Aurobindo Pharma Ltd

NSE:AUROPHARMA

Earnings Call Transcript 2024-Q4

[Operator]

Welcome to Aurobindo Pharma Q4 FY '24 Earnings Call. Please note that all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the opening remarks. Please note that this conference is being recorded. I now hand the conference over to management for opening remarks. Thank you and over to you, sir.

[Shriniwas Dange, executive]

Thank you, Vandit. Good morning, and a warm welcome to our fourth quarter FY '24 Earnings Call. I'm Shriniwas Dange from the Investor Relations team. We hope you have received the Q4 FY '24 financials and the press release that was sent out on Saturday. These are also available on our website. I would now like to introduce my senior management team on the call with us today, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide businesses and Director, Aurobindo Pharma Limited; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialties Limited; Mr. Swami Iyer, CEO, Aurobindo Pharma U.S.; Mr. V. Muralidharan, President, Europe Formulation Business; and Mr. S. Subramanian, CFO.

We will begin the call with the 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 developments 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.

[Santhanam Subramanian, executive]

Thank you, Shriniwas. Good morning, and a warm welcome to our Q4 and Full Year FY '24 Earnings Call. This has been a good year of performance across the businesses, mainly driven by volume gains, new product launches, our expansion into new growth markets and stable pricing. The profitability of the company as well as improved significantly back by softening of raw material prices, favorable product and business mix and improved operating efficiency with better capacity utilization. We had the highest ever sales and EBITDA for the quarter and the year. For the year FY '24, we achieved INR 29,000 crores of sales, exceeding our internal target of INR 28,500 crores plus and achieved an EBITDA margin of 20.1% against our guidance of 20%.

Now let me take you through the details of the results for the fourth quarter of FY '24 and Full Year FY '24 declared by the company. For the Q4, the company registered a revenue of INR 7,580 crores with an increase of 17% year-on-year. The EBITDA before ForEx and other income grew by 68% year-on-year and by 5% quarter-on-quarter to INR 1,687 crores. The EBITDA margin for the quarter was at 22.3% and against the 15.5% for the last year same quarter.

Net profit increased by 80% year-on-year and decreased by 3% quarter-on-quarter to INR 909 crores. The quarter-on-quarter decline was mainly on account of the onetime exceptional loss of INR 122 crores. For the full year FY '24, the company registered a revenue of INR 29,000 crores with an increase of 17% year-on-year supported by growth across the businesses. The EBITDA before ForEx and other income grew by 55% year-on-year to INR 5,843 crores. EBITDA margin for the year was 20.1% against 15.1% of last year. Net profit increased by 65% year-on-year to INR 3,173 crores.

In terms of the business breakdown, Formulation business, excluding Puerto Rico, in Q4 witnessed a growth of 21% year-on-year to INR 6,510 crores and contributed around 86% of the total revenue. The revenues are mainly supported by growth across the growth markets and Europe. For the full year, FY '24 Formulation business, including -- excluding Puerto Rico witnessed a growth of 19% year-on-year to INR 24,419 crores and contributed around 84% of the total revenue.

For the quarter, API business contributed around 13% and the revenue remained flat year-on-year to INR 1,019 crores. For the full year FY '24 API business contributed around 15% and clocked a revenue of INR 4,241 crores, registering a growth of 10% year-on-year basis. The growth in the API business is mainly driven by higher volumes on account of the improved asset utilization and debottlenecking. For the quarter, the revenue from U.S. Formulation without Puerto Rico increased by 22% year-on-year to INR 3,588 crores. On a constant currency basis, the U.S. revenue increased by 20% year-on-year basis to USD 432 million. The growth was mainly driven by volume base, stable demand and new product launches. Our large product portfolio basket helped us to optimally maintain the product stability -- price stability.

The Q-on-Q decline of around 4%, however, was mainly on account of the lower sales from Eugia and seasonality. The OSD sales volume in U.S. are expected to pick up during the quarter. Revenue from U.S. Formulation for the year increased by 23% to INR 13,867 crores to or USD 1,675 million. During the quarter, we have filed 11 ANDAs, received approval of 17 ANDAs and launched 7 products. Revenue from oral generic product in U.S.A. increased by 23% year-on-year to USD 279 million in Q4 FY '24. Also for the full year, the revenue from oral generic products in U.S.A. increased by 18% to USD 1,078 million. Revenue from injectables and specialty business in U.S.A. increased by 28% year-on-year to USD 104 million. The year-on-year growth was driven by new product launches and volume base, albeit the quarter-on-quarter decline was mainly on account of the Eugia 3 plant temporary shutdown.

That total injectable and specialty sales globally increased by 26% year-on-year and stood at USD 143 million for Q4. For the full year revenue, the revenue from injectables and specialty business in U.S.A. increased by 38% year-on-year to USD 397 million. The total global injectables and specialty sales for the year increased by 31% year-on-year and stood at $541 million for the year against last year's USD 414 million. We have a total of 223 injectables and specialties ANDA filings as on 31st March '24. Out of that, we received -- 169 received final approval and remaining 54 under review or have tentative approval. The company as on 31st March has 830 ANDAs out of this INR 658 has final approval and 27 has tentative approval.

For the quarter, European formulation clocked a revenue of INR 1,832 crores, an increase of 10% year-on-year. In constant currency terms, the Europe revenue was EUR 203 million against EUR 188 million of last year Q4. On the full year, the European formulation revenues grew by 12% and clocked a revenue of EUR 798 million. For the quarter, Growth Markets revenue increased by 50% year-on-year to INR 852 crores. In USD terms, revenue grew at $103 million in Q4 FY '24. The revenue increase was mainly driven by sales across the market. For the Growth Markets revenue increased by 29%. In USD terms, revenue grew to $281 million in FY '24 from $243 million in the previous year.

