Cipla Ltd

NSE:CIPLA

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Cipla Limited Q3 FY '22 Earnings Conference Call. From the Cipla management, we have with us Mr. Umang Vohra, Managing Director and Global CEO; Mr. Kedar Upadhye, Global CFO; Mr. Naveen Bansal from the Investor Relations team. [Operator Instructions]I now hand over the call to Mr. Naveen Bansal. Thank you. And over to you, sir.

[Naveen Bansal, Head of Investor Relations]

Thank you, Faizan. Good evening, and a very warm welcome to Cipla's quarter 3 earnings call. I'm Naveen from the Investor Relations team here at Cipla.Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve certain risks and uncertainties, including the impact of COVID-19, that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new confirmations, future events or otherwise.With that, I would like to request Kedar to take over, please.

[Kedar Upadhye, Global Chief Financial Officer]

Thank you, Naveen. Good evening to all of you and wish you a very Happy New Year. I hope that all of you and your families are safe and well. We appreciate you joining us today for the third quarter earnings call for FY '22, and I hope you have received the investor presentation and other materials that we have posted on the website.This quarter, we are pleased to report a healthy performance. For the last almost 2 years, we have been consistently beating our internal targets. We recorded revenue growth of 6%, driven by robust momentum in branded markets of India and South Africa and continued traction in the U.S. portfolio. Our EBITDA margin of 22.7% for the quarter tracks convincingly in terms of our full year guidance, despite cost headwinds on raw material and freight, offset by increased share of the complex and chronic launches, continued rigor on cost control and operating efficiencies.Overall, our revenue -- our delivery and revenue and profitability, as I said, continues to be ahead of our targets. Our One-India year-on-year growth of 13% continues the impressive run, driven by sustained momentum across all businesses. Healthy order flow in the prescription business continued across all the therapies as well as regions in the trade generics. The consumer business saw a consistent uptick in core and traditional brands. The U.S. revenue for the quarter was USD 150 million, one of the highest in recent quarters, led by strong traction in the respiratory and other portfolio. We have also received approval for the first 505 (b)(2) version of Lanreotide injection. Our South Africa private business maintains market meeting trajectory, driven by steady launch momentum. The YTD EBITDA for 9 months is at 23.1% of sales, tracks quite ahead with our full year guidance. As you are aware, quarter 4 is a seasonally biggest quarter for India, and our EBITDA appropriately will respond to the change in mix.Our free cash generation and operating efficiency continues to drive our strong net cash position, despite strategic inventory buildup for maintaining adequate supply of medicines. The return on invested capital of 21.2% for trailing 12 months continues to track well above the long-term sustainable range that we had highlighted earlier.Coming through the financial performance. some of the specific highlights I would like to highlight. As expected, the revenue of contribution of COVID products at the company level was lower on a year-on-year basis. The COVID portfolio declined by almost 10 percentage on a year-on-year basis and 17% sequentially. We do expect to see some traction in the coming quarters, in line with the case loads amidst the ongoing third wave in India.Our emerging market business continues to maintain strong growth in DTM markets. The order flow from developed markets in our API business has witnessed momentary slowdown, and our mix has responded accordingly. We will see traction in orders from emerging markets, and API outlook remains robust.The total revenue for the quarter is INR 5,479 crores with a year-on-year growth of 6%. Gross margin grew at 60.9% on a reported basis. The marginal decline on a year-on-year basis of 55 basis points, and about 40 basis points on a Q-on-Q basis is attributed to increase in freight and materials cost and certain provisions for the inventory, including COVID products. We expect gross margins to respond to launches from complex pipeline in the coming quarters.Total expenses, which include employee costs and others, are at INR 2,105 crores, declined by 2.4% on a sequential basis. The employee cost for the quarter is INR 872 crores, which is flat on a sequential basis. Other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion, are at INR 1,232 crores, a decline by 3.7% driven by strong cost control.We have retained the efficiencies from our reimagination and operational efficiency and institutes from last year while continuing our growth in investments, which are driving the Y-o-Y increase in other expenses.Total R&D investments for the quarter at INR 262 crores. All the priority project spend continue to be on track. We expect the spends to increase as the [indiscernible] progress in the clinical trials. Overall, reported EBITDA for the quarter is at INR 1,243 crores or 22.7% of sales. Tax charge is at INR 295 crores and the ETR is 28%.As of 31st December, our long-term debt stands at [ ZAR 720 million ]. We also have working capital loans of USD 58 million, ZAR 137 million and also in $5 million, which act as natural hedges towards our receivables.Driven by our relentless focus on cash generation, we continue to be a net cash positive company as of December '21. We continue to be appropriately hedged for key global currencies as per our policies.Finally, just to conclude, the Board had its meeting held on 25th of January. We do the scheme of -- I mean the Board had its meeting held on 26th October. we do the scheme of management for the proposed transfer of India-based, U.S. business undertaking to Cipla Biotech Limited and the proposed transfer of the consumer business undertaking to Cipla Health Limited in favor of a more efficient mechanism to obtain the transaction. Based on management proposal post the in-depth revaluation, the Board has approved the proposed transfer of the U.S. business undertaking and consumer business entity by view of [indiscernible] sale. We continue to believe that the transaction will simplify the structure, maximize the efficiency and has the potential to unlock value for all the stakeholders of the company.To close, we saw impressive momentum across portfolio geographies for 9 months. Growth levers in the subsequent quarters will include continued momentum across all regions, securing market share in peptide assets, Lanreotide, coupled with traction in albuterol and arfomoterol in U.S. and driving expansion into operating profitability above FY '21 base by focusing on mix improvement and operating efficiencies.I would now like to invite Umang to present the business and operational performance. Thank you.

