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Aurobindo Pharma Ltd
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Good morning, and welcome to Aurobindo Pharma Quarter 4 FY '23 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to the management for opening remarks. Thank you, and over to you.
Thank you, Good morning, and a warm welcome to our fourth quarter FY '23 earnings call. I'm Deepti Thakur from the Investor Relations team. We hope you have received the quarter 4 FY '23 financials in the press release that was sent out on Saturday. These are also available on our website.
I would like to introduce my senior management team today on the call with us, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide Businesses; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialities Limited; Mr. Sanjeev Dani, COO and Head Formulations, Aurobindo Pharma Limited; Mr. Swami Iyer, CEO, Aurobindo Pharma USA; and Mr. S. Subramanian, CFO.
We will begin the call with summary highlights from the management followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic 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 vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances.
With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, sir.
Thank you, Deepti, and good morning, and welcome to all of you for joining this earnings call. This year has been very challenging due to various factors, namely challenging macro enrollment and competitive industry landscape, et cetera. Despite these issues, we have delivered a good result in this fiscal year.
We will now discuss the results for the fourth quarter of fiscal year FY '22, '23 declared by the company. For Q4, the company registered a revenue of INR 6,473 crores with an increase of 11.4% year-on-year. The EBITDA before ForEx and other income grew by 2.8% year-on-year and by 5% quarter-on-quarter to INR 1,002.2 crores. EBITDA margin for the quarter was at 15.5% and for the FY '23 was 15.1%. Net profit increased by 3% quarter-on-quarter to INR 505.9 crores. EBITDA margin before R&D is 21.8% for the quarter against 21.4% early last quarter.
In terms of the business breakdown, Formulations business in Q4 FY '23 witnessed a growth of [ 1.4% ] year-on-year to INR 5,455 crores and contributed around 84.3% of the total revenue. API business contributed around 15.7% and clocked a revenue of INR 1,017 crores for the quarter, registering a growth of 11.4% on a year-on-year basis, led by improved demand for some of the key products. For the quarter, the revenue from the U.S. formulation increased by 11.6% year-on-year to INR 3,045 crores.
On a constant currency basis, U.S. revenue increased by 2% year-on-year. This is to USD [ 317 ] million. We have received final approval of 26 ANDAs and launch 10 product during the quarter under review. We have filed 12 ANDAs including 3 injectable during the quarter.
Revenue for Aurobindo Pharma the company -- Aurobindo Pharma USA, the company making overall products in USA has increased by 1% quarter-on-quarter. Revenue of U.S. injectable business in U.S. increased by 3% year-on-year and 18% quarter-on-quarter to USD 71.9 million in Q4 FY '23. The total Eugia specialty sales in U.S., including the specialty OSD amounted to USD [ 81 ] million during the quarter. During the quarter, the Eugia performance in various financial parameters are better than that of last quarter. We had a total 171 injectable ANDA file as on 31st March 2023, out of which 126 have been received in final approval and remaining 45 are under review or at tentative approval.
The company as on 31st March '23 had 774 ANDAs filed with the FDA on a cumulative basis, out of which 565 of final approval and 34 tentative approval, including 8 ANDAs, which are tentatively approved under and balance 172 ANDAs are under -- For the quarter, U.S. formulation cloud revenue of INR 1,660 crores, an increase of 7% year-on-year growth. In constant currency terms, Europe business dropped a revenue of EUR 188 million against EUR 183 million of last year for Q4. For the quarter, gross market revenue increased by 18.6% quarter-on-quarter and witnessing a growth of 51.2% year-on-year to INR 592 crores. This includes PLF incentive of INR 4 crores against INR 8 crores of the last quarter due to sales of eligible products during the quarter.
For the quarter, ARV formulation business dropped a revenue of INR 159.3 crores year as a whole, we reached an amount of USD 119 million against an estimate of USD 120 million.
R&D expenditure is at INR 411.7 crores during the quarter, which is 6.3% of the revenue. This is similar to last quarter R&D expenditure of INR 415 crores. The average raw material costs remained flat to marginal decrease during the quarter and the freight cost also decreased reduced during the quarter.
Net CapEx for the quarter USD 105 million, of which CapEx for existing business is USD 62 million, including USD 14 million for ANDA purchases. PLA CapEx of USD 31 million and CapEx for new business for new markets amounts to USD 12 million. The PLA cumulative CapEx till March '23 amounts to USD 121 million.
The average FX rate was 2.1936 in Q4 FY '23 against 82.10 of Q3 FY '23. The average finance cost for FY '23 was at 4% mainly due to availing multiple currency loans. We have copper income from investment of INR 74 crores for the quarter, and cumulatively, it is INR 148 crores for the year. This is accounted in other income. This needs to be read in conjunction along with the finance charges. The business generated a free cash flow of USD 61 million during the quarter as a result of strong cash flow generated during the quarter that net cash portion, including investments at the end of March 2023 was $194 million. The gross debt is $591.7 million. Our is to bring down the debt going forward. The high cash flows due to some good collections in the month of March '23 in the U.S. business.
