against the market?
I think it's a mix of a couple of things. We've talked about operational efficiencies, and we've done a lot of work in the last 3, 4 years, in and around that. I think along with that, with the portfolio rejigging that we've done, I think broadly if you look at my products, which are priority [indiscernible] good high-growth markets, which should allow me to give a higher than market growth rate.
Before we take the next question, a reminder to the participants. [Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just again on the domestic formulation side, there has been significant growth, particularly on the acute side, and that too in cold and cough. So is it more seasonal?
I think it's a couple of factors. There is some amount of season, but I wouldn't say there was a highly -- I think it has a lot to do with the base from last year, which was quite low. There was a suppressed base for cough and cold last financial year, which we're seeing it going back to and maybe growing a little higher than '19-'20 levels?
Got it. And even in the anti-diabetic segment, we have seen much sharper growth for Alembic. Anything you would like to call out here?
Yes, I think the anti-diabetic growth is largely on the back of a couple of good launches we've had in that space, and we expect that momentum to continue for us going forward.
And the next question is from the line of Bharat Celly from Equirus Securities.
So sir, just wanted to understand on inhalation products, which we have referred for. So what is stopping us from launching it? I believe there is no patent and [indiscernible] expiry has already been -- for Teva is already over. So why we have not launched and we are waiting for another 1 quarter to launch it?
Yes. No, it's a good question. It's a product that we've gone through a CMO, and we're just waiting to the scheduling, and COVID time, they've had some disruptions, and we are just waiting for that. Otherwise, we'd like to launch it on day 1. But between the FDA, responses to the ANDA -- not observations, responses to the ANDA as well as constraint from the CMO side. That's what's has delayed us by a couple of months.
Okay. And what is the outlook, competition outlook for this drug? Given that there are multiple companies who are chasing this drug. So do you see any immediate competition, or you see that there will be some practical exclusivity for you to be in this market?
No, there is competition, but there's limited competition. There's not 15 people, as I think -- if I am not mistaken, there are 4 to 5 people or something like that.
Right. But in the first stage, there will be 2 along with you, right?
No, I think there's only 4 or 5 people there in the market.
Okay. Okay. Okay. Sir, if you would tell your U.S. revenues in dollar terms, it will be hopeful for this quarter.
Bharat, I'll separately send it across to you.
It's about $50 million, right?
Okay. Okay. And sir, last one is, how we have seen in drugs, given that -- another product which was gaining a lot of momentum in the past. So has Azithralcame back to the historical run rate quarterly, or it is still high in the domestic business?
For Q3?
Yes.
Yes, it's back to what it should be.
The next question is from the line of Ankit Sonkhiya from Oculus Capital.
So a question is, what are our key learnings from this Karkhadi plant experience with U.S. FDA? And have we taken any remediation measures for F2 plant in advance, so that we don't say similar situation whenever FDA comes for its inspection? And it's very difficult for us to understand that for a brand-new facility, what has been the issues that has been so long, that the U.S. FDA is not satisfied with this facility yet?
So I think it's not just facility. Facility is one aspect of it. I think it's the practices and the documentation and the processes you have. And I think most of our thing has not been on the hardware, but its observations have been on the processes and the practices that we have. And it's a learning curve, to be honest, this injectable has always been tricky. It's always going to be tricky people, who've been in it for years, also faced issues on it, our bigger peers. So it's just a matter of a learning curve, and there are learnings and hopefully, yes, we will apply these learnings to other facilities as well.
Okay. And have we already taken some measures in F2 plants?
So some delay has been because of -- inspection itself got delayed, because of COVID and all that in the past. So not the entire delays. Of course, after sending our response, they came back and the second time observations are a little more painful to us. So you are right.
Okay. So any measures that we have already taken for F2 plant?
Yes. So what we've done is, we're using -- as you know, we're using consultants. Of course, the teams have seen what observations happened at FC, there's a common quality head, so we kind of replicate, do the same things that get F2 ready as well.
And Ankit, just to clarify, this is not our own observations, from which we take learnings. We look at all public documents of all of the observations of any pharma plant across the globe, and we are sort of giving just training to our people, taking [ Boehringer ] case studies. So this learning is a continuous process.And as far as F3 is concerned, from our side, at least we believe, all remedial action has been taken and the response has been filed with the FDA. So we need to hear from them.
[Operator Instructions] The next question is from the line of Kunal Randeria from Edelweiss.
Pranav, slightly longer-term question for you. So as you expand your portfolio, could you share how many Para 4s or FTFs would you be sort of working on from the onco and certain injectable plant?
From -- I don't have a number. I will get Natasha to send it to you. But roughly, from the onco side, bulk of the filings. On the OSB side will be all Para 4s because these are the ones -- today, most of the Para 4 opportunities are around the onco only, because most of the products getting approved, new products selling approved with the U.S. on onco side. So I will just get Natasha or somebody to send that data to you. I don't have it in front of me.
Sure, and on injectable side?
