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Aurobindo Pharma Ltd
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Ladies and gentlemen, welcome to Quarter 2 FY '22 Earnings Conference Call of Aurobindo Pharma Limited. [Operator Instructions] I now hand the conference over to Mr. Arvind Bothra. Thank you, and over to you, sir.
Thank you, Aditya. Good morning, and warm welcome to our second quarter FY '22 earnings call. I'm Arvind Bothra from the Investor Relations team of Aurobindo Pharma Limited. We hope you have received the FY '22 financials and the press release that we sent out yesterday. The same is available on our website as well. With me, we have our senior management team, represented by Mr. P.V. Ramprasad Reddy; Chairman, Aurobindo Pharma USA; Mr. N Govindarajan, Managing Director Aurobindo Pharma Limited; Mr. Sanjeev Dani, COO and Head of Formulations; Mr. Santhanam Subramanian, Group 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 limitation statements relating to the implementation of strategic actions and other affirmations 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 development and results to differ materially from our expectations. Aurobindo Pharma Limited 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. Santhanam Subramanian for the highlights. Over to you, Subbu.
Thank you, Arvind. Good morning, everyone. We will discuss the results for the second quarter of fiscal year FY '21/'22, declared by the company. We will be discussing ex-Natrol numbers throughout the call. For Q2, the company registered a revenue of INR 5,942 crores, an increase of 4.2% quarter-on-quarter. Most of the businesses registered a healthy growth on a sequential basis. The EBITDA before ForEx and other income declined by 8.3% year-on-year to INR 1,187 crores. EBITDA margin for the quarter was 20%. Net Profit decreased by 2.1% year-on-year to INR 697 crores.Increase in some of the key raw material prices and logistics weighed on the profitability for the quarter. Also an increase in R&D spend by about 0.4% quarter-on-quarter led to decrease in EBITDA margin during the quarter. We started focusing on optimizing entry and inventory, which has resulted in reduced capacity utilization across our facilities. This in turn increased the overhead badly affecting the profitability. However, this will release cash flows, which will continue to benefit over the coming quarters and position us as an agile player. During the quarter itself, we were able to reduce the working capital by about USD 62 million, mainly due to reduction in the inventory. In terms of the business breakdown, formulation business in Q2 FY '22 witnessed a growth of 5.6% quarter-on-quarter to INR 5,161 crores and contributed around 87% of the total revenue. API business contributed around 13% and clocked a revenue of INR 781 crores for the year, registering a degrowth of 5.8% year-on-year and 3.9% quarter-on-quarter, respectively. For the quarter, the revenue from the U.S. market increased by 6.9% year-on-year to INR 2,968 crores. On a constant currency basis, U.S. revenue increased by 7.3% year-on-year basis to USD [401 million ] only new year. On a sequential basis, U.S. revenues grew by 10% in U.S. dollar terms and 10.7% on a reported currency basis.We have received final approval of 7 ANDAs, 1 NDA and launched 6 products in the quarter under review. We have filed 27 new ANDAs, including 5 injectables during the quarter. Revenue of Aurobindo Pharma USA, the company marketing oral products in USA, increased by 9.6% year-on-year for the quarter. On a quarter-on-quarter basis, Aurobindo Pharma USA revenues grew by 13% in reported currency. Revenue of the U.S. injectable business increased by 5% year-on-year to USD 68 million for the quarter. Revenue quarter-on-quarter increased by 10.3%.We have filed a total of 155 new ANDAs as on 30th September, out of which 101 have received final approval and balance 54 are under review. The company also as of 30th September has filed 681 ANDAs on a cumulative basis, out of which 456 have final approval and 29 have tentative approval, including 8 ANDAs which are tentatively approved under PEPFAR and the balance 196 ANDAs or under revenue. For the quarter, European revenue -- formulations revenue dropped at INR 1,662 crores, an increase of 9.7% year-on-year. On a quarter-on-quarter basis, euro formulations increased by 5%. On base currency, the corresponding year-on-year and quarter-on-quarter stood at 9.1% and 6.9%, respectively. For the quarter, Growth Markets witnessed a degrowth of 13.5% year-on-year to INR 386.3 crores. On a quarter-on-quarter, the growth market business grew by 17.3%. The quarter's performance was led by strong growth in Canada, Brazil and other markets. For the quarter ARV business -- ARV Formulation business stood at INR 145 crores, a degrowth of 71% year-on-year on a high base of last year. The corresponding degrowth in ARV formulation on a quarter-on-quarter basis was 51.1%. R&D expenditure is INR 399 crores during the quarter, which is 6.7% of the revenue compared to 6.3% in Q1 FY '22. Net organic CapEx for the quarter is at USD 98 million. The average FX rate was 73.94% in September '21 and INR 73.68 in June 21. Net cash, including investments at the end of September '21, was USD 34.7 million. The average finance cost is up 0.6%, mainly due to availing multiple currency rules. The Board of Directors constituted a committee of independent directors for comprehensive evaluation of various alternative stroke options, including demerger for restructuring of company's wholly owned subsidiary, Eugia Pharma Specialities Limited, focused on sterile oncology and hormonal product and recommended to the book board by the ensuing meeting for further discussion [indiscernible].This is all from our end, and we are happy to take our business now. Thank you.
