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Aurobindo Pharma Ltd
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Good day, ladies and gentlemen, and welcome to the Aurobindo Pharma Limited Q3 FY '18 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Krishna Kiran, Investor Relations, Aurobindo Pharma Limited. Thank you, and over to you, sir.
Yes. Thank you. Good morning, and a warm welcome to our third quarter FY '18 earnings call. I am Krishna Kiran from the Aurobindo Pharma Investor Relations. We hope you have received the Q3 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. Ramaprasad Reddy, Executive Chairman, Aurobindo Pharma USA; Mr. N. Govindarajan, Managing Director; Mr. Sanjeev Dani, COO, Head Formulations; and Mr. Santhanam Subramanian, CFO. We'll 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 related to the implementation of strategic actions, and other information 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 expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.And with that, I'll 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 third quarter financial year '17/'18 results declared by the company.Revenue increased by 11% year-on-year to INR 4,336 crores, driven by strong growth in the U.S., Europe and Growth Markets. The EBITDA before ForEx and other income increased by 15% year-on-year to INR 1,026 crores. Net profit increased by 2.8% year-on-year to INR 595 crores. As for newly enacted tax reform act, the deferred tax assets and liabilities of the U.S. entity have been remeasured, resulting in a onetime charge of INR 66.4 crores.In terms of the business breakdown. Formulations business contributed to 82% of the total revenues and clawed a revenue of INR 3,578 crores, registering a 14% growth year-on-year. API business accounted for the balance INR 766 crores for the quarter.In the Formulations business, the revenues from the U.S. markets stood at INR 1,910 crores, an increase of 9% year-on-year. On a constant currency basis, U.S. revenues witnessed a growth of 14% year-on-year to USD 295 million. The growth was primarily driven by new product launches and improved volumes of existing products.We have received final approval for 20 ANDAs and tentative approval for 2 ANDAs during the quarter. We have filed 2 ANDAs and launched 8 products in the quarter under review.Aurobindo USA, the company marketing oral products in the U.S., has witnessed a growth of 17% year-on-year basis. AuroMedics, the injectable business, clawed the growth of 9% year-on-year basis to USD 46 million. We have filed a total of 90 injectable ANDAs as of 31st December 2017, out of which 57 have received approval, including 2 tentative approvals and the balance, 33, are under review.Aurohealth, our OTC business in the U.S., has started picking up with new product launches. The company as on 31st December 2017, has filed 465 ANDAs on a cumulative basis, out of which 313 have final approval and 38 having tentative approvals, and including 11 ANDAs, which are tentatively approved under PEPFAR program, and the balance, 114 ANDAs, are under review.So unit-wise, filing and approvals are as follows: From Unit III, 126 filed, 103 approved; from Unit VII, 160 filed, 112 approved; from AuroLife, 27 filed, 17 approved; from Unit IV, 89 filed, 50 approved; from Unit XII, 20 filed, 19 approved; from Unit VI, 11 filed and approved; on AuroNext, 4 filed and 1 approved; Unit X, 18 filed; from Eugia, 10 products have been filed. Unit III, Unit VII, Unit X and AuroLife manufactures oral, non-betalactam products. Unit IV manufactures general injectable and ophthalmic products. Unit VI and Unit XII manufactures cephalosporin and Semi-Synthetic Penicillin, respectively. Eugia manufactures oncology and hormonal products, and AuroNext, which has its facility at Bhiwadi in Rajasthan manufactures Penem injectable products.Euro Formulations revenues clawed INR 1,172 crores in Q3 FY '17/'18, an increase of 37% growth year-on-year. On a constant currency basis, the European revenues grew by 31% year-on-year. As on 31st December 2017, we have transferred 78 products on manufacturing from Europe to India.Growth Markets have witnessed a growth of 33% year-on-year basis to INR 250 crores. On a constant currency basis, the Growth Markets reported a growth of 39% year-on-year. ARV Formulations revenues were at INR 239 crores. On a constant currency basis, ARV revenues witnessed a decline of 27% year-on-year due to the pricing pressure in one of the key products. We will launch Dolutegravir, Lamivudine and Tenofovir combination tablets in Q4 FY '18.In terms of segmental classification, U.S. Formulations contributed 44% of the overall revenues in Q3 FY '17/'18 versus 45% in Q3 FY '16/'17. Share of EU Formulations increased to 27% in Q3 FY '17/'18 versus 22% in Q3 FY '16/'17. Growth Markets share improved to 6% in Q3 FY '17/'18 versus 5% in Q3 FY '16/'17. ARV segment represents 5% of the overall revenues in Q3 FY '17/'18 versus 9% in Q3 FY '16/'17. API business contributed 18% of the total revenues in Q3 FY '17/'18 versus 20% in Q3 FY '16/'17.R&D expenses stood at INR 157 crores during the quarter, which is 3.6% of the revenues. Net CapEx for the quarter is around $27 million.The effective tax rate for the quarter is 34% of PBT. The closing rupee versus U.S. dollar rate was INR 63.875 in December 2017 and INR 65.287 in September 2017.The net debt after paying dividend, including tax of $16 million, decreased by $76 million to $540 million as on 31st December 2017, against $615 million as on 30th September 2017. The majority of the company's debt is denominated in foreign currency. The cash in bank balance is at $196 million. The average finance cost is at 1.55%, mainly due to availing multiple foreign currency notes.So 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, this quarter, again, saw lumpiness in Europe and ROW business. Would it be right to say that there is a one-off element again in the quarter in these 2 businesses? And what was the -- how should we look at this business going forward given this is the second quarter we've seen very strong numbers from both Europe and ROW?