Board composition. During the quarter, we have indeed 1 new independent director in the parent company and 1 new independent director in Pharma, the API of the company. With this, the total number of independent directors in the company is now 5 out of total 10 directors. Also, we have appointed CEO for the EPA on Apitoria. We will be appointing 1 more new independent director in Apitoria.
Facility centers. Out of the total 8 years FDA-regulated APA unit, 6 units got have VAI status. One unit recently got inspected, earlier represent VA stated. On the balance only is on the warning letter. We are putting our efforts to get it clear. All the total 11 U.S. FDA approved FDA units are under VAI status as of date, major plans under commissioning. We have 3 plans, including on user plant and the commissioning in U.S. Of this part of the rally facility was commissioned in March '23. The balance is expected to get commissioned by FY '23 -- during FY '25. The China plant is fully installed and is expected to be commissioned in Q1 FY '25. We are in the process of manufacturing the exhibit batches.
The life plan, which will produce Panji expected to be commissioned '23. However, it is our endeavor to complete ahead of the schedule. We are conducting clinical research study Phase III for biosimilar product, and the biosimilar plant is expected to commission by FY '23. So far, including the R&D revenue expenditure in biosimilars, we had invested more than INR 1,900 crores on biosimilar still date.
Outlook. While our financial performance FY '23 indicates our resilience to economic capacity on the back of our strong fundamentals, we remind first on continuing our growth, and we are cautiously optimistic on the business growth going forward. We are committed to good performance in the coming quarters, while adhering to the regulatory and quality standards.
Some of the key focus areas for the coming quarters are summarized as below. Clearly, implementation will be as per schedule as informed Post the PLI implementation by March '24, most of the major CapEx will be done to improve the capacity utilization across the plants, we may be doing some debottlenecking on the maintenance tab. We will continue to activate ANDAs to market authorizations to leverage the existing capacity and resources. Our differentiated business biosimilar is expected to contribute to margin enhancements from FY '25. New pipeline of approvals will include new high-margin new generation product category like -- peptide biosimilars, et cetera.
Pricing has stabilized in the U.S., and there is price normalcy in the market in U.S. Both the RM cost and logistic costs have reduced during the quarter. Overall resulting in emanating a better business situation for the coming year. Eugia continue to do well and achieve various financial parameters, which are better than those of the last quarter. We expect to continue this. We expect to see some good cash generation from FY '27 onwards after capitalizing all the assets which have been enumerated above.
This is all from our end, and my colleagues will give you better clarity more on it in our Q&A session. We are happy to take your questions now. Thank you.
[Operator Instructions] The first question is from Damayanti Kerai.
Sir, my first question is on your generic injectable portfolio. For the use, we have been seeing sales hovering in some 70 million, 75 million a quarter. And similarly, branded oncology sales is hovering somewhere around 30 million in last few quarters. So how do you see these injectable sales picking up ahead approval rate is very healthy? And if you can say like you'll be achieving your guidance provided earlier with this kind of run rate or you see a pick up ahead?
Yes. Damayanti, in fact, like I stick to my earlier guidance of double-digit growth. And as you rightly said, we are doing as per our plan, and we will be continuing our journey with a double-digit growth. And on the healthy approvals, we feel that it is achievable. And that's on the generic injectable side. In case, Swami, if you want to address some branded injectables.
Sure. Yes. Damayanti, this is Swami Iyer from U.S. So on the branded injectable that's Acrotech. This is an asset that we acquired from Spectrum. And we have a larger plan here to market other products too. We are in the process of getting to -- I mean, we have got into business development deals with a couple of other companies, and this could take some time. But right now, we are looking at maintaining revenue line at about $20 million to $30 million a quarter.
Okay. So you already have some products which you have identified, which will be part of a portfolio ahead and then you might see a pickup from current rate?
Yes, but that could take a little time.
Okay. And if you can also update on Vizag plant, which was, I think, mainly intended for European supplies.
Damayanti, let we started doing the exit batches in Vizag plant as per plan, and the first filing is expected to be in September '23. And it is not only European markets and emerging markets, and we have identified multiple products even for because this plant is big, and we have lot of scope for expansion. We wanted to use this as a global plant rather than a specific market plant. But it's on track and as per the project time lines because it's almost all the lines are up and running, and we started doing the products.
Okay. And my last question is if you can comment on your R&D spend ahead, how do you see moving it ahead in coming quarters?
Damayanti, the R&D for the year was something like -- for the quarter was something like 6.3%, and the year was around 5.7%. We will be having around something like 6% to 6.5% anywhere. But more than that, I would say we will be incurring around INR 400 crores per quarter is very likely irrespective of how the turnover is going.
INR 400 crore?
Per quarter.
The next question is from Kunal Dhamesha.
So first, on the PenG PLI scheme, would you provide some update as to what would be how cost competitive, we would be versus, let's say, the Chinese players? And what kind of scenarios you would have assumed were going for this plant in terms of pricing right now, it kind of remains high, but do we expect it to become more competitive once you enter the market?