[Umang Vohra, MD, Global CEO & Executive Director]

Thank you, Kedar. I would like to wish all of you and your families safety and wellbeing. As COVID-19 continues to evolve across the globe with the new variants driving case loads, we continue to ensure availability of our COVID and other life-saving products.Coming to our strategic update and operational performance for the quarter, I am proud of the strong launch and commercial momentum across our One-India business with a 13% year-on-year growth and 7% year-on-year growth in our U.S. business, underpinned by the expanding respiratory franchise. Our EBITDA margins for the quarter came in at 22.7%, as Kedar mentioned earlier, ahead of our impairment target. And given the 23.1% YTD traction, we are well pleased to close the year in line with our guidance.In India, our One-India strategy is witnessing remarkable traction in achieving major milestones along the journey. The One-India business maintained double-digit growth momentum for the third quarter this year coming in at 13% year-on-year. The core prescription business in India, excluding COVID, grew strongly by 16% on a year-on-year basis. The branded prescription business is on track to achieve a $1 billion mark, building a formidable franchise in our home market of India.Our customer engagement levels in our trade generic business have driven healthy orders from Tier 2 and below towns in India. Some of our flagship generic brands in our trade generic business have grown past that INR 100 crore mark and a few others are crossing the INR 50 crore mark, which speaks about the brand equity in these markets. We also plan to add high-growth categories like antidiabetic and injectables to address unmet demand in the coming quarters. The Brandmed prescription business continued the market beating growth for the third consecutive quarter in FY '22, driven by sustained traction across almost all our therapies in core portfolio.As per IQVIA MAT December 21, we continue to maintain healthy ranks and market shares in our key therapy areas across respiratory, urology, anti-infective and cardiac. Our focus continues in creating depth in antidiabetics and the oncolytic therapies building on existing and new partnerships with global multinational corporation. The trade generics business witnessed strong demand. We've launched 10 brands across cardiac and the diabetic range this year. To further strengthen the franchise, we plan to continue this momentum in FY '23.Coming to our consumer businesses. We are very happy to see how the business has shaped both in India and South Africa, almost contributing 8% of the company top line on a YTD basis. The India consumer business has seen robust traction in the anchor brands during the quarter, driven by high consumer recall, benefiting from the robust media campaigns and meaningful consumer insights throughout the year.Coming to North America. Our U.S. generic core formulation sales for the quarter came in at $150 million, beating the previous quarter high. This $150 million mark sets a new base for our business, which hopefully will grow from these levels on the back of our upcoming launches. Our respiratory franchise continued with strong traction with 36% year-on-year growth. As per IQVIA, week ending first December 2021, we have close to 15.9% share of the total albuterol market and 26.8% share in the arfomoterol overall market, and our shares have continued to move up from those levels -- from the earlier levels. We expect the business runway to continue to inch up further as we enter into the next year, where you also expect to show growth over the period of the current year.During the quarter, we've unlocked on one major peptide asset in the U.S. with the approval of Lanreotide. We're expecting a sustainable ramp-up over the medium term. Our focus will continue to expand our peptide portfolio through internal developments and partnerships, strengthening our high-value complex generic pipeline.On Advair, we remained closely engaged with the U.S. FDA, and we will continue to share the updates on the progress. On our Goa line, we are waiting to hear from the FDA on the inspection schedule.Coming to our SAGA region, which includes South Africa, Sub-Saharan Africa and our Access business, our South Africa private business reported a 16% robust growth over the last year for the quarter in local currency terms. In secondary terms, we continue to maintain market beating growth of 9.1% versus the 8% growth overall in the private market as per IQVIA Nov '21.In the international markets, we maintained scale close to last year base in U.S. dollar terms. Our DTM franchise continued to witness strong momentum across markets with steady double-digit growth in secondary term.In FY '22, we have made significant progress against our strategic priorities. We remain confident in our near- to medium-term outlook, given the strength of our growing branded franchises and launch pipeline in the U.S. and other markets. We have important launches in the coming quarters, and we are gearing up for these launches in the near future. We are transforming our IPD, manufacturing, supply chain and quality operations to unlock efficiencies targeted to deliver higher performance and resilience, serving our patients more effectively.Our innovation engine seeks to capitalize on the opportunities across the health care ecosystem, leveraging data analytics and digital technologies to drive robust portfolio momentum and capital allocation. Our near-term priorities include continued execution on the demand levers in chronic and acute therapies; improvement in manpower productivity across our branded markets of India and South Africa; active advancement of our innovative consumer-centric products to accelerate the augmentation of our consumer wellness franchise across India and South Africa; grow our U.S. limited competition launches footprint, including peptides as we continue to expand both the injectable and respiratory categories in North America; focus on regulatory compliance across our manufacturing facilities and implement global benchmark PSC practices; and continue a high digit on cost and cash management while driving a sustainable expansion in operating margins and the return on capital employed.I would like to thank you for your attention. We wish you and your family good health, and we request the moderator to open the session for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Nikhil from SiMPL.

[Nikhil Upadhyay, Fund Manager]

Congratulations on good set of numbers. I have 2 questions. One is, sir, if I look at our presentation where we say priority for FY '25 between India, South Africa and Europe and the other markets, we talk about driving sustainable growth through organic and inorganic levers. And over the last 2, 3 years, we have been looking at that. We've been doing tie-ups for onco or for biosimilar and these kinds of products to grow the market or presence in these markets. So I just want to understand, when we talk of the levers for growth, is it like this tie-up become a very important lever for us to continue growing? Or do you think from our own organic pipeline, we can -- we have product launches which can sustain the growth? Or how should we understand between these tie-ups, organic and probably inorganic acquisitions?