Sanjeev?
[indiscernible]
Sanjeev, are you there?
[ You can go ahead ].
No, I think the question is, I think, she feels that there is some one-off growth in terms of Europe and ROW, and how do you see the future as a percent, sir?
Yes. So actually I was -- I can answer on ROW first. Actually, we have seen strong growth in Canada on the back of a number of products being filed, and that will continue. And Brazil is springing back into normal sales, so that shows a good growth. So these are the 2 driving markets. But there are very good growth even in other markets, double-digit growth. So we expect 20% momentum to continue in ROW market. When it comes to Europe, actually, I was talking about the European economy is doing well and government has finances, so there are many tender opportunities which are going on. And apart from that, one must note that actually Europe has a lot of barriers in immediately ramping up the operation as well as bringing the stocks. So there are a lot of market opportunities which come up from time to time, and we have seen that happening over the last 6 months, particularly in U.K., in Germany, even in France, Spain and Italy. So these markets have grown very well. So these are the overall factors which have led to this kind of a growth. Plus we have integrated our Portugal operation. We had 3 companies. And from 1st November, we are operating with our sales operations with the 1 customer, 1 rep phase, and thereby, we are also doing well in Portugal. So these are the factors. And we hope that we'll continue double-digit growth for some time. But obviously, 30%-plus growth is a one-off and it may not continue.
Sir, if I may ask, what is the ex Generis growth in Europe?
Okay. I just want to clarify that we should stop looking at excluding Generis because Generis is the front face of Aurobindo, and many of the products which would have gone to erstwhile companies, are now going to Generis. So Generis will show a higher growth. But even still then, if you exclude, still, it will be 16% growth in rupee terms -- 16% on a constant currency basis, actually.
Europe.
Yes. Europe, so excluding Generis, it will be 16% euro growth and then you add another 7% currency growth.
Okay, got it. And my second question is on the injectable facility. Given the recalls that have come through, if you could give us some update on what actions we are taking to address that concern? And is there a risk of approval getting delayed from our injectable facility?
So there are 4 recalls, Neha, and there are -- as far as Unit IV is concerned, there are 3 recalls. And as far 3 recalls are concerned, 2 recalls have -- 1 recall has been already, like, addressed, the [indiscernible] has already been implemented and we are continuing with that product. The other 2 recalls, right now, the correction work is in progress. And there is an inspection which is also a scheduled inspection. So at this juncture, I would leave it there because we need to go through this inspection as well and we expect to continue to do well. That's what I would say.
The next question is from the line of Ranjit Kapadia from Centrum Broking.
My first question relates to OTC opportunity in the U.S. market. And are we seeing pricing pressure there hitting the OTC market also? And my second question is update on the vaccine business or vaccine development and the peptide development.
Okay. As far as OTC is concerned, we are starting with a very low base, Ranjit, and we are expecting to grow very well. As you would have observed, last year, we got the approval for Mucinex as well as Nexium, and we are waiting for launching even omeprazole by May end or June beginning. So far I think what we'll see this year will be a tectonic shift and we are -- we would continue to grow. So at this juncture, I don't think that we are in that situation of talking about any pricing pressure because we are starting from a low base and we'll be growing for the foreseeable future. As far as vaccine is concerned, the pneumococcal vaccine Phase I trial should start any time. We have already got the clearance for starting that. And followed by that -- like I think Phase I, and Phase III has to proceed. So you take approximately around 2 years for concluding both the trials, 2 to 2.5 years. And after that, I think we'd be filing the product. And 1 year from then, I think if it gets the approval, we'll be launching in India initially. Because of our governing market qualification, we need to necessarily sell in India for a period of 6 months. So that is the plan as far as the vaccine is concerned, the pneumococcal vaccine. As far as the peptide is concerned, there are 40 ANDAs, which have been filed. And we have been working -- another 10 product development has been completed. And now we need to scale up and file the DMF as well as forward integrate in terms of filing the ANDAs.
And one more question there. So vaccine, pneumococcal vaccine, is how many were ranked?
That is 15 phenotypes, in fact, I'll come back to the current innovative product. There are 2 more variants 1 is Asian, 1 is African [ in this way ].
The next question is from the line of Surya Patra from PhillipCapital.
This quarter, we have reported on [indiscernible] 9% growth. So whether it means that we are seeing a kind of a gradual fall in the growth trajectory, for the individual business rates we have been talking about over 50% kind of a growth for the similar period. So any sense on that trend that you can provide?
We never budgeted or projected that we'll keep growing at 50% year-on-year, Surya, [ it would appear ]. Having said that, I think we would continue to grow. Even for next year, we are confident of growing 30-plus percent in terms of year-on-year growth we are very confident about. So we don't see any slowing down of growth, but obviously, we are not budgeting as we are not projecting 50% growth for the year.
