Aurobindo Pharma Ltd
NSE:AUROPHARMA
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
989.8
1 568.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Aurobindo Pharma Ltd
You don't have any saved screeners yet
Good day, ladies and gentlemen, and welcome to the Q2 FY '20 Earnings Conference Call of Aurobindo Pharma Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Krishna Kiran, Investor Relations. Thank you, and over to you, sir.
Thank you, Margaret. Good morning, and a warm welcome to our second quarter FY '20 earnings call. I'm Krishna Kiran from the Aurobindo Pharma Investor Relations. We hope you have received the Q2 financials and the press release that we have sent out yesterday. These are also available on our website.With me, we have our senior management team represented by Mr. P.V. Ram Prasad Reddy, Executive Chairman, Aurobindo Pharma USA; N. Govindarajan, Managing Director; Mr. Sanjeev Dani, COO, Head Formulations; Mr. Santhanam Subramanian, CFO; and Mr. Swami Iyer, CFO, Aurobindo Pharma USA.We will begin the call with summary highlights from the management followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic action and other affirmation on our future business, business development and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual developments and the results to differ materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.And with that, I will hand over the call to Mr. Govindarajan for the highlights. Over to you, sir.
Thank you, Krishna. Good morning, everyone. We are here to discuss the results for the second quarter of financial year 2019-'20 declared by the company.Revenue increased by 18% year-on-year to INR 5,600 crores led by healthy growth in our key geographies. The EBITDA before ForEx and other income stood at 1-1-6-7 or INR 1,167 crores, an increase of 14% over corresponding previous period. EBITDA margin was at 20.8% for the quarter under review. Net profit increased by 5% year-on-year to INR 640 crores.In terms of the business breakdown, Formulation business contributed to 85.6% of the total revenue and clocked revenue of INR 4,794 crores, registering a growth of 22% year-on-year.API business posted a revenue of INR 806 crores with increased focus on captive consumption. In the Formulation business, the revenue from the U.S. market increased by 27% year-on-year to INR 2,835 crores. On a constant-currency basis, U.S. revenue increased by 27% year-on-year basis to $404 million led by new product launches and improvement in volumes of existing products. We have received final approval for 3 ANDAs and launched 10 products, including 3 injectables in the quarter under review. We have filed 20 ANDAs, including 2 injectable products during the quarter.Revenue of Aurobindo Pharma USA, the company marketing oral products in U.S.A., has increased by 14% year-on-year. Revenue of AuroMedics, the injectable business, witnessed a growth of 49% year-on-year to $75 million. We have filed a total of 118 injectable ANDAs as on 30th September 2019, out of which 71 have received final approval and the balance 47 are under review. The company as on 30th September 2019 has filed 569 ANDAs on a cumulative basis, out of which 389 have final approval and 27 having tentative approvals, including 9 ANDAs, which are tentatively approved under the PEPFAR program and the balance 153 ANDAs are under review.Europe Formulation revenue came in at INR 1,401 crores in Q2 FY '19-'20, an increase of 21% growth year-on-year. In euro terms, the revenue increased by 26% year-on-year. Growth Markets revenue witnessed a growth of 4% year-on-year basis to INR 319 crores. On a constant-currency basis, Growth Markets reported a growth of 3% year-on-year. ARV Formulations revenue declined to INR 238 crores compared to INR 244 crores in the corresponding previous period.In terms of segmental classification, U.S. Formulations contributed to 50.6% of the overall revenue in Q2 FY '19-'20 versus 46.9% in Q2 FY '18-'19. Share of EU Formulations increased to 25% in Q2 FY '19-'20 versus 24.3% in Q2 FY '18-'19. Growth Markets share decreased to 5.7% in Q2 FY '19-'20 versus 6.5% in Q2 FY '18-'19. Share of ARV segment decreased to 4.2% in Q2 FY '19-'20 versus 5.1% in Q2 FY '18-'19. API business contributed to 14.4% of the total revenue in Q2 FY '19-'20 versus 17.2% in Q2 FY '18-'19.R&D expenditure is at INR 223 crores during the quarter, which is 4% of the revenue. Net organic CapEx for the quarter is around $58 million. The closing rupee versus U.S. dollar rate was at INR 70.875 in September 2019 and INR 69.02 in June 2019.The net debt has decreased by $71 million quarter-on-quarter to $522 million at the end of September 2019 versus $593 million at the end of June 2019. The majority of the company's debt is denominated in foreign currency. The cash and bank balance is at $305 million. The average finance cost is at 2.75%, mainly due to availing multiple currency loans.This is all from our end, and we are happy to take your questions now.
[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.
Sir, my first question is on the pending FTC approval for the Sandoz deal. Could you give us some color as to -- any update in terms of time lines or why it's gotten delayed?
