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Cipla Ltd
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Ladies and gentlemen, good day, and welcome to the Cipla Q4 FY '21 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] I would now like to hand the conference over to Mr. Kumar Gaurav from Kotak Securities Limited. Thank you, and over to you, sir.
Good evening, everyone. On behalf of Kotak, I thank the Cipla management team for giving us the opportunity to host their 4Q FY '21 earnings call. From Cipla, we have with us Mr. Umang Vohra, MD and Global CEO; Mr. Kedar Upadhye, Global CFO; and Mr. Naveen Bansal from the Investor Relations team. I now hand over the call to the management team for their opening remarks. Over to you, Naveen.
Thank you, Gaurav. Good evening, and a very warm welcome to Cipla's Quarter 4 and Full Year FY'21 Earnings Call. I'm Naveen from the Investor Relations team at Cipla. Let me draw your attention to the part 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 several risks and uncertainties, including the impact of COVID-19 that could cause our results -- actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new confirmations, future events or otherwise. With that, I would like to request Kedar to take over, please.
Thank you, Naveen. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us today for our fourth quarter earnings call for financial year 2021. I hope you have received the investor presentation that we have posted on our website. Cipla continues to be at the forefront in the global fight against the pandemic. I would like to express my sincere gratitude to health care and other frontline workers, doctors, nurses, compounders as well as our employees who have been working tirelessly to serve the patients across the country and grow.In this testing time, the pharma industry, with the strong support from the central and state governments, have been working to ensure continued supply of life-saving medicines. While the uncertainties and challenges related to the pandemic are evolving, we stay committed to service demand across our markets, monitoring critical filing, continued portfolio expansion along with the resilience in our manufacturing, supply chain and distribution. Our business and cost revaluation initiatives, supply consistency and rigor on the operational excellence have helped us drive the healthy performance for the quarter and the full year. Our profitability improvement journey has sustained across all the quarters during the year. And you may have noticed that in the quarter 4 also, it saw 240 basis point year-on-year expansion in the EBITDA margins. And this despite the fact that quarter 4 is a seasonally weak quarter, and COVID cases continued to decline sequentially for most part of the quarter. We have also moved our historical trend line of 16% to 19% of EBITDA to over 22% this year, and I believe this is quite structural, sustained and will improve from here on. Our free cash flow generation and operating efficiency helped us become a net cash company. And we improved our pretax return on invested capital metric by over 750 basis points. We are noticing strong tailwinds across our India portfolio, which is likely to play out in quarter 1 and onwards. This includes a surge in demand for COVID drug, including Remdesivir and expected pickup in the antibody cocktail, among others, once we launch. We are also noticing strong demand triggers for our core respiratory products, including budesonide, which is now a part of the ICMR protocol. This is quite a distinct trend as compared to what we saw in fiscal '21 and should help drive core portfolio growth in FY '22. For the quarter, overall income from operations stands at INR 4,606 crores and recorded a year-on-year growth of 5%, driven by focused execution that I referred earlier. Full year revenue growth is 12%. For the quarter, our One-India business, which includes prescription, trade generics and consumer health portfolios performed in line with our expectations. Our U.S. generic co-formulation sales are at $138 million. Gross margin after material costs stood at about 60%. This is an approximately 200 basis point impact due to charge of the material costs that's potentially some of the inventories of products, which we built during this COVID period but couldn't liquidate. It also includes certain overhead charge-off and the onetime shelf stock adjustment for Albuterol. Total expenses, which include employee costs and other expenses stood at INR 1,988 crores, increased by 2% on a sequential basis. Employment cost for the quarter stood at INR 815 crores, and it declined by 4% over the sequential quarter. Other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion are at INR 1,173 crores, increased by 7% sequentially. Total R&D investment is about INR 277 crores. As a percentage of revenue, the spends will moderate in line with the expected surge in revenue, but absolute trajectory of the spends and the filing, it remains intact with assets progressing in the priors and other portfolio development efforts continuing. Reported EBITDA was at INR 796 crores or 17.3% of sales. Tax charge for the quarter is INR 128 crores, and the ETR is lower at 24% or so. The full year ETR was 27%. Profit after tax is at INR 413 crores or 9% of sales. As of 31st March 2021, our long-term debt stands at USD 138 million towards the InvaGen acquisition. And ZAR 720 billion for the operational requirements at Medpro in South Africa. We also have working capital loans of $49 million and ZAR 75 million, which act as natural hedges towards our receivables. Driven by relentless focus on the cash generation and rigor on cost discipline during the quarter and the year, we continue to be a net cash positive company as of March end. Outstanding derivatives are the hedge for receivables as of March 21 are $179 million and ZAR 684 million, apart from additional loans in Australian dollar and global, I mean, GBP. We have also hedged a certain portion of our forecasted export revenues. And outstanding cash flow hedges as of 31st March are USD 252 million and ZAR 654 million. To close, we saw strong execution across our key priorities in FY '21, and that included continued growth across our markets, structural expansion in our EBITDA trajectory by over 350 basis points to over 22% and expansion in our pretax return on invested capital by more than 750 basis points. I would now like to request Umang to present the business and operational performance. Thank you.