Yes. And have you seen any progress on the Penem approval [indiscernible] -- you're expecting a second Penem approval or sometime back?
Yes. So I presume you're talking about Ertapenem, Surya. If you're talking about Ertapenem, I think, one aspect that's pending from us, we need to submit a set of data which should be ready by end of March. And hopefully, there are no further queries. From then -- a few weeks from then, say, a couple of months from then, I think we should expect the approval, Surya.
Okay. And regards, in the European business, sir, do you see any kind of [indiscernible] and anywhere better-than-expected number, but what is the pricing scenario there, whether you are finding any kind of competition or anything? If not, to the extent of U.S. development, whether that is [ there ], and despite that, we have [indiscernible] and what is the scenario on the European side?
Yes, actually we don't see pricing pressure in Europe. And actually, you must be aware that there are a lot of branding elements in Europe. So there is a patient preference and there is a customer preference on ongoing products, and they have a choice to select the product which is ongoing. So we don't see -- right now, we don't see -- for the last 6 to 12 months, we have not seen a pricing pressure.
And how are you thinking [ of today's ] European supply, sir, from India now?
Yes, so, actually, it was mentioned in the opening speech that 78 products we have brought to India from Europe manufacturing. And we have overall 112 products planned to be brought to India.
Okay. So by now, what -- so in terms of the number is indicating the kind of a proportion, that is how [ one could deliver it ]...
There will be some kind of percentage weightage, the important products are brought in first. But overall, you can say that out of 200 products that we market, about 112 that we have already planned to bring into India, as of now.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Sir, I want to check your number on injectable sales. We were very sure in the last quarter that we will touch about $55 million, $60 million by quarter 4. We don't seem to be anywhere closer to that right now. Ertapenem approval is also pretty delayed now for us for that guidance. I just wanted to check what went wrong. We were very sure of capitalizing on product shortage. In terms of [indiscernible] doesn't show any pickup for us. So what has gone wrong just in last 3 months in the injectable business?
Yes. So there is nothing, which has gone wrong on a permanent basis. It would be a short-term deferral is what I would say and above. I think as far as [indiscernible] there are certain approaches [indiscernible]. Having said that, we have achieved $46 million in -- for Q3, and we still expect to end up by around $180 million, $185 million. So that maybe we still expect around [ $50 million, $55 million ] in the last quarter. And I've also clearly said that the next year, we will still grow at 30% plus because by that time, we are expecting the approval to happen. But Anubhav, one thing you also have to remember, whenever the first generic approval happens, I think you cannot just predict specifically because the regulator would have a more stringent review because he is benchmarking that product for the future approvals of the generics as well. So from that perspective, even today, there are no generics of Ertapenem in the market and, hopefully, like I think we should get the approval in the time line, what I had define earlier, which is in terms of after submitting the data by March end, then I think a couple of months from then, I think, we should expect approval, provided if there are no queries, Anubhav.
Okay. So when you're expecting a growth in quarter 4 from current level, any new launches that you are factoring in, like, for example, Vancomycin launch, are you...
Vancomycin might get shifted by probably a quarter, but then already [indiscernible] we received, that could get approval. And the [indiscernible] we are confident of achieving what we have mentioned, Anubhav.
But given [indiscernible] not such a larger tool, that $46 million can go to $55 million right in a quarter, right? So there is something else which you're factoring in...
Anubhav, the one aspect of [ statistic ] we don't want to go by product by product because the reason I think irrespective of whether the product is approved or not, we will still achieve the numbers as planned, Anubhav. So what will happen is we take 4 products and if 1 or 2 of them gets shifted, then I need to justify that, Anubhav.
Okay. Besides the injectable business, if you look at just the next 2 quarters, the March and the June quarter, in the oral space, are you expecting any important approval for the next 2 quarters which can drive the growth?
So there are a few approvals, which are still pending. If you really talk about [indiscernible] I think that are still pending. Whether it could happen within that time line is, I think, we have to submit some more data so that we can wait for the regulator to come back with an approval or further queries. There are a few products apparently that since we raised overall as a portfolio, I will still tell you like what we have been maintaining. As the overall yield, we will still grow, like, I think it was [ property ] of some minor that which can happen in oral also. Still oral will still grow is what we have been maintaining as a [indiscernible].
So going -- just wanted to express quickly on metoprolol, XL Toprol, is that -- that, [ I think, you're ] expecting at the end of quarter 4. Broadly, do you expect to [ issue ] around that late quarter 4, first quarter FY '19 or it could be further delayed?
If an inquiry delays and we are replying in -- the first week and we -- after that, we are not expecting any more queries. If there is no other queries, we may get in the first quarter only we will get approval, April, last. That can be.
Okay, that's helpful. And lastly, on the inspection you mentioned, you're expecting an inspection. That was comment only for Unit IV? You're expecting inspection on Unit XII, as well?
Yes, Unit XII, also, there is a scheduled inspection, Anubhav.
On both the units?
Yes. It's a -- again I repeat, it was a scheduled inspection.
The next question is from the line of Prakash Agarwal from Axis Capital. We've got no response, so we'll move to our next question, which is from the line of Ritika Jalan from Narnolia Securities.