Swami?
Yes, thank you, madam. Thank you. Yes, I'll take that question. I'm Swami Iyer from U.S. Now with regard to the FTC, you're aware that we can't provide you precise details of our discussion with the FTC, but we would like to say that things have been moving along positively, and we believe that we have substantially addressed all the requirements to obtain approval. In terms of timing, we expect that the target dates have moved, but our expectation is that FTC consent would be received sometime in the next few weeks.
Sir, what essentially led -- you had mentioned even in the last call that you're expecting approval in the next few weeks. What essentially has led to the delay between then and now, even if you don't know when that approval would potentially come through?
Yes. Obviously, the approvals are not in our hands and FTC is external to us, and it's a government process. We have to go through the process. But we can only expect once the documentation is submitted and permission is given. We really cannot give you the precise details, but we don't believe that it's anything extraneous, it's particularly something to do with the products and the transfer of it. But we cannot give you further details on that because this is the discussion that we have with FTC, and I don't believe that we can discuss anything further.
Neha, in our prior -- in prior presentation, I would say that I think the, I mean FTC has been, I think, fairly doing its job, and we have been trying to cooperate. But please understand the fact for such a large deal when there are more than one -- I mean one party involved because we have to get involved, the seller has to get involved, and also like the third party who has to buy and they have to commit in terms of being in the market. So it would -- it has taken some more time than what we anticipated. In all fairness, what Swami is trying to say is, I think, it should be done towards, let's say, December -- somewhere around December-end. And if not like at least by January is the confidence, at least, our colleagues feel at this juncture. This is, again, our best estimation.
Understood. And my second question is on the U.S. business. We crossed $400 million in this quarter and it seems like the large part has come from the injectable business, which improved sharply quarter-on-quarter. Could give us some color on the improvement in the injectable business?
I think that is from...
Go ahead, Swami.
Yes. We should typically not look at this on a quarterly basis, but what we would like to say is that on an annual basis, we do expect growth. And injectables, we had discussed in the last call also we have done well in injectables, and we continue to do well.
So would this imply that the injectable revenue could come off in the subsequent quarters and there is some one-offs in this revenue?
We expect stability and growth. So I would not say that it would come off.
Come off means?
It will be reduced thereafter. And we are not expecting it to reduce, Neha. I think we'd be able to -- so okay, we don't give any forward-looking statements or projections. I can only tell you that we expect to maintain the growth, Neha. We are not expecting any de-growth at this juncture in terms of even quarter-on-quarter. It is doing well, but the measurement on quarter-on-quarter is not fair.
Wasn't sale present itself is good, and we can maintain definitely.
Correct.
The next question is from the line of Damayanti Kerai from HSBC.
Sir, coming back to injectable sales in the U.S., so you just mentioned that you expect to continue the momentum, but the strong growth during the quarter, is it result of some NBO, kind of, opportunity, which we had previously received for our U.S. business? Or is -- like how should we look into the strong -- very strong U.S. growth for the quarter?
Madame, one is, we have had some growth in the products, plus we've also added some products from Eugia. And these have contributed to our growth.
So it's all existing business growth, right? Nothing one-off or some exceptionals are there?
No, there are no exceptional events.
No, we just launched some oncology injectables from Eugia that's all. No, nothing more than that.
And those would also continue, Damayanti. That's what's colleagues are saying.
Okay. That's good to hear, sir. And sir, can you update us on the status of the bag line and the lyo line, I think, which we have been speaking for last few quarters for the injectables?
We already launched the product in market.
Yes, the bag line has started. We already launched one product and the second product is also being pushed through like and the third product also would kick in by next quarter. So in fact, if you remember the bag line had 3 products before we discontinued. So it has started, which is a good news. As far as lyo line is concerned, it is continuing, but I just want to also clarify, it is continuing with other products rather than Vancomycin because other products seems to be better for us to continue than prioritizing Vancomycin, just to clarify, Damayanti.
Sure. And sir, second question on the FDA pending status of at our facilities. So can you update us in terms of the major pending issues at the plants?
The major pending one is the warning letter for Unit XI, Damayanti, and also the OAI status for Unit I and Unit IX. As far as our commitment in terms of closure of CAPAs, we have committed them that we will be sending of them our response with the CAPA completion by 15th of this month, 15th November, and our -- my colleagues have committed that they will be either sending it tomorrow or day after. We have completed whatever we have committed. And there are certain recommendations, which would take some more time, but those are not like impediment for the instruction by the consultants. So that would go on. But once we submit, we expect the inspection to happen over the next few months. So looking at like, I think, year-end, so we can expect the inspection by next quarter is our, basically, our estimate.
Sorry, sir. We expect inspection by next quarter?
Yes, because generally, even though if we submit by November, they have to review.