[Umang Vohra, MD, Global CEO & Executive Director]

Thank you. I think it is a good question. Look, I think the sources -- the answer is going to depend differently for different markets. So in the U.S., we would like to depend on our own organic momentum of products in the U.S. and largely EU. Our own organic momentum of products will create a sustainable data. And we augment this with 2 partnerships where we think the partners being very specific technology skills, which are very relevant, right? So Lanreotide is a great example of this, where we will augment for a significant product in the partnership.In India and branded markets, the case is different. In India and branded markets, though we are generic companies, we try to -- all of us are almost like innovators in this market. So there, we try and strike partnerships with innovative companies to bring their products even before the patent has expired. And this is important because under the patent regime in India, there will be hardly any sources of products unless innovation -- innovative products are introduced into the market and most innovators now partner with Indian pharmaceutical companies to bring these products before patents expire. So we have also partnering with these companies in India. So in the U.S., I think the partnership is around technology. In India, the partnership is around product source because of the patent regime. And I think both of these are important partnerships going forward.

[Nikhil Upadhyay, Fund Manager]

Okay. Just one thing. When we talk of India and ROW market, we generally say that the markets -- the branded generic markets are growing at something in the range of 8% to 12% depending upon the year and all. So based on these partnerships and all, so not for the near term, but over 3 to 5 years when you are talking about or thinking about these partnerships, is it like that incremental 2% to 3% higher growth should come from the partnerships and the rest -- the market beating growth when we talk about so that incremental growth should come through the tie-ups and rest through our organic pipeline? Just as an investor, if you have to understand how we should evaluate how these partnerships are like adding value to the company or to the business.

[Umang Vohra, MD, Global CEO & Executive Director]

No, I don't think we look at it that way, though it's a very interesting perspective you've added. We are just looking at above market growth as a function of our own portfolio, function of partner portfolio and driving strong volume growth. So volume growth may come out of some product families, not from all. And just a partnership angle, I don't think we're saying we will grow at par with market and then add the partnership revenues we get from others. It was difficult to split it that way. So our objective is to beat market growth, and I think the way to do that is to probably look at our own portfolio, plus partner portfolio, plus the volume growth.

[Nikhil Upadhyay, Fund Manager]

Okay. Just last question. If you look at it now, when we talk of Lung Leadership and organic growth and the amount of cash which we are generating and if I divide it between 3 kinds of investments, one would be our own R&D, as you mentioned, organic growth for Europe and U.S. led by own products; second would be the riskier assets like where probably the investment would happen, but we don't know the exact outcomes, so outcome could be 0 or 1; and then the third, distribution towards the shareholders. So how is the management thinking about how the investment buckets would fall in based on the incremental cash, which the company will be generating? How should we understand how you are thinking about this allocation?

[Umang Vohra, MD, Global CEO & Executive Director]

No, I think, maybe I can give a few statements that could help you. I understand where you're going from this thing. Our first priority is to drive a sustainable growth of our business. To that effect, we have created certain things. We would like to -- we have mentioned that we will grow -- our attempt will be to grow both ROIC as well as our EBITDA in a certain range. And though we are now feeling confident that we can -- that EBITDA could continue to increase on the back of launch momentum, et cetera, we are also taking calls to invest back in the business because, right now, we would like to see the growth journey of this business to be sustained over a period of time.If the call is going to do 25% EBITDA and 5% growth versus -- could you do 23.5% to 24% EBITDA and 10% growth, we are likely to fall back on getting more growth over the long term. So we are actively reinvesting back in the business.The second question is you asked about R&D. We have generally given a guidance range that we will not expect our R&D in years where we have bulky and chunky R&D could be more than 7%, 7.5%. So we're very clear about how much money we will invest in R&D and where the focus will be to grow our top line. So these are 2 broad yardsticks that you could use. While our objective is to improve our EBITDA trajectory further, we are going to try and reinvest money back into the business to support growth. From a shareholder perspective, this is more the Board decides. I think based on where they think -- depending on where -- how we see our capital needs for the future and a benchmark performance of companies that we see in the market. And I think based on that, it's been probably our first or first 1.5 years of cash surplus. Dividend strategy is decided by the Board in terms of how to return money back to the shareholders.

[Operator]

The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Congratulations on a good set of numbers. So my first question is on some of your key launches, which you are expecting to come in, say, second half of next fiscal. But can you update us on the status of your filing for albuterol and Advair because last quarter, you mentioned you need to do some study for albuterol. So maybe on these 2 key assets, you can share some updates.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes, certainly. I think both we have. Advair I mentioned in our speech that we are waiting for the FDA. We are in correspondence with them, and I think we are waiting for the regular updates that come from them with risk and questions with regards to our file. So I think that is on Advair.And on vaccine, which is nanopaclitaxel, we are furnishing some more data to the FDA. Our belief is that the market could form in April with the first players launch, but we believe that the nature of this product may not result in a total market formation because of the supply that both the innovator and some of the generic companies may face in order to satisfy the market. So we think this is a good asset for the long term, and the market will stay limited for a very long period of time. And we still have some -- the FDA has asked us questions, and we still have some data that we are submitting to the FDA.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Okay. So very broadly, you remained on your, I'd say, earlier specific time line of these launches in second half next fiscal. Or should we work with that addition?

[Umang Vohra, MD, Global CEO & Executive Director]

Well, its launch is different. Both of these are different. But yes, we have guided that our second half of the year will have more launches compared to the first.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Okay. My second question is on the Lanreotide exposure. So have you launched the product in markets? And how many such type products you have in your pipeline?