I just want to -- in terms of your CapEx plan, how much this year has been done and then what is the outlook for your next financial year?
I think for the current year, overall, we had projected $130 million plus was our expenses which can happen on biosimilars and vaccines. And I think if you really look at the current quarter also, we have spent around $26 million -- $26 million to $27 million for the current quarter, so the run rate is almost what we had predicted. So next year, also, it should be around a similar number, even though we will be completing our budgeting exercise before end of March. By then, we will have more clarity when we come back on next year. But we expect to maintain around that number only.
Is it most of the biosimilars is running [indiscernible]?
I'm sorry, Ritika, I'm not able to hear you clearly.
Most of the biosimilars will be coming in '19 only?
The facility would start manufacturing by the first quarter of -- well, by the next quarter, I would put it this way. So obviously, most of the expenses would be -- CapEx would be accounted next year?
Yes.
Yes.
Okay. And on the level of debt, what we you expect by the end of the year like?
We started the year with $440 million and September, again, we closed at $660 million. We said that, clearly, at the time, September, the end period. We'd be getting the remittances at the month of -- in Q3 and Q4. We have already [indiscernible] and reduced this debt to $540 million. We generated cash flow to the tune of around $93 million this quarter, right? And out of that, we've paid around $16 million as the dividend. So overall, the debt has been reduced by $76 million end of December. We'll still go ahead and reduce it and we will achieve the target of $475 million, which we had guided, sometime in the month of May '17.
Any chances that it will be delayed due to the delay of the [indiscernible] or any outlook?
I couldn't understand, please?
Any chance that the debt payment can be delayed?
No, no. We already received and released and reduced the debt to the tune of 90 -- $76 million after paying a dividend of $16 million, which I said.
Okay. And can you guide me for the recent R&D expense for the quarter and how do you see that ending for the next year or at least for this year?
I think, currently, we're at 3.6% of the revenues and this year we'll be closing somewhere around like within this and 4% is what I would say. And we had projected earlier also, like, I think for -- until [indiscernible] you have 2 Phase III simultaneously happening, which we don't expect it to happen over the next 12 to 24 months. I think we don't expect it to go beyond, let's say, 5%, 6%. So it should be less than 5% for next 1 or 2 years.
Okay. And when do you expect the Phase III trial to commence like some particular date or year?
One Phase III will definitely start by calendar year 2019.
Okay. And can you throw some light on the tax rate, like, what is the -- in this quarter, where are the one-offs and what is the guidance for the full year?
So this quarter, if you exclude the one-offs, we are around 26.7%, and we will end up the year something like 26.5%. This is the expected tax rate for this year. Next year, with the tax rate coming down in the U.S. and apart from that, we are also tracking the other [indiscernible] unit also. We will be anywhere between 24.5% to 25.5% next year.
Okay. And also in the business [indiscernible] inspection per unit, all the units, can you explain any time of month or the -- when will be the U.S., they will be coming.
The next few quarters, the inspection would happen. Sorry, next few weeks, sorry.
Next few weeks?
Yes.
Now do you expect, like, there will be any -- the response from the U.S. FDA?
It's not fair now for us to judge any inspection, madam.
The next question is from the line of Kartik Mehta from Deutsche Bank.
I have 2 questions. On the U.S. pricing front, some of the U.S. companies seem to believe that the pricing is not getting worse. What are your views on that? And in this context, is there any part of the business that you are getting if any of the large U.S. guys are exiting that in the generic space? Second question on FY '19. If you have to include Renvela in the base, do you believe your earnings can improve on a Y-on-Y basis in terms of the pipeline which we just discussed?
As far as the first aspect is concerned on the price erosion, I think from a sequential basis, I would say it is around a couple of percent, around 2% to 3% is what I would say. But I think I agree with most of the peer groups comments which you have mentioned but I think we expect it to taper down over the next, say, 3, 4 quarters and it should improve, is our belief. From a perspective of any company's moving the [indiscernible] junction, we expect the volume can grow in the future. That's our expectation as far as the pricing is concerned. From a Renvela perspective, even if next year, if it was included in the base also, we would -- I would put it this way, like, I think, even if you really look at it, without [indiscernible] also we had grown overall -- and we don't expect the lack of Renvela to be making any huge impact. Because as of now, even this quarter, if you had seen, like, we will not be -- last quarter or this quarter will not be having huge Renvela numbers at all.
Yes. So -- and in terms -- if I may just actually squeeze in one here, in terms of the recall, so is there a time line that the FDA needs to be given for the -- where you don't have a gap? How does this work? And does this impact any immediate revenues? Do you stop any of the existing inventory which is there in the market?
Yes, there are 4 recalls largely, Kartik. I think, in fact, 2 of them are on [indiscernible] and one of them was on Pantoprazole, one of them is another product [indiscernible]. So basically, the 2, whilst we have already closed a couple and we have started also. So there are no issues. As far as the [indiscernible] is concerned, we have stopped the [indiscernible] at this juncture and we have identified certain root causes and we are right now working on the correction. So then, what the correction would [indiscernible] end then we know we are comfortable that we are, I mean, fine with that line production, we will start the production. It can take a few more months for us to do that because we are not rushing towards starting it like until there is a completely [indiscernible] whatever our root cause we've identified.