And by the time...
2 quarters.
They complete their review like I think the December would hit like and December is majority like it's a holiday season. So we expect them to come between January to March. If not January to March, let's say, April. That's all I will say.
Okay. And sir, last question from my side, we had recent inspection at the Unit IV plant, right? So anything to look out there?
Unit IV inspection is continuing, Damayanti. It's not fair to comment on that at this juncture.
[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just one on Unit VII, I know you put a press release out, but if Govind and team, if you can update us on what's the status there? We saw a sharp market reaction. I'm just trying to understand from your perspective, what the issues are and how we can resolve this?
Yes. So there are 7 observations, Shyam, I think, you might have observed. And to the best of our knowledge none of them are related to data integrity, and we have preferred a thorough response. Again, based on our understanding, we have sent the response couple of weeks back. As you would appreciate, like, I think 15 days after the audit is over, we are supposed to send the response, and we have send the response a couple of weeks back. And now it would be under review.
Okay. And anything that was the nature of the inspection or is the number of inspectors now significantly increased? And we are hearing this across the industry. So I'm just trying to get a sense has the -- and we counted about 15 warning letters to Indian plants this year. So is there something that is stepping up in terms of the FDA linked to whatever issues they have seen on the sartans last year and stuff. So if you can give us qualitative color on the intensity of these inspections?
Yes. I think we would always have more intensity because of the fact that any plants which you have number of -- more number of filings, you should always be prepared for more number of inspections, Shyam. That is our belief. And as you rightly mentioned that the warning letter related to Aurobindo for Unit XI is related specific for plants like sartans. So our understanding is we will have more inspection. It could be more number of inspectors. It could be more frequent because of the fact we have been filing more number of products from each of the facility what we are talking, either it's Unit VII or Unit IV, whatever is in question, okay?
Got it. My second question is just on the margin profile. So gross margins now at about 57% -- 58%. We have seen API kind of decline. So is this the new way we should look at? I know Sandoz will come whenever it comes and that could further skew things towards Formulations. So I'm just trying to understand how should we look at the gross margin specifically? Are we looking at this to remain at these levels or still further improve?
So when you...
Go ahead, Subu.
Yes. Shyam, if you recollect in the last -- couple of earnings calls back, we said our endeavor is to achieve a gross margin of 57% to 58%, right? And the next phase will be known only after the Sandoz. And we have been making every efforts to achieve that 57% to 58%.
Okay. Got it. And my last data point question is on Natrol. If you can just give us the -- what the number is and how the growth has panned out?
Go ahead, Swami. Natrol.
Natrol has been doing well. It continues to do well. There has been improvements in operational and sales activities, and we are looking forward to a very healthy year, even though -- based on what we have got in the first 2 quarters, obviously, we'll have to look at the annual number. We definitely think it will be better than previous year.
You had $38 million last quarter. What's the number for this quarter?
$39 million, Shyam. So one request what Swami had was, Shyam, so don't measure it on a quarter-to-quarter basis. Annualized basis, we'll definitely grow, Shyam, that's what he's trying to say.
[Operator Instructions] The next question is from the line of Anubhav Aggarwal from Credit Suisse.
I just have one question. If we were to combine our pending ANDAs just from 3 units, XI, VII and IV, what percentage of our pending ANDAs will come from these 3 units?
I think it's around 25% is what I clearly remember in terms of the overall percentage, Anubhav.
How much? 25%? No, no, I'm asking IV, VII and XI, all 3 put together.
Oh, IV, VII and XI put together.
XI, VII and IV. What is -- why the IV, IV is injectable separate. There is no issue I will say as on today.
You do give numbers for IV and VII, that is there. But I don't know, when it combines with XI that's where the confusion comes.
IV is around 35 or something pending as on -- around 30 are pending from IV. XI is a raw material one. I have to look into that how many raw materials.
You should not combine raw material and finished goods. It will never give a clear picture. So it's -- you better restrict to IV and VII. That's what I would say.
VII is 18 products.
The question was that, so do you mean to say, precisely, I don't want to combine the 2, but since you have a warning letter in Unit XI, and it will have an impact on our pending ANDAs, right? So...
It already had an impact in terms of 5 products, which we have spelled out earlier also. Like and, in fact, we've said from XI, in case if it continues for next year, it could be another 15 products, including the 4 we're talking about or...
Yes. Around 15, 20 either including tentative approval all that. But majority of the products are getting tentative approvals are 23, 24, like that. They would be up to '21, up to '20 December, the products are affected. It's less than 10.
Yes. And also like I think not a significant opportunity, except for 1 or 2 products, and above.
The next question is from the line of Nitin Agarwal from IDFC.