Thank you, Kedar. Can you confirm, Kedar, if you can hear me well?
Yes. Yes, Umang.
Okay. Very good. Thank you. So firstly, I would like to wish all of you and your families to continue to stay safe and well. At Cipla, we continue to support the nation in its fight against the pandemic with a portfolio of COVID products. We salute the grit and sacrifice of our health care heroes as well as our employees who have been tirelessly working to ensure continuity of service to our patients. Our topmost priority is in supporting the government's efforts on increasing availability of the COVID and other life-saving products through strategic inventory buildup and ensuring continuity of operations at our plant. We have enhanced safety protocols across our network to ensure safe operating environment for our colleagues , including a 24/7 ambulance, consultations and quarantine facilities. Our teams have been working relentlessly to ensure supply continuity with Remdesivir monthly supply now approaching almost 5x what we have done during the previous peak of the pandemic. We have also expanded our COVID portfolio with novel formulations and partnership with MSD for Molnupiravir, Roche for the antibody cocktail and Eli Lilly for Baricitinib. We are proud to bring these products to the country and are working on the logistics to ensure availability in the coming weeks and months. With that, let me come to the strategic updates and the operational performance. I'm pleased to see the sustained expansion in our EBITDA margins through this year, including in quarter 4, now trending at over 22%, and I believe this trajectory will improve and grow henceforth. In India, One-India strategy continues to keep seamless execution with One-India business growing 15% for the year and 4% for the quarter. This is, I think, the seventh or eighth time that we are beating market growth, 7 to 8 quarter we're beating market growth. The prescription business grew 14% for the full year. As per IQVIA MAT March '21, we continue to deliver market-beating growth in our respiratory where we grew 4% versus the market decline of 8%; urology, where we grew 7% versus the market at 4%; Derma at 8% versus the market at 6%. Cipla consistently ranked #2 with the market share of 8.1% in chronic therapies and grew by 12% versus market growth of 8% from MAT March '21.We are observing a strong demand across the COVID portfolio, which will reflect in our Q1 numbers. We expect these products, which are used to supply -- which are used for the COVID effort to also see strong traction in the coming months. Apart from the COVID portfolio, we're also noticing strong volume trends across our acute and respiratory portfolio, including Budesonide. Our teams are working to ensure serviceability across these categories. Our Trade Generics business continued to do well with a full year growth of 18%, adjusted for transfers to the consumer business. We're seeing demand tailwinds emerging in this part of the business as well. Our Consumer Health business has now scaled up to over INR 360 crores in revenue, led by growth in the organic anchor brands as well as the continued traction in the transferred consumer brands. In line with the One-India strategy, Cipladine brand was transferred to CHL from the Trade Generics business during the quarter. This makes the total number of brands transferred in the last year to 3 and 6 till date. Our participation in the industry's digital initiatives with the investment in ABCD Technologies and subsequently by ABCD in Pharmarack will also add to the digital channel transformation in India. In the U.S. Generics & lung leadership space, the U.S. Generic co-formulation sales for the quarter was USD 138 million and factors the onetime shelf stock adjustment for Albuterol based on the competitor entry. Our full year revenue stands at USD 551 million. Reflecting on FY '21, I'm pleased to see the unlocking of our respiratory portfolio with launch and ramp-up of Albuterol, which is ranked #1 with a TRx market share of 87% of the Proventil market, 16.5% of the generics market and 13.2% for the overall market as per IQVIA week ending 23 April '21. Our focus continues on our complex launch engine, along with driving growth in the institutional channel. I'm pleased to report that for the full year, the overall profitability of the U.S. Generics business is very close to company-level profitability. Our Advair file is under active review with the FDA. We are working on responding to the queries and will continue to share updates. In line with our strategy for the U.S. markets, the nonrespiratory portfolio during the year also includes 2 filed partnered peptide injectables, one of which is an NDA application. Coming to our South African Global Access business, which includes South Africa, Sub-Saharan Africa and our Cipla Global Access. The South African private business reported a strong 13% growth over last year for the quarter in local currency. We continue to maintain a third position in the market share of 7% in the OTC segment as well as in the overall market as per IQVIA MAT March 21. In markets outside South Africa, the Sub-Saharan business grew by 10% in dollar terms, and the decline in the CGA business performance was in line with expectations with higher orders of service in the last quarter. In emerging markets, happy to see the business scaling up to USD 250 million, growing almost 21% during this year and 4% for the quarter, driven by healthy demand across all regions. During the quarter, we also expanded our partnership with -- for 4 biosimilars in a strategic market of Australia across immunology, osteoporosis, oncology and ophthalmology. The European business grew 17% on a full year basis and 7% for the quarter, driven by strong in-market performance in key DTMs and market share expansion in our flagship respiratory portfolio. Turning now to our outlook. We have established a new threshold for our operating profitability in FY '21 with margins trending over 22% now. Our focus and efforts will be to continue to sustain within the coming period. On the business side, we see commercial tailwinds across our business, which we believe are significantly higher than some of the grids in certain parts. We continue to stay energized with these opportunities and are working to ensure we will be able to service patient demand across our markets. Our long-term priorities remain intact, including leveraging the emerging opportunities across our markets and maintaining market-leading growth in branded and unbranded generic franchises of India, South Africa and also maintain a consumer values franchise in both these markets; ramping up the COVID portfolio supply to increase availability and maximize patient reach; continued high vigilant cost and cash management amidst the uncertain trajectory of the pandemic; expanding lung leadership globally and by maximizing the value opportunity in the U.S. complex generic space; focus on regulatory compliance across manufacturing locations and embracing best-in-class growing benchmark ESG practices; accelerating our digital transformation to capitalize opportunities and growth opportunities across markets; and also building a sustainable talent pipeline for the company's future plans and over the next 3 to 5 years. I would like to thank you for your attention and will request the moderator to open the session for Q&A.
[Operator Instructions] The first question is from the line of Saion Mukherjee from Nomura.
Yes. And compliments to team Cipla for efforts during the pandemic. My first question is around the India business. Kedar, I mean, if you can break it up, please, for FY '21 between the key COVID-related product, how much they contributed, Trade Generics, the normal prescription business and the consumer business, that would be helpful. And the second question on India is, you mentioned about 5x increase in Remdesivir supplies from last year peak. What's the outlook on supplies for antibody cocktail and tocilizumab for this year? And how does that compare to last year, please?
Yes. Saion, I'll take your first question with respect to the split. See, the total COVID medicine sales for the full year at a company level is around 4% or so. It still lays on 5% on a full year basis. In quarter 3, it's less than 3% or so. So I think you should work with some of those numbers. The split of prescription, generics and CHL, we don't want to go into too much details, but generics continues to be less than 20% of the overall One-India revenue that we have declared. The total One-India is around INR 7,700 crores. And the Trade Generics is less than 20% of that. But it gets a little tricky because, as you know, we have been -- we have launched an active program to transition consumer brands to the CHL business. So I think the best would be to look at the whole thing in totality going forward because the base would be different, Saion. But you can roughly work with those numbers. Overall, COVID medicines for the full year is between 4% to 5% at company level, split largely into India, but some into [ EM ] and South Africa and other geographies as well. And the split of Trade Generics is less than 20% of total One-India.
Yes. And on the supplies of antibody cocktail and tocilizumab?
So actually, the cocktail deal has been signed. As you know, we have announced it. We feel quite good about it. I think the reports are pretty strong. And it's a great weapon in the fight against COVID. All these detailed, Saion, we'll be more comfortable to announce once the actual launch happens. The launch, by the way, is not far away from today. But I think with respect to capacity, number of orders, pricing, all that we'll be comfortable to share once the launch happens.
Okay. And my second question would be around the U.S. market. You had ramped up Albuterol. So how should we think about fiscal '22 now, both with respect to Albuterol and new launches, if you can provide some color or growth prospects for fiscal '22, please?
Okay, sure. Umang, may I request you to take this question?
Yes. So I think, Saion, where we are in terms of Albuterol, we still see some expansion in the market going forward. And I think we adjusted quarter 4 as -- in response to competitive entity -- competitive entity -- entry into that segment. I think in terms of launches, we have a reasonable launch year in this year. I think some of those will start coming out in -- starting with quarter 1. And I think the big year for launches, obviously, for us will be the next year. But we will have a reasonable year of launches in this year, which will allow us to sustain and grow the trajectory in the U.S. as well. We aren't providing sector guidance, Saion. So there will be growth in the U.S., and there will be a reasonable number of launches.
The next question is from the line of Prakash from Axis Capital.
A question on the gross margin. I missed your comments. You spoke about shelf stock adjustment due to -- in Albuterol with the new player coming in. Was that correct listening? Or do you want to repeat that for the benefit of the doubt, please?