The next question is from the line of Shyam Srinivasan with Goldman Sachs.
First, on the DTG part that you talked about that you have launched. Can you just talk us through the prospect for that business in terms of as we look forward?
I think for the next year, we already have a very decent level of open orders. In fact, we are pretty confident about this business growing well. I think, in fact, we have signed a minimum guaranteed contract, which was approximately around $90 million to $100 million over a period of 2 years starting from April 1, 2018. But as we are looking at that business, it can do even better than that number based on whatever the orders we are holding. So that is what's our consensus on that business.
So, Govind, in terms of margin perspective, don't you think this is like close to where corporate management should be or would we -- should we assume some kind of dilution?
No. I think, see currently the dilution is because of the [indiscernible] I think where the margins are under pressure. But definitely, those other combinations should be closer to the company's margin is what I would say.
Okay. My second question is on the overall margins, per se. I think we have seen some moderation from the Renvela last quarter. So what do you think is the kind of -- you also mentioned that Renvela's not much fair contribution this quarter. So is this the right level of margin we need to start keeping in mind as we look forward? And is there any scope for expansion of margins on the business.
So I think we don't give any forward-looking statement on margins as well, Shyam. But having said that, I think currently we are at around 23.7%. And our aim is then what we reach a new high, we would like to work hard towards at least getting that as the base as we move forward.
Okay. And my last question is on the ARV. You talked about decline in one product. Can you just give us some more details?
That is more predominantly [ PLE ] number within the severance.
The next question is from the line of Ranvir Singh from Systematix Shares & Stocks.
I wonder on European business, you're saying that the tender has been -- process has been started [indiscernible]?
Sorry to interrupt you, Ranvir, but the audio from your side is not clear. Can you please speak on the handset receiver?
So my question is that in Europe, you said that new tender process has started. That's what I heard correctly?
Not exactly. In fact, what we are saying that there are a lot of government finances, and they are sorting tenders, and there are market opportunities. And it is not in 1 market, 1 tender but it is multiple and multiple opportunities; nontender also.
Okay. And on the -- on margin front, so just directionally if you could give whether we have seen improved margin in European business especially from Actavis side?
Yes, it is -- I mean, now, of course, we don't disaggregate Actavis and Aurobindo because it is integrated operations. But yes, margins are strengthening, and we are [ formally ] into double-digit EBITDA.
Fine. So [ what ] European business suddenly take it as their run rate going forward are -- we can see even [indiscernible] from here?
You are talking about the top line?
Top line, I'm talking about, yes.
Top line, no, I think the markets are not growing more than 2% to 4%. Even in some market, it is flat. So we expect, on the back of our new product launches, about 8% to 10% on euro constant-currency basis growth. But there will be some market opportunities which we will take.
Fine. But even in this quarter you should have strong [indiscernible] currency and actually generate [ some to ] 16%. So what actually led growth on the core business?
As I mentioned, actually overall, European economy is doing well and there has been a lot of barriers in newer entrant and newer clear to come in or even to ramp up the stocks. So those who are already entrenched can partake into the opportunities. And this has happened in certain markets. Actually, all markets have grown in double digit. But certain markets who have done [ pretty ] well is U.K., Germany, France, Spain and Italy. Their sales growth has been quite strong.
Okay. And what would you like to give for a guidance for FY '19?
No, as I said that since markets are between 0% to 4% in European market where we are well entrenched, actually, we are looking at about 8% to 10% growth rate in top line on a sustainable basis -- in a constant-currency basis.
And you have said that margin will be -- the margin will be at base level [indiscernible]?
Yes. Margin may a little go up and down depending upon the channel that we sell. But we will be in double-digit percentage to EBITDA.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Going on the R&D front, I mean, how should we look at the R&D expense for the quarter and for the 9 months? I mean, maybe a little trending below what you had expected, like whether the filings on ANDAs -- is there any change in start-up [indiscernible] in the R&D side leading to lower number of filings or anything going forward?
Not at all. I think please remember the fact, whenever we -- last year we talked about a certain percentage being maintained by the [indiscernible] got done and then that number also got added to the top line. So we have not slowed down on R&D and we are in fact financing our R&D efforts, and the [ fact really ] I think there are no change in terms of proxy on the R&D front on our strategy.
And secondly, on Microsphere -- when are -- what is the -- what's the update on that in terms of trials? And do we see any filings coming through in FY '19 on any of these products?
The filing can happen towards the end of FY '19, at the beginning of FY '20 I would say, could be between 2 and 3 months.
Okay. And lastly on the U.S., so when you look through the next, say FY '19 on a full year basis, you obviously see growth coming through on the injectable side. There is some growth on the OTC bit. Overall, on the [ OSTP ], per se, how do we -- how should we look at that? I mean, does it have opportunities to really drive meaningful growth on it to counter the price dilution, which is there in the business?