[Operator Instructions] The first question is from Damayanti Kerai.
Sir, my first question is on succession plan for Govind. So as per your earlier update, he'll be stepping down. So what are plans for his replacement?
We're -- the Board is meeting again in early December, and we will let you know after that board meeting, the final succession plan in this.
So we'll get update in December after your Board meeting, right?
Yes. Yes please.
Okay. And my second question is on your U.S. performance. Very good performance, I'll say, compared to what we are seeing in terms of price erosion and all. So what has led to this notable performance in the base business? Because I see like injectable has also picked up, but more of the growth is driven by the oral part. So what kind of price erosion you are facing in your portfolio? And how do you see this moving ahead?
Yes. Yes. This is Swami here. I work as the CFO for Aurobindo USA. Thank you for the question, Damayanti. The U.S. business has grown largely with the oral solids, registering significant progress in terms of volume. However, like you said, there has been price erosion. And we have had fairly good growth across all the therapeutic segments. It's on the back of a certain shortfall in demand in the previous quarters. This quarter has been good, and we are looking forward to similar growth going forward. However, as you mentioned, pricing is -- pricing pressure is -- was there during this quarter. We expect that this would stabilize over a period of next 1, 2 quarters.
Right now, erosion must be in double-digit, right, which you expect to moderate?
So I didn't say moderate.
Single digit is the present one. And we don't know what we are going on next 1, 2 quarters, we'll have more clarity on this. This is not only once the price falls are there and automatically, the stock adjustments also will be there, it is a -- double effect will happen.
Okay, sir. That's very helpful. And my last question will be on your plans for Eugia. So what kind of alternatives you are assessing? And when do you expect this process to complete?
I think as already Subu explained Damayanti, I think the subcommittee of the Board has been already formed with independent directors, and they will be evaluating everything and they'll be getting back in the forthcoming meeting. So I would not let go at this juncture second guess anything, Damayanti.
Next question is from Tarang Agarwal.
A couple of questions from me. Firstly, on the injectables business at about $68 million. It's still about 15% behind the $75 million, $77 million run rate, which we reached pre-COVID. What's driving this? And how should we see this moving forward? I ask this because you've had about 23 approvals in the trailing 12 months, and still the current run rate is not close to pre-COVID levels. So how should I see this moving forward?
Swami, I'll take this. I think if you remember, we have clearly said that our -- we are confident about our medium-term aspirations of reaching the $650 million to $700 million revenues by FY '24. So obviously, this will be backed by our pricing and continued efforts to improve market share. What I would suggest is, Tarang, not to measure it on a quarter-to-quarter basis. On an annualized basis, if you go through this particular period, definitely, we are confident about achieving what we had already mentioned.
There's a line item in the cash flow, which talks about amount paid for business acquisitions to the extent of INR 925 million. What would this be regarding? Because if I recall your OTC brands and ANDA acquisition was for about $104 million in last quarter.
Subu.
That's true. We have -- the last quarter, we have paid around [104 billion, which you said also this quarter, we paid something around 70 million which I'll explain the next call presentation. So that is the total we are paying during this year.
So about $104 million will translate about INR 750 crores. So there's still a difference.
No, no. There are certain things.
Pharmaceutical brands as well as the ANDAs and some other smaller assets and 3 different types of entries have happened. For all these things is 82 plus another 17 and another 22.5. These 3 entries have happened overall in these last 2 quarters.
Correct. So that will be captured in acquisitions plus payments for intangibles, correct? Yes. And it will be in the balance sheet, something will be reflected in the net block, something will be reflected in the capital WIP and something will be in the capital advances. You will not be able to be reconcile directly.Got it. And the last one from my side. If you could give us some sense on what's driving this heightened pricing pressure in North America because we've seen it across your domestic peers as well as global peers. And while you've mentioned that it had to do with the channel filling last year, is that the only reason or there's incremental supply and competition that's suddenly come in?