Sir, on the European business, how is the Apotex integration playing out? And with the footprint in Europe being what it is now, a fairly broad-based footprint, how should we look at our Europe business, when we take a 2- to 3-year view of this business?
So actually Apotex integration is ongoing for last 6 months that we have taken charge, and you can see that growth rate is reflected in the sense that even without Apotex, we are growing at a constant currency of 6%, and with Apotex, about 26%. Now going forward, what we are looking first is to integrate Apotex business into overall Aurobindo Group business. And our first priority is to maintain the stock supply and the customer satisfaction and also integrate within the 5 countries that we have taken over the business. As you are aware, that Belgium, we were never present in a significant way, and Poland and Czech are completely new businesses. So we are launching new products in these markets. At the same time, we are streamlining operations into the existing countries like Spain and the Netherlands. Going forward, European business, we will continue to leverage on our presence by launching new products and also switching some of the products to improve the COGS and improve the market share. I think overall 200-plus products are under development. Over next 3 to 4 years, they will be launched, including the new therapeutic segment like Oncology.
Like the integration will be over in 3, 4 months, Sanjeev?
Yes. That would be -- I mean basically, we have no presence or Poland and Czech and Spain is completely over. In Belgium, we form a new entity, and that is also ongoing. Only Netherlands will be over in next 3 to 4 months, complete integration.
And sir, just to take that forward, how is your new experience being the competitive situation in the market or how has been the competitive intensity in the market? And has there been any changes in the underlying pricing dynamics in that market? Has it improved? Has it worsened over the years -- over the last few quarters rather?
Which markets you are talking about?
Sir, in general, I mean if you were to generalize Europe, is it possible to generalize Europe in a very broad sense, sir?
Yes, in Europe, I would say that actually the -- there have been shortages in some countries and some segments. And actually, because of our presence, we are able to benefit out of that. Obviously, I mean it is a net-net effect. Pricing pressure and rebates, I mean it has remained more or less similar.
There's no much -- it's stable. That's what it's been.
Okay. And sir, on that point, sir, how is the outlook pricing situation being in the U.S.? There has been incrementally commentary from different players that the overall solid situation is improving, and it should get significantly better than what it is right now. What's your take on it, sir?
Not much improved and not much gone down. More or less stable nowadays, last 1 or 2 quarters from across all divisions.
Okay, sir. And sir, lastly, on debt, Subu, also where should we see -- how should we look at the debt position for the business over the next 6 months?
So we said during the year, we will reduce between $150 million to $200 million debt, and we have already achieved that. And we will continue to maintain the guidance because we will take a view about it only at the end of next year -- at the end of the current fiscal year.
Do you want to give a color on the long term also like Subu?
On the long-term front, what we are thinking -- I mean based on the experience, which we had in the last 2, 3 quarters, and we are targeting to achieve a 0 debt in the next 3 years. That's what we are all seeing on the existing business.
Yes, that is without considering Sandoz. Subu, is the fact, okay?
Yes, on the existing business, that's what I said.
Okay. Correct.
Without considering Sandoz.
And sir, this is including -- sir, we're looking at probably even managing even the working capital requirements of the business with accruals going -- in the next 3 years?
No, I'm telling about the base business. The existing business is what I'm talking about it. Sandoz, AstraZeneca, we will take a view on that.
That is true, Nitin. Just what Subu was, again, maintaining is, he's considering that as well like I think he's confident about that. But again, a disclaimer is without considering whatever increased inventory need, et cetera, on the Sandoz, we are not considering. On the existing business, if you continue even with the overall working capital need, et cetera, et cetera, Subu is still confident about over the 3 years.
The next question is from the line of Vishal Manchanda from Nirmal Bang.
I've a question related to Sandoz. So with the closure expected shortly, could you provide a number as to what sales will we be acquiring adjusted for the divested products?
We have always given the sales without the divested product. We would not like to discuss that before the FTC approval is given. It would not be appropriate. We had earlier given a guidance of $900 million before the FTC divestment, and we stand by that.
Any color on -- if there has been significant erosion on the business, excluding divested products that you that...
So we believe...
$1,300 million it is, now, we told $900 million. We believe more or less similar, plus or minus 10% maybe. That is what we also don't know last 1 year what is happening.
Okay. And one more on the U.S. market. Is there a large part of your portfolio under shortages in the U.S.? So any sense on what percentage of sales would be experiencing shortages from your portfolio?
Swami?
I think it will not be appropriate to say major or minor. We always get the shortages. It's for some period of time, but we do get shortages, and we take advantage because we have a fairly good supply chain. The manufacturers then take care of the shortage to the extent we can.
Okay. And on the Ranitidine part, is this API owned by you or you are getting it from a third party?
It's from a third-party, Vishal.
