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Lupin Ltd
Earnings Call Analysis
Q1-2025 Analysis
Lupin Ltd
Lupin Limited commenced fiscal year 2025 with robust double-digit growth in revenues and margins. The company reported a 23.3% EBITDA margin for the first quarter, up by 290 basis points quarter-over-quarter. This growth was fueled by successful new product launches, improved operational efficiencies, and lower-than-expected R&D expenses. Additionally, Lupin received favorable FDA inspection outcomes for multiple facilities, bolstering confidence in its operations.
The North American market saw a significant 28% year-on-year growth, with U.S. sales alone registering $227 million, a 21% increase. This was driven by stable in-line products, robust sales of respiratory products such as Tiotropium and Albuterol, and new launches including Mirabegron and doxycycline. The company anticipates high single-digit growth for its U.S. business in fiscal year 2025, citing the shift to complex generics and enhanced productivity.
In India, Lupin's business grew by 18% year-on-year, outperforming the market's 8.7% growth rate. Key growth drivers included the cardiology, respiratory, GI, and vitamins segments, as well as a strong internal diabetes portfolio. Lupin plans to launch around 20 new products in the fiscal year, expecting to grow 20-30% higher than the market.
Lupin's performance in international markets was equally impressive. The EMEA region grew 26% year-on-year, while growth markets (APAC and Latin America) surged 28%. Canada, the U.K., Germany, and Australia contributed to this robust growth through successful product launches such as Spiriva and Etanercept.
While R&D spending was light in Q1, Lupin expects to increase this expenditure significantly in Q2 and Q3, projecting around INR 1,800 crores for the full fiscal year. The funds will primarily focus on complex generics, respiratory products, injectables, and biosimilars. Lupin is optimistic about its new product pipeline, which promises growth beyond the current fiscal year.
For Q1 FY '25, Lupin's gross margins improved to 68.4%, driven by a better product mix, increased volumes, and cost efficiencies. Employee benefit expenses rose by 15%, reflecting business growth and salary increments. Manufacturing and other expenses grew by 8.6%, primarily due to higher legal fees and volumes. Lupin anticipates maintaining these margin levels, barring any geopolitical disruptions.
Lupin has successfully implemented strategic growth drivers that provide a clear path to future growth in both top line and EBITDA. The company remains focused on achieving EBITDA margins of 23-24% in the medium term, despite upcoming increases in R&D spending and the impact of certain one-time items. Looking forward, Lupin expects fiscal year '26 to be strong, aided by new product launches and the continued success of its core segments.
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Good evening, and welcome to Lupin Limited Q1 FY '25 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.
Good afternoon, friends. I'm very pleased to welcome you to our Q1 fiscal year '25 earnings call. I have with me are MD, Nilesh; and our CFO, Ramesh. We look forward to sharing with you our highlights for the quarter as well as outlook for the year ahead.
We are very pleased to start the new fiscal year on a strong note with solid double-digit growth in revenues and margins, both on a year-on-year and quarter-on-quarter basis. EBITDA margins at 23.3% have expanded by 290 basis points quarter-over-quarter driven by strong commercial execution on new product launches as well as in-line products, continuous attention to operational improvements as well as lower-than-anticipated R&D spend. In parallel, we have continued to improve our position on the quality and compliance front, having received positive FDA inspection outcomes for our Aurangabad, Somerset, Nagpur and Dabhasa facilities in the last quarter.
Our U.S. business had a great start with strong growth sequentially and year-over-year, driven by more stable in-line business, strong contribution from respiratory products, both Tiotropium as well as Albuterol and new product launches like Mirabegron and doxycycline that more than offset a decline in products like Suprep that have seen additional competition.
As we look at the quarters ahead with continued ramp-up of the new products that we have launched, additional new product launches like Pred Forte that we just received with CGT. Glucagon later in the fiscal year, liposomal doxorubicin that we're in the midst of launching at present. We expect to grow our U.S. business at a high single digit in fiscal year '25. Also, our U.S. business has returned to a strong level of margins, given the shift to complex generics and strong focus on driving productivity and efficiencies in the base business.