For the quarter, ARV formulation revenue increased by 31% to INR 238 crores or USD 29 million. For the year, ARV business has decreased by 11% to INR 868 crores or USD 105 million mainly due to pricing pressures or partially offset by volume gain. During the quarter, the raw material cost eased up further supporting our gross contribution, which stood at INR 4,519 crores. Gross margin for the quarter was 59.6% against 57.1% of the previous year, which was supported favorably by the favorable business and product mix and other items.

For the year, the gross contribution stood at INR 16,399 crores, with a gross margin of 56.5% against 54.6% of last year. R&D expenditure stood at INR 392 crores for the quarter, which is 5.2% of the revenue. For the year, the R&D expenditure stood at INR 1,480 crores, which is 5.1% of revenue. Improved capacity utilization seen during the last few quarters has resulted in continued operating leverage benefit during the Q4 as well as consequently, EBITDA improved to INR 1,687 crores. For the full year, the operating leverage benefit as reflected in 20.1% against 15.1%.

Net CapEx for the quarter is $70 million, which mainly includes approximately $33 million towards the Pen-G project. Net CapEx for the year is $422 million, which includes approximately $146 million towards Pen-G project. Cumulative CapEx for the Pen-G project amounts to $285 million. The average USD-INR exchange rate is INR 83.04 against INR 83.24 in Q3 FY '24. The business had a net cash flow of $12 million during this quarter before the Pen-G investments and investments in new markets. As a certain the net cash position, including the investments at the end of March '24 was USD 18 million. The gross debt is $758 million.

Recent changes in the compensation book. Our Board structure comprises of 10 board members, out of which 5 are independent directors, including 2 women Directors. Mr. M.R. Kumar, ex-Chairman of LIC India, has been appointed as the Chairman of Board of Directors of the company from April 1, 2024. Dr. Deepali Pant Joshi, retired as Executive Director of RBI, joined the Board of Directors during the year.

Outlook. Our financial performance in Q4 FY '24 and the full year FY '24 was driven by higher sales on back of new product launches, expansion into new growth markets, volume gains and stable pricing. During the quarter, we commercialized 4 manufacturing facilities, including Pen-G, 6-APA and injectables. During the next few quarters, we expect the operation of these plants to ramp up and start contributing to the top and bottom line meaningfully. With our continued investment in R&D, we continue to develop the strong growth pipeline. We are focusing on our key strategic priorities to enable a long-term growth. Our growth levers include backward integration to build SLA and supply chain for key raw material reflected in the recent commercialization of Pen-G and 6-APA facilities, expanding manufacturing footprint with capacity enhancement, debottlenecking the existing capacities and new facility creation. At present, we are manufacturing around 47 billion units of formulation.

Expanding Growth Markets at present with our recent foray into the international market with the acquisition of 17 brands long-term growth with the biosimilars, our biosimilars and complex products progressing the clinical trials are advancing. Mr. Satakarni, CEO, will elaborate on that, ensuring a well-diversified product portfolio reflected in 830 U.S. ANDA files and continued focus on R&D investment. With the continued ramp-up of our recently added capacity, R&D efforts and focus on our strategic growth levers, we are confident of continuing our growth trajectory during the FY '25 as well. We expect to achieve around a 21% to 22% of EBITDA margin target set internally for the year. This is all from my end. Now our business leaders will give more clarity on any specific aspects in our Q&A session. We are happy to take your questions. Thank you.

[Operator]

Thank you very much. [Operator Instructions] The first question is from Kunal Dhamesha.

[Kunal Dhamesha, analyst]

Good morning. Can you hear me?

[Operator]

Yes.

[Kunal Dhamesha, analyst]

Congratulations on a good set of numbers. Just the first question on the growth outlook for the FY '25, while we have said that we'll continue to grow, would you be able to give any range for the outlook for FY '25?

[Santhanam Subramanian, executive]

We are not giving any growth outlook overall as a company, but our respective business leaders will talk about it when they're addressing their businesses.

[Kunal Dhamesha, analyst]

Okay. So then given that how Eugia 3 is classified as an OAI and there are 29 pending ANDAs, what is our plan to derisk our growth for the next couple of years till we are able to resolve this official action indicated?

[Puvvala Yugandhar, executive]

Kunal, I'm sure you are aware that we have built the Vizag plant as a backup derisking plant for Eugia 3. Now Vizag plant audit is completed. And hopefully, we should get our first approval sometime very soon. So we will start actually like filing more products from our Vizag plant. We also have a plan to derisk Eugia 3 by doing dual filings from Vizag. So that's been the plan for almost 2 years now and now it is getting actualized with the audit getting over.

[Kunal Dhamesha, analyst]

Sir, how many filings because of this OAI for, let's say, next 2 years will get stuck from Eugia 3 out of this 29?

[Puvvala Yugandhar, executive]

Let's say around 20 plus will stuck. But what we are working, Kunal, is in terms of -- because we have taken all proactive actions, and we have never waited for FDA to come back. And we hope that we will be in a position to show to FDA that like we are in state of compliance. And I expect at least 1 year getting impacted, but hopefully, the second year we should come back. That's our internal estimates on this.

[Kunal Dhamesha, analyst]

Sure, sir. And second question on the -- for Satakarni sir, on the biologic CMO LOI that we have signed with MST, any update on that LOI to contract signing as of now? And in terms of whatever CapEx that we are putting capacities, et cetera, are we through in terms of basic infra, what is the update there?

[Makkapati Satakarni, executive]

Kunal, with respect to the limited letter of intent that we signed with Merck, I have updated the exchanges that I would attempt to close the definitive agreement by 31st of May. Now I think we are truly on track to closing the definitive agreement with MSD, the Singapore entity by 31st of May. So I don't see any showstoppers there. Sure, there are a few nitty-gritties that we are still ironing out, but I'm optimistic about closing it by 31st May. If there are any delays by a couple of weeks, then we'll keep the exchanges informed about it. But at this point, I don't see any showstoppers. What is your second question? What is your second question, Kunal?