Okay. And just one final one on Spectrum. Has the product KHAPZORY benefited from Levetiracetam shortage in the U.S. injectable, shortage in the U.S.?
So we'll come back to you separately after checking. That concerned person is not there. We are not fully aware of it.
The next question is from the line of Kaushik Poddar from KB Capital Market.
Can you speak a little bit on the -- on your foray into biosimilars, I mean that you're planning to get into in a bigger way?
Yes, so our -- one of the product, the Phase I has already started in Australia and New Zealand. And in fact by -- in the next, I would say, like by next year, there will be 2 Phase I and, in fact, if everything goes well, 2 Phase III will also start. Out of the 2 Phase I, in fact, I think would get concluded by the next financial year result. We would be even filing and, after filing, it could be around 250 days. I think 210 plus 37, 40 days like [indiscernible] would be. We should still get approval. So I think subsequent year, again, few more products should come up for clinical. So it's progressing well or it's progressing as planned.
Okay. And your FDA observations regarding those 3 units. I mean do you think the closure should happen by March?
I said like the inspection should happen by March in term -- before March or by March-April time line is what our best estimate is. And we are preparing ourselves to ensure that the inspection goes well. So based on the inspection outcome, it should get cleared, Kaushik.
All the 3 units, right?
Yes, all the 3 units because all the 3 were related to the sartan cross audits. And Unit XI is under warning letter, the other 2 are under OAI status.
The next question is from the line of Prakash Agarwal from Axis Capital.
First question, sir, on the sartans, I mean I see your market share both for valsartan and losartan are actually healthy and it is increasing. So what's the position in terms of U.S. FDA? I mean they've been recalling few of these products. What is our stance? Are we continuing to sell and some update on the pricing, please?
Okay. I'll complete on valsartan. Valsartan, at this juncture, I don't think that we are, I mean increasing our market share because we are -- right now, like I think our API is yet to be cleared because we have filed a CB-30, we are waiting for an approval. Once the approval, which we still expect by this month or next month. Once approval comes, we would go back to the market. Even though we are -- whatever staff currently is there, which is being like I think are managing the front end. Swami would clarify in terms of the losartan market share, and he would also be able to clarify any other aspects of sartans. So go ahead, Swami.
Thank you. As far as losartan is concerned, we continue to sell that product, and we have a -- we are maintaining our market share and maintaining the volume on it. And it has been doing well for us. We do not have a problem. At least, we do not foresee any problem with regard to losartan.
But is the pricing healthy, would have improved over a period of time, given the shortages?
So the pricing is -- we are quite happy with the pricing and...
Whatever the price is off, 1 or 2 quarters more or less same.
Okay. And valsartan just to what I heard right is currently...
Other than losartan, we -- at present, we don't -- we discontinued majority of the 95% of the sartans, total 8 sartans, maybe after -- Govind told, after some FDA, we have to get some CB-30 approvals, then we may relaunch.
This is just for valsartan?
No, all types of sartans...
Other than losartan.
Yes.
Okay. Perfect.
Yes. What Govind?
Tell me again we're still there, the sartans?
95%, I told.
Yes, that's a small molecule.
Yes, yes, yes.
And secondly, on China, so you made an entry in the inhaler space. But what about -- I mean we see a huge pipeline that you're building for the U.S. We already have a large injectable approved products. So if you could highlight, I mean what's the kind of portfolio we would be looking at in China over a period of 3 to 5 years?
No, we have -- our idea is we're present at the oral plant, and we have some -- one injectable plant, and we have some small percentage, 30%, in the inhaler solution, with a joint venture we have. That's what is the present our Chinese operation.
Oral, injectable and Inhalers.
Oral, injectable and inhalation solutions, that is a BFS one.
Perfect. And looking at the R&D, I mean percentage of sales around 4%. So what's the outlook here? And as earlier mentioned, we would be heading for depot work also. So what's the outlook for second half and next year, please?
Govind?
So we are not giving any forward-looking statement as projections, Prakash, but one thing I can assure you that I think we are pretty comfortable about the growth, and instead it is meeting our internal projections and we would continue to grow. You are right. I think by the next year, I think, we would towards the end, like, I think we will be filing even the depot injection and that would take some time for approval as well. And we have a healthy pipeline because, depot, we had only talked about the first product filing, but every year, I expect 1 or 2 dosages to be filed in depot also. Like, I think, that would continue for a foreseeable future. By the time oncology injectable also would get some shape and by the time biosimilar also over the next 3 years would kick in, in the U.S. market. And definitely, like, I think, there is a very, very healthy future as far as the injectable what we are looking at. But I'm not specifically looking at anything as numbers for next year or subsequent year, Prakash. We will grow.
No, no. Growth is given, I'm asking about the R&D cost percentage to sales for...