Kunal, I think this question has been raised in the last quarter. We have clearly said we will be able to give a picture only in the month of November. There is no point in guessing a price which is going to happen in the month of April '24, right? Now, but certainly, we believe with our financial metrics, et cetera, we believe we are very cost competitive, and we will be able to withstand any of the price erosion also. So we will see it only at the time. It's not count before it
Sure. And then, on the U.S. price erosion, you said in your opening remarks, it has kind of stabilized. -- normalcy has returned but would you be able to quantify what kind of price erosion we saw in the quarter on a sequential basis, on a year-on-year basis, that would be helpful.
On the U.S. price erosion, if you're asked on year-on-year basis, first 3 quarters, we had fair amount of price erosion. And then the fourth quarter was somewhat stable, and we see the we are right now doing, I think, we are pretty stable, I would say. If you talk about year-on-year, yes, it was -- first 3 quarters were fairly high. And I don't want to hazard a guess exactly how it is because we had some changes in the fourth quarter and then we had requested some changes. So overall, net-net, I would think we are in a better position today, that's what I would like to say. And today, we are pretty stable.
And, let's say, the trend that you saw in quarter 4, would that have continued in April and May as well?
Yes.
The next question is from Neha Manpuria.
Swami, sir, on the U.S. oral solid business, despite the fact that pricing erosion has normalized, stabilized as you mentioned, lean launches, data shows that Aurobindo is gaining share in a lot of the disrupted products. We haven't seen the even rate increase in revenue in oral solid. So could you give us some color there? Do we expect more of this to reflect going forward because it's pretty much flat. I think it is up 1% quarter-on-quarter.
Sure. Yes, Neha. So the fourth quarter was -- that's when we got some of the awards, and we have ramped up some of the supplies. I think we would see more of this starting this Q1, and I think the impact would be more than a curious time frame. So the quick -- we got the awards you a quick turnaround. It will be a little difficult for the kind of caring that we got. We did see some surge in terms of sales, but it's not completely reflected, I would say, based on the awards that we receive.
So do you think the bulk of the benefit of the incremental volumes that we have been awarded will be seen in the second quarter, not even in the first quarter?
First quarter, we would have some, and then we would continue from there. That's what I would say. And if you recall in the last 2 earnings call also, we mentioned that we're also launching some of the newer products. So the new products will also contribute to our top line in the next 12 months.
Got it. And sir, overall, on the market environment in the U.S., do you think these NBO opportunities, as we call them, is more short term? Or do you see this being slightly more part of the base business and not necessarily a onetime opportunity? How would you see the environment?
So the onetime opportunities or onetime opportunities that I will leave apart from the NBOs. NBOs have been pretty decent. And I would not assume that these are short term. I would assume that these are medium-term. I think the customers are looking for stable supplies, and we have been able to provide them that.
Got it. Got it. And Subbu sir, on the gross margins, despite the fact that price erosion has stabilized, the ARV sales are lower, injectable sales are higher. We did see a gross margin improvement in the quarter, and we had the PLI benefit. So we factor impacting gross margins?
Yes, we had certain one-off items, which has reflected reduced the top line item because of some clawback taxes in some of the European countries, which has really reduced the overall gross margin -- sales as well as the gross margin. And this is also one of the reasons. From an EBITDA margin perspective, also, we have taken some around INR 20 crores. So that also taken. Overall, if you really see around INR 45 crores to INR 50 crores is the one-off items we have taken during the quarter.
Sorry, sir, I missed the number, INR 40 crores to INR 45 crores.
INR 45 crores to INR 50 crores is the amount of its we have taken during the call.
This is both on the cost and the revenue?
Yes, both on the cost and on the revenue, maybe in equal proportion, to 30-20 type.
The next question is Prakash Agarwal.
Just question on outlook. Actually, I mean, last 2 years, obviously, I mean, a lot has happened, both has come down, gross margins have come down and so at the EBITDA margins. multiple factors, so U.S. pricing pressure, some U.S. FDA issues. So how to change the next couple of years will shape up? What are the big building blocks, if you can share which segment in your differentiated R&D assets will stand in a first? And how do you see the margin projected?
So I'll give you a broad direction and my colleagues will be able to explain in the detail. Swami has already explained that is expected to -- sales is expected to move in the first quarter followed by second quarter also. If you really first quarter and second quarter, there is sales are going to increase, right? If you go into third quarter, fourth quarter, I -- Mr. Yugandhar has already said in the last meeting itself that we will be launching Revlimid, which is also going to contribute to that. And next year, if you really see, starting April onwards, this is Q3 and Q4. And probably Q4, some biosimilar products may be get launched. And next year, by April quarter onwards, you can start seeing the PenG start delivering, right? That is also there. And plus, we have also started seeing the biosimilar some more -- I mean it's a full day impact starter coming rather than some 1 or 2 quarters -- I mean one quarter of this year. So I would request there another colleagues to explain in detail.