Swami, I'll take it. So basically Tarang. I think it's a cascading effect. I think it started with that and then -- so obviously, like I think what we have mentioned about is the stocking because of the more demand during the COVID period. So that particular when we are talking about stock, these are across the entire value chain. It starts from the pharmacists to the distributor to the manufacturer. As you would appreciate the fact that they have to sell the product within a certain shelf life because anything less than 1 year, I think the distributor would not buy it and sell it in the pharmacist level. So obviously, there is a heightened pressure in terms of everybody trying to liquidate and that is the predominant reason. And it also has a cascading effect because the people are not able to sell it, they would like to go much lower in terms of the pricing to ensure that they don't take -- there is some value rather than destroying the product. So that is the main reason we clearly say. But we have used this opportunity to relook at our end-to-end inventory. And as Subbu has mentioned in the opening call itself, we already improved to the extent of [indiscernible], and we would like to continue our effort for another quarter or 2 minimum. I would like to ensure that we are able to further improve our work.
Next question is from Anubhav Agarwal.
Just one clarity on the U.S. business. So is this a new base that on which we should only grow from here in the sense that there are multiple tailwinds for us, injectables are yet normalized cycle first might yet to contribute -- yet to get full contribution from several ANDAs. So this $400 million, can you -- I know difficult to say, but what's your confidence level? Is this a new base for us? .
I think I would. Go ahead sir.
So maybe this may be -- you cannot tell this is the base, but we want to see one more quarter as a safe side. So then we can tell where is the base in this whole thing. And as you told, the price erosion and self-stock adjustment, both in orals and ARV. And ARV, we said also a lot of stocks are piled up in various levels and injectable [penem] are something. So there is a lot of things that have happened last 1 or 2 quarters other than the expenses increased by the utility expenses like coal rather than the raw material or what not, everything came in 1 or 2 quarters.
No, I appreciate that. My question was only on the U.S.
Yes. We can tell you after 1 quarter.
Yes, Anubhav, I'll put it this way just to add to whatever Mr. Reddy has said, I think as clearly explained. I think your -- to add to your point that injectable and other divisions would start. Like I think you can consider that as a base. But then for oral, as Mr. Reddy rightly said we may need to wait for another 1 or 2 quarters to see whether this is the bottom or it could even go down a bit more. So that is the reason we are trying to be cautious, Anubhav.
And that cautious outlook is coming because you still think that there is a lot of inventory left with other players, do they still want to liquidate at?
As you would appreciate, Anubhav, it would be extremely difficult to judge how much who's holding and how long they would like to -- like, I think, take to liquidate as you would appreciate. Because it won't be more than at least a couple of quarters is what our assumption.
Definitely, we are the near end Govind, near end and that's what we are telling 1 quarter more.
1 Quarter, I think. 1 quarter or maximum another -- instead of 3 months, it could be 4 or 4.5 months.
They are not more than because the product expiry generally 24 average, you take it 24 to 30 months. So it's already started from 20th -- 2020 in June or some time, and it's ending now in next 1, 1-1/2 quarter. And afterwards, the product can never be sold if it is less than 9 months or so.
Okay. That's helpful. Second, what was the global injectable sales in this quarter across all therapeutic?
Global injectable sales during the quarter is around $105 million.
And some -- can you detail some plan on the China? Because I think at the start of this calendar year, you talked about getting 8, 10 approvals, but how many approvals have you got? And what is the total filings you have made in China so far?
We have filed around 28 products, and 2 products are approved, and we launched it to one product in the -- we got out of 2, 1, we got the bid in the tender bid. And another one is a retail product, and we are expecting another 5, 6 products approval in next 3 to 6 months -- 3 to 4 months. But sir, was it the same status that we filed 28 ANDAs at the start of this calendar year itself? So we haven't made any incremental filing in China so far? No, the ultimate in filing from India and then goes to China office and China filing. Maybe last call, it may not be 28. Now -- how much Subbu, current exact number of China filings?
Arvind, do you have the numbers?
I'll reach out to you, Anubhav.
I think we have filed in this quarter around 3, 4 products. And this is all filings have happened from Aurobindo India and where this -- we started our production in the new plant in China plant and one product we have taken exhibits and we are taking every month 2 products from early next year onwards.
Out of 30 products, Anubhav.
Okay. Sure. And just last clarity on this ARV contact. So when is the next contract negotiation due for TLD for us? I think it was a 3-year contract for us. Where is that coming for next renegotiation?
You're specifically talking about probably South Africa. So that already like, I think, they have asked for the plan, we have given the bit also like it might take another 6 months for us to finalize that, I would say. And procurement will start 9 months from now or so, that is in South Africa. But other agencies will keep continuing to ask for the bid whenever, I think they'll equate the stock, Anubhav.
What is the sense you're getting? Is this getting more competitive now more players have come in the TLD market because...
More than the number of players, Anubhav, see one thing you have to remember is whenever people come under pressure and when they reduce the price and the price are not likely to immediately improve, I think that would become the new base. So it's not more because of the new players entering and it's more because of the stock people are having, which we are trying to liquidate in terms of going aggressive in their pricing. So that is a challenge.
[Operator Instructions] Next question is from Prakash Agarwal.
My first question is a little clarification. Just wanted to understand the sales of that OTC basket that we bought. Has that also been clocked in, I missed that comment?