[Umang Vohra, MD, Global CEO & Executive Director]

So I can't give you the specific numbers. And as I mentioned, we will try and Lanreotide to build a sustainable share over the medium term. And right now, we are in the process of assessing the market, and there will be a launch correspondingly in this quarter sooner rather than later.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

And where this product will be manufactured?

[Umang Vohra, MD, Global CEO & Executive Director]

We are not disclosing that, but it is at our partner site.

[Operator]

The next question is from the line of Prakash from Axis Capital.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

My question was on the India business. Since we had a large -- over 9 months, if you see, there has been COVID contribution. How do we see this business for next year, given that we are doing very well in our base portfolio? Do we expect flattish performance? Or how do we look at it? And what is the COVID contribution for 9 months, please?

[Umang Vohra, MD, Global CEO & Executive Director]

Kedar?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So Prakash, we are not disclosing specifically the COVID contribution for one specific business. But as I mentioned from quarter 2 to quarter 3, there's a large decline at a company level in terms of the contribution. And depending on how quarter 4 evolves, the number of cases evolves, I think that would get tweaked. Obviously, our responsibilities to service add much demand as we face in India and other markets.Vis-à-vis, next year, our thoughts are still being shipped by all these volume developments. What we are happy is that you would have seen that in our presentation. For us, all the key therapies, respiratory, urology, cardio, overall chronic acute, I think we are experiencing strong growth. So it would be tough for us to exclude COVID and talk only on non-COVID because some part of COVID and our view might continue in the next year as well. So maybe in the May call, when we -- in our full year results, that will be a best time for us to give some clue into next year, but growth continues strong in Rx business, Gx business and consumer health business.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

My second question...

[Kedar Upadhye, Global Chief Financial Officer]

Sorry, just to add, I think a couple of deals we had announced, I think maybe you should factor the contribution from some of these deals that we had announced in the past, which will get commercialized now hereafter.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. Fair enough. And secondly moving to R&D. So the peptide approval that you've got must be like 2, 3 years back kind of R&D work you might have done, trying to understand what is the next level of R&D work you're doing, which we will see approvals, filings over the next 2 to 5 years? So one is peptide, one is respiratory inhalation. What are the other ideas you have already worked on and what you're trying to work for the next 2, 5 years?

[Umang Vohra, MD, Global CEO & Executive Director]

I don't think we -- Prakash, I'm not sure we'll give this level of information. I can just say that on respiratory, of course, we will want to cover as many assets as we can. On the -- on some of the other injectable assets, there are -- outside of peptide, there are different technology platforms around the release characteristics of this drug and the encapsulation of injectable products. Those are some of the things we will begin to build out. They are not easy technology platforms. And some of these may be partnered, some may be our own, and it will take us time to internalize this. So I think longer term, that is where we want to go. And I think we are working towards it, but it's quite a leap for us also to make in terms of getting there. And I think we are confident that with the right focus, we'll be able to do it.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

When you say partnered, how do we see the financial aspect of it? I mean these are just contract manufacturers or these also have contribution in terms of funding and doing some trials?

[Umang Vohra, MD, Global CEO & Executive Director]

Well, there could be both. Some of these would be early partnerships where the risk is largely taken by Cipla. Some of these are in the nature of partnerships where to plan the partner both take equal risk and some are just basically manufacturing area. So I think it will be all 3 depending on the asset and our relative ability to do it ourselves versus the need to bring in a partner who has mastered the technical complexity [indiscernible].

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. Perfect. And R&D, we should build in 4% to 5% only or do you think with these kind of more deals happening, et cetera...

[Umang Vohra, MD, Global CEO & Executive Director]

No, I think it will go up. It should go up. I think next year, definitely, we are penciling in a slightly higher R&D. And whatever it may be, it'll never be higher than the 7% to 7.5% that we've set as a target for us. So it will be slightly higher than this.

[Operator]

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

[Bharat Sheth, Co]

Congratulations, Umang and Kedar, on good set of numbers. My question is on One-India play. So what is the really -- where we are seeing the benefit of One-India in, say, Rx, Gx and consumers?And second question is now we have been seeing that fewer platform-based pharma company. I mean pharma launches are happening in trade generic. So how that will kind of disrupt the whole trade generic business? And what are our strategies to make that kind of disruption?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. Kedar, do you want to take it first?

[Kedar Upadhye, Global Chief Financial Officer]

Yes, yes. So Bharat, between prescription, generics and consumer health care business, I think the synergy exists on several counts. I think portfolio is one; supply chain and distribution is another; some of the capabilities for campaigns, advertisements, ATL spend [ ZIP code ] and overall brand name; and expertise in terms of digital analytics that is fourth.So I think there are several [ avenues ] for which we could leverage and we are leveraging between these 3 businesses. This is an active work stream, which we have been speaking about. For some of the brands which are in the generics business, which have very high recall, and those are actually consumer brands. And those are being contributed heavily by CHL business either through their own channel, model trade and in terms of approaching consumers, converting it to almost like a B2C kind of a brand.So some of this is already in the numbers [ for us ], and we believe that going forward, there is a very strong synergy across all these angles. We are particularly excited and interested on 2 counts. One is the consumerization. As I mentioned, we've taken the digital aspect. So digital analytics, reaching health care practitioners, reaching channel partners, analyzing brick by brick throughout the Indian demography and geography and targeting specifically for a particular region, particular therapy. I think those are the avenues in which we are seeing an enormous forward for all of our 3 businesses. And obviously, as I said, I think the performance is in the current numbers as well. And we are hopeful that it will shape up to become a more dominant engine in the coming year.

[Bharat Sheth, Co]

Okay. And the several platform company, which are, I mean, owned by large industry and they are planning to launch several private label. So how that can affect our trade generic business?