[Kunal Dhamesha, analyst]

So in terms of capacities, how many liters worth of bioreactors we are putting and what's the CapEx that we are planning for that on track? And what's the outlook on that in terms of where it is in terms of finalizing?

[Makkapati Satakarni, executive]

Correct. So we have already started our project work. As I have told before, this is a large mammalian cell culture manufacturing facility, which is being done in 2 phases. The Phase I capacities would be 2 x 15 KL mammalian cell culture stainless steel bioreactors with associated purification lines to manufacture the drug substance as well as isolator based vial filling line to convert the drug substance into the finished product. So this is an integrated CMO offering end-to-end services in manufacturing, both drug substance, drug product and the QC release.

The project is shaping well. If you remember the details about my limited letter of intent, we have capped ourselves to an exposure of around $24.5 million to the point where we signed the definitive agreement. In case, for any reason, we don't sign the definitive agreement, we are covered for the $24.5 million. So right now, we are well within that cap. And I think the deal is going through. So exciting times for us, and this is an update that I have on the project. It's going well. It's on time. It's already been 5 months that we started the civil work. And by 2026, the capacities will be aligned and commissioned to start the water and engineering runs in the facility at TheraNym.

[Operator]

The next question is from Damayanti Kerai.

[Damayanti Kerai, analyst]

I hope I am audible.

[Operator]

Yes.

[Damayanti Kerai, analyst]

Okay. So my first question is again on Eugia 3. So as Dr. Yugandhar mentioned, the derisking process is on and dual filing is one of the process, which you are taking. So I just want to understand, out of the 29 ANDAs which are pending from the Eugia 3 plant, have you filed any product from Vizag so far or this process will start now?

[Puvvala Yugandhar, executive]

It will start now Damayanti because we -- frankly, let me put it that other way around. I think all the new filings and some of the site transfer projects is what we are planning to do it in Vizag, but none of the existing filings, we have no plans of transferring the existing filings of Eugia 3 to Vizag, okay? I hope that clarifies your question. So we are still confident that we will be in a position to resolve issues, and we will secure approvals from Eugia 3. That's our internal confidence level at this point.

[Damayanti Kerai, analyst]

Okay. And in terms of remediation, what kind of time line you are anticipating? Say, like you already started when the FDA update came first and you took obviously some precautionary measures, et cetera. So now in terms of regulation, what are the plans, say, like you'll be hiring third-party consultant and what will be approximate time line anticipated by your team within which you can resolve the FDA queries satisfactorily?

[Puvvala Yugandhar, executive]

Damayanti, like as you are aware, we had taken the remediations even in the middle of the audit itself. In fact, when we voluntarily stopped the manufacturing, that was our first step what we have taken when we observed there are some deficiencies. So our regulation activity started immediately after the audit. So we are already into the fourth month of remediation, okay? And we expect probably like it will go on for another 3, 4 months. Post that, as and when the management feels confident that we have addressed all the concerns raised by the auditors, we will approach the FDA gain.

[Damayanti Kerai, analyst]

Got it, clear. And very broadly in terms of impact in terms of sales, the fourth quarter number is broadly representative of what we may say for next few quarters, while remediation is on or like it could come down, say...

[Puvvala Yugandhar, executive]

No. In fact, fourth quarter, I have taken the hit. I think I told this last time to one of their list that because we stop the manufacturing, we stop the distribution out of abundant caution, and we got everything retested and we -- with full confidence, we started releasing the product. So we have taken whatever sales hit what we wanted to take in Q4 of last year. Q1 onwards, it should be normal. So we expect a run rate of around $150 million every year across the group, that's the Eugia run rate now. And we feel like we will maintain that.

[Damayanti Kerai, analyst]

That's clear. And my second question is for Dr. Satakarni. If you can update us on some of the key biologics project in terms of approval time line, et cetera? And like when we should be seeing first product coming in market?

[Makkapati Satakarni, executive]

Damayanti, so I would like to update the progress we are making in the biosimilars business with the recent trastuzumab marketing authorization we received in India. This is our first product authorization. We have promptly applied for a manufacturing license, which we expect to obtain very soon. So the plan is to manufacture the batches and launch the product in the second half of this year into the domestic market. As you know, this product, which is used in treating early and metastatic breast cancers that are HER2-positive is also filed with the European Medicines Agency and the review procedure has already started.

We are getting slightly delayed with the USFDA filing for this product as we could only complete out type 4 -- a mandatory Type 4 pre-submission meeting with the FDA in May. So the Type 4 pre-submission meeting went really well. I believe we should be able to complete the USFDA filing also in the next 3 months. So I don't see any further showstoppers. If the procedure unfolds well with the European Medicines Agency without any glitches or without any additional data requirements, then I see a decision coming out somewhere towards the end of Q3 or early Q4 for this product. So this is about the first product.

Then we have 2 more biosimilars, both in the oncology space, which were also filed with the European Medicines Agency. Again, the guidance on these 2 biosimilars will also be somewhere towards the end Q3 or early Q4, if the regulatory procedure unfolds without any procedural clock stops that require any remediations, et cetera, where I extend my clock stops and stop, then we are expecting a Q3, Q4 approval for these products or otherwise. So that's about the 3 biosimilars, which are filed.

Now with the other biosimilars, as you know, I have told in the last earnings call that we have advanced 2 immunology biosimilars and also gave a press release last quarter, I think in February, I'm not sure, but February, I guess, that we are working on a biosimilar to XOLAIR, which successfully met its PK/PD endpoints in a 3-arm Phase I study conducted in 165 healthy volunteers. The results are extremely increasing. We met both the key parameters of PK and PD within the equivalence ranges that we expect. I think this product is now in Phase III across multiple European countries and is progressing well to conclude the recruitment phase by September, October. So I expect to file this product, both with the EMEA as well as the FDA sometime in Q2, Q3 of the next fiscal.