And for the existing site, it would be lesser because when it used to be, I think at one point, it is about 20-odd percent of our portfolio would be -- it used to be high, about 30% I think with the increase in filings, I'd say about 20% of our portfolio would be about FTF, if I'm not mistaken, for pending launches.
Okay.
That's plant FTFs. Yes.
That's helpful. And second, on the domestic business, I mean, that's been quite impressive in the last few quarters. So when Shaunak did mention that you do expect market-leading growth in the coming quarters. Maybe if you can shed some more light on which of the therapies you think we should expect, sort of strong growth going ahead?
From India business?
Yes, around domestic business, domestic Alembic business?
Yes. So I think all the segments which we operate in, I think we will pretty much -- we are quite aligned. And I think -- if you want me to go through the list, it's basically, I would say, cough and cold from the acute side, we have a strong antibiotic macrolide business, which should give good growth. I think the GIP is one where we grow. Women's healthcare, we expect great performance going forward? CVD, also we're expecting a similar strong performance. These would be the major therapeutic areas. Along with that, we have some of the smaller niche segments, where we expect these growth numbers to continue. So which is basically our ophthalmology, dermatology, urology orthopedics. And of course, I think along with that, although I don't have market growth numbers, but I think our veterinary business is something that we've been really able to ramp up to growth, to very high double digit over a sustained period now. I think we're expecting at least that piece to continue [indiscernible].
Sure. And just one more, Shaunak. If I compare your last presentation to this one, your I think marketing team strength has gone up from around 5,000 to 5,500. So just wondering, where this 500 addition [indiscernible] has been made in, which are the therapy areas?
No. So I think this -- I don't know, there must be some confusion, because we've not added 500 people in the last year. So I don't know where this...
No, compared from the last quarter.
I think there must be some issue with the updation of the number last year. But roughly, we look at adding and we've been -- we will add last year rather, we've added in the range of about 150 plus/minus people. And I think going forward also, we should expect to be in this 150 to 200 range in terms of manpower expansion. Obviously, a bulk of that goes into the larger divisions. So if you ask me specifically, I would say the cough and cold acute side definitely gets a high percentage of it, along with, I think, in the last year, I think we've done some additions in the women's healthcare/gynecology portfolio and a little bit in the CVD space also.
The next question is from the line of Nikhil Mathur from HDFC Mutual Funds.
So first question on the U.S. side. Now this quarter, Alembic has clocked around $50 million, which is $200 million annualized. So can you help me with the number, how many products are there in the market, which is contributing to this $200 million annualized sales base of Q3?
Roughly, we have about 101 products in the market.
Okay. So basically, assuming that there's no major concentration left in Q3, so $2 million-odd per product, I mean, I know there will be some products which should be higher contribution nature like the inhalation product that you talked about, some will be lower. But on a blended basis, is this what the run rate should look like over the next?
I wish it was so easy. But typically, I think with us and for every company is, there's always a 20-80 kind of a rule, I think 20% of your products will give you 80% of your revenue. And we feel the same. What has happened for us is, the concentration has come down. I think it's the last couple of years, 5, 7 products was a much higher -- concentration, that has become, I would say top 20%. So in that effect, I'm a little more comfortable and that's why I said earlier on the call, that I'm more comfortable moving forward with these current level of sales.
Okay. Got it. And I don't know -- I mean, the currency difference might be there, but there is some decent growth on a constant currency basis as I can see, on a Q-on-Q basis. Can you split it out, how much of this is new products, and how much of that is -- and what kind of a pricing erosion would you have faced on a Q-on-Q basis? Any ballpark number that you can share?
You know, we don't give a breakup of new products versus old products, it is all blended. And that's why -- I mean, Damayanti had asked earlier. I said that I expect that, even in spite of erosion with the new products, it will make up a part of it. So we just give a blended kind of number. In my opinion, I think erosion would be in the mid-single digits right now. That's the ballpark. Yes. Again, I don't have the exact figure, because you have to go product-wise, and this will be tough to calculate.
All right. Okay. And would it be fair to assume that -- I mean, you talked about certain interesting launches in the next 2, 3 quarters. At least from the U.S. front, this is what the bottom is in terms of gross margin and things can only improve thereon. I know it's a very dynamic situation, but...
Yes. So again, we don't break up the U.S. also by gross margin. But I expect, yes, I think it should continue -- at a corporate level, our margins will continue being where they are at about 20%, 21%-odd. And let's see how it goes, because it's also a combination of R&D spend and what percentage of the R&D spend, because we expense out everything.
Okay. And sir, I had a question on the OpEx side as well. If I look at 2Q versus 3Q, your OpEx is down almost INR 30-odd crores from INR 700 crores to INR 670 crores. Is this the -- I mean, are there any onetime savings in this particular quarter? I know R&D is down by some INR 14 crores, INR 15 crores, but is this the new run rate that the company is working with?
Actually, it doesn't work that way, because Q2 for all pharma companies who are in domestic business -- domestic [ promo ] expenses is the highest and then it gets done. So actually, you can't be doing a comparison this way. So in branded business, we have been gradually increasing our spend. And [ ideally ], of course, there has been some cost challenge.