I would like to step back and bit and then give more clarity because, first of all, [indiscernible] injectable would grow. And also OTC is not some growth, OTC will be a [indiscernible] shift in terms of the growth and our sellers like Natrol would also continue to grow. Having said that, even if there are some minor blips in forms of like our orals, so overall will still maintain the growth. On the orals, we still expect over the next 3 to 4 quarters this [indiscernible] can taper down, is our belief, and we can start seeing growth in that as well like is what our belief this.
No, in terms of opportunities, even if -- while not specifically getting into them, do you see opportunities which can do $20 million, $30 million for you on the oral side or...
The reason is, one, as in terms of the new products, Nitin, but then there's one more angle you have to look at it in terms of volume growth. I mean, when certain large plays are moving up, there are opportunities in terms of taking those products, which will increase the volume -- improve the volume, per se, [ just in ] portfolio as well.
We are launching another [ 25 ] products in the next 6 months -- 6 to 9 months. On the oral side.
Absolutely. Yes.
On the oral side?
Yes.
Yes.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Just one clarity on the earlier questions. You've already mentioned about Vancomycin launch being a little delayed. Any specific reason for that? Or is that because of inspection, coming at Unit IV or on the life...
No, I think see, in between, like I think what had happened is we had to look at the facility in terms of various angles and one [ article ] happened from that like when perspectively shifted certain aspects of it. And now the new line was, if you remember, ordinarily like when what was planned for [indiscernible] we got an opportunity, that is one of the reasons it got delayed. Now that I think we'll be filing the [ CBE 30 ] by let's say like I think beginning of next quarter. So I think our EBITDA by next quarter, and I think we still expect it to happen. That's the plan.
Okay. And that should be irrespective of the inspection result, which happens this time. Or the inspection will happen in the [indiscernible] 9 as well?
[indiscernible] that will also be included...
[indiscernible] someone has to complete the [ lifeline ] they're normally 10 months. Otherwise, no.
And one question on the Renvela. So just as a broad understanding, should we expect now the price [indiscernible] on this product should be 90%, 95% right now? And it's no longer attractive opportunity in general?
The range what we have talked about is fair. And it still is a -- it's still a good product, but it's not like I think it's a bad product, but it is [indiscernible] backward integrated to that extent, we will be still having this product in our portfolio for the foreseeable future, Anubhav. The only point I am mentioning again is like I think we had a one-off like I think [ upstate ] from that particular quarter that is Q2. I think when you compare Q3, that is not at all comparable. That's what I am trying to clarify.
Sure. And can you just give some idea about net growth, how is it doing. Like we were doing sales of almost like $29 million, $30 million over there. Is it not $30 million now? How is it doing?
I think this year is more, as in more of consolidation. In fact, particularly last quarter, we had also like been provided for some [indiscernible] product [ as for profit ]. Having said that, we clearly expect the next year to be a decent year where we would still expect a 14% cost growth.
Okay. So that means right now should we -- at the annual business, Natrol should be $115 million to $120 million right now?
That's around $120 million you can take, so current quarter is around [ $31.8 million ].
The next question is from the line of Surajit Pal from Prabhudas Lilladher.
Here, AuroMedics sales recently, if we can recall that the guidance of 55 around, is it because you might be supplying less post that -- recall you might be taking more precautionary steps from Unit IV?
No, that -- but that will not be the major reason, I would say. So the major reason is in terms of the anticipated approval which got [ shifted ] that is predominant reason, yes. And some minor reason also is because of what also you said, but that is not the main reason.
And what's your guidance for the key drivers in FY '19 from U.S. market, including Oral as well as injectables? It would be fine if you can highlight some of the key approval you are expecting.
So my suggestion is we'll not get a specific approval at this juncture, Surajit. As far as the overall U.S. market is concerned, including injectable oral and the rest of the portfolio, we are still expecting to grow.
And how many complex units you are expecting in that scale of things?
I think so, from an injectable perspective, one of the key aspects is to file the completed clinical trial and file [indiscernible] injection like I think by the end of the year or the beginning of next year. That is the first product, I would say. This year, I'm still expecting some more approvals in terms of Oncology products which can happen. But I mean, I'll be having a specific answer on what is a complex product. We can take it off-line, like maybe in terms of specifics, Surajit.
Okay, okay. As far as your injectable launch in Europe is concerned, can you throw some light on that. The key injectables in which you might have success already in the U.S.
Mr. Reddy is answering that.
No, we are not -- we don't have the capacities to launch in Europe. And whatever is the Actavis where we are procuring from Europe, local Europe, that is the same vision, it's continuing. But only in Oncology, we are expecting the next year onwards it will ramp up in Europe.
Okay. So my objective was to find out is that whether the -- your [indiscernible] product like [indiscernible]like [indiscernible] going forward say, Vancomycin. Do you have any plan to launch in Europe from Unit IV or any other units?
I think, Surajit [indiscernible] has already been exported to Europe. Sanjeev?
Yes. [indiscernible] Actavis is going to Europe.
And some of the product's like from the -- some products like [ Vanto ] or Vanco.
On Vanco, we are not launching in Europe. It's a year [ cycle ], so it would take another 5, 6 months.
We are not launching anywhere in [indiscernible].
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Yes, I wanted to understand the prospects for ARVs going forward because there has been a sharp decline in this quarter and over the last 2 quarters, for that matter.