I think Subbu, you covered it most of the things from agenda connectables which is under the Eugia. We will continue to -- and our endeavor is to grow double digit. And we will keep the element as one-off and that will count as over and above the base business for the next 3 years. But base business with a few of launches and filings, we expect quarter-on-quarter, we should have at least 5 approvals and 5 launches. We just wanted to do [ 20 ] a year going forward every year, and that should provide us at double-digit growth, and we will keep pre-limit as one of our opportunity.
So you're saying base business U.S., you're expecting double-digit growth in fiscal '24 and '25 on a large base?
That's right. That is for the Eugia business, which is the generic injectable business, yes.
For U.S. generic business, I was asking.
That's right. That is further injectables and specialty products.
Which is $81 million for this quarter, which I explained in the script .
Yes, yes. No, just a little -- on the U.S. generic business, ex injectable will also help, sir?
Swami, would you like to take it?
Yes. Yes. We just tend to do that. So Prakash, we have -- we talked about new products coming -- being commercialized during the current fiscal. All that I can say is that we would have steady growth. We anticipate about 40 NDAs to be commercialized during the year, that's a fairly conservative number. And that would add a decent amount of dollars to the top line. And I think we would consistently at least for the next few quarters, you would see this kind of product being commercialized from arteries that we are expecting to see.
Approvals, we are still getting a lot, sir. I'm just trying to understand a little quantitative idea also that with this high base, can we expect high single digit or at least mid-single-digit growth on the U.S. generic base business? Or given the erosion and the state, the generic market that will be difficult? Or with the R&D pipeline, we can manage?
So all that I can say is restabilized. We are able to ramp up volume. There's a good demand. On an overall basis, I think we should see a pretty decent demand. I don't want to put a number to it, but I think we are fairly decent. It would be probably in the higher single digits. That's something we expect. And then we don't -- we are very optimistic
Okay. And Subbu sir, for you on the margins, if you could give some qualitative and quantitative
I think before that if I request Satakarni to talk about his launches, et cetera, because that is also going to make an impact on the overall margin profile improving in the coming years. Over to Satakarni.
Yes, Prakash. So continuing our journey to build on a differentiated portfolio, one of the key elements to us to achieve margin enhancement in future and also sustainable growth is bringing in biosimilars into the regulated market. So we are fairly confident that towards the end of this year, we will have at least one product in the market. Next year, we see reached 2 to 3 products in the European market with our first filing happening in the U.S. market. So I really see the inflection point for biosimilars to start from '25-'26. The amount of effort that has gone into conducting the clinical trials for biosimilars, we have a robust portfolio of biosimilars. As we talk now, we have 2 product filings, which were already made with Europe agency. We had 3 product filings made with the MHRA in the U.K., and we have 2 product filings with Health Canada. I -- regulatory procedures on the procedural advances to conclude any time between Q2 of this year to the Q2 of the next year, that will bring in a series of launches in regulated markets. .
Now staying on the same subject, I'm giving my guidance for the last 3 quarters, the earnings cost to now, I'm happy to state that we have completed the treatment phase of trial in [ 60 ] metastatic is cancer subjects of a prestige abirabisina -- aseptic where our test product was tested for efficacy, safety and immunodensity versus the notice [indiscernible] After the completion of treatment phase and after initial read of the raw data, we are confident that the study, which is a 3-year long study, has achieved a similar objective response rate to such of the innovative product in women with positive Her2 positive metastatic breast cancer. We are confident that the filing process in emerging markets will begin in June, July. The fast filing will happen in India. We will file with European Medicines Agency by September, and we will file with the U.S. FDA by quarter 4. We are prioritizing the filing of this very important life-saving biologic, biosimilar in India with an aspiration to launch in our country this year. We believe that more women will benefit from this life-saving oncology therapy on the back of extensive clinical data in 690 patients, usually not heard of in submissions that are done domestically. We believe this will give the oncologists and the patients an access to a good and reliable cancer therapy option for treating our women, mothers and sisters. So this is my update on
Likewise, as the discussion is on differentiated portfolio, as the filing process for our oncology biosimilar across markets is slated to begin, we are showing signs of advancing our differentiated portfolio to various autoimmune diseases. Autoimmune is a huge market in the U.S. I am pleased to state that a full-fledged global Phase III clinical trial of a biosimilar to Joe layer, we are announcing the name of the biosimilar for the first time. The Phase III clinical trial of biosimilar, which is omalizumab has begun as our trial sites are being ready now and our subject recruitment is ongoing. The patent expires in U.S. in November 2025. We have followed the 2 process of submitting the clinical trial plan and application for our biosimilar candidate. And we hope that the Phase III, which is a comparative study on the efficacy, pharmacokinetics, pharmacodynamics, safety and immunogenicity, which is being conducted in 600 subjects with [indiscernible] The reason why I bring this is to tie in this discussion with what Swami is saying. The Acrotech Biopharma, which is our brand business in the U.S. is investing in dermatology. Now if you look at our biosimilars and how we are positioning them in immunology and autoimmune decisions, as to our commercial front end and the business that we are establishing and nurturing in the U.S. with a long view to increase these margins -- restrain our margins in this business. We believe that this biosimilar presents a sizable opportunity in a potential market of USD 4 billion with very limited biosimilar competition. It is our intent to file this product in 2025 just in time maybe 2 quarters ahead of the formulation patent that expires in U.S. in 2025.