[Kedar Upadhye, Global Chief Financial Officer]

See, actually, we do have -- I mean, we have been watching -- all of us are watching some of these evolving developments in the e-pharmacy or other teleconferencing or other avenues and platforms in which newer companies are reaching patients directly, not even channel partners. So we are watching. We have our plans in mind. Some of those plans are being executed as we speak. In our view, I think the strength of the reputation, the corporate reputation, the strength of individual brands in all these key businesses and the execution engine that we have built in is one hedge for us to offset. And going forward, I think we have to deploy several strategies. It will be tough to enumerate today all of those. But we are conscious of that possibility of disruption, and we are watching out for it.

[Operator]

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

[Anubhav Aggarwal, Associate]

First question, Lanreotide. I'm just trying to understand this product. In general, how many new patients start on this [ navigated panel ] as a percentage of the rotation? Can you give some insight there?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. Anubhav, it's a little complicated, and I'll tell you why. There is a historical average, which we have, but the historical average is also changing because there is Octreotide, which also we have heard there will be generic competition on, and there have been some supply issues with Octreotide in the market as well. So the 2 products at some points overlap an interface for a few indications in the market. And I think that's the issue why we have seen that Lanreotide growth has been high. And of course, there's also been value growth that every year innovators take on their portfolio.So it's a little difficult to estimate what are 2 new starts because of this mix, but we have a historical average. And I don't -- I mean, of the total station pool, I don't think the number of new starts is very significant from a Lanreotide perspective. But it's -- right now, the data is convoluted because of some amount of interface with Octreotide.

[Anubhav Aggarwal, Associate]

But Umang, just to get some idea that historical numbers will be 10%, 20% or even less than that?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. I would think that ballpark, you're in the right range, maybe towards the lower aspect of the 10%, 20% number that you mentioned.

[Anubhav Aggarwal, Associate]

And would it be safe to assume that you're able to take market share if new starts will be very high, and existing guys may not shift to your product, and that's the reason you're guiding for is very, let's say, slower ramp-up?

[Umang Vohra, MD, Global CEO & Executive Director]

Well, I don't -- I'm not sure we've -- I'm not sure that we looked at the market necessarily from the new and the old. I think we are also learning this market then. Our objective is to build a sustainable share over the medium term, sustainable from a perspective of what we can supply as well as where we think this equation will hand out in the market. So yes, I mean, I'm not sure that if they just keep the division will only be new versus old, but it will be also guided by the way we can supply the market and how much we believe we can [ help them ].

[Anubhav Aggarwal, Associate]

Okay. And just a couple of more questions on this. So in terms of, let's say, going on talking to each of the hospitals, so will it be like just talking to some of the GPOs like promoting a normal injectable product, pushing a normal injectable product for pushing Lanreotide? Is there any difference? Or is it the same thing that's going to GP and [indiscernible]?

[Umang Vohra, MD, Global CEO & Executive Director]

No, I think this is also a very significant clinic product, Anubhav. So I think it will be a mixture of the clinics and the GPOs. And I -- the market -- I think the market is generally for these can be well established in terms of this. So I don't think the outreach is more significant than a conventional health system approach to the market. So I don't think it will require -- if your question is that will it require significantly more than the way you operate in the health system space today, not at all.

[Anubhav Aggarwal, Associate]

And in terms of the formulary coverage, as typically, generics get an advantage. But in this one, when doctors are thinking about an existing patient, will they be incentivized enough, not by you, but by the [indiscernible] perspective to, let's say, to use a generic versus the brand?

[Umang Vohra, MD, Global CEO & Executive Director]

I'm not sure that we -- I'm not sure you understand that part of the market that well. And I don't know how the -- I don't know whether that would work. I think our primary route would still be through the clinics and the GPOs.

[Anubhav Aggarwal, Associate]

Okay. And second question is you mentioned about some of the complex injectable launch in fiscal '22 from a portfolio in your presentation. Just wanted to understand that broadly, can that be as meaningful as Lanreotide or [indiscernible] in terms of contribution?

[Umang Vohra, MD, Global CEO & Executive Director]

You are referring to, Anubhav, our presentation?

[Anubhav Aggarwal, Associate]

Yes, which you made in mid- of January, yes.

[Umang Vohra, MD, Global CEO & Executive Director]

[indiscernible].

[Anubhav Aggarwal, Associate]

Yes, correct. Yes.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes, correct. Yes. See, I think Lanreotide, because of the timing is sort of good. Obviously, because we're the only generic player, I think the competition is different. I think that other products may have more competition than just us being alone in the market, but it's a question of timing. When we started Lanreotide, we also thought we will not be the first to enter this market. But -- so I think it depends on the number of competition, but it is a meaningful asset, maybe not as meaningful as Lanreotide, but it is definitely meaningful.

[Anubhav Aggarwal, Associate]

Okay. Can I ask one more question on consumer wellness portfolio?

[Umang Vohra, MD, Global CEO & Executive Director]

Please.

[Anubhav Aggarwal, Associate]

So you had transitioned certain products 60%, and you already done 10 products that are there. But let's say, some of the larger products, which are yet to be transitioned, only just as an example, what is stopping you from transferring this right now from Gx to health? That's one question. Second question is -- and that's more general question. Once a product is transferred from Gx to, let's say, [ partner ] portfolio, do you reduce channel discount because now you're putting more resources behind [ targeted sizing it ]? Or let's say, that's the most phase-out process, at some point in time, you go ahead and reduce the discount to that channel margin? Can you just talk about these 2?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. I think -- so firstly, what's stopping us is -- I don't think there's specifically anything stopping. The Board is today approved the scheme of -- through this [indiscernible]. So I don't think there is anything stopping us. The question is how do we grade this over a period of time, considering the timing of the shift as well as considering what we believe could be the impact on several other businesses that we've done, right?So one is the ability of the business we're transferring to their ability to absorb it. The second would be the ability of the transferring business to see it and the timing in the market on whether the right time is good. So I think there's nothing stopping us. It's a function of how we grade the transfer.I think on the margin piece, I would just say that it's a mixture. There is more -- it is product to product. Sometimes margin corrections happen overnight. Sometimes they happen over a period of time, depending on how much we think the equity of the product in the market is. And I think it's a function of both of these. But yes, the general trend is that you transfer, you kind of reduce margins and you take up your advertising spend to create demand.