I think our philosophy, as far as the ARV is concerned is clearly we would like to balance in terms of venturing, we have a decent bottom line. And that is one of the reasons we have been losing certain businesses, and which we are okay with it, because at the end of the day, if we are chasing only the top line and ERV, there won't be any bottom line. That is the reason that there is -- you might have seen a difference in terms of last 2 quarters. And once the Dolutegravir combination picks up, I think we are fairly confident that we would be able to go back to that [ trend $180 million-plus ] what we had achieved in the past as for the, let's say, next year. And subsequently, we can build on that because by the time they've started we would have reached the peak because it takes some more time for countries to adopt that, and after that, you can see growth in ARV like in the past.
So that would take another 2 years?
I think considering this year as a base, you will start seeing growth from next year onwards is what I'm trying to tell you.
Okay. And is it that the new combination has lower volumes?
It does not -- okay, from a dosage perspective, yes, it is [indiscernible] compared to a furtherance of 350 [ MG. ] But having said that overall, I think there won't be a -- the volume would be still matching in terms of the, per se, [indiscernible] and combination products.
The next question is from the line of Prashant Nair from Citigroup.
Yes. Govin, I missed your commentary on price erosion. Can you just repeat what did you see during the current quarter? And generally, what's the range that you are seeing in the oral solids?
[indiscernible] is around 2-point-some percent, Prashant. And moving forward, what we have said over the next 3 to 4 quarters, we still expect it to taper down, and we will start seeing less erosion compared to what has happened in the past is what we are talking about, Prashant.
Okay. And my second question is on your margins. So 2Q was clearly elevated due to Renvela. Would you say the third quarter also has some tailing effect of Renvela in it? Or is this kind of a normalized rate we can look at?
No. I would say, there would be some numbers from Renvala, how meaningful is always debatable, Prashant. But having said that, I think moving forward, we would like to still work towards keeping this as the base.
The next question is from the line of Prakash Agarwal from Axis Capital.
This first question on -- on competitors talking about moving out from the low-margin products, we being fully integrated and with new facilities coming up, would we see that as an opportunity? Or we would not really go after those products?
So, I think, you have to go case-by-case, Prakash, for the simple reason, yes we are backward integrated and not that -- like I think that [indiscernible] we are concentrating on every product possible that, obviously, like I think I have mentioned, we are clear also when other players, because of the pressure where they are moving out of certain products, some case-to-case basis and whenever an opportunity comes up, we'll evaluate. And that is one of the reasons we have also mentioned we expect certain volume growth as well, Prakash.
Okay. And what's the status of our new facilities? I think Unit XV, Naidupet, and the new injectable block, if you could just highlight if they have started to see approvals?
Unit XV already started exporting our products as well as Unit X is concerned, inspection is over, and we expect to start it over the next 4, 5 month is what I would say.
Okay. And the new injectable block, sir, then...
So the new injectable block what we are saying is that the -- [indiscernible] block you are talking about?
Unit IV, additional block, yes?
[indiscernible] block, I think as Mr. Reddy was explaining earlier, I think once the complete approval happens, including filing [indiscernible] and getting approval over the next 4, 5 months, I think we should expect exporting from that as well.
Okay. And one more clarification. I think one of the participants had spoken about that -- about the injectables. So the facility would see inspections [indiscernible]. And you also said that it would see growth in the Q4. Would it not slow the approval process or production given that our [indiscernible] is still going on and some lines might be under remediation?
I think first of all, please remember the fact that I think whatever vehicle we've talked about, we are talking about specific -- to that result, we are adjusting those issues. The facility is not under any regulatory action.
Internal remediation, I meant, in terms of corrective action [indiscernible].
[indiscernible] and there is not at least 3 main actions, so to that extent, I think we don't expect any change on the status.
No. I understand that, but if we are doing any corrective action on your part just to...
What I said very clearly the past prevention on the non--- only the bad line is pending. So the other things are normal, right, Prakash.
Okay, okay. So you do expect growth coming back in the injectables.
Yes.
Perfect. And just to reiterate, we had 8 launches across facilities, right. I mean, these would be largely Oral solids?
Yes.
The next question is from the line of Ashish Rathi from [ Darsh ] Capital.
Going into -- mainly on the strategy -- overall strategy of the company, looking on a 3 to 5 years perspective. So far we do not have any [indiscernible] in branded segments for the company and we've done very well, but by very nature the oral business [indiscernible] target appears is largely outside [indiscernible] business because of [indiscernible] only way to keep [indiscernible] up. As you know launching more in the north. And also in that business, we do not have any meaningful -- we do not have [indiscernible] there so a meaningful acquisition opportunity came by and went in the last 12 months. So a question is have you been evaluating these other aspects? And what's stopping us from entering kind of these [ businesses ]?
Yes, Mr. Reddy, would you like to comment on the branded stuff?
Govin, you go.