Further to stay on the differentiated portfolio, we are strengthening our immunology pipeline competitiveness in the autoimmune therapy segment by kicking off a Phase I 3-arm PK/PD safety study of another biosimilar treating osteoporosis. This is also immunology biosimilar, which also fit very well into the portfolio in both our U.S. and European commercial intent teams. A Phase III clinical trial application for this product is being submitted as we talked this week with European Medicines Agency, and we are getting up to initiate a Phase III trial by Q3 of this year.
Likewise, third immunology biosimilars, again, a strong focus of the entire company on differentiated portfolio has already begun a Phase III clinical trial, where we completed around 40% recruitment already. We plan to file this product in the next fiscal year in India and emerging markets to start with. So to answer your question, overall, as a company and as biosimilars, we are maturing our R&D so that we can sustain our business in the future, especially with the higher unrated markets, Europe and U.S. Prakash, I hope this answers.
This is very elaborate. And some color on the margins will also help.
It will be too early to...
Overall, company level, sir?
Then Subbu with all of that. Subbu?
See, the overall company level are -- if we have really seen last quarter, we ended with around 15.5. Certainly, we'll not be limping, but certainly, we will go in an incremental pressure. Probably, I don't think a step jump approach will happen this year, right? So incrementally, probably we may be made -- we may not touch 20, but could be midpoint in this year is about, my feeling.
The next question is from Shyam
Yes. Just the first one on the Eugia. What is the full year number now for the revenue? I think $81 million per quarter also has some global part, which is non-U.S., I assume, and that is for the quarter. So what's the full year number? And did I miss it in terms of the guidance that we're talking about double-digit growth. So the $650 million, $700 million, would that come with generic limit on top? Is that how -- sorry, if you can help us start with the past on how we were thinking about this business?
In like we don't give specific numbers on Eugia, but I'll just give you a prop guidance in terms of the close around INR 3,300 crores of top line. This is roughly around $411 million this year. This is a flat growth compared to FY '22, but we didn't decline. In fact, in a challenging environment in, we would be able to grow single digit. And going forward, I'm guiding based on the current pipeline, what we have, that we will continue on this INR 3,300 crores of base. We will continue Eugia of double-digit growth. On top of that, development will get added that's how it is here.
Got it. So just help us understand on the base business, you're talking about launches, like you said, 20 launches, I think in your previous comment. So I just want to understand how is the -- I think you've got a lot of questions on the oral solid side of things on price erosion, but what is happening on generic injectables? Anything that you can comment. What explains the flattish growth, right? I'm assuming OSD is a very small percentage of your overall thing and largely injectable. So just help us understand pricing environment on the generic injectables side?
Like first 2 quarters of FY '23 were really like challenging. And I think the first time when the market went up, post COVID, the Q1, Q2 of last financial year is FY '23. We had almost a double-digit price decline, which was unseen, unheard in injectable and specialty business. But from quarter 3 onwards, things have stabilized. And right now, the competitive environment is, I think, let me put it this way that we are in a good footing with respect to the environment is concerned. And last 2 quarters, the pricing has been almost decline in almost negligible. And that is what we feel that going forward with -- and also one more thing with keeping us is in terms of, unfortunately, the drug shortages in the U.S. are at the highest level in its history. And all these things and on top of it slew of launches will help us grow the business. And as guided earlier, our gross margins in Eugia should be between 60 to 70 and EBITDA levels will be around 25% to 35%. It's a broad range. Okay, one quarter, we might be here, one quarter, we might be there depending on how launches will shape up.
But sir, just a follow-up on Revlimid. Is there anything that you've disclosed in terms of the time line for the launch how large it will likely be for you in terms of -- because it's a crowded space, is there still elbowroom for everyone, 6, 7, 8 players now? So I just want to underline your thoughts on generic Revlimid?
In generic Revlimid, we already secured the final approval. After the settlement, we'll be launching in October. But as we cannot disclose the percentage of settlement, so I will leave it there. it won't be a significant part of my revenue. It will be like a pretty good bottom line for my business. And as it is -- as you know, that like this is going to be limited share for multiple players. So we expect the price pricing to be stable and it doesn't matter before Jan 2026, whoever, a number of launches happen -- might happen, and but like the only thing is we don't expect -- because each player is will be restricted by the percentage of let's share what we settled for, and we expect the pricing to be stable up to Jan 2026.
Got it. Sir, last question is on growth markets. I think you have seen good bump up there, 18%, 19% quarter-on-quarter growth. So what is driving some of this growth? Is it sustainable? I think 9% now is domestic formulations in India. So some qualitative color on that business.
I've already said in the opening remarks itself. This quarter, we have got good PAL, I mean, for around INR 48 crores against the last [indiscernible] Basically, the incentives depending upon the eligible product, which has been approved by the ministry. This quarter, the sales of the eligible products have picked up a lot. And because of that, we got this INR [ 48 ] crores, which has helped to take it. But still, we are in line with the overall number of routes. What were the number agreed with the ministry, it is a number which has been written.