Yes. Prakash, there are 2, 3 reasons. And I mean this keeps happening based upon the quarter-on-quarter stocking of inventories. But some of the products that we have built during this period, which we couldn't liquidate, and the charge of our inventory over it, that happens when the stock goes down. You would have noticed a significant drop in this quarter in the inventory holding and that was with respect to the plant shutdown. The overhead charge-off, that's a onetime thing which hit in this quarter. And there is a third shared shelf-stock adjustment for Albuterol as well. So all these 3 contributed, the total quantum is across 200 basis points, Prakash.
Okay. Because Y-o-Y and both Q-on-Q, you have improved on the U.S. with higher profitability business. So I would have assumed that the gross margin would have improved.
Correct. So if you adjust, I think there's 2, 3 reasons, there is an improvement in the margins.
And you mentioned generic -- and one more generic entry in Albuterol, is that correct?
This is Sandoz, right?
No, no, but that's just replacement from one distributor to other, right?
Yes, that's the same. That's the same.
So is it fair to understand that they have seen some correction in the market in terms of prices and hence you have to take the readjustment. Is that understanding correct?
Yes. That was expected. I mean every single additional player, while the adjustment was not very disrupting, given the fact that we enjoy a very high share within the Proventil market. The magnitude is not very high, by the way. But after the entry player, I think minimal pricing investment is expected.
Okay. Perfect. And second one on your market share today and where we expect to reach by end of this year for your products?
Yes. So within generics, the TRx share is about 16.5. If we take the total market, which is brand plus AG plus Gx, it's about 13.2. Within the generic Proventil, it's obviously, as you know, we own the whole franchise. So that's about 87%. And as Umang explained, there is a headroom for us to grow on the shares during the next year.
Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein.
My first question is on U.S. specialty. So Avenue Therapeutics, we understand, did not get an approval for IV tramadol before April 30. So if you can explain to us what does it mean? Is Cipla still likely to go ahead with the transaction? Will you be renegotiating? Any color on that would be helpful.
So Nithya, the approval is awaited. So I think the transaction -- the obligation -- Cipla is still invested in Avenue, and Cipla has an option to close the tramadol -- to close the transaction deal on tramadol up to a certain point in the future, which I believe is 6 months from now. And I think a lot of what happens will depend on the -- on what we hear from the FDA going forward. So I would think that the obligation for Cipla to close, we believe, has expired on 30th of April. But I think the right to close still exist until we -- for some time about 6 months or 7 months later until -- and obviously, what is more dependent -- that depends more on what we hear from the FDA.
Do you have the option to renegotiate if the label changes are not as expected?
No, I don't believe -- there's nothing in the agreement that allows either party to renegotiate. So I think as long as the agreement is not mandating any of the parties to renegotiate, I don't think there is a -- that there is an absolute necessary to -- necessity to renegotiate.
Got it. My second question is on India sales and marketing spend. I think in one of the earlier calls, Kedar, you had mentioned that you would be expecting INR 400 crores to INR 500 crores savings, and you can update us on which of that, what part of it you potentially see being sustained into FY '22 as well? If you can throw some color on have they normalized already? Is Q4 a normal quarter in terms of your spend? And what do you -- how do you see that shaping up in FY '22?
Yes. Nithya, this is an evolving matter for us. So for FY '21, I think we exceeded what we thought the saving target we could have with our operating plan. And we are pretty energized. I mean we also said it in the last call that we are pretty energized and excited with respect to the levers that we have been able to unleash during this period through multiple ways. One is obviously virtual mode of engaging with channel partners, customers and health care practitioners. Secondly, in production of digital ways to run our own business. And thirdly, relooking at what is actually discretionary business and what discretionary spend and what is the cost of doing business? So I think our discovery of how efficient our model can be for our domestic business has unleashed a lot of potential. Our attempt is to preserve it in the next year. And the expectation is not at all to plow back all the costs that we saved in fiscal '21. And that's the comment that I made that vis-a-vis our historical trajectory of EBITDA, which was 16% to 19% or so. We have been able to go to 22% -- beyond 22% actually, 22.5% or something. And the idea is to retain that, to keep it sustained, and the structural levers have been unlocked. And a large part of this improvement, especially on the cost side and sales and distribution side has got to do with the India business, the way it works and engages.
Can I assume Q4 was a fairly normal quarter for you in terms of what you would have normally spent on the ground with doctors, sales marketing, et cetera?
Yes. I mean, to a great extent. But as you know, the -- I mean the team starts getting ready in the quarter 4 to deliver on quarter 1 to some extent. And while that's true, the activity is lower as well. So I think more or less, I think you could model that way. But obviously, the sales base of next year is higher. So the investment and the activities, which are required will be different as well. So I will just caveat your statement with respect to this change in the sales space.