[Operator]

The next question is from the line of Surya Patra from PhillipCapital.

[Surya Narayan Patra, VP & Pharma Analyst]

Congratulations for the good set of numbers, sir. And my first question is on the outlook, FY '25 or until the time the outlook that you have given for the U.S. market, that you are saying that incrementally $300 million to $500 million revenue can be added annually. So by that, are we a little bit more conservative considering the potential of Revlimid and products like Advair? And -- so considering these 2 products potential continues in itself, either we are a bit more conservative here or we are anticipating larger-than-expected competition for Revlimid. Could you please clarify on this, sir?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. I think, Kedar, maybe you can take this.

[Kedar Upadhye, Global Chief Financial Officer]

Yes. Surya, we had spoken about these targets about a year back in the last year's January month. And from that vantage point, we have sent in the possibility of $300 million to $500 million. Look, when you pan out future launches and multiple variables, which will shape those launches and incremental growth in a market like U.S. over a 5-year time frame, you are going to be right for some assumptions, and you are probably not going to be right for some assumptions. So I think how competition would evolve, how pricing will evolve, how our ability to take share would increase in some pockets or not.So I think all these factors depend and eventually will determine whether we will get into [ retell ] that $300 million to $500 million is ambitious enough because our base that time was around $500 million also when we spoke a year back. And as things stand today, we have progressed well. The early indicators are quite positive. Our ability to take share, our ability to service the needs of the market, our ability to seamlessly ensure supply chain and compete wherever we have to compete in case of additional competition and most importantly, the development and regulatory engine, I think everything is working fine, Surya.Now this is -- the $300 million to $500 million is a combination of several assets. And some of those are filed. Some of those are yet to be filed. Some of those are quite ahead in the review process. So what we would not do probably is to attach any word whether conservative or not conservative, but what I'll be saying the external business environment. And our ability to respond to it would shape up this opportunity.In our view, it is ambitious enough, there is no -- conservative does not mean anything. We have internally for every launch, -- we are -- we take it very seriously and very meaningfully, and there is no conservatism. We go all-out. What we avoid is getting very disruptive on pricing, I think. Our attempt is to be very responsible on pricing. So that's the only thing I would caveat. And yes, that's it.

[Surya Narayan Patra, VP & Pharma Analyst]

And my second point, if you can just give some clarity about your new China purposes. So how critical that could be for the -- in the overall revenue mix, how critical that could be, let's say, 3 years down the line?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So projects, when you expand into new countries and especially when there are multiple layers for approval and listings in hospitals and regions and then several regulatory pathways of filing through local manufacturing or to Indian manufacturing, I think those plants often play out so we are over fairly long term. So I mean, to answer your question from a 1- to 3-year standpoint, it may not be as meaningfully.But we have the plant ready now, as you know. And the capability has been built in. The initial set of packages are being taken. We are excited because it's the, what, second largest pharma market globally. So we are excited. And there is a lot of respiratory potential in that market. So we are excited. But to answer your specific question from a 1- to 3-year standpoint, it may not be [ the one ]. I think going forward, it would shape in the subsequent years to be probably meaningful for our emerging market franchise.

[Operator]

[Operator Instructions] The next question is from the line of Nithya Balasubramanian from Bernstein Research.

[Nithya Balasubramanian, Research Analyst]

Congratulations on another strong quarter. So I have a follow-up on Lanreotide. I'm going to squeeze in one more. So Lanreotide, one, is given that it's a complex product and it's a relatively difficult manufacturing, is your partner geared up to, let's say, help you get like 20%, 25% of the market? Is the manufacturing ready?Two, given that you are not a therapeutically equivalent product, what incremental commercial infrastructure investment will this product require?And the next one is actually on expenses. So excluding R&D, your expenses seem to be trending down. Should we assume that 3Q was largely a normal quarter in terms of India sales force, expenses, et cetera? Is this the new normal?

[Umang Vohra, MD, Global CEO & Executive Director]

Maybe can I request Kedar to take on the third one first, and then maybe Nithya, I'll come back to answer the first 2?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. Yes. So I think most part of the quarter, Nithya, the large part of the field force was in operation. And as we keep saying, our attempt was to secure and safeguard some of the efficiencies that we delivered last year to [indiscernible] and some of the digital initiatives. So I think some of those seem to be working.And I mean business model across the regions and at the overall company level, it's fairly optimal now, although we still feel there are some opportunities to execute. So given all of this, I think you should treat quarter 3 as a base and subsequent to -- as you know, that we have often said, a large part of our OpEx is very responsive to the sales in multiple geographies based upon the commission, discount and other arrangements that we have. So I think the expenses would respond to the sales volume and value. But overall, I think you should see Q3 as a base quarter, Nithya. Thanks.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. And Nithya -- no, no, there are 2 more questions she's asked. I think the second one that you asked was on whether that we believe there's an incremental amount of infrastructure required to drive this. And our understanding of the market right now is none, our current infrastructure in private.The first question was on the capacity, et cetera. Look, I think the partner that we have is also a partner that understands this product well. And we have a certain internal target of where we want to get. And I think the partner is geared up to supply to that target. And we've guided it will be sustainable over the midterm.