Subbu, sir, you classify the P&I income as domestic -- sorry, I
Yes, because it is only for the Indian subsidiary, they don't give it -- achieved by the Indian subsidiary, they don't give it for the new -- or any other foreign countries, sales achieved in other foreign countries, only for domestic.
Last follow-up, so if I may, quickly. When you're talking about mid-teens, are we talking exit quarter or full year fiscal '24?
You're asking --
No, no, I'm asking you, sir, when you talk about between 15.5% and 20%, you talked about the margins being that. Are we looking at on a quarterly exit basis? Are we looking at full year fiscal '24 EBITDA margins?
I think I have taken it only a quarterly basis, because we do not know at this stage, as -- have clearly pointed out. The Revlimid will happen only in the quarter Q3, which will have a significant addition to the bottom line. At this stage, I'm not talking about -- I'm saying moving on, excluding the Revlimid, et cetera, we should be in midpoint current and 20%. That's what I feel at this stage. You want to see the ship next quarter
The next question is from Tarang.
I have three questions. So one, Subbu, sir, you -- in your opening commentary, you suggested that the free cash generation for the business would perhaps begin from FY '27. I was just curious in terms of...
I said FY '25, not FY '27.
Yes, my bad.
PenG will be completed by March '24, by the time we have to incur most of the CapEx. And there is no big project which we are thinking of as -- of this size or magnitude to incur in the couple of years, right? And the PenG should give good cash generation, right? So because of various factors, I feel there is be a good cash generation starting next year onwards.
I understand. So I misheard it FY '27. I apologize. Dr. Satakarni, on biosimilars and Peptides, one, if you could give us a sense on the status of regulatory inspections. And second, some sense on what's happening on peptides?
Tarang, on the regulatory inspections, I gave you guidance in the last earnings call that we are the 2 filings that we had with EMA. We are expecting a regulatory inspection, which has happened. And we are waiting for a formal report of the pre-commercial audit of the inspection from -- We believe this will become part of the day 80 block stop procedure and response from EMA. So we are expecting that. With the delay in the audit, let me also give you a guidance because we have submitted this file last year. We have -- we are close to exhausting the time on the procedural clock stop that EMA or CHMP allows. We have a clock stop until June 20. So once we receive the draft observations of 180 GMP inspections and the agency, we will have to work with CHMP on the way forward. And how can we provide any additional data if they require within the time frame allowed by the clock stops of the procedure. Now this is the guidance on EMEA inspection.
Now with Health Canada, I told you last time that we are expecting a healthy Canada inspection. The review process of our product -- so we were expecting an on-site evaluation as communicated by Health Canada. But because of the paucity of the auditors, the auditors have pushed the dates back. We are expecting now the Health Canada audit inspection to go inside with the review procedure, which is around November. So that's my expectation. But again, I'm preempting. I need to talk with Health Canada over a period of next 2, 3 months, engage with them as a new procedure unfolds to see when I can have the inspection from Health Canada. With MHRA, unfortunately, with all the 3 filings that we have, for example, with one of our monocle antibody filing, we have concluded day 150, which is at the point of approval we still did not get any inspection date from MHRA. We are following it up with them. So this is about the update on the inspections. What was your second question, Tarang?
Status on peptides.
On the peptides, as I told you, we are now focusing on 2 majority segments in peptides, API development, which is essentially oncology peptides, and anti diabetology peptides. So last October, if I did not give this guidance earlier, we have filed a drug as profile for which is now active the DMF. We are hoping to file DMF for another GLP-1 analog by the end of this year also. So I'm reasonably pleased with how the peptide business is shaping up. It is also contributing to, say, Eugia injectables. I think we have 2 ANDAs approved this year. Yugandhar may correct it, may give you the right picture. So we are -- I'm convinced about we are working on peptides and the focus that we have on diabetology and oncology segments in
That's helpful. The third question to Swami, sir. Sir, I just wanted to get a sense of, today, about 774 ANDs filed, I mean, in your view, what will be Aurobindo's coverage for the generic market in the U.S.? Just to get a sense because my sense is by volumes, you're probably the largest dispenser. Just wanted to get a sense on how big the uncovered market is for you? And how should we see this number moving forward over the next 2, 3 years?
So if you talk about accruals, if you talk about the potential, yes, there is a fair amount of uncovered market. Today, we have covered the market to the extent we can, and we are launching new products. So the priorities change depending on the profitability of the product and then how quickly we can do this product. I think there is a lot of scope for recovery. That's all I would like to say at this point. Even today, we have a number of approvals that we are in the process of launching. Month after month, we have launches. So it could be at this point, I hear you that we have set amount of market that we have not covered yet.
Would it be more than 50% of the uncovered market?
I won't hazard this, but on overall term, we are the largest. I would not put such high percentage. All that I can tell you is we have an uncovered market. Today, we are a large player. Obviously, being a large player you cannot compound growth with a huge percentage, but I think we have a fair amount of market we cover.