So can you help me with the cost reduction number, because I think that can give a better sense on how much annualized we are tracking at?
So if you look at the 9 months number, I think it's a clear equalization.
Okay. So 9 months of FY '22, minus 9 months of FY '21 is what the cost reduction has been achieved and it should be sustainable?
More or less, yes.
All right.Okay. Okay. And one final question...
And on the top of mind, this is a matter of some cost increases, like some freight costs have gone up, not for us, for almost the entire industry, particularly the international freight costs have gone up very high. So some of these costs have gone up. There will be some temporary cost increase, it's because of the normal increment et cetera. So these are all just net of cost increases.
Okay. Okay. And yes, on the R&D side, I mean, I know companies talk about as a percent of sales basis. But can you give some sense as to, how should one build the R&D number going forward in '23 and '24 on an absolute basis, not so much on the percent of sales basis?
So I think our absolute basis this year, will be at what -- about INR 650 crore or so INR 670-odd crores for the year. I think moving forward, again, I would take a range of about INR crores to INR 700 crores -- INR 600 crores to INR 750 crores, that kind of range is what we should look at for the next year.
Okay. Okay. And just one final question. Now I mean, India growth has been quite good last 2, 3 quarters. Any interesting launches that you can highlight that are coming up in India over the next 12, 15 months, that we should be looking forward to?
Yes. So we keep launching products. I think my point -- new launch point of view, are I think we have a couple of launches [indiscernible] in the gynec/women's healthcare space as well as you are aware, in fact, some of the [indiscernible] products or more [indiscernible] products have gone on patent, and will be going on patent in the next 12 months. So I think largely, we expect these 2 segments to have a bulk of the new launches, or rather the high-value launches to happen in that space.
The next question is from the line of [ Amit Singh ]from Oculus Capital.
Yes, sir, am I audible?
Yes.
Sir, just a quick bookkeeping question. The INR 2,000 crores receivable that you have, so what is the split of that between the facilities, and when can we expect it to get capitalized in the books?
So same, we have already given sometime back. This keeps changing only to the extent of [ pre-operated ] getting added. And as far as the capitalization is concerned, that would be on the day, when my first commercial batch is taken out of this facility. So that will be obviously post-FDA approval of the facility, and then by getting approval of the products.
The next question is from the line of Prakash Agarwal from Axis Capital.
Yes. Related question, so like we have some cost capitalized and you also gave margins of 20%, 21% to be the new run rate, et cetera. So is this baking in the new cost, which is currently being capitalized and will start being in the P&L, once the products kick in from the newer facilities?
So Prakash, it is like this, there will be 1 or 2 intervening quarters where the revenue will be really low to start with, and will start charging of all the cost to P&L. But apart from those evaluations, I think once the new facilities also start getting into the revenue mode traction, so we should be back to these EBITDA numbers.
Okay. And this you expect in the fiscal '23, or when do we expect that to happen?
'23, we surely expect -- I mean, barring any -- F3 should surely help us, and then hopefully, at least one part of F2, I mean, there is the onco [indiscernible].
So I missed your -- yes, I just missed it was not clear. Sorry, can you repeat the last sentence again?
Yes, so F3, for sure, we'll see a commercialization in FY '23. F2, I believe there is still a way -- I think we're going to wait for the audit by FDA. I think as I mentioned, the [ whole production ] is way off, so I think we're going to wait on that. F4 also, I think we're going to wait, because that's just additional capacity, so that [indiscernible] FDA. So I think in FY '23, you'll see probably only F3 coming in.
And the cost spread up between 2% and 3% is equal or it is...
No, F3 is a larger facility.
Okay. So the cost -- the large part of the cost will start getting P&L from, say, maybe Q1, Q2?
Not really, whenever it commercializes, whenever FDA and we resolve the issues.
The F3?
F3, yes, Formulation 3. Yes.
The next question is from the line of [ Jay ], an individual investor.
Yes. Am I audible?
Yes.
So please, could you explain the new capacities coming up in the next 2 years? In what segments are these capacities coming up? And what is the total addressable market of these segments and the pricing in the segments?
So multiple questions here. But I think this would consume time of others, they are quite familiar with our business. We are into the -- the new facilities have been created for injectable, for onco, oral solids for onco injectable and the new formulation facility. So this is where these investments have been stand out, and you need to have -- need a different explanation. Why don't you get in touch with Mitanshu offline, and he will explain you?We can wind up the call, if there are no new questions.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. R.K. Baheti, Director Finance and CFO, Alembic Pharmaceuticals for closing comments. Thank you, and over to you, sir.
Yes. Thank you, everyone, for being with us in our conference call. And as always, it's always a pleasure interacting with you, and we'll keep looking forward to engaging with you in coming times. In any case, if somebody has more questions, again, Mitanshu will be happy to respond. So with these comments, I conclude. Thank you once again, good evening, and stay safe.
Thank you very much. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, Thank you all for joining us.