Likewise, our denosumab biosimilar, which also I talked about in the last earnings call, I'm happy to state that we have completed the Phase III recruitment across 40 sites in Europe for this product. So this is about 436 osteoporosis patients that we completed the recruitment for. The primary objective of this study is to compare efficacy of our biosimilar versus the originator's Prolia. And I hope that I would be able to submit this product also with the EMEA and FDA between Q2 and Q3 of the next fiscal year.

Along with these 2, there are 2 more products, an ophthalmic product and an oncology product in Phase III for a long time now. The oncology product is inching towards the closure of recruitment. I hope to complete the recruitment by October this year, and the filing phase would be Q4, the next fiscal. The ophthalmic will be delayed. The ophthalmic product, the recruitment rate is slow across Europe. So I would be able to probably hoping to file this product only in '26, '27. So that's about the biosimilars products and what's happening with my 7 products in wave 1 and wave 2.

[Operator]

The next question is from Neha Manpuria.

[Neha Manpuria, analyst]

My first question, Yugandhar, sir on Eugia or rather injectable, is it fair to assume that this will be a year of very little growth outside of generic Revlimid for the injectable business Because even with Vizag, et cetera, your first approvals probably start coming through only in the second half of the year? Or in your view, how should we look at growth of the business because the $150 million per quarter that you mentioned is very similar to the number that you're doing -- you've done in the fourth quarter?

[Puvvala Yugandhar, executive]

You're right, Neha. In fact, it will be a year of muted growth. So we do expect a double-digit growth, but definitely not the way like we have grown from FY '23 to FY '24. And that was always the plan. Like this year, FY '25 was supposed to be a year of a muted growth because there are no blockbuster product approvals expected in FY '25 as per the original plan itself. So we expect things to be much better starting FY '26 when oncology OSDs and other significant filings where the settlements have been done and will cone. So FY '25 is going to be a muted growth.

[Neha Manpuria, analyst]

Understood. And in terms of remediation, because we've been doing this for 4 months, in your view, what additionally does the FDA expect Aurobindo-Eugia to do on that facility for which you think it will take another 3, 4 months. If you could give us some color on that?

[Puvvala Yugandhar, executive]

In fact, we never said anything. In fact, we have done whatever we have done, we have done it voluntarily based on the observations. And we expect to continue the same things, which obviously, there are some things which we would have completed in 2 months, some things which takes 4 months, some things which takes 6 months. This is all absolutely voluntary. FDA never advised us what to be done because when we received the letter OI, it didn't say anything, okay? So like it is basically, I'm assuming that whatever we have committed as part of our response, they are fine with it. I have to complete it, that's all.

[Neha Manpuria, analyst]

Understood. And my second question is on the European business. We've been able to grow the European business base, constant currency growth this time was around 8-ish percent. With the commissioning of Vizag and also the China facility, how should we look at the growth trajectory for Europe in the next year?

[Puvvala Yugandhar, executive]

You're asking me or like should I ask...

[Neha Manpuria, analyst]

No, no. Sorry, I was asking any of the other management team to answer.

[Puvvala Yugandhar, executive]

Murali, would you like to?

[Venugopalan Muralidharan, executive]

Good morning, and yes, happy to answer this. Yes, in Europe, at this moment, we are definitely growing a little ahead of the market growth rate. And the Vizag unit's contribution is going to be substantial. And of course, China unit is yet to commence supplies. We expect that to happen in FY '25.

[Neha Manpuria, analyst]

Understood. And one last question, if I can squeeze in one more. Subbu sir, in FY '25, given that global specialty isn't growing as much, is it fair to assume that margin expansion might be limited or limited to additional generic revenue? How should we look at margins for FY '26 -- '25, sorry?

[Santhanam Subramanian, executive]

Neha, as I said in my earlier one, we are targeting to achieve EBITDA margin of 21% to 22%. We are working on the ramping up of the Pen-G, will be complete by September. We will be able to give a better number in the month of November earnings call. Once we know what are all the issues and what is the sort of margins we are getting in the Pen-G business, et cetera, we'll be able to tell. But we are very positive about the growth margin for this year as well as the EBITDA margin.

[Operator]

The next question is from Surya Patra.

[Surya Patra, analyst]

Congrats for the great set of numbers, sir. Sir, my first question is on the, let's say, Pen-G. What are the kind of operation or utilization levels that we have reached or what is the kind of utilization that we are targeting in the -- for the current year? And have you really commercialized the things? And have you seen any kind of price impact in the market for Pen-G?

[Santhanam Subramanian, executive]

Surya, in terms of the last one, the price of Pen-G is hovering around $25 per kg. Having said that, our Indian consumption of Pen-G is not very big actually. It is only 50% what we -- what is more important is the conversion of the Pen-G into 6 API, which we have successfully done it. And because that consumption is more and that price remains stable in the last 2 years. And it is -- I mean, it is commensurate with the Pen-G prices now, so it is there. In terms of the entire Pen-G business, we have taken a test batch in the month of March and come out well. And we have done last -- I mean, one big batch, and it is also going well.

And hopefully, from June 1 week onwards -- I mean, starting in the next 2 days, we will be doing a little bit expanding the number of batches, et cetera. So the entire lot of batches at the same time running all the fermenters will take place in the month of September because the fermentation is not an easy process. It's a very complicated process. And there are multiple issues we are coming across, and we have been resolving one by one, and we are able to succeed in the first major batch and only in another 2, 3 days we'll come to know the outcome of that.

[Surya Patra, analyst]

But is there any sense about the yield that you have so far got sir?

[Santhanam Subramanian, executive]

No. See, the first thing is from test batch, we have to take a bigger batch one. And after the bigger batch, expand the same bigger batch into multiple batches. I mean, we are having 10 sets of batches, I mean, starting batches. So we will expand from 1 to nearly 5 like that or 3, 4, 5 like that. And after that, we will expand to 10. So yield is not the main issue right now, yield we'll be addressing only in the month of September.