Yes please.
And how much would be the contribution, sir?
I think Subbu mentioned, $9 million. Run rate for 11 months is approximately $35 million to $38 million.
Okay. That is helpful. And the second question is on the receivables which have gone up. Just trying to understand, you also mentioned there would be a self-stock adjustment. So how do we see the receivables unwinding? Or have we pushed enough sales given the pricing pressure was there but still we've done good sales number. How should we see this receivables unwinding?
Prakash, the receivables during the quarter has not gone up. Actually, overall, if you really see the receivables has come down by about $5 million, right? And maybe regarding the question, how you see it for future, Swami can explain.
What is that?
How is the receivables going to look in this scenario, that's what he was asking?
More or less same, Subbu.
So I can see receivables have gone up by 20% over the last 6 months.
No, you compare between June to September. June to September, it has come down. March was the lowest actually. We have explained in the last quarter itself, there was an increase in the trade receivable by about $68 million. Last quarter, we explained it, and that's why the overall working capital has gone up last quarter by $86 million. But this quarter, conscious attempts have been made by the company in all fronts, both inventory and trade receivables, and it has been reduced actually. Between June to September, there is a reduction in the receivables.
And you are saying this is the base unlikely to see [indiscernible].
Unlikely to see, I mean, a major change unless the sales is increasing more than the number.
Perfect. And lastly, on the margin outlook front, I mean, definitely, I mean, as Mr. Reddy also mentioned, there has been significant cost pressures, solid prices and power and all those things have gone up. How do we see our gross margins and EBITDA margins for the next 12 to 24 months given that the portfolio as one of the participants had the enough headroom for growth in terms of U.S. sales increasing share.
The cost will come back to -- we are hoping to normalcy, like coal or like solvent prices everything after the Winter Olympics, then we are hoping in the first quarter -- last quarter, January to March quarter end or so. Costs, we are assuming it will come near to the normal. And as far as the one more quarter as we told, we want to see that, then we want to see where we stand in the pricing pressure. And we are not expecting much big fall side. We want to test the EBITDA base. This quarter is the base, next quarter is the base.
Understood. So follow-up is on the cost -- operating cost front. So we have seen significant cost savings and cost optimization, how much headroom we have, given the fact that raw material cost is still increasing, and September was the first month probably companies saw significant rises and now we're going to see the full quarter. But I'm saying what is the cushion we have on the operating cost side that you have demonstrated very well in the last quarter? I mean is there for total cost savings?
Yes. We are working across the company and various models are working very effectively. This is the time we have to save in the next 1 or 2 quarters, then we can maintain the cost neutral.
Okay. Perfect. And what is the CapEx guidance sir, for the next 2 years, this year and next year?
Subbu, you want to tell?
Yes. Prakash, we have incurred CapEx around one on the normal CapEx, we incurred on $122 million in the half year and $60 million in the current quarter, right? And as has been said, this year, we'll expect it to do around $200 million against this because we have $80 million lower, and we will try to control the CapEx within this. Apart from this, we have 2 other CapEx, which is the acquisition of ANDAs and the brands, which is over and above M&A acquisition cost and the PLA project as and when we take over. This also will get incurred.
No more new CapEx in the next 2 years.
Yes, no new.
Almost negligible CapEx other than already approved and ongoing projects is about...
Okay. You have mentioned in the past, it's about $200 million project. Thank you so much and all the best.
Thank you.
Next question is from Shyam Srinivasan.
First one is on R&D. It's gone up this quarter, and I also see quite a lot of filings, about 27 filings at least in the U.S. So what are we filing -- the frequency has picked up, so which is what I'm trying to understand. And did it get bunched up -- Or do we -- have we moved to a different level of R&D filings?
I think we are still maintaining the same level of filing order committed earlier, like I think, around 40 to 50 filings per year. Like I think sometimes you cannot measure it on a quarter-to-quarter basis.
Got it. Govind, just to the quality of the filings as well. I know I can see 5 injectables, but if you could share any color on -- or is it the regular stuff that you've been updating us on the different kind of filings we have?
I think as we move forward, it would be more skewed towards complex over a period --I mean, our injectable and complex will be as we move forward. Currently, like, I think I would say, as you rightly said, around 20% is -- 20%, 22% is more kind of injectable. But as we move forward, like I think it will be more skewed towards complex in the future.
Got it. The second question is just on capital allocation. We have paid a dividend this quarter. I just want to understand how should we look at capital allocation, what are some of the priorities that we have. We are little bit net cash, but maybe we'll generate more cash. You made the comments around CapEx, there is no incremental CapEx other than what's going on. So how should we look at capital allocation?