Understood. If I may just squeeze in one more on Advair. Umang, you had mentioned that you're working on a query, any visible -- can you tell us a bit more about have they asked you to generate additional data? Is this a major CRL, minor CRL? What could be the revenue cycle just to give us a bit more sense of when we might see this product in the market?
Yes. I don't think we have to generate any further pharmacodynamic clinical data. I think clinical data from what we've submitted, doesn't have too many questions. And generate data, the FDA always ask for additional information. But for us, it is all the information related to the nonclinical portion of the product. So we are in the process of replying and I think we should be replying shortly to it. And then that would start their inspection review of the product as well.
So this is usually a 6- to 8-month revenue time frame once you have submitted your response?
Well, I would hope so. But I think on this product, Nithya, we had already said that from the time we filed, which was May of the year before this, we said that the earliest that we can expect anything is going to be a period over 2 years, right? So I think from the time we file, I don't think you could make the calculation, 2, 2.5-year period is pretty normal for a product like this.
The next question is from the line of Neeraj Khaitan from VT Capital.
Yes. For the quarter, year-on-year growth has been 4% for India. Can you tell us the ex COVID growth for the year, for the quarter?
See, there are a lot of moving parts, Khaitan. I explained to you the contribution of COVID business on a full year basis. Maybe you should model based on that. But all the -- I mean the businesses continue to be strong, and you would have seen the market data for April as well. So I think you should model based on what we have said.
The next question is from the line of Surya Patra from PhillipCapital. As there's no response from the current participant, we take the next question from the line of Neha Manpuria from JPMorgan.
Just want some clarification on the EBITDA margin trajectory that you talked about. While several times, you said that there will -- the margins will improve from the 22%, you've also mentioned that the efforts would be to sustain at this level. Given that the India cost will normalize to some extent next year, what are the additional drivers for the margin versus FY '21 level?
Yes. Umang, your take?
Sorry, Umang, are you answering them?
Yes. So Neha, I think if we -- I mean whatever investment you have to make for the India market, I think we do hope -- am I audible?
Yes, Kedar. You are.
Yes, sir, you are audible.
Okay. No, so Neha, to answer your question, the investments for India business will be highly productive. So we are not worried about that. Even if there is an escalation which happens, as I said, we will link it to the activity, and we'll link it to the sales base of fiscal '22. So any incremental marginal plough back that we have to do from the savings that we did in fiscal '21, we are not worried about that. But I think there's several levers available, and the pricing is one, mix is another. And the portfolio, the launch momentum as well. So I think between these 3, 4 across businesses, I think, we have a plan Neha, which suggests us that the sustainable trajectory of the EBITDA is the range in which we are reporting now.
Okay. Sir, just to understand what you're trying to say is that while it might fluctuate, this is the 22% to whatever percent is the range you would like to mitigate in the medium term?
That's true. That's true.
Okay. And on the gross margin, look, historically, it was 63% to 65% sort of gross margin number. Even if I were to adjust the 200 basis points, we are in that lower end of the number. To get to the high end, does it need a lot of the U.S. launches to come through and, therefore, it's more FY '23, FY '24? Is that the way to look at gross margin?
I think so. And another reason is a large part of our Trade Generics business, to some extent, our prescription business, I think the items are bought out. So the loan licensing operation, we have the trade -- the [ TP ] operations that we have is where we buy the product. So I think I certainly agree gross margin is more precious track, but EBITDA is more representative when you have the businesses, which we don't have organic source of the material, but we buy from outside because the material cost subsumes overheads of our vendors. So I think EBITDA is a little more representative. So I think mix of a particular quarter and typically, quarter 4, Neha, you have seen the trend over the years. That by virtue of change in mix and the gross margin, we had subdued to some extent. So it's more a blip issue in a particular quarter rather than any weakness per se.
The next question is from the line of Nimish Mehta from Research Delta Advisors.
First on -- can you offer some clarification regarding the shelf stock adjustment that you've taken in Albuterol. I mean, are these lost sales or you think you'll be able to recover it?
No, I think the shelf stock adjustment is typically given, Nimish, when you match the price. Let's say, after every entry of additional player, there is a price adjustment that happens that you match and for the quantities which are being held by the customer, you offer this discount. It's not very material, by the way. If you normalize for this, I think we are in line with the sequential revenues for the U.S. generics business. But this is a regular happening within the U.S. generics market, Nimish.
Correct. No, but you mentioned that there has been a -- 200 basis point impact, I guess that could be a margin, which is where it becomes a little more...