[Surya Patra, analyst]

Sure. Sure. Okay. My second question is about your -- possibly Yugandhar sir, you can respond. Our preparedness about launch of Ryzneuta in the U.S., you have already indicated that, that launch is likely to happen in the second half of the current financial year. So how important this launch could be for us? And how important it could be as a trigger because knowing the fact that this is a kind of a $1.8 billion size, what is your preparedness for this launch? And how important you do think about it?

[Puvvala Yugandhar, executive]

Which products are you going to day?

[Swami Iyer, executive]

Yugandhar, I think I'll take this question. I think he's referring to the product that we are getting from Evive.

[Surya Patra, analyst]

Yes.

[Swami Iyer, executive]

So we have briefly talked about it in the last call. We expect to launch it in the second half of the current calendar year, that is some time in July. And we also mentioned that there are a number of competitors in the market. And we had also indicated that we don't believe that the volume or the pricing is going to be so high. But we'll have to see as we launch this product. We are somewhat guarded in -- we are somewhat not so optimistic in terms of what you are saying with regards to the value. But we think it's a good product. Once we launch, we'll have a better feel of it.

[Surya Patra, analyst]

Okay. Sir, just if I have some more clarification about it. See, if the size of the product is, let's say, $1.7 billion, $1.8 billion, and the competition is generally from the biosimilars, and we know that the penetration of the biosimilar is kind of not so great. And generally, the interest of the payers in the U.S. biosimilar business if we see is not generally aligned with biosimilar manufacturer, rather it is more aligned with the innovators. And since it is an innovative molecule, is it not fair to believe more positively than what you have indicated?

[Swami Iyer, executive]

So I'll leave that to you on how you want to look at it, but we have done a study. And typically, we like to do it conservatively, and that we have a fairly conservative estimate. This is a not biologic product as you're aware, and this is something different. So we have to see as we go.

[Surya Patra, analyst]

Okay. This is not a biologic molecule, sir?

[Swami Iyer, executive]

I don't believe so.

[Surya Patra, analyst]

Okay. So my third question is about the biosimilar opportunity as a whole, sir. So, so far, what are the kind of money that we have spent towards this biosimilar portfolio creation and all that, sir? And whether this cost is currently capitalized and/or it is expensed currently? And once you start commercializing the product, what is the likelihood that it will have some impact on the overall margin of the company, so if you can give some sense about it.

[Santhanam Subramanian, executive]

I will show it some time later, but the impact will be informed by Satakarni. We have spent around $340 million so far. The only capital is around $75 million and balance has been charged to P&L. Overall impact on that, Satakarni will be able to answer.

[Makkapati Satakarni, executive]

So Surya, I mean the spend numbers have been provided by Subbu. Now in terms of impact, as you can see, we have completed the licensor clinical trials for 3 biosimilars. You should also realize that we have been in existence only from 2018-'19 seriously. So we completed 3 clinical trials and filed them for 3 products -- filed 3 products. Now we have 4 more in global Phase III clinical trials. Now if you see how much does the competition spend versus what we spend on developing a product all the way from the saline to bringing it to clinical efficacy trials, it's very prudent, it's very objective. We are very guarded in what we spend because they push the regulatory barriers when we design our clinical trials.

Now in terms of the impact, while I hate to put certain numbers against these products, there is a good opportunity with both wave 1 and wave 2 of the products as they get launched in Europe and if U.S. also comes by. Especially, I'm very optimistic about a product like omalizumab, where we will be probably one of the 4 companies to Vifor, the U.S. and the European market. And it's a $4 billion product with probably 4 players in it by '26, '27. So I expect a good revenue stream once the product gets into the European and the U.S. market. So all these 7 products while I had to put any numbers against it, our business is sustainable.

The cost of goods ensures that we have a margin base of around at least 60% to 80% depending on which market we are. And to your question about how much will this increase the margin points of Aurobindo overall, there will be an impact, depending on what share of the business that we get in. But biosimilars with a higher margin will definitely increase to certain extent the margin base of Aurobindo as a whole. But I expect it to make substantial contributions from the year '29-'30, the biosimilars business to the overall Aurobindo margin base.

[Surya Patra, analyst]

Okay. Just last, sir. In fact, are you really worried about the fact that the progress of biosimilars for adalimumab, what we have seen in the U.S., looking at that scenario, are you worried about your pipeline or your entry into the U.S. business with your pipeline?

[Makkapati Satakarni, executive]

To be honest, no, because the biosimilars landscape, especially the market opportunity and the market landscape is fast evolving. Adalimumab is a specific case that people would like to discuss, but I would like to look at the better growth stories that we have. For example, you look at the pegfilgrastim space where a biosimilar player has taken at least $700 million to $800 million of the revenues from the U.S. market alone. So adalimumab is a curious case because it is a chronic segment product, which means that you need repeated doses of the product.

And in chronic segment, I expect the markets to behave in a slightly disruptive manner, especially if someone comes in with a disruptive pricing strategy. But whether that will happen across all the products and primarily across products in oncology, I personally don't think so. Come what may, our business model has been built in a manner that we will be resilient with respect to any price disruptions that happen. For example, we are building our price model versus the Europe right now, where you are already seeing in the chronic segment, a bleeding of around 85% and 80% from the innovator pricing.

Even if there is such a price erosion, our products will be able to still sustain the margin of around 50% to 75% very easily, even if there is further price erosion. Only then we are entering -- we are developing the product and we're entering into the market -- we hope to enter into the market. So as much as you are very cautious about what's happening in the U.S., I am also watching that space closely. But I think biosimilars are required in the U.S., especially to reduce the health care burden, and the normalization will happen very soon. Adalimumab is a one-off case, and it might happen in the chronic segment where products like adalimumab are prescribed. But in oncology segment, I still think there will be very healthy margins in the U.S., not so much in the Europe.

[Swami Iyer, executive]

Surya, just to clarify, my apologies. It's a biologic. I'm sorry, I meant it's not a biosimilar, right? So this is something different. It's a biologic. So we are competing against a number of players who are there in the biosimilars.