R&D costs once the biosimilars, let's say Phase III -- 2 Phase III happens together, like I think from the 4%, 4.5%, it can go to 6% to 6.5%, Prakash.
This is for next year?
This is for next year, but the reason like why we're also talking about a reduced number compared to the earlier 8% to 9% is because the top line would also get added because of the Sandoz merger as well and Sandoz acquisition numbers as well.
Okay. And this year you will remain at 4%, 4.5%?
4%, 4.5% is a fair number for this year, Prakash.
Okay. And lastly, you mentioned you just started the launches. So these are oncology launches, and I understand these are fairly [ generic side ]. Would that be a fair statement? Or we have a couple of products we are seeing larger traction to move the needle in terms of the Q-on-Q improvement that we have seen?
Some oncology and hormonal products.
Yes. So 1 or 2 products are okay sort of, Prakash. It's not a major puller. But I would say, like, I think, quarter-by-quarter, this particular pipeline would get entry. By next year, I think we should see far better numbers than what we would be achieving this year as far as Eugia is concerned. Sir, you would agree with that, sir?
Yes.
The next question is from the line of Nitin Agarwal from IDFC.
Sir, on, see, we've talked a whole lot about our injectable business in the U.S. Sir, I mean where do we stand with respect to replicating -- I presume that there would be an opportunity for this portfolio even in the non-U.S. markets. So how should we -- how do we sort of look at that part, sir?
What is that, can you repeat?
So the question is, how about like other markets including Europe or other markets for injectable is course on, like, which is nonantibiotic injectable he's talking about, Nitin is talking about.
As on today, we are not much in the other markets in the -- Europe and emerging markets, that is what we are going for China.
Yes. So Nitin, that facility in the China has the capability to export to Europe and other markets. It will get inspected. And so from there, I think, we'll have capacity to export. From currently Unit IV, like, I think we are having enough to cater to the U.S. market. Like I think once that facility kicks in, the capacity will be available for filling in other markets.
And Govind, how -- as qualitatively how big this Unit B, the China, and when would that come through?
Not so big. It will come through only toward next year-end.
Okay. And sir, lastly, on the emerging market, it's a reasonably-sized business now. How are we looking at this piece of the business in terms of growth prospects for this piece?
Sanjeev?
Yes. We're looking at about 15% by on annualized basis and in constant currency U.S. dollar basis.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on the other expenses, excluding R&D, which has grown at -- plus higher rate compared to the revenue growth. So any read through in that?
If you really see the Apotex and the many acquisitions are coming to picture. Apart from that, as you know, the other expenses is a -- it's a combination of fixed overhead as well as the variable overhead because of the sales have been growing, et cetera, the variable part of the selling expenses, carriage outwards. All these expenses have gone up. That is the thing. But as a part of the [indiscernible] we are not so wide off.
So on absolute basis, this should be the kind of a run rate at least to growing?
Yes, growing, like that.
And this doesn't include any meaningful remediation-related expenses?
I think there is not much of remediation expenses to be shared actually, which we incur -- what is we incur in the normal course, we continue to incur. And there are -- to the best of that, there are no significant one-off expenses also.
The next question is from the line of Nimish Mehta from Research Delta Advisor.
Sir, on the NDMA issue especially and you know I'm referring to the valsartan Ranitidine issue. What I understand is that the real culprit is actually the NDMA impurity that is being used in these trials. So can you give us a sense of how many products contain these kind of NDMA impurities and how many of them are remanufacturing for the U.S. or for the regulated market?
Yes, Nimish, I would like to clarify. First of all, this is brought under a large family of like impurities called nitrosamine impurities. If you take an example of valsartan, originally the focus started with NDEA, then it moved to NDMA and then it moved to 3 more like -- depending on each other process, the number of nitrosamine impurities can vary. So it is not restricted to 1 or 2. There are certain processes, it can have 5 to 7 nitrosamine impurities as well. So as far as Ranitidine is concerned, you're right. It is only NDMA at this juncture. And as far as -- we have evaluated all our molecules in terms of all nitrosamine impurities, there are possibilities of nitrosamine impurities formulation in certain products based on some raw material and also the process in terms of like it can add up to a nitrosamine impurity. But we have already put in the checks and balances to the extent that I think and I'm talking about at the API level because most of this particular nitrosamine will always start from API only. It would get carried forward to the finished dosage. It is a rare occurrence. And to the best of my knowledge, it may not even happen in the finished dosage. It would only happen in the API to the level of knowledge I have I can -- I'm putting it that way. So we have evaluated all of our products and to the extent of whatever 15 molecules of possibility is there, we have already put the checks and balances, and we are testing -- we have tested all those molecules also to check the absence of those particular nitrosamine impurities.