No, I think 200 basis point impact on the margin is primarily because of certain inventory write-offs and the overhead charge-off that I refer to. This is -- the shelf-stock adjustment is not the major reason. And, as I said, I think there is a headroom from the market sales standpoint. I think for Albuterol, there's a strong headroom that we have in fiscal '22.
Okay. Other question is regarding again the U.S. generics pipeline. A couple of products that you see are important for Cipla and that can be launched, if you can give some color? One is lanthanum carbonate, and second is the Paclitaxel protein-bound.
Paclitaxel. Is it Nanopaclitaxel, Nimish?
Yes, yes, yes.
So I think we don't offer product specifics, but one of these is probably slated for launch in this -- in the next few months. And the other one will probably launch sometime to the later half of next year.
Around next year. Okay. And both of them are important opportunity, right? I mean, is that a fair understanding?
Yes. I mean, as launches -- if you're asking me whether these could be meaningful launches, I think one is obviously bigger, much bigger than the other. Yes, you could say, these are not meaningful launches.
The next question is from the line of [ Saurabh Bhutra from IIFL. ]We take the next question from the line of Sameer Baisiwala from Morgan Stanley.
Umang, you mentioned that fiscal '23 for U.S. will be a big year for new launches. Can you expand on that?
Sameer, yes, I think we have got -- I think between -- we're hoping that between Advair -- between the product which is settled, between a product that the earlier person on the call asked for, I think, we have quite a few and possibly a best guide. I think there's quite a few products that are lined up for FY '23 for launch in the U.S., which are, I would say, meaningfully big. Now obviously, they depend -- they're complex in nature and they depend on the time line. But I think this will be -- we see FY '23 as a fairly significant year for the U.S. generics business.
And for this Umang, other than these 3, is there something else on your mind?
Yes, there are a few others as well in FY '23.
Okay. Great. And secondly, it's on peptide products. I probably missed your comment, did you say, you're partnered for 5 products and the presentation says, of which, you have filed for 2 including 1 NDA? Is that correct?
Yes. A lot of the peptides we are doing, we have partners because it's a fairly complicated API science as well as most of these are issues with devices and things like that. So we have partnered. And of that, I think we filed 2, and filing this will increase as we go forward.
Okay. And what do you think would be the approval cycle here? I mean, is it like 3 years plus going forward?
Well, some have IP, Sameer. So obviously, there would -- we'll have to follow that. But generally, for those which IP is not there, I would expect, I mean, the same 24 months would be a reasonable expectation.
Okay. Great. And one more, if I can. On EBITDA margin, I was a little confused because I think in Q1, Q2, Q3, I think all the 3 quarters you were doing more like 23%, 24%. I know 22% looks good on a full year. But in Q4, certainly, it's come down to 17%. And Kedar, I think, you explained for 200 basis points. What about the rest? And why such a sharp dip? And how should we think about it going forward?
Yes. Sameer, I think, in quarter 4, historically, the trend is that we sequentially typically go down from quarter 1, quarter 3. Because typically quarter 2 and 3 are respi seasons for us in India. And sort of that changes in quarter 4. It is basically the mix of domestic in the overall company, which is probably the only reason, which causes this change because fundamentally and structurally, business by business, nothing changes. It's more the mix at the company level rather than anything else.
Okay. And Umang, just your thoughts on vaccines. I know you're doing so much on the COVID on the therapeutic side, and thanks for that. It's a wonderful job. But on vaccine side, Cipla has not done much. Are there any big entry barriers to this business in terms of manufacturing, et cetera? How are you thinking about it?
So I think there are -- let me put it this way. I think people have made a business out of vaccines, and some of those companies are as big as Cipla, and they have large manufacturing footprints like Cipla does, right? They've been there for years in the vaccine business. And so I think for somebody like us to overnight compete with any of them is very difficult. I don't think we would -- and it's certainly not prudent for us to do that. Having said that, I think what is the easier part of vaccine is more the fill finish. The drug substance part of it is a science, which is different than what we know. So I don't think we have any immediate plans of developing our own vaccine. I don't think we're going to do that. But we -- as I've mentioned earlier, we are always open to partnerships that we can have if people are interested to partner with us.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
I have 2 questions. One pertains to the increasing cost of raw materials that have been in the news for quite some time. Do you expect -- I mean, how well is Cipla protected against this? And do you see increase in realizations happening relating to COVID products?