[Makkapati Satakarni, executive]

I would just add a point there to what Swami said, Surya, it is a biologic, but it's a biologic going against the filgrastim and the pegylated filgrastim. So that's the reason why Swami is conservative with his numbers. Once he gets a feel of the market, when he launches it, then he will tell you how the product is shaping up. I mean, it is as good as the guess that you have, that we have also in the U.S. market with this product.

[Operator]

Thank you. As we have a long queue of questions, I would request everybody to refrain to 2 questions per participant. The next question is from Shyam Srinivasan.

[Shyam Srinivasan, analyst]

Just a quick housekeeping. The specialty and injectable revenue in the U.S., $104 million. Yugandhar sir, this had a $20 million hit, right? I'm just trying to get the number right in terms of what we stopped for quarter 4?

[Puvvala Yugandhar, executive]

That's right.

[Shyam Srinivasan, analyst]

Okay. And when you're now guiding for it to go back to $150 million, I'm assuming what about $110 million was the last quarter number?

[Puvvala Yugandhar, executive]

It's actually like it's a global number versus, Shyam, it is a local, U.S. number. So the global number, what we expect is a global revenue of $150 million. The U.S. will continue to be in the range of $100 million to $110 million, that's the range, out of that $150 million.

[Shyam Srinivasan, analyst]

Understood. And do you expect a ramp-up in Revlimid for next year, fiscal '25, I mean?

[Puvvala Yugandhar, executive]

Yes, depending on the settlement percentages. Normally, we do expect a slight improvement every year.

[Shyam Srinivasan, analyst]

That's helpful. Second question is on the gross margins. Subbu, sir I think it has reached almost, if I round up, 60%. So this is a number we've not seen for some time. So just want to get the sense of what is sustainable, which are the cyclical elements in it, which will probably go away, maybe like whatever low raw material costs you called out earlier? What can sustain from a mix perspective? And when we do the 21% to 22% guidance from EBITDA margins, what are the things that could be below the gross margin line that could be growing faster?

[Santhanam Subramanian, executive]

Last year, we did 20.1...

[Shyam Srinivasan, analyst]

Subbu, sir, you're not audible, you are very feeble.

[Santhanam Subramanian, executive]

Last year, we did around 20.1%, so against that, when you're saying 21% to 22%, one is the overall gross margin has improved considerably by about 2% to 3%, right? But in last quarter -- this quarter -- if you recollect last quarter, we had baked it on account of the clawback tax, which we have explained to you around $13 million we have taken a hit. Against that, that is around INR 122 crores, if I recollect, which has been given in the press release, against that we are around INR 35 crores to INR 40 crores only this quarter. So this is expected to continue. Why? Because apparently the government has come with a clawback probe notification, which helps us to have a lower clawback tax this year. That is one thing.

In terms of the raw material price, the prices have come down considerably in the last 4 quarters, and it is now remaining slightly lower to flat, right? I don't see a major improvement decrease in the raw material prices. But what is more important is, as we said, the U.S. business is doing well, and they have continued to ramp up, which has helped us to drive the operating efficiency, which can help us to improve the overall EBITDA margin. And also as Swami has explained or touched upon it, there are a lot of new product launches, which he has done, which is also helping us, and the pricing environment is stable. So we don't see a major down in the EBITDA margin as well as the gross margin. Once the Pen-G comes, which I explained in the month of September, what is the additional gross margin improvement which will come out of the Pen-G will be disclosed sometime in November earnings call.

[Shyam Srinivasan, analyst]

Understood. Sir, last question, again. You talked about Pen-G prices at $25. Last calendar year, this was $30. So are you seeing action from some of the big 3, big 4 in Pen-G already in anticipation of your whatever 15,000 metric ton total, I'm saying maybe global will be lower. But just are you seeing some signs that they are starting to drop prices? At what dollar per kilogram a ton, do you think it starts becoming less feasible? Like if it goes below $20, let's assume, does this become difficult? So I'll stop there.

[Santhanam Subramanian, executive]

Well, see, buyer does not believe there will be a big drop in the Pen-G prices. Having said that, the Pen-G price has no relevance in terms of the overall consumption of the entire penicillin G because we are going to consume it -- convert it and then consume it as 6-APA or some other product, other forward derivatives. So really, the Pen-G price has no meaning actually because we are not importing any Pen-G at all. We are importing single-digit kgs only. So Pen-G price has no relevance for us. What is important is, how much we are going to convert it into 6-APA, how much we are able to further convert it into amoxicillin, convert and sell it in the market or sell it as 6-APA is what really matters. And that price, 6-APA price is always stable. So let's forget what is the Pen-G price. Pen-G price has no meaning actually -- relevance actually.

[Operator]

The next question is from Tarang Agrawal.

[Tarang Agrawal, analyst]

Congrats on an extremely strong FY '24. A couple of questions, one on CapEx. Quite a few projects have been commercialized, Pen-G, 6-APA, Vizag, granulation China. If you could give us a sense on when -- you've suggested Pen-G will probably start in September, both Pen-G, 6-APA. But if you could give us a sense on the other 3 projects, when will they start meaningfully contribute? And further, CWIP as on March 31, 2024, was about INR 2,750 crores and intangible under development was about INR 1,130 crores. So if you could just give us some sense on what are they referring to? What plants or what specific products are they referring to? My sense is $75 million of biosimilar capitalization, a large part of it would be under intangibles under development, but I'll leave for you to comment on that. And then I have a couple of questions.

[Santhanam Subramanian, executive]

We have 4 projects commissioned in the last quarter. That is, one is the Pen-G and the second is the 6-APA. We will be able to -- the meaningful contribution will start coming from Q3 onwards, right? And we have also capitalized part of Vizag facility, injectable facility and the Auroactive project, right, which we have done only partial capitalization, the front-end only we have done it. So those things are also -- Vizag as Yugandhar already informed, the inspection took place, is waiting for the next steps. He has elaborated it detail. In terms of Auroactive, it will also start moving in the -- by August, September, it will start moving up.