[Operator]

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

[Sameer Baisiwala, Executive Director]

I think you and I need to ask a few questions on Lanreotide. So here I go. So Umang, can you just share, how is the product different from the innovator that you had to take 505 (b)(2) route? And second is, you mentioned sustainable market share for midterm. If I can just have to have some inkling. So are you looking at double-digit market share, say, by -- exit market share by end of next year fiscal? Is that realistic?

[Umang Vohra, MD, Global CEO & Executive Director]

What is the -- so Sameer, let me mention. I think we will not divulge information on the specific targets per share, et cetera. All I can say is that, as I mentioned, it will be -- whatever is sustainable over the medium term, I think that's where we'll go. Because I think at this point, the product is also competitive in the marketplace, and we don't want to divulge premature information on it.The first part on the -- how the product is different, I think we can have a separate discussion. We're happy to provide that visibility to do -- to you. But it's largely around things we have used to offset the patents, et cetera, that at one time around the product.

[Sameer Baisiwala, Executive Director]

Okay. One, just -- is your device ready to use? Or does it need to be assembled?

[Umang Vohra, MD, Global CEO & Executive Director]

The device -- what do you mean by ready to use, Sameer?

[Sameer Baisiwala, Executive Director]

So that's the new form that the innovator has transitioned to where you don't need to assemble the needle with the -- while injecting...

[Umang Vohra, MD, Global CEO & Executive Director]

Yes, yes. It's -- yes, in that manner, we are ready to use.

[Sameer Baisiwala, Executive Director]

Okay.

[Umang Vohra, MD, Global CEO & Executive Director]

Sorry, can you go back and tell me what is the -- what was your [ question ], so the innovator is -- so your question is are we -- so we are not -- there is no need of mixing any values or anything into the product, if that's the question you're raising. If you're saying that the needle has to be fixed on the product, yes, the needle has to be fixed on the product.

[Sameer Baisiwala, Executive Director]

Okay. Got it. Versus, I think the innovative demand where -- you don't need to. So that's a bit different.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. They have changed some part of that device in the past as well, and that is correct. But right now, they are all preassembled. The ready-to-use connotation is actually a different [indiscernible] in the injectable space, which is why I asked you what you meant because only RTUs are more moving the values or anything else within the clinic setting. So that's why assembly-wise, we need to assemble, until the needle of the product is preassembled.

[Sameer Baisiwala, Executive Director]

Okay. No, that's fair enough, Umang. And -- but I mean, keeping the semantics aside, does the device difference make a difference from the commercialization of the product?

[Umang Vohra, MD, Global CEO & Executive Director]

We believe not, Sameer, but I think it is a function of acceptability of the product in the market. So we don't think so. But that is out of our experience so far in this area of the market. And I think as the market -- as we begin to understand the market more and launch in the market, there will be more information. But right now, our assumption is not.

[Sameer Baisiwala, Executive Director]

Okay. And just one final on this, Umang. I know you can't say much, but what's the commercial arrangement between you and your partner? Is it like more or less the industry standard 50-50 profit share, plus or minus? Or is it very different from that?

[Umang Vohra, MD, Global CEO & Executive Director]

I could say, broadly, we are there. But there are some nuances here. So broadly.

[Sameer Baisiwala, Executive Director]

Okay. Just one final question with your permission, if I may. I saw that you have filed for 2 respiratory products in Europe. So just broadly taking 3-year, 4-year view, how do you compare the respiratory opportunity in Europe versus the U.S. in terms of addressable market and the competitive dynamics? Is it -- if you make $100 in U.S., would you make 20%, 30% in Europe or much more than that?

[Umang Vohra, MD, Global CEO & Executive Director]

Sameer, it's again a function of our market entry. I think Europe is more sensitive to market entry than the U.S. is on these products. So in the U.S., if you are even third or fourth player because of the volumes in the market and -- people can carve out their own shares and stay sustainable. So our [ neutral ], for example, assuming people who have launched into the market, but the market is still attractive from the new players.Whereas in Europe, I think that equation changes very rapidly after the second or third entrant. I think the market begins to be more responsive on price than we've seen in the U.S. So yes, I think the Europe potential is significantly lower compared to the U.S., but it depends on your market entry and your timing. So if you're #2 or #3 in Europe, I think it can still be an asset, which could well be 20%, 30% of the U.S. like you mentioned.

[Operator]

The next question is from the line of Neha Manpuria from Bank of America.

[Neha Manpuria, VP in Equity Research & Research Analyst]

Umang, we had the investment in avenue, which obviously you have terminated, but I think that investment still continues. A lot of your presentations [ often lead to ] when it comes to the U.S. business, we've talked about respiratory and injectable largely being the areas that we're investing in. So is it fair to assume that specialty is something that we're not looking at? It's completely out of question? Or do you think that is going to open and you would explore that based on what opportunities come your way?

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. Neha, I think on the specialty part, the Pulmatrix asset, which is a respiratory antifungal -- inhaled antifungal asset for aspergillosis, that is continuing on its path. We continue to sell plazomicin in the U.S. It was intended to be our second asset after the tramadol asset from Avenue. And I think Avenue, unfortunately, the asset has not progressed forward. So specialty, the strategy has always been around an asset, a central asset.

[Neha Manpuria, VP in Equity Research & Research Analyst]

Yes.

[Umang Vohra, MD, Global CEO & Executive Director]

And now plazomicin is taking the load for everything. And we asked that plazomicin was never intended to be a big asset. So we are discussing strategically. In the absence, let's say, in the case that tramadol does not go ahead any further as an asset, anyway, our rights to tramadol have ceased. We are now only an equity investor. So if we don't have tramadol in our portfolio, then there has to be some amount of we think on what we do with plazomicin and what would be the asset that would come in its place. So we're absolutely in discussion on this. But the asset on the respiratory space, which has been the antifungal, that is proceeding -- in its clinic is proceeding ahead in the path.