I see. What's the outcome once you've tested, so how many products you think we have kind of, you know, I mean I know it's not so exactly figured out, but how many of them would be exposed to the nitrosamine impurities?
I would like to reiterate and clarify that we have already tested and there are 2 sets of actions here, Nimish, for your understanding. One is evaluating the possibility where it came from. Based on the evaluation, our development group has come back with a possibility in around 15 products or so for which I think also the additional checks and balances has been put in the process as still not to allow this formation itself. And over and above that, all the products what we produce has been tested for nitrosamines and we have checked and we did not find any nitrosamine in all the products that we have checked, which is part of our CAPA action as well.
The next question is from the line of C. Srihari from PCS Securities.
Two questions, in particular. Firstly, your branded onco business is now tracking at around $100 million per annum. So if you could please give some kind of a long-term perspective for this piece?
At the time of composition itself, it was more than $100 million, Srihari. So Swami, on Spectrum?
Yes, so we anticipated -- we estimated about $100 million. We are on track. We are doing slightly better. And what we expect is as we go forward, we would probably add 1 or 2 products in the -- sometime in the medium term. And on the long term, obviously, we will be looking for any product additions. But at this point of time, it's pretty stable and it's based on our expectations.
Any possibility of giving a, let's say a 2 to 3 years kind of a guidance? How big you expect this piece to be?
At this point, we would not like to say much about it because we are still in the stage of exploration on the various options that we have. All that I can say is we would definitely have addition of a couple of products. In fact one of them would come with the Sandoz acquisition and then we would have 1 of the product added sometime soon. So apart from that, we are looking at all the options, and we would like to inform at the appropriate time.
Okay. And the second one pertaining to product shortages. I mean one of your competitors was very [ rango ] about some major opportunities opening out. So do you have anything like that either in the dosages on the API side?
I think we are not -- go ahead, Swami.
Yes, Govind, you want to say anything about the API?
Yes. I would like to comment the same, Swami. I think as far as shortage opportunities are coming, whenever it happens, I think you would be able to grab it as long as it is in our portfolio is what I would say. Like we are not commenting on specifics on what is currently there in the market, Srihari.
Anything I mean from, let's say, the products which you have either discontinued or whatever, which can get pre-launched?
We have not seen such opportunity at this juncture. If the opportunity happens, we will be able to take advantage of that, Srihari.
The next question is from the line of Chirag Dagli from HDFC Mutual Funds.
Sir, if I remember correctly 2Q FY '19, we had seen some benefit of pricing on sartans. And in the call, you mentioned that now there is hardly any sartan sales, except for losartan. Is that understanding right? That in the base quarter, there was significant price hike for sartans and now there's hardly any sale, except for losartan?
That's true, that's true.
So this growth that we're seeing is despite that?
Yes, Chirag. Correct.
Okay. And can you split the depreciation and amortization between depreciation -- this total number between -- or what is the amortization and depreciation?
I'll get back to you on that, Chirag. I don't have it right now.
So with this run rate is what we should extrapolate for FY '21 or do you think FY '21 will increase meaningfully?
I don't see because this increase is predominantly on account of the amortization of the intangibles, which we have bought with for the Spectrum, right, and also there is a change in the lease accounting policy, et cetera. I don't see anything new, significant new will come for the next year. But I would say, I told you in the last quarter, if I'm right, the ratio between the depreciation and amortization will be 75:25 and that remains the same as on date.
Perfect. And just to...
I would like to add from the U.S. side, after the Sandoz, there could be some change. Obviously what Subu is saying is without Sandoz because that's a large chunk of business. So he is talking about the base business and what we have on hand at this point of time.
Absolutely, absolutely.
That is understood. And just on Sandoz, sir, there is no change in guidance of what we had acquired $900 million sales. And is there any change to the profitability numbers?
Chirag, I would answer that question, Chirag. So we are just maintaining whatever we have given as a initial statement. And after that, any queries on that would be, we would be -- I mean answering it properly only after we get into it. Like otherwise, I think all our guestimates, our best estimates, would be given, which is not fair. So it is -- we're still sticking to whatever we had projected at the beginning at that time of acquisition, which is what Swami clarified earlier. The rest of it, we'll talk once we'll get into it.
The next question is from the line of Dipan Mehta from Elixir Equities.
Yes. [Technical Difficulty]
Mr. Mehta, your voice is breaking. Sir, can you please check your phone.
Yes, can you hear me better now?
It's better now.
Okay. Sir, my question relates to U.S. FDA inspection. And what I wanted to understand from the management is that once the plant has been inspected by the U.S. FDA and cleared, say, 2 years ago, or 3 years ago. Then why within a relatively short period of time the same plant when it is inspected again by U.S. FDA has so many violations or noncompliances? Is it that the U.S. FDA keeps changing its goalpost? Or is it that the company then tends to relax its own internal compliances because of which we get all these kind of noncompliance issues?