I request everyone to ask only 1 question because quite a lot of people are waiting and restrict to 1 question, please.
The next question is from Nitin Agarwal.
Sir, on the -- if you can provide any more color on our plans and outlook for the Chinese business, given the fact that you said -- the plant should be in place by next year sometime?
Yes. We'll be doing initially we'll be -- I think, as we said, we have more or less installed the plan, and we have been doing the exhibit batches. We have filed around 5 products from the China plant. And we'll be starting with the European dispenser because it takes quite a lot of time to get the approval -- regulated approval from the Chinese regulators. So we'll be starting with the European manufacturing since starting first quarter FY [ '24 ], that is April next year, followed with probably by third quarter or fourth quarter for the Chinese market. So this is our plan for the Chinese -- China plant.
And sir, on the products, but that you're looking to file this facility, are these injectables? These are -- or what were the
No. At the moment, we are being only the OSBs.
The next question is from Bino.
Just a clarification on the CapEx. On PLI, so far, you have spent about $120 million. How much of that would be for the PenG project?
Entirely for the PenG plant.
It's entirely PenG plant. And how much more will be done in this year for PenG?
I think this year means FY '24, if I'm right, correct?
Correct. Correct.
So we need to -- as I said, most of the CapEx will be done by FY '24, that mean PenG project as debt, it is estimated around 250% to 265% plus contingencies, right? So that much of amount will be spent by the end of the year. That means another $130 million would be spent this year, $130 million to $140 million will be spent this year.
Understood. Okay. And any significant CapEx planned in biosimilars for this year?
No. There's -- see, already the plan for biosimilars is in place already. As we inform to the exchanges sometime back in October, we want to put one unit which we will take -- we have already informed, but the timing was certain will design when to start that plant. But that will not be a very big plant INR 2,000 crores, must be around the INR 300 crores, INR 400 crores, something that is.
Understood. Okay. And all put together, what would be the total CapEx for FY '24?
See, as I said, both the maintenance CapEx will be very less in terms, it will be around $120 million to $130 million, the existing plant's CapEx. Any new products, new markets, et cetera, which is going to give you a return in terms of the new turnover, new profits, everything. That will be depending upon what we close it by the end of the year. That could be anywhere maybe -- I mean I'm just guessing anywhere bits $7,500 like that. We see that I think it's too early because our objective is to complete the existing projects, right?
The next question is from Surya.
My specific question about this thing is that, it's about the Eugia is that. So after doing all these integrations and all what all means what kind of benefit of integration that we have started witnessing? And how is that going to help you incrementally going ahead? That is one. And just if you can also clarify a bit on the PenG. See having seen the kind of change the price, dynamic -- in price as well as demand dynamic in recent past. How has that changed your potential as well as outlook for the project? And starting from which month or which quarter or which period that you are expecting contribution from the PenG project?
So, as I said, no, it is expected from Q1 -- I mean FY [ '25, ] that is April '24 onwards, we need to start generating the revenue from the profit. How fast the ramp-up can take place, et cetera, we're able to tell only in the November or maybe in February quarter, right? It is in the process of installation. The installation is likely to complete only October, November. And then after that, we will do some pilot batches and other things. We entered the product is coming out successfully, right? So that is a thing. .
In terms of the demand forecast, et cetera, we don't need to guess for product, which is going to be launched down the line, 1 year right now is maybe we'll address it maybe at a later date, okay?
Sure, sir. With regards to the integration benefits of for this Eugia, putting all the assets -- relevant assets into that. And the integration advantage working that you're trying to see going ahead, if you can talk about
As we said in the stock exchange, it's a notification, it's the purpose of it to bring focused management to improve the performance, which even there has been explaining very nicely what is its planned double-digit growth and other things. Those are all the things and also we are controlled on the quality standards. So that is the thing. Probably, Yugandhar, you may like to add more?
Basically, I just wanted to have a sense about the contribution at the margin level or the profitability level because many of the assets would be also seeing developmental cost and all that, which is currently and may not be compensated by inter-metal revenue. That is one. And even the 2 injectable facility, what we have been building up in your in India. So when are they likely to contribute incrementally? So see this segment, how should we really be contributing to the overall profit or margin improvement of the company?
I think, Surya, the answer has already given by Yugandhar is very clearly. He said very clearly, he will grow the business, base business, existing business by double digit. And we also said revelant will be over in addition to that. Such a significant profit in addition in the profitable account on development. We said that Plus you also said that what are all the new projects on Vijag plant, et cetera, when he is going to launch. I think all sections that have been being answered already way in an informal way, Yugandhar has given you all answer what is the EBITDA margin, et cetera, band also he has given.
Okay. So then, sir, specifically, if you can just indicate of, let's say, what is the kind of cash burn that we are seeing because of the kind of initial activities, developmental activities one? And then incrementally, this U.S. plant is likely to see the revenue because that is currently possibly in the filing stage, right?