[Neha Manpuria, VP in Equity Research & Research Analyst]

Okay. So depending -- so just to understand this correctly, we are looking at opportunities, and depending on what comes our way, we'll decide whether we would like to invest further in the business, not assuming tramadol does not happen.

[Umang Vohra, MD, Global CEO & Executive Director]

Yes. So assuming tramadol does not happen, we will need to find a lead asset because [indiscernible] is not a lead asset, right? It's a smaller niche asset, and it can't take the load of the whole portfolio. So that is the stage we are in with respect to those 2 assets. But the respiratory asset that we have, that is in the clinic and it's going well.

[Neha Manpuria, VP in Equity Research & Research Analyst]

Understood. And when we're looking at these opportunities, is that -- for example, you already have on respiratory asset. Tramadol was looking more a pain asset, but it was a fairly large opportunity. How are you thinking about what opportunities we could look at? I mean is it fair to assume it would be a tramadol-type opportunity, which might not necessarily require a large commercial footprint?

[Umang Vohra, MD, Global CEO & Executive Director]

No, I think we don't want to invest too much money on huge commercial footprint. I think that be clear about. But one of the things we've also gone back and tried to tweak and change, and we are actually in the middle of that, is that we must have our own -- some pipeline assets that come from our own labs, they may be small. They may be 30 million or 40 million in size or 20 million -- between 20 million to 50 million in size.But what happens is when you have -- the disappointment, when you have an asset that does not come or your asset disappoints in the late Phase III trial, you have the ability to at least cover it off with something that is within your stable, right? So when we did tramadol, et cetera, we didn't have this pipeline back in, right? And now we are at a point wherein in about 1.5 years, 2 years, we might have at least some of these assets close to filing. They will not be big, but at least they had the portfolio data and momentum for our specialty [indiscernible].

[Neha Manpuria, VP in Equity Research & Research Analyst]

Understood. And sorry, one other question on the India business. Given that we're talking about entering into new categories, you talked about antidiabetic and injectable in your opening remark and even in the recent presentation, so is it fair to understand that the penetration level of our existing brands is getting slower, and therefore, we need more such launches and probably these partner products to maintain the strong momentum that we have started seeing in India? Is that one of the changes? Or am I reading that incorrectly?

[Umang Vohra, MD, Global CEO & Executive Director]

I think it's both because there is no product source unless you partner with an innovator, right? I think the days where you could do change formulation or the addition of an excipient and relaunch the formulation, I mean, those days are there, but realistically, the band that you get out of that is now much lesser. So if you really want to bring more products and more innovative products into the -- more products, which are patent-protected and innovation-driven, you have to partner with the multinational corporations, in my view, because there's no other way to get innovation into India.So it's a mix of both. It gives us growth, and it certainly is driving growth for us. But it's also, in my view, also an absolute necessity. Because why would, for example, the [indiscernible] that no one obviously is launching the oral Octreotide in the market in India right now. That's a great product, right?Now if it was not [ normal ] themselves and supposing no one was looking for a partner, many Indian companies would have offered the partnership for this, the therapies of game changer, right? So why would anyone sit out when there is innovation that we can bring to this market, which can spur the market growth and see it -- unmet need demand.

[Neha Manpuria, VP in Equity Research & Research Analyst]

In that case, we thought that we need to get more such partner products and that we're launching new divisions, which would probably require investment in expanding our MR coverage. Would that mean that incremental growth in India is coming at lower margin?

[Umang Vohra, MD, Global CEO & Executive Director]

Well, I think, to some extent, you could say that because the partner also shares here, right, investment. But I think what is changing is, Neha, there's a very active reallocation of capital that's happening across India by all the Indian companies. And I think what that reallocation of capital is doing is that it's taking capital and putting it around the assets and the brands that you want to create [ formality ] franchisees.So what happens is I don't think that the infrastructure requirements of launching products from innovators is anything new for the top 10 million or 15 million companies because everyone will have a cardiac field force, everyone will have a diabetic field force. And every time there's a new product that comes in, I think they kind of eliminate the tail. All of us eliminate the tail of products that we are selling currently, so that productivity is maintained.

[Operator]

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, Research Analyst]

Just would like to understand, again, on the India part, like how is the profitability now in terms of the branded prescription and consumer health and trade generic, either in terms of the packing model or maybe a broad range, if you could highlight?

[Kedar Upadhye, Global Chief Financial Officer]

Tushar, more or less prescription business and generics business profitability was close to each other, although not equal. So prescription business is a bit higher than generics business. Both are conveniently higher than the company EBITDA. And consumer business, as you know, will reach breakeven fast with the current set of portfolio, which means what? Which means the earlier launched product are breakeven, in fact, generating significant money, which funds the subsequent launches. So I think that engine is working well, Tushar.

[Tushar Manudhane, Research Analyst]

Got you. And lastly, also maybe for 9 months or for 3 months, if you could break down the India business proportion into branded, trade and consumer health.

[Umang Vohra, MD, Global CEO & Executive Director]

I can come back to you on that. Tushar, I can come back to you separately on that.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Naveen for closing comments. Thank you, and over to you, sir.

[Naveen Bansal, Head of Investor Relations]

Thank you so much, Faizan. Thank you, everyone, for joining us today for our quarter 3 earnings call. In case you have any follow-on questions, please feel free to reach out to either myself or Ankit or write to us at [e-mail]. Have a good evening. Thank you so much for joining.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Cipla Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.