So Charulata, we have been vexed with this procurement escalation -- procurement cost escalation, in fact, throughout the last year. But fortunately, it is happening in select products. It's not that the whole portfolio is going up and getting escalated in terms of costs. I think selected products, where either there is an issue with respect to closure of a particular plant or something else happening in China. That's what we have experienced. And on the whole, while we have seen an escalation, we have been able to handle it well from an EBITDA standpoint. So that's how I would answer. Our big priority actually is to secure the quantity of materials that we need, and we have been able to manage both the quantity and the cost of procurement. With your second question, actually, the COVID product cannot have a price increase. I mean, as you know, all of us, all the 7 manufacturers Remdesivir took a price decrease in line with the affordability and access goals in India. So that's the reality. And we are happy to work with the Indian government on those angles.
Okay. And another question relating to South Africa. This quarter, we have seen a slightly lower growth in South Africa compared to the other quarters. So do we think that there's a new base?
No, it's not a new base. I think we grew by 10% in rands in this quarter, which is significant. I think our outperformance in South Africa across each quarter for the full year and for the last more than 3 to 4 years is phenomenal. And within that, you can see from our presentation, the private market actually has grown 13%. So I think when generally, the South African overall pharma market is either declining or growing in low single digits, I think this performance is incredible, and that goes to our leadership on the ground there. So I wouldn't say that quarter 4 growth is muted or anything like that. I think the outperformance vis-a-vis the overall market continues.
The next question is from the line of Krishnendu Saha from Quantum Mutual Fund.
Most of them have been answered. But just want to ask which Umang alluded to on '23 launch and on support. Are they partnered drugs or they're just solo on that?
Sorry, is your question on the FY '23 [indiscernible] products? Or is it on...
No, no, no. The launches, which -- Nanopaclitaxel and Lanthanum?
[indiscernible]
Okay. And just on the margin front. So we -- this quarter, we are having a percentage increase. I think so we are going to ramp up the R&D expenditure going ahead because we have a couple of filings to be done with partners. So how do you still maintain that EBITDA margin of 22% in spite of that going up to 6%, 7%.
Yes. We would do that Krishnendu because, I think, at the increasing revenue scale anywhere 6% to 7%, I think, is enough considering the pipeline that we have and the programs that we are running. So I don't think that should prevent us from growing our EBITDA. I think there is good improvement, good headroom to improve EBITDA percentage, and we are committed to that.
Okay. Because for full year, it's coming around roughly 4.8% for the full year for this year. So next year, it will probably inch up on that.
The next question is from the line of Surya Patra from PhillipCapital.
Kedar, just one more thing. If you can tell what is the kind of digital initiatives that we have taken that is known. So what is the kind of saving that one can anticipate on the cost front, let's say, if you consider FY '20 is a kind of a base here, from that to FY '22, what is the kind of sustainable saving that one can anticipate on this front because of the digital growth you expected?
Yes. So Surya, I think these initiatives span our each area of operations throughout the company. So I think starting from sales and distribution and commercial within India and across the globe, then going to manufacturing and quality, then supply chain and all the other corporate functions as well. I think each function and business unit, we have been able to identify a very specific set of lever, Surya, which means that I think we digitize our operations. We convert the activity to a virtual mode, and we identify efficiency to unlock the time and the cost to run each activity. So either you eliminate the activity, if it is not value-adding or you digitize or make it virtual. And I think we are encouraged with this work that we have been doing throughout the company. I won't be able to tell you the quantum, it gets subjective at times. Because sometimes you eliminate nonvalue-adding activities, sometimes you stop discretionary activities and sometimes you run the activities, but in a different mode. But all throughout, I think, we are energized, that much I can tell you. And we don't want to have them as a flash in the pan for fiscal '21. As I said, our attempt would be to preserve this going forward. And it's -- I can tell you, it's one of the most active work streams of the company.
Okay. Okay. So anyway, you have not quantified, but that's fine. So now second question is on the kind of COVID portfolio and itself kind of a contribution -- profitable contribution going ahead. See how sustainable is the opportunity. It looks like, although there are talks and things are moving every day. It's not very clear about -- on many aspects about COVID. But how sustainable the opportunity could be on the so far as contribution from this portfolio is considered? And is it relatively more better profitable segment compared to the current blended margin of the company.
See, I just said that the total COVID sales in fiscal '21 are around 4% or so at a company level, primarily to India, but into other geographies as well. And that we -- I mean, from our vantage point, the way we are looking at the second wave, how lockdowns are evolving in each states, tough to say how much contribution will sustain, but we see this a longer-term business. And as a responsible pharmaceutical company, we are deeply committed to it. And the reason we are doing these deals with Roche on the COVID antibody cocktail and the baricitinib and products like that, I think it comes from this vision about caring for life. So it's not going to go away in months or so, if that was the question, but it will be tough for us to tell you precisely. But as I said, at a company level in revenues and profits, not that this is a huge contributor. But whatever it is, it will sustain to a great extent. In the near term and over time, obviously, it will taper down as the cases go down. And all of us want that to happen.