Yes, given the
Yes. It is in the filing stage, we already did filing. So we have plans to do around 5, 6 filings from that plant during this fiscal. And in case if FDA triggers the audit, it will get commercialized in FY '25. In case if the FDA delays the audit, we don't know. But we -- our anticipation at this point is that in FY '25, this plant should get commercialized.
Okay. And the India plant is an FY '26 opportunity, sir?
It is also will be FY '25, not FY '26, the Vijag. See, I have 4 commercial plants under Eugia and new plants. One plant is in Vijag and 1 plant is in the U.S. These are the 2 noncommercial plants. We expect both these 2 new plants to be delivering some revenue starting from FY '25.
The next question is from Vishal Manchanda.
So my question is, have you witnessed any failure to supply penalties during the year?
Failure to supply these normal commercial practice that we -- the suppliers generally get into failure to supply. There are several types. One is the service penalty, other is actual failure to supply. So all these comes under the broad gamut of failure to supply. We do that have as a practice, and we do incur that.
So can you kind of share whether it was higher Y-o-Y or it was not -- the trend is broadly similar on a Y-o-Y basis?
See, it's too early to say how exactly it has panned out because first and foremost for the last year, there are many customers who did not -- who gave some kind of leeway because it was post-COVID and there were rather issues. So it's not comparable. That's number one. Number two, if there's a failure to supply, it doesn't mean that you're actually going to pay that kind of money because you are going to contest it. You will give you a failure to supply, correct that you don't supply to them at all, which you supply 2 years back or -- So these are all questions. It gets normally settle at a point of time. But yes, there could be a failure to supply, and there is a normal commercial practice. Our idea is to try and control it to the extent we can.
Sir, you provide for it in your numbers?
Yes, absolutely.
The next question is from Puneet Pujara.
So my questions are for Dr. Satakarni. I understand you are developing a global biosimilars portfolio, but my questions are just for the U.S. part of it. First question is, do you think it makes sense to incur additional cost for, say, interchangeability, not for the currently products or the products that we'll file later on. That's first. And second, what are your thoughts around the regulatory framework around the interchangeability converging with what we have in the European market? These are my questions.
Puneet, it's a good question. It actually requires a huge discussion because the regulators, the policymakers and the industry is engaged in a major debate across the regulated markets, but I will try and give my perspective and Argos perspective on interchangeability. One, I think going by what is happening in other regulated markets, if you see what I have predicted before, interchangeability as a norm doesn't make any sense for biosimilars, okay? So it is -- it has been my policy that I'm not investing any interchangeability clinical trials for the time being. Why because I believe as Europe and MHRA has shown the way, going forward, maybe towards the end of this decade, interchangeability as a concept, pinnacle -- additional clinical trial will be nullified even at the U.S. FDA. Now this is my personal opinion. I had the opinion on which curated designs clinical driver. .
What is interchangeability relevance in biosimilars? There is a good debate, there's a bad debate around it. The good debate is that in chronic segment, when I say chronic segment, where a patient users has to use a longer period of time. Say, for example, in diabetes, you are using an insulin. So the patient should be armed with interchangeable data so that he can confidently switch from one drug to another drug. Now by definition, we don't agree as scientists because by definition, biosimilar ease in all means a similar innovator biologic. Now again, after improving residual uncertainty -- after proving that there is no residual uncertainty and improving totality of evidence through a stage-wise development that is doing preclinical trials, analytical biosimilarity Phase I PK/PD and Phase III safety efficacy immunogenicity trials, why is there an additional need to show interchangeability is the question that industry is asking. Now this has been widely accepted already, and you are seeing signs of it in countries like Canada, Europe, et cetera. I think U.S. will also follow suit. So international, at Aurobindo I don't do any interchangeability trials for my biosimilars. I don't think it will significantly impact me in the market, maybe in the first 2, 3 years because I have to always create a new customer base, and I will not be able to switch to old customers into my product. But towards the end of this decade, I believe interchangeability as a definition, interchangeability as a concept will die down from a requirement of doing an additional clinical trial. I hope that answers.
The next question is from Alankar.
Just one question. A couple of quarters back, you had spoken about the possibility of some kind of buyback or higher dividend. So I just wanted to check, are we tail thinking on good time? Any update on that, please?
This was a good question. It is being -- we are discussing that, but the time wise, it has not been decided, because we are embarking on this PenG project, the accelerated this. And also, we were looking at the possibility of moving the cash which is available in various parts of the country, various parts of the globe, especially Europe, we are sitting on around $200 million cash, but the exchange rates are not very continue to bring it at this stage. So we are working on all these things so that we enable to ensure that we are optimizing the -- probably, we may do it at some point of time when board only will know.
So give me a second, this is Satakarni. I would go back to Puneet and leave a punch line. Puneet, by definition, we at Aurobindo believe all biosimilars should be interchangeable. I will leave with that thought. Thank you.
As there are no further questions from the participants, I now hand the conference over to the management 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. The transcript of this call will be uploaded on our website, www.aurobindo.com due course. Thank you, and have a great day.
That concludes this conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar.