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Lupin Ltd
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Hello. Good evening, and welcome to Lupin Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to the management. Thank you, and over to you.
Thank you. Good afternoon, folks. I'm very pleased to welcome you to our Q1 fiscal year '24 earnings call. I have with me our MD, Nilesh; as well as our CFO, Ramesh. We look forward to sharing our Q1 highlights and outlook for the fiscal year.
We are really pleased to start the new fiscal year strong with continued momentum across our major regions, improving compliance position, multiple new product approvals and improvement in operating margins. Our India business is firmly back to double-digit growth, and our U.S. business margin has continued to improve. We expect to see material improvement in the rest of this fiscal year as we launched Tiotropium and other new products in the U.S. as well as our sales force expansion in India starts yielding expected productivity from Q2 onwards.
Our India business recorded 11.5% growth quarter-over-quarter and 10.2% growth year-over-year, and this is after the NLEM impact as well as the Cidmus brand that we had in the base last year. Cardiology and respiratory therapeutic areas grew better than market; and diabetes, which has been a challenge for us for the last many quarters due to loss of exclusivity of key in-licensed brands is now back to growth as planned by our team.
As we look at Q2 and beyond, based on the momentum we have established and the enhanced productivity from the sales force expansion, we now feel confident of consistent above-market growth.
Switching to the U.S., our margins continue to improve for a fourth quarter in a row on the strength of a stable base business, continued performance of key in-line products like albuterol, lisinopril and Suprep; launch of darunavir where we had exclusivity on the 800-milligram strength in addition to revenue growth and better product mix and therefore, better gross margins. We will also continue to deliver on reducing SG&A as well as distribution cost.
With the approvals of products like Tiotropium, cyanocobalamin, Diazepam gel and other approvals now likely due to Pithampur Unit-2 warning letter clearance, we have a rich pipeline of products to drive revenue and margin growth in the U.S. for the rest of the fiscal year and beyond.
Apart from India and the U.S., all other regions performed well, too. In particular, our institutional tuberculosis business and API business did extremely well during the quarter. On the R&D front, our spend increased quarter-over-quarter, driven by patent litigation expenditure on key products ranibizumab clinical trial and long-acting risperidone completion. On the NCE front, we were very pleased to receive the milestone from AbbVie for our program advancing into the clinic.
Our pipeline is now positioned well to evolve our business into complex generics with inhalation MDI and DPI injectables from Nagpur and partnered products as well as complex ophthalmic products from Pithampur Unit 2. On the compliance front, we have made progress with positive outcomes on Pithampur Unit 2 warning letter that will enable us to launch important products like Prolensa where we are first to file as well as other ophthalmic products next year.
Out of the 5 sites we had under warning letter, we have now cleared 3 and continue to make progress on our remediation efforts in Tarapur and Mandideep. We are committed to ensure that we will get all our sites to a consistent and sustainable level of compliance. We are excited to start fiscal year '24 on a strong note and look forward to executing on our new product launches, continued momentum in India and operating margin improvement as we grow our business in the year.
We expect fiscal year '24 to be strong with quarter-after-quarter improvement in revenues and profitability. With this, I will hand it over to Ramesh for a deeper analysis of our performance.
Thank you, Vinita. Friends, welcome to a refreshing set of numbers. On the last occasion that we met, we did promise you that our results and margins would get to be better in successive quarters. We have endeavored to live up to that guidance.
On the sales front, sales for Q1 FY '24 came in at INR 4,742 crores as compared to INR 4,330 crores in Q4 FY '23, a growth of 9.5%. On a year-on-year basis, the company registered a growth of 31.6% for Q1 FY '23 sales of INR 3,604 crores. The sales of Q1 FY '24 includes $25 million income from AbbVie, key milestones of initiation of Phase I clinical trials.
Excluding the same, our sales was INR 4,537 crores which represents a growth of 4.8% quarter-on-quarter and 25.9% year-on-year. Our sales growth this quarter has been robust across all our geographies. The U.S. market registered a growth of 3.6% quarter-on-quarter and 49% year-on-year in LC terms -- in local currency terms. Whilst the India branded business registered a growth of 11.5% quarter-on-quarter and 10.2% year-on-year. The API business registered a growth of 4.5% year-on-year and 32.1% quarter-on-quarter.
U.S. business. During the quarter, the U.S. business registered a growth of 3.6% in USD terms on quarter-on-quarter basis as sales went up to $180 million from $174.5 million in the previous quarter. In Q1 FY '23, the sales were only $121.3 million. Products like darunavir, Suprep continue to -- in this robust performance. We are continuing to maximize the high-value products resulting in a sustainable and profitable U.S. business.
India region. India Branded Formulations business sales grew by 11.5% over quarter-on-quarter and against previous year, the sales improved by 10.2%. Our growth, excluding Cidmus and NLEM is a robust 13.6%. On the API front, API business sales grew by 4.5% on a quarter-on-quarter basis due to higher 7 ACCA sales as core cephalosporin API sales recovered handsomely during the quarter. Similarly, on a year-on-year basis, sales growth was 32.1% aided by higher sales, thanks to good demand pickup in cephalosporins API.
Gross margins. Q1 FY '24, gross margin was 65.4% and a 63.8% ex NCE income as compared to Q4 FY '23 gross margins of 59.6%, a variance of about 6.8%. The improvement in margins quarter-on-quarter is driven by U.S. as well as by India. In the U.S., we had NPL launches, better mix, higher price realizations in a few products and reduction in freight expenses. The margins also expanded due to higher better mix -- higher and better mix, both in India region and API, apart from other reasons. We do expect this margin to sustain.
We improved significantly from last quarter -- from last year quarter 1, where our gross margins was 55.3% to the current levels of 63.8%. The improvement in gain was driven by U.S. margins as Q1 margin last year in U.S. was an all-time low. Improvement in India API margins are also major contributors.
Employee benefit expense. Q1 FY '24 is INR 853 crores, which translates to 18.5% of adjusted sales, vis-a-vis INR 773 crores in Q4 FY '23, which translates to approximately 18%. The same was INR 779 crores or 24% of sales in Q1 FY '23. The quarter-on-quarter increase is mainly due to annual increments, which is the tune of 7.5% across the globe.
Manufacturing and other expenses. Q1 FY '24 manufacturing other expenses came in at INR 1,472 crores, vis-a-vis INR 1,303 crores in FY '23. These expenses were reported at INR 1,192 crores in Q1 FY '23.
The quarter-on-quarter increase is on account of higher spends in R&D, increased consultancy charges for nitrosamine-related impurities, increase in selling and promotional expenses in India due to sales force expansion. The same reasons were also responsible for the year-on-year increase.
R&D. R&D is INR 367 crores in Q1 FY '23 as compared to -- as compared to INR 1,280 crores in full year FY '23, which is 7.9% of sales. The increase in R&D quarter-on-quarter is on account of investment in newer platforms of biosimilars and injectables.
EBITDA. Our EBITDA came in at INR 879 crores in absolute terms, representing an 18.5% margin. Excluding onetime NCE income, ForEx and other income, our EBITDA margin was 14.4% or INR 651 crores, reflecting an improvement of 50 basis points in comparison to previous quarter. The improvement in EBITDA is primarily driven by higher gross margins, partially offset by higher expenditure in R&D, higher employee cost due to salary hikes and higher PLI income in the previous base quarter.
The effective tax rate was 18.9% in Q1 against an ETR of 36.9% for the whole of last year. The lower ETR is primarily on account of U.S. subsidiary, which has seen a turnaround offsetting the net operating losses of prior years, and the ETR is also lower on account of Sikkim tax benefits. The ETR for the full year is expected to remain between 21% to 22%.
On the balance sheet front, operating working capital was INR 5,195 as of 30 June '23, which translates to 103 working days -- operating base. This has reduced from 119 days as at the previous year-end.
Net debt as of 30th June stands at INR 1,310 crores, which has come down from INR 2,500 crores at the end of FY '23. We've done repayment of packing credit loans in India and also retired from debt in Australia. With this, we could open the floor for discussions.
[Operator Instructions] So the first question is from Damayanti Kerai.
Yes. My first question is, can you update us on your launch plan for Spiriva in the U.S. in terms of preparation and when you're going to launch it? And also your view on the market, specifically market shift which could have from Respimat to HandiHaler? So that's my first question.
Yes. So we are actively working towards the launch this quarter. We expect to launch it later this quarter. And well, time will tell if we can really switch share back from Respimat to Spiriva. I mean at this point, we believe that we will be the only generic in the marketplace. We haven't heard of an authorized generic launching. So we will look to really find a way to substitute as much as possible to our generic.
Okay. So second quarter launched towards the end. That's your target for this particular product?
That's right.
Okay. And ma'am, earlier, I think you mentioned the addressable market size for you is around $1 billion or like what is the addressable market you'll be working for this particular launch?
Yes, it's around that $1 billion size.
But that includes both the HandiHaler and Respimat, right? It's a total market, not only the HandiHaler part?
No. The Respimat was on top of that.
It's on top of that $1 billion market, which we were looking. Okay. My second question is your other expense trend. So Ramesh, obviously mentioned what has led to a quarter-on-quarter increase as well as year-on-year increase. But should we take the current quarter number as the base going ahead? Or we expect further increase in this number? And I'm asking specifically because you have been talking about cost-saving goals, et cetera. So where we can see benefit of cost saving on, say, other OpEx -- like other operating expense or some other line item?
Yes. So let me explain. We do expect, in fact, the gross margins to kind of sustain at the current level. So it is certainly going to be elevated. But you would also appreciate we have been talking about, in fact, a higher quantum of investments on the sales and promotion front, especially in India, and we've added about 1,300 people in Q3, Q4 of last year. So obviously, this will also be reflected in higher expenditure on account of that, which will then commensurate increase in terms of the sales itself.
This particular quarter, there has been increase in nitrosamine spends -- on account of nitrosamine quality assurance and the like on account of compliance. And of course, it is an R&D spend, which is on the higher side. We expect the R&D to kind of sustain at these levels. Of course, there has been a provisioning for nonproduct-related litigation. That's kind of one time.
So the parts of this, which will certainly continue into the future. But what we actually had guided for a successive increase on the EBITDA front and so that's what we would be concerned about, and you will certainly see this in 2, 3 and 4.
Okay. And my last question, since now you are more positive on growth outlook ahead and then profitability also. So do you inch up your margin guidance for FY '24? Earlier, you mentioned you'll be somewhere like mid-teen margins for FY '24 with exit rate of high teens?
Yes. So what we had said was perhaps in the fourth quarter, you could see an exit rate of over 18%. We're sticking to that, and we are confident of actually exceeding that.
So you can exceed 18% plus or say, high-teen margins towards the end of this fiscal?
Yes. For the whole year, yes.
Sorry, Ramesh.
Yes, not the whole year. End of the fiscal, 18% and above.
Sorry to interrupt, but 18% for the whole year or...
No, no. 18% in the fourth quarter and above the 15% mark above whatever that we guided for in the past for the full year.
So the next question is from Neha Manpuria.
My first question is just a follow-up on the R&D that we mentioned. So Ramesh, when you say we would likely to sustain it at this level, does it mean as a percentage of sales? This is what we should be factoring in? On an absolute level, this is what we would continue to spend? And a follow-up on that is on the biosimilar pipeline. I think, Vinita, you called out that we are trying to build out a biosimilar injectable pipeline. So if you could give us some update on when we can see monetization from this, both on the biosimilar and in the injectable front. When can this be a meaningful contributor?
On the first part of the question, let me clarify that what we expect to kind of sustain is an absolute amount as a percentage of sales, that potentially could come down because we expect the sales will certainly go up. Second part, Vinita could answer.
Yes. On the biosimilars pipeline, as you know, so far, we have commercialized Etanercept and we continue to work on launching Etanercept as we continue to work on Etanercept in new markets. That's on the on the plan -- on the cards for the next couple of quarters with partnership through Viatris, now Biocon. And we continue to work with the FDA to try to get clarity on our inspection outcome at our Pune site for pegfilgrastim. So we hope to be able to get clarity on that soon.
The R&D that I've spoken about was the clinical trial spend on ranibizumab that we had incremental spend this quarter versus the previous. And we continue to pursue ranibizumab, in particular for the U.S. as well as through partners into other markets as well. So that's on -- as far as the biosimilars go.
On the injectables front, we are actively adding to our pipeline right now with both a 505J as well as 505(b)(2) opportunities. With the Nagpur approval, FDA inspection and approval, we now expect to get multiple product approvals out of the site for the U.S. Certainly, at the -- later in this fiscal year, we hope to be able to get products like glucagon onto the market. In this last quarter, we launched Thiamine, which was out of our partnership with Caplin Point.
And so we have a combination of both internal products as well as partnered products that we expect to help build the injectables business starting this year, but more so also into the next fiscal year and beyond. And we have, within our pipeline, a large percentage of the products that we are pursuing now are injectables.
Yes, that's helpful. And just on Spiriva, what sort of ramp-up should we expect for Spiriva? Would it be -- given that we are the sole generic, you talked about there not being in AG, so would this be a much sharper uptake versus what we saw in albuterol, or should we assume a much more gradual uptake in the generic?
So when we looked at the analogs, when we look at the other DPI in particular, Advair, I mean, the substitution that we saw was a ramp-up over time, starting at 25%, 30% and then building up to the 40% plus level. So what we are planning for right now is a similar kind of substitution rate, hopefully enhanced with some of our efforts. We have active marketing efforts in terms of [ HBT ] awareness, pharmacy awareness on the generic, but still potentially going to be looking at a ramp-up over the next couple of quarters and certainly over the next 2 years.
And you think we get to a fair share by middle of next year, the 40% substitution that you're talking about?
We hope so.
[Operator Instructions]. So the next question is from Surya Patra.
Congrats for the good set of numbers, ma'am. My first question is on the authorized generic possibility in Spiriva. And I think in the previous quarter, you have been anticipating that [indiscernible] but so far, there is no development on that side. So is it fair to believe that there is no authorized generic even next year kind of time line?
It's hard to predict that, we would hope, but we can't really predict what the brand is going to do. Mean at this point, it looks like they're not planning to launch authorized generic imminently. And based on the substitution rate, maybe they will wait to see next year where we get from a substitution standpoint to determine whether they launch or not. But the positive for us is we had expected in authorized generic, and we don't expect it anymore. So our launch quantities, our supply chain planning has been geared towards a higher volume, obviously.
Okay. Okay. So do you find any rationale or why there is not authorized generic because -- so basically, the kind of sizable opportunity. So is it that there are no -- since we have not seen any filer for this. So hence, the scope of authorized generic is not coming that way. That is the way to think? Or how is it that?
I think it's just given that we are a sole generic on this and substitution is going to be over time. Perhaps, the brand is thinking that they can maximize the brand value while we ramp up our share. That's the way I think about it. Yes. I mean additional authorized generic will be additional competition from a pricing perspective.
Yes, yes, of course. My second thing is that on the register side, whether you have already seen the kind of a meaningful or a large portion of the anticipated benefit in the quarter or that is to be seen in the subsequent period?
No, we have seen a good amount of benefit in the quarter, in particular for the 800-milligram strength where we were exclusive. We had a load in into the quarter, but we'll continue to see it in the next quarter as well.
Sure. And just for, Ramesh sir, if you can just clarify what is this tax benefit from the Sikkim State that you are getting? And -- so whatever the tax rate guidance that you have given, that is only for the current financial year because of this Sikkim benefit and may not be there next year?
No, no. It will be sustained. Essentially, what we were saying is there's a higher quantum of sales coming from Sikkim and there's, of course, the benefit of a tax-free regime out there. The second benefit is essentially because we're now profit -- generating profits in America, and previously, that was not indeed the case. So the tax, and they still have NOLs of a large quantum. And the quantum of tax that you actually pay and profits would be to the extent of about -- about 80% is still exempt because the NOLs carry forward and you pay only on the balance. And to that extent, and of course, there is state taxes as well. So total absolute quantum of taxes paid across brand Lupin would potentially be low because of all of that, resulting in a lower ETR.
Okay. So when you're saying the profitability of U.S. has gone up, so that is excluding of this milestone payment or inclusive of?
Yes. Absolutely, excluding. I'm talking about operating -- based again on the portfolio that we have out there.
Okay. Just last one question, ma'am. See, in fact, sometime back in media communication, I think you indicated about even entering into the basic research kind of activity -- so discovery research and potential spending on that side. So any update on that. See, initially, there was a kind of thought process that we are [ hiving off ] our discovery research. Then in the interim, there was a kind of, say about potentially looking into that again. And so, hence -- at this juncture, what is the kind of final thought process there? And what is the kind of investment likely beyond the R&D spend what we are talking about?
Actually, we have curtailed our spend significantly on the NCE front, as I think we shared even last quarter. We had a discovery effort that we pretty much closed down, which was the bulk of the investment, and we decided to pursue the 3 pipeline programs to see if we can really get any signal in terms of efficacy on the programs. So in trials that we're doing in India at a fraction of what it will cost us in the U.S.
So right now, the effort is pretty low single digit in terms of millions of dollars and one program in the clinic in Phase I, and if we see positive results really, it will lead to licensing effort or an effort to finance it through external funding. We don't have plans to commercialize the NCEs ourselves or take on major risk on the NCE front ourselves.
Okay. Okay. Sure. Just last one bookkeeping number question. Sir, can you just clarify what are the consultant space that you have indicated quantum wise for the quarter?
We don't want to actually talk about quantum. Essentially, this is essentially relating to QA testing for nitrosamines and the like. There is a step-up on, in fact, what we spent in Q4, and that's what is recorded out here. I'm only saying that this is not going to sustain into the long term. It will perhaps peter off over time.
There is also, I think there is -- we're working towards remediation on the nitrosamine front and the industry has a goal of trying to get October this year, end of this year as much as possible. The FDA and the other regulatory authorities have set guidelines on the nitrosamine front that we are trying to meet. Therefore, the spend has ramped up right now, but it should come down in the second half of the year.
We'll take the next question from Mr. Krishnendu Saha.
We are already 6 months into the year practically and we guided for 18% exit. So what is the view on -- how do you see that 18% being sustainable over FY '25? That's question number one.
And Vinita, have we -- are we supposed to launch Spiriva the end of the quarter. So it's already August. Have you sized shipping some quantities out there?
Yes, we have. We already have production well underway and shipments as well, well underway. But to your first question on what gives us the confidence of 18% exit. I mean just based on where we are right now and the products that we plan to bring to market, Spiriva, in particular, will be a material one. Apart from that, we have cyanocobalamin, we have Diazepam, smaller products, but then later in the year, we also have products like Prolensa where, again, we have exclusivity.
And at the end of this fiscal year, we expect products like mirabegron where based on the litigation outcome, we think that there is an upside opportunity. So all of this put together in the current year, plus the leading into the next fiscal year gives us the confidence that we should be able to sustain the momentum on the margin.
I see. So we could sustain the FY '24 exit margins into '25.
And exceed that also going forward.
Disregard direction. And Vinita, when we're launching...
Sorry, we didn't catch that.
Can you hear me?
Yes.
Yes. I'm just trying to understand the launches we are preparing for -- are we preparing for a normal soft launch? Or are you going to have a pretty -- we going full force?
We're going full force, are you talking about Tiotropium in particular?
Yes, yes.
Yes. We're going full force, but we expect the generic substitution rate to ramp up over time.
The next question is from Saion Mukherjee.
Yes. So Vinita, can you -- on the Indore site getting cleared, how should we think about.
Saion, you're going in and out. We can't hear you now.
Is it clear now?
Yes. Yes.
Okay. Sorry for that. So on Indore, now the site getting cleared, how should we think about launches? Anything which you see meaningful still there that can come out of Indore, if you can give some color on that. And also, I would like to hear on complex assets. Where are we in terms of development? If you can give us an update on when you expect some of the key filings to happen?
Yes. So out of Indore, in particular, ophthalmic products, we see a nice opportunity around -- in 5 or 6 products that we have filed from the site. Some of them, we are just spending because of facility, which now should happen. Like Prolensa is the first of the pipeline opportunities that really is an upside for us, this is clear. The other -- we have like products like brimonidine, products like prednisone like 5 or 6 products that are meaningful out of the ophthalmic facility. In particular, now with the shortages in the marketplace on the ophthalmic front, we see a nice opportunity for these products. We should have Prolensa this year. And we think that 3 or 4 products are going to be next year, next fiscal year.
To your second question on the evolution of a pipeline into complex generics, on the inhalation front, of course, MDIs are now with Spiriva's DPI, we're nicely expanding our portfolio franchise. And we are actively working on other DPI platforms, Ellipta in particular, we have made significant progress. We hope to report at the end of this fiscal year a material milestone on that front on one of our products. On Respimat also, we have made significant progress, and we'll make more so in the next fiscal year. But Ellipta, we have made significant progress so far.
On the MDI front, there are a couple of products that we are pursuing. And then we are actively also taking a look at the whole move towards green propellants in the U.S. and Europe and working on both the current product, 505(j) to the current product as well as the novel propellant versions of the MDIs that can enable us to potentially have some differentiation and exclusivity in the marketplace.
So I'd say that strong progress on the DPI front and Respimat and some progress on the MDI front. Especially given the green propellant move, we are watching that carefully so that we don't have to -- we make an investment and had to redo a product completely. So that's on the inhalation front.
On the injectables front, as I mentioned earlier, we are adding to our pipeline very actively right now. We have multiple 505(j) products and 505(b)(2) products that we have added to our pipeline already. 9 products in active pipeline this year have been added to the injectable pipeline. And apart from that, I'd say I think on the back of the respiratory front, we also have nasal sprays that we are actively working upon.
And lastly, I'd say, on the implants and devices, we have made good progress on products like Nexplanon and Mirena, where we have developed equivalent versions of the products and actively working on the clinic right now.
Okay. I mean when I look at the R&D spend today, let's say, you would be doing, say, INR 1,400 crores annually. Is it possible to sort of split up like how much approximately you're spending on all these inhalation assets and biosimilars, if you can take us through some split on the R&D front?
The chunk of it is essentially for -- more than 50% would potentially be for the complex ones.
Yes. I think it's like 20% on inhalation, 20% on injectables roughly and 10% of biosimilars, and the like.
Okay. And just one last question, if I can. So you've got $25 million from AbbVie. I think a couple of years back, we had like 2 large deals signed. So are there any milestone payments that we can now -- I mean, do we have some visibility this year, next year. I mean, is there any visibility on the licensing income that you can get on these out-licensing deals that you had?
I think it's going to be a couple of years out to the next milestone. I think what's happened is the risk profile of the product has improved significantly. So potentially, the probability of a future milestone goes up, but it's going to be a couple of years out for the next milestone.
The next question is from Kunal Dhamesha.
Congratulations on a good set of numbers. First, on the product mix, Myrbetriq; on the litigation front, is this the new patent that the innovator has kind of sued the generic filers over? Or this is our old patent litigation?
No, there is a new patent that the innovator is suing everybody on, but we feel confident about the outcome of that.
Okay. Perfect. And would you kind of give some market sizing for that product?
It's like a sizable $2-plus billion product, is significant.
Okay. And do we have an exclusivity here or it's going to be a multiplayer launch at day 1?
We believe there will be limited number of players, day 1.
Perfect. And, since you have talked a lot about the injectable business or injectable pipeline. So do we have some form of aspiration as to where we see this injectable business probably 2 years, 3 years down the line for the U.S. market?