Switching to India. We recorded 10.5% growth versus IPM growth of 8.7%, which was 21% ahead of the market. Cardiac, respiratory, GI and vitamins business in India grew well ahead of market. Our internal diabetes portfolio, the non-licensed diabetes portfolio that is grew at 2x the category growth during the quarter, so which was very heartening for us. We also successfully completed the carve-out of our trade generics business in India to 100% owned subsidiary with the objective of achieving agility, better focus and growth of this business going ahead.
From a new product launch perspective, we have been at the forefront in terms of NPLs in India and we have a healthy pipeline of around 20 products, which we plan to launch in the fiscal year. We are confident that our reach through our 10,000-plus reps, along with our portfolio enhancements will enable us to grow around 20% to 30% higher than the market in the year ahead as we have guided in our earlier interactions.
Switching to other markets. Other developed markets grew a strong double digit driven by Canada due to Zaxine, our brand business there, and new product launches like Spiriva and Eternacept, U.K. due to Luforbec and new product launches in Germany and Australia. Other emerging markets also grew double digits, driven by Mexico, Philippines and South Africa.
On the R&D front, while Q1 has been light, we expect our spend to ramp up in Q2 and Q3 with the progress that we have in our pipeline. We expect R&D to be around INR 1,800 crores fiscal year '25 with an increasing percentage of complex generics as we have planned over the last couple of years. We look forward to a very solid fiscal year '25 ahead with the momentum we have built in all our regions, the new product pipeline engine delivering at a high gear and continued focus on the fundamentals from an efficiency and compliance standpoint. Our strategic growth drivers provide us with a clear line of sight to growth beyond the current fiscal year, both in terms of top line and EBITDA going ahead.
With this, I will hand it over to Ramesh for a deeper analysis of our performance. Ramesh?
Yes. Thank you, Vinita. Friends, I welcome you all to our Q1 FY '25 earnings call. The highlight of this quarter has been a strong operating performance in all our key segments, both in terms of sales and profitability, which have led us to report a 23% plus EBITDA margins for the quarter.
Diving into the numbers. Sales for Q1 FY '25 came in at INR 5,514 crores as compared to INR 4,742 crores in Q1 last year, a growth of 16% year-on-year. However, if we exclude the $25 million of NCE income received last year in Q1, our sales have grown at 22% year-on-year during the quarter. We've registered robust growth across most of our key geographies.
North America has grown at a strong 28% year-on-year. India business has grown at a healthy 18% year-on-year whereas EMEA grew at 26% year-on-year. Our growth markets grew at 28% year-on-year and API business has grown 7% year-on-year. In the U.S. business, during the quarter, the U.S. business recorded sales of $227 million, a growth of 21% year-on-year 8% quarter-on-quarter on a constant currency basis. This growth has been led by new launches offset by single-digit price erosion in base products and additional generic competition in certain products like Suprep. Our strategy is to pivot to more complex products and it's paying off handsomely and for the last 8 consecutive quarters of EBITDA improvement in this business. We have a clear strategy to deliver consistent growth in this business going ahead.
India region. Coming to India, the India business has grown by almost 18% year-on-year during the quarter. The prescription business has grown 10.5% year-on-year, outperforming IPM growth by 1.2x during the quarter. Segments like respiratory, cardiology, GI and the multivitamins have outperformed IPM growth in their respective segments. The share of in-licensed products in the quarter is at 14% during this quarter has come back to 15% last year, which also has a positive impact on our profitability. We have launched 28 products in FY '24 and plan to launch more than 20 products in FY '25.
Other businesses. Revenues in our ex India ex U.S. formulations business which includes EMEA, ROW and Growth Markets have increased 22% year-on-year to [ INR 1,085 crores ] and now constitutes around 23% of our sales as compared to 21% in the same period last year. Our EMEA region, which constitutes our EU region and South Africa business registered a strong growth at 26% year-on-year during the quarter. This has been driven by healthy growth in key markets like U.K. and Germany from Luforbec and NaMuscla, amongst others.
Growth markets. Our growth markets include APAC and Latin regions and their growth at 28% year-on-year during the period. The APAC market grew by 26% year-on-year during the quarter, led by strong growth in markets like Philippines and Australia. LatAm market grew 28% year-on-year in this quarter due to strong growth business in Mexico.
Speaking about the P&L, our other operating income is at INR 86 crores, which has increased 20% year-on-year during the quarter. This increase is mainly due to the higher PLI and export benefits during the quarter.