No, I think the capital allocation has already been -- as we have defined in the past also, our objective is not -- we are not looking for any large ticket acquisition and our acquisition strategy is evolving around the 2 bullets what we are always making. One is in terms of like market penetration and the second is in terms of any new platforms or any new set of products are the NDAs or any -- we can -- we are also looking at -- we'll also be looking at some in-licensing opportunity in accurate tech as well. So these are something which are very clearly different. But obviously, we are not looking at any large ticket acquisition at all. And as you would appreciate, like I think over the last decade, we have grown our top line by 8x and have consistently generated cash flows. However, in the past, like the cash was utilized to service the debt and now that the debt has been completely removed and then like we are generating cash. Our objective is to -- I mean, to look at like, I think, is committing more payer to the shareholders in the future. I think that is something which will be articulated by the Board as well.
Yes. He's right.
Got it. Last question from my end is, Govind, any update on the PLI, what our CapEx status there? Any update in when is the earliest commercialization possible, if you could share some?
As far as the PLA 1 is concerned, Shyam, the discussions have been initiated with the government, and they are also looking at various options, and we are in discussion. We will have clarity in the next, probably like in the next few weeks or before the end of the year is what I would say, Shyam. Because our objective is before we start investing major CapEx, we wanted to ensure complete clarity, that's what we are discussing. So another 4 to 6 weeks, we should have complete clarity on maximum by year-end. And we'll talk specifically about the CapEx.
Next question is from Neha Manpuria.
If you could just update us on: one, the biosimilar pipeline in terms of filing tables for Europe; and second, on the complex injectables, particularly the long-acting injectables?
Okay. So shall I take it sir or.
Yes.
At this that you have concluded a successful licensure and clinical trial for second oncology biosimilar, and we are in the process of engaging with EME and profiling a product in this financial year itself. We are also having 3 more biosimilars at different stages in license of clinical trials, out of which are monoclonal antibodies that is being evaluated in a large Phase III efficacy and safety trial, which will be potentially filed by next financial year. Our development efforts to the second wave of biosimilars are also entering into an important stage with one product advancing into pace on clinical trials in the last quarter of the current financial year and also another in next financial year. So -- and as you might be aware of it, like already one product has been filed with the EME. So that is the status, Neha. On the complex injectables, particularly depot injection, I think by next year, we should be at least filing 1 or 2 products.
Clinical trial is going on in the complex injectables, just started that clinical set.
Next question is from Nitin Agarwal.
Just taking forward on the PLI that you mentioned much this which is there also what was the expectation? How does that change your arrangement for us for incentive structure and everything?
[indiscernible] question PLI?Yes. So I presume -- okay, let me just answer it. What I understand from your question is, like I think since there was a shift in terms of the time line, would your overall scheme also get shifted? Is that the question, Nitin, if I understood this right?
Yes, how does that impact our economics [indiscernible].
Yes. So I think that is also another point of discussion, which is being considered by the government, Nitin, at this juncture. As you would appreciate, we need complete clarity in terms of the project and that is also part of the discussion which is ongoing.
And I guess, just sort of rewind enables us to time starts the CapEx on this project, it will be what 18- to 24-month construction period? Or what kind of construction period you foresee on this?
Yes. So it would be 18 to 24 months per share minimum, Nitin. Again, what is more important is, look, I think for the team as well as for us is also the starting data is important on having clarity and committing ourselves for the larger categories.
For vaccine portfolio...
Nitin, your voice is not clear.
Sorry for that. On the vaccine portfolio, both on the material and on the viral side, how -- can you just give us an update on where we are on both the streams?
On the bacterial, as you might be aware of it, like I think our pneumococcal is in the Phase III, and we expect to launch it in India at least by Q3 in next financial year. And obviously, we will start with India because after that, after 6 months only, we can pursue the approval for the WHO, which can also push us into the UNICEF, that is as far as pneumococcal is concerned. There are 1 or 2 products additionally being pursued on the bacterial.On the viral, unfortunately, like there are no major changes in the scenario in terms of the vaccinate product. And so obviously, currently, this facility would wait for the Auro Vaccine product to get into that particular facility over the next 3 years or so. Till then, it will be running more of clinical batches supporting the Auro Vaccine.
Okay. And second, just a follow-up on the bacterial vaccine. You talked about launch in India in the second year -- second half of next year. So this is going to be what we expect it to be a part of the government immunization program by the second half of next year?
It all depends on like I think what teams opened by then, Nitin, because if they had the call it earlier than that time, then we may not be able to participate in that. But I mean, we will still participate but they will not clear it until unless approval comes, right, Nitin?
Right. And the WHO opportunity you said you can file after 6 months. So when does it start to become relevant for us from an export opportunity perspective for this product?
From the subsequent year onwards, Nitin. Because in the interim, like the facility also has to be inspected by WHO for them to get this product qualified in the listing as well.
And if I can squeeze one last one. On the acquisitions that you've done on ANDA and brands this year, we spent almost $125-odd million. So 2 things. One is, what is the thought process behind committing such large investment behind these products? And two, what kind of payback or opportunity that do you see in this portfolio that you have acquired?
Swami.
Sure. Thanks, Nitin, for the question. One is there's a nutraceutical opportunity that I think Subbu had explained and Mr. Reddy had also mentioned, it's on the nutraceutical space. We have fairly bullish on that, especially this is a branded nutraceutical. That's a major acquisition, dollar-wise. And then the others are -- we also mentioned that we are looking for ANDAs, not for any mid-term acquisitions. So these are ANDAs where we do not have and we wanted to add to our portfolio.So as far as the payback is concerned, I would only say that they are good. And we expect because we are ready to launch some of these products. They are discontinued -- some of them are discounted ANDAs that we hope to launch. So we would get a better feel over the next few months. But we believe that we have reasons to be very optimistic about it, optimistic about it, yes.
And so in this nutraceutical portfolio the $35 million, $38 million run rate that we talked about for the business?
That's correct.
And it is captured in the orals business.
In the overall - Subbu, you should explain where you capture.
Yes. Ex of Injectables business in the U.S., Nitin, you should take that.
[Operator Instructions] Next question is from Naga Sridhar [Operator Instructions]
I just want to get an update on your plans for COVID portfolio, please, including vaccine?
I think Mr. Naga Sridhar we have already explained about the vaccine, unfortunately.
Yes, I was late. I didn't hear it properly.
No problem. I'll repeat it. As the vaccinate product did not go as planned. And obviously, look, I think they did not get approval with TFDA, which -- and they didn't move forward. So that is where we stand as far as vaccine is concerned, even though we are very open in case of any opportunity accrues in terms of contract manufacturing, that is under vaccine. As far as overall portfolio, like, I think, as you might be aware, that we had been licensed for molnupiravir from Merck and we have recently seen that certain MHRA approval has happened, which facilitates us to export certain quantity of product.And we had to wait down domestic market based on DCGIs approval. So whether DCGI would consider based on MHRA or as far as like U.S. approval is concerned, the SEC meeting is scheduled on November 13, and we are pretty much ramped up ourselves in terms of the potential opportunity. We already made certain quantum of products, and we are also keeping ourselves ready in case if the demand picks up.
%That's fine. Just one more question, Subramanian. This is with reference to this PLI scheme. Do you think it has been delayed more than what is -- what it should have been -- do you think it should have been already launched, the time line should have been much faster from the government and the industry?
So as far as the scheme was concerned, as per the scheme it sounds like March '23 end is when, I think the facility was supposed to be commissioned. And as you would appreciate, Naga Sridhar, the scale of these markets are much larger, where it is very, very important for both the industry as well as the government to ensure that every aspect is cleared and concluded before you commit yourself for a large-scale investment. So that typically some time has to be assigned. I agree with you, it could have been done faster, but this is where we stand and we are fairly confident this will get controlled in the near future, and we'll move forward with this, Naga Sridhar.
Next question is from Abhishek Kapoor.
I appreciate management's bandwidth on giving clarity with respect to various questions. The only one point I would like to make here is that last quarter, we made some announcement with respect to itinerary API or some companies acquisition after that price -- share price collapsed, and it has not recovered. And second point is pledging. The pledging is happening very quickly. And market is not liking, I believe. So can we think about some buybacks once our CapEx is done?
Abhishek, this will be considered by the Board as a simple answer I would give you at this juncture. So as we had mentioned earlier that we would consider all options in terms of improving the overall aspects including shareholders wealth. I think definitely, the Board will consider it at an appropriate time.
Next question is from Deepak Gupta. [Operator Instructions] Next question is from Vishal Manchanda. .
Sir, my question is with respect to the injectable guidance, $650 million to $700 million. So just wanted to understand if you are also incorporating the upside from biosimilars and vaccine into this injectable sales guidance and whether this is a guidance for the global sales number?
It is for the global sales number. As far as biosimilar and vaccine is concerned, they are not included in this as such, There can be always certain marketing arrangements, but the upsize will be lying with the individual businesses.
And second, on the ARV sales. So is this -- was this quarter kind of the base and it should move up from where it is or there is scope for this to further go down?
I think Mr. Reddy has clearly articulated even for ARV. I think we need to wait for another couple of quarters, Vishal, because we don't want to assume that it has bottomed out. And the most -- the consumption in the ARV has not come down at the consumer level. It is more in terms of the last mile connectivity and also because due to COVID because of it, most of the agencies are holding stock on such gets liquidated. Right now what is happening is small, small tender also people are extremely aggressive in terms of reducing the price because they want to liquidate the stock. I think we need to wait for those particular inventory to get completely liquidated after that the stability would come.But even though the stability in consumption would happen, the prices would be a bit more lower rather than it at the prices be lower compared to the past. Because once the prices have been lower, it would take some time for it to come up.
[Operator Instructions] Next question is from Anubhav Agarwal.
One question on the respiratory filings, Govind. I think you guys have made one filing so far. Can you update -- when are you expecting the next filing on both MDI and the DPI side?
DPI work is going on, and that is with the alliance with some other company. One DPI product only, we are working. Second one, we are working with some other partner. DPIs we are not developing on our own, and what we are developing is MDI. Second MDI, we are hoping in the first quarter of the next financial year. We are hoping if our PK study and clinical study is just started in that. If that completes then we can file it the second product. First product one, we have the queries raised by FDA. We have answered 2 weeks back and we hope that the inspection will happen in next 1 or 2 months, then maybe approval next year.
And totally 6 MDIs are being developed just to add to what Mr. Reddy said. So totally 6 plus 2, 8. [indiscernible] 6 MDIs and 2 DPIs, one has been notified.
2 DPIs is on partner agreement.
And out of the 6 MDIs, let's say, one we have filed out of the remaining 5, Mr. Reddy talked about potentially filing one in quarter 1 next year. But how it remaining for? Do we expect any more filing of MDI next year?
Next year, yes, maybe end of next year, third 1 can be filed. That is the 3 -- we have clarity and then let us file other 2, then we will let you know the other products.
Sure. And just getting some clarity on the PLI thing, what is the kind of clarity that you're seeking for the government? Is it more that the conduce of the scheme, I think, were very clear that I think is the clarity more than incentive structure? Or is the clarity that you want to do a certain CapEx is that you want to do more downfield CapEx? Is that -- does that qualify under the government scheme. So can you talk about what are the points you're looking at clarity are?
Yes Anubhav, I'll make it very simple. When PenG, originally when the draft scheme was there it was supposed to be PenG and 6 API. In the final stream, it was only PenG. We wanted to also like manufacture 6 API because the 15,000 tonnes of PenG when we have committed ourselves, like I think they are very clear that majority of that would be converted into 6 API. And so the process, which, in fact, originally Aurobindo developed where we don't need to isolate PenG to manufacture 6 API. But since the scheme is only for PenG, like, I think, you were raising the query in terms of like without isolating the PenG whether it can be considered as part of the scheme. Otherwise we will be unnecessarily losing certain yields as well as commensurated cost. I think that is the reason. That is as far as its safety in terms of PenG scheme as well. [indiscernible] there has been shift in terms of certain [indiscernible] as the starting material. So these are the major queries.And obviously, also like related time line is something which we had been leasing about like. So these are some major topics in terms of the discussion.
Okay. That's helpful. And last question is on the new facility that we were making for the injectable business in buy side. So in your guidance, when you talk about $650 million to $700 million, do you expect -- and you guys have talked about this specifically coming online around June next year. So does that -- the June time line assumes it to be cleared by the European regulators? Or does this June time line only talks about facilities starting?
No, facility starting and the end of next year the inspections will be completed. That is what we are hoping in the next financial year.
So the kind of delta that you're assuming in the injectable sales with just -- so effectively the first year of operation in fiscal '24 for that.
You're right. It's from January '23 onwards.
So are we confident of that $650 million number because we need to generate the $250 million incremental delta from almost like 2 to 2.5 years from now.
We have our U.S. plant, we are already filing, and we have 59 products filed and under approval and various other good products out there. And we are really confident it will achieve this figure.
Actually, U.S., I didn't have a problem. I was talking more about the ex-U.S. injectable delta that we were expecting that if anything happens to the facility, let's say, for example, it doesn't get approved in time. I'm just talking about...
No, we are using the existing facilities at present, Unit 4. But what we plan for that is in the future, the all products approves in the U.S. facility, then we may not allocate the space for the Europe and emerging market. At present, we are using the existing unit for bigger facilities and things. But this -- we want this plan to only from '23. That is what we have envisioned. From there onwards, we will be demand we can push to that other plant.
No, I agree with that. That's why I'm asking it. Let's say if the approval gets delayed for the -- from the European regulators for this facility. Does this mean that our target of $650 million, $700 million gets pushed out by year because that's always possible.
No. We have a lot of clarity. There is no connection to the Europe and emerging markets. We have never calculated next 2 years when we have not calculated the Europe sale in that.
Can I add one point there is oncology filings which are happening in Europe. And also the Panem block is also being expanded, which is not fully utilized for Europe. So these 2 will be additional inputs for injectable business in European and emerging markets.
Next question is from Surya Patra.
Just on the, again, the PLI side, sir, I wanted to have a sense -- see, obviously, we are in discussion with comment to give some more clarity and all that. But -- is it -- do you have any sense of -- even if we're getting clarity and all that, what would be the cost difference that we can have compared to the Chinese competitors for this project? Whether it could be a kind of considering the incentive, it would be a kind of separate one compared to the Chinese potential competition? Or what is our thought process in this?
We are putting so big plant. Well, Govind will explain in detail, and we put so big plant. We have done very good homework in this direction on these products. And Govind can continue.
I think obviously, Surya, like we are going ahead a clear consideration that we would be competitive. So that's a consideration with which we are going ahead. And then Surya you have to remember 1 important aspect of it. I think Aurobindo has been one of the pioneers in terms of these -- I mean the PenG, 6 APIs, like I think even setting up a plant in China. So obviously, there is enough experience and as Mr. Reddy explained like there is a deep level of like, I think, considerations or design aspects, everything has been looked at and particularly having a facility in the heart zone, like I think -- so obviously, there's a lot of consideration in. A lot of work has gone in, and we're fairly confident that we'll be able to produce a product competitively.
Sure, sir. Second question on the European business, sir. In fact, obviously, the expectation was to introduce more and more injectables in the Europe side and also add the penem products in the European market. So what is the progress there? And now what is the profitability that we have or in terms of margins, what level of margins that we have reached for the overall European business? In 3 years' time, let's say, sir, what is the kind f expansion in the margin overall that we are anticipating for the European operation as a whole?
Yes. Surya, I will answer. Sanjeev Dani here. First of all, am I audible?
Yes. Yes.
We would be touching in low teens in terms of EBITDA, including Apotex loss-making business, which has turned around. Going forward, we are adding more specialty products, as you know, in oncology, Eugia product, we have developing 55 products and out of that 12 are already filed and 9 are launched and another 3 will be launched in the next quarter. Then you also talked about Vizag facility, which will be ready civil work by June next year and then after that we'll go for approval by year-end. Next, there are 50 Vizag injectables being developed. And out of that, 12 are only approved from Unit 4, which is Eugia 3. So as soon as the U.S. supplies have taken care ex-U.S., we will be able to commercialize that also immediately. And then the penem block is being expanded. Right now, we are not able to fully supply meropenem, and we are buying from third party.
Need of products, Sanjeev.
Okay. And then, of course, there are another unutilized capacity, which will be supplying to Europe from penem block. And cephalosporins are also being reactivated and there is a lot of scope for higher strength of cephalosporin. So these are the 3 injectables that we are -- 3 areas of injectables that we are looking to add to the margins. And then you heard about biosimilars. We have already filed 1 and another is being filed in November. So I think this is the overall specialty basket which are there. And we are also adding the [indiscernible] products in terms of the oral.There are 200 products which are being developed and there are -- number of them are in day 1. So overall, we think that we will be improving the margins going forward, even though I would not like to give the guidance on this part.
Sure, sir. Just last question on the Revlimid, sir. Can you give some sense of what is your interaction with the innovator? What is -- are you expecting to settle the litigation and get...
We already settled the litigation, and we're also launching from 23 onwards, some percentage of market share.
We will take last 2 questions. Next question is from Paresh Jain.
My questions have been answered.
Next question is from Mr. Venkat [Gogineni]. We will take one last question from Mr. Nitin Agarwal.
Thanks for the follow-up. Just following up on the question around nutraceuticals. Just if you can help us understand. So we all sold off the Natrol business, so how different is this opportunity versus the business that you're doing with that Natrol.
This is branded business for a starter. That way it is different, whereas Natrol was -- it was more like an umbrella brand. This is a specific brand. That's one. And then there are products which are -- 1 or 2 products are common, but there are different products, too, like the cold segment is different here. And that this is more on the cold segment, sleep segment. So that is what I would say.
So this business is going to be basically built around the products that you acquired or we'll be adding meaningfully?
No, we are adding some more products, but it was started with the products we acquired. This is a running business, but we acquired the products in the same. We have launched the same products as we also got some stocks also. So we launched the business along as continuity of business, but we have not bought the business, we bought the brands.
Okay. And last one, Govind. If you can just give us any updates, which are there on the regulatory inspections for us on the plants, which are under warning letter?
The only change is Unit 1 got inspected, and we have responded within the stipulated time. We are awaiting further imports from the regulator. That is as far as Unit 1. Aurolife inspection is ongoing. FDA inspection is ongoing. These are the only 2 changes compared to what we have presented in the earlier meeting.
Aurolife is ongoing currently.
Yes.
Okay. And that is the penems plant for us, right?
No.
So that's a Unit 4, right?
US plant, Nitin.
So the Aurolife plant in the U.S. injectable is being inspected right now.
No, no, no. Oral.
So oral already warning letter is there to the plant, and that plant is getting inspected.
I would now like to hand the conference over to Mr. Arvind Bothra for the closing comments.
Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the Investor Relations team at ir@aurobindo.com. The transcript of this call will be uploaded on our website, www.aurobindo.com in due course. Thank you and have a good day.
On behalf of Aurobindo Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.