We do. We do have a sizeable patients, building into a multi-hundred million dollar business, but there's still work to be done to get there. I mean our current pipeline gets us to $100-plus million, but we'd like to be well above that in the next 5, 6.
So the pipeline you're talking about is the filed pipeline and not the develop -- the pipeline under development? Would that would be the correct assumption?
That's near to products that we expect to launch within the next 5 years. Already, that gets us to $100-plus million. But like I said, we'd like to grow it to a different level.
And from the plant perspective, which are the important plant for this $100-plus million opportunity? One, I think, is.
This is Nagpur.
Nagpur. Okay. Perfect. And did I hear that correctly that we have completed our trials for the Risperdal Consta?
Yes, we have successfully.
Okay. So when are we planning to file that?
Next quarter.
And any probable time line in terms of approval for these kind of long-acting injectables?
Well, we hope that the agency will -- given that there is no approval, hopefully, the agency will engage with us on trying to get the product approved sooner than later. But we're expecting, after we file 2-plus years or so to launch.
Perfect. And last, if I may, on the future inhalation pipeline where we have talked about the Ellipta product right? I believe the Ellipta product segment is more like DPI and they are also like more than one API, right? That is where last time we hit a road block in terms of generic headwear which was a mix of 2 APIs. So what gives us confidence there, what has changed? What have we learned from the generic headwear, which would help us crack these products?
Yes. Generic headwear certainly was a big challenge for us, partly due to the fact that it was not under our roof. We were doing the development in a partnership with Celon in Poland, which made it a challenge for us. But this is being developed in Coral Springs. Our team is excited about the development. They made progress already on the dual formulation, the 2-drug combination and are working on the 3-drug combination right now. So the learnings that they had from Advair, they certainly have applied here, and we feel good about the fact that we have a good prototype in place to scale up.
So next question is from Mr. Shyam Srinivasan.
Just the first one on the U.S. generic pricing environment. We've had multiple companies during this quarterly season talk about an improvement/stabilization. The only challenge that I have is -- many of them have one-off opportunities in terms of special products that are there as well. So you don't have that, at least currently.
So just want to understand how -- what are kind of the trends you're seeing on the base business? And maybe you could elaborate around shortages, inventory changes that are happening or any new business opportunities. So just the entire piece and how Lupin is probably seeing things at this point of time?
Yes, certainly has changed a bit compared to the last few years. And we see price erosion really at a low single-digit percentage at this point on in-line products on our base portfolio. And that's as a result of the fact that over the last couple of years, there's been so much pricing pressure, it pushed a number of companies out of markets. I mean, we got out of a number of products that we had announced last year that didn't make sense. They were not economically viable anymore.
Likewise, a number of our peers got out of products. And I think that has led to drug shortages, right now. Drug shortage is a huge concern that we've heard from folks on the Hill in the U.S. as well as from the FDA as well as other stakeholders. So I think the fact that it had become such a tough environment for the generic industry, finally has struck home and has led to this price stabilization, which we hope will continue going forward.
So Vinita, the low single digit, there's base of, say, last year, which is making it, right? It's just -- do you think like the next 9 months of the fiscal, we'll see similar? Or you think this is transient, and we'll go back to given how the whole GPO structure is that, we will go back to higher price erosion? Or you think this is sustainable? So just repeating the question again.
Yes, we hope it's sustainable. It's hard to predict.
The in-line portfolio, right, to clarify. So for example, today, we have [indiscernible] whereas, as more competition comes into that, we'll certainly see the erosion there, but you're seeing for the in-line...
For the in-line products, we think that it should be low to mid-single digit.
Got it. Very helpful. The second question is on the India domestic piece, right? I think earlier guidance was for growth to come back Q2. So we have seen it 1 quarter earlier perhaps. And I think if you exclude Cidmus, if I remember the opening, we had 13%, right? So what's happening right here? And I know we have added quite a few MRs over the period. So I just want to understand what are the check boxes that are happening right in the India piece? And what's the outlook for the remainder of the year?
Yes. I think it is MR what is going wrong. Just to clarify, it was 13.6%, if you adjust for 10.2% unadjusted. I think it's just a focus, right? So like we said, the real pain point was the in-licensed portfolio, which was facing exclusivity challenges, certain products at Cidmus that went out of the portfolio as well.
The core business was growing at a very healthy rate. And we always guided towards that, and you just see that reflection coming out now. This is -- I think we still have to see productivity gains from the representatives that we've added. Some of those divisions -- most of those divisions have already started performing, but you'll see even better results from that Q2 onwards.
But I think this is just the core business kicking in. So, respiratory, we're growing pretty much at double the market rate. Cardiology, we're growing ahead of the market. Diabetes, we're growing, which we were actually degrowing before. So I think it's the 3 core therapies are focused on chronic, which is coming through. We're doubling some on India.
So from our perspective, I think the representatives have resulted in 6 new divisions. There's a new extra urban division that we've launched as well. So I think there's a lot of really good energy in India, and we would certainly expect this growth rate to continue.
Yes, Nilesh, just last follow-up, and I'll stop after that. Any other products that are going off-patent in the innovative portfolio that we need to be aware of in the next 3, 6 months?
Yes. So I think we have Ondero which will go off patent next August, right? This August, right? So Ondero is going to go. I think a lot of that is already reflected in the reduced pricing that we have, maybe a little bit more and I believe that in 2025...
'25, '26 is when you have couple of other...
we have another product as well. But this was kind of the mainstay, the big products which are going at this point in time. I think the -- I don't think we'll get into a position where we see very tepid growth in India again, but there is going to be lumpiness in some of the quarters as some of these exclusivities go.
But we stick to the kind of double digit, at least it was from quarter 2 last time we spread, but full year now you can do double digit in India, it looks like?
Yes. Absolutely.
The next question is from Harsh Bhatia.
Just one quick clarification. In terms of the injectable portfolio that we have been talking about for, let's say, the expected filings and the expected launches without getting into particular products, would it be fair to assume that most of these or a large part of these have been filed through the Nagpur unit, Nagpur Unit 2? Because that's the injectable -- the main injectable facility, right?
Yes.
Okay. So for the next 1 or 2 years, whatever is there in terms of the launches and expected filings would be through Nagpur Unit 2?
Well, also some partnered products.
So since we have addressed most of the questions, we'll just wait for 10 seconds for any further questions to be taken because we can't see any raised hands currently. So we'll wait for 10 seconds.
You've got a few there.
Krishnendu, you can come in.
Go ahead, Krishnendu.
Yes. Some of the Indian piece, your strategy, we have 5,100 MRs right now. So how do we see going ahead? Do we see like -- I'm just looking at Mankind and seeing they are at high into tier 2 and beyond. So -- and what kind of -- do we look into any space like consumer health or something like that? Is there any other differential strategy which could have been some kind of -- something different from what we're doing right now?
So right now, I think most of the representatives that we've added have resulted in 2 divisions and the focus has been on decluttering and focusing on key brands. Like I said, there is an extra -- one pilot that we have started as well. That is something that I would hope that we would scale up, but we'll have to go through that and see how it does before.
The primary focus at this point of time has been decluttering and focusing on building bigger brands. So we're not -- it's not that much of a regional expansion at this point of time, but we certainly would hope for more going forward.
We don't see a big expansion this fiscal, anymore. Obviously, we want this team to stabilize. There's possibly one more division that we're going to launch in this financial year. But then after that, we would programmatically expect to add 500 odd representatives each year.
Any missing therapy areas, which we like to buy or something we are heavily into chronic?
Amongst our peers, we are obviously heaviest on the chronic side, but we're not #1 in any. So I think there's significant headroom to grow in respiratory, in cardiac, in diabetes. But I think women's health is shaping up very nicely. DI is shaping up very nicely. Even areas like ophthalm are picking up. We are severely underrepresented in oncology, in the CNS space. So a lot of headroom from my perspective, and that's what we're going after.
Right. So the respiratory is at INR 1,000 crores for us right now, and we should cross the antibiotic and the CV space by, say, another year or two?
Yes. I think we were already at 1,000 crore both of those. So respiratory was the last to get to that number. But certainly, there's a lot more room to grow. We're still #3 only in both of those therapy areas, in cardiac and in diabetes.
Next question is from Alok Dalal.
You incorporated a subsidiary Lupin manufacturing solutions for undertaking contract development and manufacturing activities. So what was the plan here? What kind of investments will it require? And let's say, isn't there a case for conflict of interest here with the generics model that you have?
I think we've just incorporated it at this point of time. I think it's a thought that we have, but I think to any -- well, anything in life, we needed to first incorporate a subsidiary to really consider any next steps at all. There is an opportunity on API, which I think large generic companies are not doing well with. And several of our peers have shown good progress in this front. There's a whole bunch of new players who the API and intermediate space, which are not large generic companies.
So I think the intent is that there is an opportunity to be chased here, but I think we're talking a little prematurely. We still need to finalize the internal plans before we have anything more here. And we will come back to you guys once we finalize the plans.
Just one question on capital allocation with diagnostics and then with CDMO, wouldn't it be a better opportunity if you invest in the core business itself?
Yes. So I think our lion's share of our incremental capital allocation is going towards the India region and into other geographies where we expect high growth, and that will be continued as far as the parent company is concerned.
As far as this kind of subsidiary was concerned, eventually, you would obviously go for external capital on something like this as well. So it is not your own capital alone that would get allocated there.
The next question is from Gagan Thareja.
Sir, first question is on the gross margins, you pointed out to an improvement in mix. Would softer API and solvent prices also have benefited? And could you enumerate?
Yes. In a general sense, yes, there has been in fact softening of prices across -- except for recipients, others that have actually been coming down, API, KSM, chemicals and solvents, for sure. So -- but there's, of course, a bit of a lag effect because it's been coming down and there is, of course, some of it will be captured into the cost of production, but not necessarily sold during the course of the quarter itself. But it will certainly give us a benefit in the quarters to come.
And do you also avail of any PLI benefits, and if so, can you enumerate the number?
It's there in the other operating income. So that is a component that is there.
And this quarter, the emerging markets space has been slightly weakened, probably not just for Lupin but some of the other companies as well?
There are 2 or 3 parts there. Essentially, the first was -- South Africa has had a bumper Q4 in anticipation of a price hike in Q1, and that obviously -- it in fact subdues the results, the outcomes for Q1 itself. Likewise, in Philippines. In Mexico, we have in fact, an issue in terms of the plant, which will get sorted out. So all of these actually brought down the overall result in the first quarter.
But how should we think of this space for the year?
I think it will pick up because it's actually -- this resonates impact with past patterns, Philippines and South Africa. We have seen this trend to kind of persist over years. So -- and of course, Mexico, the plant issues that gets sorted out. So it's just a question of time.
Last one on Suprep. Do you see yourself maintaining your current run rates going ahead or generic competition will materially impact throughput going in?
Yes. So far, we have sustained levels over the last couple of quarters and haven't really seen any imminent additional competition coming in.
Any tip? Do you see this for certain happenings in the second half for generics will be hoping?
That's hard to predict. We just don't see anyone coming in the next couple of weeks or months.
We'll take last 2 questions.
[ Vibha ], you can go next.
Okay. Just a question regarding the expansion into adjacencies, regarding digital therapeutics or even diagnostics or as you just spoke about CDMO. But are these opportunities that you are really far off that you're looking at just as a derisking? Or is it like you have serious plans for these new segments?
I think the core India prescription business is going to be the main focus area. As far as diagnostics is concerned, we are already starting to see some synergies with the core prescription business. The digital, again feeds into our expertise in the cardiac space, and it is an extended offering from that front. If we want to do a meaningful play into CDMO, then yes, that will be a different play compared to the other stuff that we would do, but we obviously have capabilities for doing that.
No, I think we're -- as far as the core business model is concerned, we are extremely upbeat on India. We're extremely update on the complex generic story in the U.S. At some point of time, we want to build out the innovation piece all over again. The emerging markets have always been double-digit growth market for us with pretty much better than company average EBITDA. So I think the core focus remains on the business as is. We've got plenty to do in this space.
So for the last question, let's have Saion Mukherjee back.
Just 2 quick questions. Firstly, on the API piece, you mentioned some -- that it's kind of coming back. So how should we think about that? And what is really driving it? Is it the cephalosporin piece? And if you can just highlight the dynamics there? And what are your expectations going forward on API?
Sure. So it's actually been depressed for the last 2 years, and that's the part that's coming back. So we actually see that bounce back, but that's primarily in the cephalosporins. Our big categories are the anti-TB products and cephalosporin. So that's where that would come from. We definitely see it picking up, not across the board. But certainly, in certain products, we see it picking up.
I think it's come back to that level. It's kind of going to stay at this level. It's not going to keep increasing from this level. That increase will come from new products and we have a portfolio of new products within our API portfolio.
You'd appreciate that [indiscernible] price is still rolling at pretty high over the last few -- several quarters.
Right. Right. And the last one, Vinita, on Europe, Fostair, we have seen some pickup in U.K. Now you've got approval in Germany. So what are your peak sales expectation and when you expect that to achieve?
So we're already doing pretty well in U.K. and Germany actually launched in the last month. And then the other countries through our partners in Italy and other countries, we've also begun launching the product. So it's well on its way next year, fiscal year '25 should be a peak year for Fostair.
Okay. And can you share what kind of peak sales you're expecting in Europe?
I don't think we have shared like product like sales, but I want to say that it's going to be a good percentage of our revenues in Europe.
So I mean, do you think that it would be like a meaningful number from where we are today in FY '25?
Yes.
Thank you very much to all the participants for being so patient. I now hand the conference over to the management for closing comments. Over to you.
Thank you all for your very thoughtful questions. Hopefully, we were able to respond to a majority of them. Any that we haven't been able to, we'll certainly catch up off-line. We are very energized with the start of this fiscal year, as you can see and look forward to continue to execute, especially given the opportunities that we have now in the next couple of quarters and again catch up with you in the next quarter, hopefully, with a better set of numbers. Thank you again.
Thank you very much, ma'am. On behalf of Lupin Limited, that concludes this conference. Thank you for joining us, and you may now exit the webinar. Thank you.