First of all, I disagree in terms of like I think the frequency of inspection is only related to some issue. Like please understand the fact that as far as our Eugia and Unit X, which is still, I mean in fact, most of the inspection has gone without any observations. But the frequency of inspections are in fact more. The reason the inspection frequency is more, particularly, in our case, what I can comment is because of the continuous filing, which we do it. And FDA has an obligation in terms of doing a pre-approval inspection, which they will bunch -- they will do it for a bunch of products, they will come and inspect it. So hence, I would not say the whole process has changed or anything. It's not a fair statement to make.
Sir, my question is that handling U.S. FDA inspection is a core function. And if you say the frequency of the inspection is almost 12 months or a little bit more than that. And if U.S. FDA has already cleared one or more parts of our plant within a single plant, then why again and again it should keep getting into an issue with U.S. FDA because they have to point out violations. That's why I don't understand it. And normally one would -- in common sense is that if you got one thing right, 1 manufacturing plant right, in terms of quality compliance, then that's a -- it's a process. It's not an event. It's a process. So you got the process right. Once you got the process right, then why should the U.S. FDA point out so many flaws in your compliance methodology?
Dipan, I would like to clarify when you're talking about the process, the process is related to certain, I mean let's say, manufacturing aspects of it or certain quality aspects of it is standardized and most of the companies would be standardized. And I'm sure you might have gone through the observations of not only us most of the companies are not related to the general GMP practice, it is more related to certain investigation or certain methods or certain other aspects of it. For us, every product will have its own set of process and every product will have its own set of like aspects, which are different than each and every product. So to that extent, if an out of specification happens or if there is a market concern or if it is in terms of related to method or in terms of clinic validation, it varies from each product to product. So I would not like to generalize a statement stating that, oh, if you have learned from one product that means everything should be through is not how it can be viewed at again. So and also I would like to request to conclude this discussion here rather than extending this discussion and not allowing other callers to have their questions answered, Dipan, if you don't mind.
The next question is from the line of [ Manthan Desai, ] a retail investor.
Yes. I would like to understand the cash flow generated from operating activities. So it's probably -- if I see the 6 months cash flow compared to the last previous financial year cash flow, the more cash flow has been generated. So is there any one flow -- one-off kind of thing or something like that?
Subu, on the cash flow?
Oh, I'm there. Sorry, I put it on the mute. We generated around $260 million net cash profit during this year. And as you rightly -- as you've seen that we have also spent around $106 million of CapEx. So the net cash flow -- outflow of total, including the working capital release of the working capital comes to around $58 million, thereby generating a total cash surplus of around $201 million, which is what the reduction in the debt, which is reflected. There is no one-off or anything like that in this year. We are not told or anything like that.
Can I know what are the other financial assets in this cash flow because that is the major portion, which has helped to generate the cash? What are these other financial assets?
So what has happened is, we -- earlier, we had -- we reduced the coverage of the asset receivable purchase program because we are able to collect it better. Earlier we have a certain percentage, now they have reduced the percentage significantly because of that you can see that it has gone up, now, the receivables have been increased actually. Otherwise as per the accounting standard, this has been classified under whatever coming under the asset receivable program, it has to be classified under the other financial assets. Now that the coverage has been reduced, we are showing it as part of the trade receivables. You can see that there is a increase of around INR 700 crores, INR 800 crores actually.
From -- in trade receivables?
Yes, yes. This is a great job done by the U.S. team. So this is what helping us to more.
The next question is from the line of [ Aditya Narayan, ] an individual investor.
Sir, my question is just in furtherance of what Dipan was speaking about, and it's not specific to the observations that we have had in the past, but in general. Would it help if you had a team of consultants or a team of auditors who would look at all of your products and processes across geographies? Would it help in reducing further observations or reducing the drug recall list in general?
You are specifically talking about drug recalls?
Even in general, sir, any observation or further drug recalls?
First of all, we have strong internal audit team and we also engage consultants wherever I think it would really help us in terms of enhancing our knowledge, also improving our culture, which we keep doing it. But please understand the fact that if you're talking about recalls, each of them had a different reason. Or if you're talking about observations, it is not like I think it is a same set of observations. So to that extent, we take help wherever need be. And it has also helped us in terms of improving our system and the standards and the culture as well. But we still need to further improve is what I would say, Aditya. That's the process. Continuous improvement is a process.
Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Krishna Kiran, Investor Relations for closing comments.
Thank you all for joining us on the call. If you have any questions unanswered, please feel free to keep in touch with Investor Relations. The transcript of this call will be uploaded on our website, www.aurobindo.com in due course. Thank you.
Thank you. On behalf of Aurobindo Pharma Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.