Okay. Just last one, one question. Umang sir, If you can just share your thoughts on the Cipla Biotech, what you have created for U.S., what is your thought process on that?
So I can take back, Surya. This is -- we announced in the last quarter, this is a scheme of demerger, which the intention of that is to have a sharper allocation of assets. So I think all the assets in India, which service the U.S. business will get housed in this subsidiary. It is not yet fully done because it needs to pass through several regulatory approval. So I think it's been taken with all the regulators. And whenever it gets completed, we will speak to you. But as you would recollect, last time we had spoken, there are 2 streams to this demerger. One is the U.S. business and secondly, the consumer brands, which are currently housed in the generics. So I think both these are being taken to various regulators for their approval. And as of now, there is no specific corporate action subsequent to that, which we have on the table, but this is just an appropriate reorganization of the assets at the corporate level.
The next question is from the line of Nithya Balasubramanian from Bernstein.
A quick one on, if you can throw a bit more visibility into the respiratory generic pipeline, the one, partnered asset? And the two, you mentioned are in clinical trial stage?
So the partnered asset, Nithya, I think that the partner is now in the process where it's, as we mentioned last time, where we were there in dialogue with the FDA and submitting the data that's required. So that's on the partnered respiratory asset. On the -- from the rest of the pipeline, we are likely to be in clinicals in 2 products in this year. So I think beyond that, the rest of the work for India, emerging markets and Europe continues.
Just a quick follow-up. So the partnered asset, do you have visibility on when you might be able to launch the product? And are the clinical trials already underway? And when do you expect to complete those and submit an ANDA?
I think the clinical trials are done. And I think the partner is probably in the process, if it is not already responding with their filings with the FDA. And clinical time line, I guess, is from here might take another -- maybe another 12 to 18 months for the partner, if the product is approved.
I'm sorry, Umang. It's a little confusing. So the partnered product is -- the partner is conducting clinical trials on the partnered product, and it's going to be another 12 to 18 months before they wrap it up, right?
No, no, no. The partner has completed, and the partner is now in the process of filing this with the FDA and post filing, it will probably take at least 12 to 18 months from an FDA...
For the revenue cycle. Understood. And on the 2 products, which is Cipla's own, where you're running clinical trials, what is your best visibility on when you're likely to file?
So Nithya, we won't share that detail but you could expect filings next year towards mid of next year would be my guess. Mid-'22.
The next question is from the line of Arpit Kapoor from IDFC Mutual Fund.
This is regarding the U.S. business. So if I look at the numbers, we did close to $135 million in first quarter, and we are exiting the financial year this quarter at $138 million. And we saw a gradual ramp-up of Albuterol in all the 4 quarters. And the numbers for the second and the third quarter were also in the range of $140-odd million. So has the base business eroded so much that we don't see any delta of Albuterol sales in the overall U.S. sales number? Or am I missing anything else?
No, I don't think there's erosion in the base business more than what we signaled. The U.S. business responds to launches. The price erosion is there as a regular feature in the U.S. business. As your launch trajectory starts to increase, your launches offset a significant portion of price erosion and allow you to grow. So in our case, I think as the launches are coming in, you will see the traction in the U.S. business. We were at about 115 to 120 trajectory before we launched Albuterol. We are now at our current trajectory post Albuterol. So I think it's -- that's how it is in the U.S. So we will see trajectory ramping up as our launch is coming.
Yes, I understand. But I guess even Albuterol market shares have ramped up over the last 4 quarters, yet our U.S. sales have been pretty sticky around $140-odd million mark. So -- and you would have had a couple of other launches as well. So has the base erosion been -- has the base business eroded so much that we don't see any impact of...
Not by a significant amount, which is nothing more than what we look at as a normal erosion, if that's your question. So no. So in a quarter where we may have not had any significant launch, we may see a $2 million, $3 million impact on overall numbers, and that -- so that doesn't mean that there is erosion. It just means that launches have not come in to supplement the business. I don't think we're seeing any major erosion anywhere.
Okay. Because -- okay. Okay. Because probably, I'm still not able to understand why at least on a sequential basis, our business every quarter should have improved, whereas we have just remained flat for almost all the 4 quarters. Okay. And so the current base of $138 million should be the base that we should take, and most of the pricing adjustment that Albuterol at least for the new generic we have taken it, and that should be the base going forward for the next year.
Correct.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments. Over to you.
Thank you, everyone, for joining us on the call today. In case you have any follow-on questions, you can reach out to the Investor Relations team at Cipla. Thank you so much. Have a good night, and stay safe. Thank you.
Thank you. On behalf of Kotak Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.