Yes, so I think in the future you will see us in the branded [indiscernible] time before we get into the branded aspects of it. Let me answer one at a time. As far as the Indian opportunities are concerned, several have come and several have gone but please understand the fact that we would like to be a value buyer because we do consider in terms of opportunities, but we also are conscious about what would make sense for us in terms of the investment being justified. From that perspective, we have actually not done any acquisition that is the reason. And also from a future perspective, I think we have enough pipeline starting from, let's say, Microsphere, there's [indiscernible] so I think while we're integrating peptides, and we also talked about vaccines, biosimilars, patches, [indiscernible] respiratory products. I think we have a deeper pipeline even in terms of the differentiated portfolio, which will start getting monetized from year 2019/'20 is what I would say at least on 1 or 2 of those by accruing from them. So clearly, like I think, [indiscernible] has impacted in terms of the future having talked about the various opportunities.
Right, sir. But [indiscernible] on the value side, you say it could put a value [indiscernible] more up in the number -- value to collect a premium to let's say the company had to reevaluate? So what kind of value proposition you are looking for on even geography like India?
I think from Indian perspective it's very difficult [indiscernible] to talk about like multiples of EBITDA because of [indiscernible] many people are talking about multiple of sales, per se. So that is where our fundamental issue starts.
And that will likely lead the pace, right? Where individual company also [indiscernible] most players, that 10% to 15%.
Yes. So I think having said that, I think there are certain businesses, even at multiples, who have sales also will have multiples of EBITDA very healthy. So if there's any opportunity like that which happen, we would still [indiscernible] in the future.
The next question is from the line of Kartik Mehta from Deutsche Bank.
So just to understand on the oral solids growth, is it fair to assume the likes of Renvela just to -- just to stick to this one for maybe Renvela. For the 9 month ended for December. So for Renvela would we be up on a Y-o-Y basis by about 7% or 8%. Or would you -- would you want to add something, sir?
It's not 7% or 8%, it will be at least 4% plus or minus on [indiscernible], I would say.
And if you expect erosion to stabilize and products to launch, then I know you don't want to give guidance. Can this number at least remain at about 5%-or-so for the next 1 year from now? I'm talking early...
[indiscernible], Kartik. But then you also have to remember like when we are -- we are also talking about watching out for certain changes which can happen where [indiscernible] volume growth as well this can be even better.
Yes. And in the inorganic opportunities when we had -- it was the last -- on the last earnings call, how do you look at opportunities in asset prices across now are obviously fairly lower than they were a year ago in terms of Europe and also in terms of the U.S.?
So when you say asset prices are lower...
In terms of inorganic opportunities for you.
How is it lower? In fact, there are certain [indiscernible] multiples like are mind-boggling, and in fact, these ran away from that particular spot is what I would say. [indiscernible], would you like to comment on that?
I think that they've slashed through a little bit lower, Kartik. We clearly see that I think the multiples, what are expected, are much higher than the threshold of what we would like to look at, Kartik.
Usually your acquired assets in Europe so would you feel that you've almost done all that is required to go there or...?
[indiscernible] where if any opportunity happens, we will still run through it. Sanjeev, would you comment on that?
Yes. I would just like to add that we should not miss the fact that we have over 200 products under development for Europe. So we are not ignoring the organic growth. And we are pretty confident that we have a solid platform to launch these products. And some of them are day 1 launches. And some of them are filling the product portfolio gaps. So we will continue to support the front while waiting for the right opportunity for inorganic growth.
But again, continuing on what Sanjeev said, Kartik, one good thing about Aurobindo is that I think we have enough opportunities organically across the globe, including U.S. So that is one of the reasons. There is nothing like a do-or-die as far as the acquisition is concerned. So we, in fact, can look at it strategically [indiscernible] and the multiples and the value what we can improve -- but based on that, we will continue to look at opportunities, Kartik.
Yes, and the strategic fit is also very important. Like geographic strategic fit also within Europe is possible, particularly in East European markets where we have organic plan but we would like to ramp up our market share. So as Mr. Govindarajan said that we will look at all the opportunities and we have dependence not on one strategy.
So when if -- is it be fair to assume that the [indiscernible] to EBITDA, if it has to come, will it be now more from the EU side over the next 2 years-or-so? And for that, do you need any capital expenditure? Or can you share the planned CapEx FY '19 and, if also possible, FY '20?
I think I'll let you comment on the CapEx. As far as CapEx is concerned, the [indiscernible] is somewhere around $120 million to $130 million plus, in terms of the CapEx. And I mean, apart from going to buy some [indiscernible] vaccines, what we have commented, next year also we would like to maintain that even though we will give more color by next quarter call because by that time we would have completed our budgeting exercise, Kartik.
If you're going to launch so many products in EU, would you not need a...
I think, Sanjeev, you can comment on it because please remember the fact that units of [indiscernible] dedicated for U.S. are already commissioned and we can always look at expanding [indiscernible]. Sanjeev, please.
Yes, that's right. And actually, you must remember, Kartik, that we also have Generis having a manufacturing facility, which is having only 50% utilization. So it is some way to go before we have to invest into manufacturing facility. But of course, UGI is also already invested so those products also will add to the growth rate.
And would you want to comment on the EBITDA margin color what I asked you would...
I think, see, as I've mentioned earlier, we would like to keep looking at any improved number as a base and working hard towards like I think maintaining that as the number. That is what I would say at this juncture, Kartik, we have never projected in terms of any future EBITDA, in either -- in terms of growth or any other aspects.
Thank you. 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. A 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.