In terms of the total overall INR 2,739 crores or $325 million, as you rightly said, CuraTeQ forms around $78 million and U.S.A. -- Dayton facility in U.S.A. will be around $70 million. And we have other projects, which are very, I mean, small projects, these two. In terms of the intangible asset and development, which you said around INR 1,129 crores or $135 million, once again, there are certain Acrotech products, which are under WIP. I think just increasing the volume. I mean, Acrotech, which is around $75 million, which they are doing a clinical trial and Eugia specialities, which Yugandhar has already explained, that is after the settlement, et cetera, it will go by 26%. So like this, the other things are very small. So we are -- actually, our plate is very clear, and we will be capitalizing and we will be seeing a meaningful contribution starting September, October onwards.

[Tarang Agrawal, analyst]

Perfect. On U.S. and Europe, I mean, U.S., can we expect the current OSD run rate of about $280 million to edge up to about $300 million as we move forward? And similarly, for euro, EUR 200 million seems to be the new base. How should we look at it for FY '25?

[Swami Iyer, executive]

Yes. So on the U.S., we are very optimistic. We are fairly optimistic about the outlook for the coming fiscal with new launches being the main drivers. I think I cannot quantify any particular amount, but we have a large base and compounding growth on this base will be difficult, but we do believe that there is a reason to be optimistic about the growth. Murali?

[Venugopalan Muralidharan, executive]

On Europe, yes, Tarang, as you rightly said, EUR 200 million plus is a new base. At least we have started hitting this in the last 2 quarters. Even though in Q3, it was short of EUR 200 million, but you account for the clawback, we will be crossing EUR 200 million, and this quarter also, we could do it. So the expectation in FY '25, all the quarters will be doing north of EUR 200 million. And the idea is to grow further.

[Tarang Agrawal, analyst]

Perfect. Last question, sir. Auro Peptides as a business was incorporated somewhere in 2013, '14. And while we see an exhaustive list of peptide DMFs on your website, we're not sure what's happening in this business in terms of what is the traction that Auro has both on the API and the formulation space. So if you could just give us a sense on where this business is and it's been -- vintage has been quite long, about 10 years now.

[Makkapati Satakarni, executive]

Tarang, I would take the question. I would start with an update on Auro Peptides. Auro Peptides, the manufacturing facility was inspected by the USFDA from 12th Feb to 16th Feb. And FDA has determined the inspection is closed with zero observations. We are particularly glad for this outcome. As you have rightly mentioned in your question that we have been steadfast in developing synthetic peptides. These are very difficult peptides for over 10 to 12 years now.

We have 14 DMFs filed, cutting across oncology segments and others. And some of these have contributed to 5 ANDA approvals for our customers, including Aurobindo and Eugia. Right now, our work is in primarily oncology and diabetes. Our work in GLP-1s compared to our industry peers is very less talked about. We have an active DMF for one of the GLP-1 products. And our second GLP-1 product is now fully developed with the process validated as well. We hope to file DMF in the next 2 or 3 months for this product.

Right now, we are expanding our synthesis and purification capabilities for GLP-1s as we are aligning some additional capacities that will become available by early next year. So in all our focus on diabetes and oncology segments, we'll hopefully build momentum in this business. I'm quiet confident and pleased at how we are starting to relook at Auro Peptides business mixed with a bit of caution when it comes to GLP-1s, at the same time, with both optimism and prudence in how we reinvigorated our pipeline.

One more update is that recently through APL through Aurobindo, we have received an approval for linaclotide. Linaclotide is a peptide, a synthetic 14-amino acid cyclic peptide. It is used in the treatment of constipation and irritable bowel syndrome. So we are going to launch that product through a very trusted partner. This is a first-in-class peptide to be available for Indian population, it probably becomes the first launch in the next 3 or 4 months space. So you can see that we are shaping up the business. We are trying to do a few things there. And going forward, you will get constant updates on what we are doing in Auro Peptides.

[Tarang Agrawal, analyst]

Got it. Just last, I mean, in terms of accounting, the peptides revenues would be bunched up in the API business or would it be bunched up elsewhere?

[Makkapati Satakarni, executive]

Subbu, do you want to take that?

[Santhanam Subramanian, executive]

Yes, sure. See as on date if the ANDA is in the name of Aurobindo, it will go into that, but we'll look into the possibility of putting it as part of the peptides. We'll do some work on that, Tarang. Ideally, we would like to go into peptide, but let's look into the issues beyond that.

[Operator]

The next question is from Harith Ahmed.

[Unknown Analyst]

On biosimilars, you touched on your filing plans for trastuzumab in the U.S. Can you share that again? I missed that? And for pegfilgrastim, how should we think about our U.S. plans because as you mentioned, the market opportunity is quite significant, and it's been a while since we filed in Europe, but we haven't talked about any U.S. filings and all.

[Makkapati Satakarni, executive]

I think the part 2 of the question is very interesting, but I would address the trastuzumab one, which is easier. Trastuzumab, with the USFDA, we have completed a Type 2 followed by a Type 4 meeting. A Type 4 meeting is considered to be the presubmission meeting, where any differences or any additional data requirements from the FDA will be pronounced. We had a successful Type 4 presubmission meeting. Now what does this mean? A successful Type 4 presubmission meeting means that we can go ahead and file the product. So I'm expecting to file the product and make some changes to the dossier as required by the FDA in the next 2 months and file the product. Probably by next quarter end, we should be filing this product with the FDA. And as the procedure unfolds, the procedure would be anywhere between 9 to 12 months' time.

Now with respect to pegfilgrastim, Harith, as you know, that we haven't done an extensive Phase I, Phase III clinical trial for filgrastim or pegylated filgrastim. We have gone with an abbreviated clinical pathway where we have only conducted a Phase I PK/PD study in healthy volunteers, that too a very small number and pushed the regulatory barrier, especially in Europe and with [Technical Difficulty] to file this product with them. Now FDA, in terms of the their totality of evidence approach that is required for the biosimilars, they will ask for a Phase I and Phase III. With filgrastim and pegfilgrastim, it is slightly different.

We haven't ever developed this product for the U.S. market. The thought is very recent that while we had a meeting with the FDA and FDA is convinced with our approach of doing a Phase I, they wanted a small additional immunogenicity trial, while they were okay with us not doing a Phase III efficacy trial. So in this sense the data that we have generated for the European trial is good enough, plus some additional data on immunogenicity has to be generated in healthy volunteers. And then the pegfilgrastim will also be readied for the U.S. FDA filing.

Now the timing of it, originally I was thinking that I will file it somewhere before Q3 this year, but that might get slightly pushed into Q4 or into Q1 next year. But pegfilgrastim, we are definitely going to take it to the U.S. market. We will take it not just the PFS to the U.S. market. We would like to take the auto-injector also to the U.S. market. We are working with the agency very closely. We have completed a type 2 meeting on pegylated filgrastim. I'm hoping to have a Type 4 meeting, a presubmission meeting also with the FDA sometime in the next quarter. Does that answer your question, Harith?

[Unknown Analyst]

Yes, sorry about that. So next one is on the significant capacities that we have...

[Santhanam Subramanian, executive]

It is already 9:30, there are multiple people are there. I just wanted -- already it is beyond 9:30. We'll have offline queries, et cetera. Other people, let them get a chance.

[Operator]

Thank you, Harith. Next question is from Nitin Agarwal.

[Nitin Agarwal, analyst]

Sir, two quick ones. Sir, what CapEx should we assume for FY' 25?

[Santhanam Subramanian, executive]

We are not planning to put any in CapEx because all the major CapEx have been done and then capitalized. So probably we must be having around sustenance capital and what all will be the debottlenecking, et cetera, must be around the $200 million is what we are thinking plus any market authorization, if it comes very lucrative, et cetera, we will do that, okay?

[Nitin Agarwal, analyst]

Sir, on this inorganic, we've been acquiring about $100 million or thereabouts of assets as and when the market opportunities have been attractive. I mean is there a number that we have in mind to spend on buying out...

[Santhanam Subramanian, executive]

No, it is not like that. If any opportunity comes only, we will look into that. We are not scouting for any market authorizations on our on. If it comes, we will look into it.

[Nitin Agarwal, analyst]

Okay. And sir, last one, the growth markets did extremely well this quarter. This number which you've done in this quarter, $100 million plus, how should we think about it on as a base for -- or should we look at it as a base now for the next year onwards?

[Santhanam Subramanian, executive]

I think we have done well this quarter. Probably, we must be doing something like $75 -- I mean around $300 million is what we should be aiming for next year.

[Operator]

Thank you. The next question is Sangeetha.

[Unknown Analyst]

This is Advaith, Sangeetha's partner. I had 2 questions on biosimilars. One was that, can you explain to me, generally, what are the trends in the U.S. and Europe towards biosimilars, particularly when the competition is not a biosimilar? What are the advantages, et cetera, for biosimilar that may be trending the market in favor of biosimilars? That was the first question. And the second question was that, could you give some more color as to when will the biosimilar opportunity be effectively monetized? What should our assumption be? Are we talking about FY' 26, FY '27 or calendar '27, '26? Could you give us some kind of idea on the time lines of whether we can expect the biosimilar opportunity to be monetized?

[Makkapati Satakarni, executive]

To answer your question one, to be very honest, I did not understand the question one in entirety, but I would try and answer that. A biosimilar is again a innovator product, an existing biological entity. So I did not understand that because you have a biological entity which is already there, and it goes off patent when you launch a biosimilar into the market. So does that answer your question? Or do you want it to phrase it differently?

[Unknown Analyst]

No. My question was what are the trends in the U.S. that are favoring biosimilars, if any, in the U.S?

[Makkapati Satakarni, executive]

Essentially, look, the biosimilars or the biologics pose a huge health care burden with the pricing and all, not just the U.S., but all the developed countries across the world would like to have a cost-effective alternatives to the biologics. And that's the reason why biosimilars find traction in these markets. Now with the case of products like adalimumab, where the innovator also becomes very disruptive over a period of time because he had made his margins. And when the biosimilars come in, then there will be additional price rebates, et cetera, and to switch from a biologic to a biosimilar requires some interchangeability studies with the FDA, et cetera, that slows down the uptake of biosimilars.

But right now, the trends have been encouraging. There are a lot of good companies which are doing well in the U.S. with respect to biosimilars. So I expect with the next wave of patent cliff, more biosimilars will be in the market, especially across oncology and immunology segment. And the market continues to be favorable in terms of the U.S. market continues to be favorable in terms of the uptake of biosimilar. I see the regulatory guidelines also easing out a bit over the next 6 to 7 years that prompts more biosimilar players to come into the market. That's part one of the question. What is part 2 of your question?

[Unknown Analyst]

Part 2 was as to when do you expect to start monetizing the biosimilar opportunity, rough time line?

[Makkapati Satakarni, executive]

See, the real opportunity for us in terms of the commercial space starts from one quarter of this year possibly and from the next year. I would say you should wait for at least 2 to 4 years' time frame, around 27%, 28% would be the opportunity to monetize this. Subbu, you want to add to that?

[Santhanam Subramanian, executive]

Yes. I think one is as Satakarni said, Q3, Q4, we will do to the Indian market and after that -- probably, that's a very small portion Indian market, but its major things are going to come from Europe and U.S., which is around '26, '27. Am I right, Satakarni?

[Makkapati Satakarni, executive]

That's right, that's right.

[Operator]

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

[Shriniwas Dange, executive]

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, in due course. Thank you, and have a great day.

[Operator]

On behalf of Aurobindo Pharma, that concludes this conference. Thank you for joining us. You may now disconnect your lines and exit the webinar. Thank you.