Gross margins. Coming to the profitability. Q1 FY '25 gross margins were at 68.4%, up from 67.8% in Q4 and 63.8% ex NC income recorded in Q1 last year. This improvement is driven by multiple factors, which includes better product mix, lower sales of in-licensed products, increased volumes and also cost improvements and efficiencies, which we have undertaken over the last several quarters. Barring any unforeseen situations like the geopolitical tensions in the Middle East and the like, we feel confident of maintaining a gross margins around these levels going ahead.
Employee benefit expenses came at INR 971 crores, increasing 15% year-on-year from [ INR 824 crores ] in Q1 FY '24, translating to 17.6% of sales, vis-a-vis of 18.6% last year. This change is largely attributable to the higher cost in terms of business growth as well as increments during the period.
Manufacturing and other expenses came in at INR 1,598 crores, which translates to approximately 29% of the business as compared to 32.5% of sales in Q1 last year, reflecting a growth of 8.6%. The expense in absolute terms is higher due to legal and professional fees and of course, higher volumes and the like. This, of course, being offset by lower R&D figures. R&D segment. R&D is at INR 350 crores 6.3% of sales in Q1 FY '25 as compared to INR 426 crores, which was 8.7% of sales in Q4 last year. Our full year R&D is expected to be around INR 1,800 crores.
EBITDA. In the quarter, as you see, we have made significant improvements across all lines. Gross margins are higher. There has been increase in operating income and the highest sales ensured high operating leverage as well. Consequently, this has resulted in driving the EBITDA margins considerably higher. Excluding ForEx and other income, EBITDA was INR 1,286 crores, an increase by 15% year-on-year. If we exclude the NCE income we received in Q1 last year, EBITDA is almost doubled or on a comparable basis. Margins for the quarter were higher than 23.3% vis-a-vis 20.4% in Q4 '24 and 14.4% ex NCE income which we recorded in Q1 last year.
Tax. In so far as tax is concerned, our ETR is 18.8% during the quarter. For the full year, we expect ETR to be around 20%. On the balance sheet items, we have been focusing on operating working capital, and there has been tremendous improvement there. As you can see, during the fact that the net operating working days is just about [100 ] as against 105 days in the previous quarter.
On the ESG front, we have successfully committed and joined the science-based target initiatives, which drive our journey towards decarbonization of our value chain. We have achieved a significant milestone from ISO 14001 and ISO 45001 certification across all our Indian manufacturing sites, R&D center, corporate office, et cetera, technology and commitment to safe and sustainable operations. Our strategic interventions across water recycling, renewable energy, adoption of human rights are progressing as per plan to deliver ambitiously on the ESG goals.
With this, we open the floor for discussions.
[Operator Instructions] We take the first question from Mr. Kunal Dhamesha.
Congratulation on a great set of numbers. First one on India business, while we have grown at 18% year-on-year. You said that the Rx performance was 10.5%, right? So is there any institutional business, which is baked into this quarter, which are not bearing the last year or last year same quarter. How should we think about the growth going forward?
So you're right, it is the institution business that basically explains the difference. From our perspective, the growth in India region is 10.5%, the Indian formulation business. But when we add the other business that we sell in India or formulations, it goes to the number that you talked about.
The institution business basically went from INR 15 crores to INR 121 crores. Some lumpiness in the past. I mean, INR 15 crores was not representative of the quarterly run rate last year. But I think this is -- it's going to be a good number for the GIP business. So we are going to have good numbers. But I mean for India region formulations, we've always gone out without this institutional business.
Sir, last full year, what would have been this business contribution?
So even it's very fluid because it actually goes -- I mean, it's exports, it's exports coming back to India. So we will do report it out, Ramesh is pulling out that number, but it used to be the entire business, it used to be of the nature of, I believe, INR 700-something crore for the year, but that's in domestic as well as export and it's obviously on a high growth rate at this point.
So last quarter, we're talking about it, we had about INR 63 crores of other domestic business and so on. And of course, the outside diagnostics and OTC, which would add another INR 45-odd crores. So that's for last quarter. And we talked about the previous year, it was much lower. That's in the diagnostic OTC, et cetera, is about INR 35-odd crores and the domestic which is essentially the [indiscernible] crores.
Last year maybe was much lower than [indiscernible]...
Yes, that's exactly what we are saying. This is at least about 8 times higher this time around.
And the second question on the U.S. business, we are seeing good performance from the new launches like Mirabegron and doxycycline. So my question is on Mirabegron. Do we see a meaningful ramp-up in the coming quarter from here on, including the launch of 50-milligram version from our side?
If we continue to increase our share on the 25-milligram and evaluate timing of launch of the 50 milligram. There is upcoming hearing on the [indiscernible] patent actually today. So we are monitoring that as well. But we expect to ramp up the product.
[indiscernible] the appeal that has done?
I didn't catch the question.
So we are waiting for the results of the appeal and then we will launch 50 milligram [indiscernible]?
Yes, we'll evaluate.
And then last one from my side. I think we have recently also said that Lucentis facing some [indiscernible] been successful and we said improved -- we will now pile and it will take some time. But if you can help us with the current market structure, potential competition [indiscernible] market will be in the first wave of the long chase. How should we think about it?
Yes. So Lucentis is unique opportunity because it's in the ophthalmic market and some of the ophthalmic market distributors have our current partners for the generic business. So we see a good opportunity with Lucentis even as a late player. We believe that we should have the ability to switch share. Of course, how much -- what percentage tangle tell number of competitors. But we feel good about the ranibizumab product for the U. S.
We'll take the next question from Neha Manpuria.
Vinita, could you give us an update on tolvaptan given the litigation, what's our stance here? How should we think about this product?
Well, it's a very certain launch at this point for us in the first quarter of next fiscal year with -- been on the litigation front as well as product approval. We are gearing up to get supplied together for the launch.
Understood. And what would be your sense on post the exclusivity period, how the competition could shape up given there are other bunch of players who are, I think, where the outcome is -- we're also fighting the litigation on this. And I think you have a settlement too.
Yes, we would expect additional competition. But given this is a REMS product, specialty distribution product. The only entrant seemed to hold on to share much longer. So we will expect it not to be a typical oral solid where you see significant erosion after additional competition, we expect to maintain a decent share even after additional competition gets in. But for us, the 180-day exclusive window itself for such a large product is a great opportunity for fiscal year '26.
Understood. And my second question is on generic Spiriva. If you look at IQVIA data, but not too much, we're seeing a share coming off a little bit. I know we have guided to like the 35%, 40% share is what we should be getting to this year. Could you explain the dynamics of that market? Is the PI -- I know the innovator try to capitalizing for the out-of-pocket is that impacting our ability to get share? How should we think about share gain from here for Spiriva?
Yes. So we are seeing share at the 30% level right now based on the most recent data, which is consistent with what we have seen some week its up, some week its down, but overall, roughly around that 30% level which has been what we saw with other respiratory generics in the past, but continuing to work on avenues to grow that share. I mean what we have seen after the brand brought in the $35 copay is more business going towards commercial. The business is split between commercial and Medicare, Medicaid and there's actually a pretty good percentage that's Medicare and Medicaid. Where we have a low share right now, we have a higher share of commercial. So that also gives us hope that we should be able to gain share given the commercial segment of the business, commercial component of the product is going up.
Okay. Okay. So essentially, the shift to commercial, therefore, helps us, right? So the share gains should be visible in the subsequent quarters?
Yes. We may be hopeful that we should be able to grow share.
We'll take the next question from Mr. Abdulkader.
My first question is with regards to the market share in albuterol. So there seems to be some softening in our market share on a sequential basis as well as the share of the complex product, I think it's come down a bit. So could you help me reconcile what's the entire part and about this market share loss, what do we have on a sequential basis?
Not really. I mean we're seeing market share very stable at the 20% level. So no real material loss of any customers and it's been a pretty solid contributor to the quarter. So no real change in market share. I mean there was additional demand during the flu season in a couple of quarters ago that I would have been -- would have had some impact on phasing or supply, but the market share has been fairly stable for us.
There been shifts with the other players in the market, but we've seen our customer base and shares still pretty stable until now. I mean, as we go forward, based on what happens with the launch of Amphastar. When Amphastar launches it because, I mean, right now, it looks like they are the hold mode. And we would expect that Teva is going to file an injunction, we would expect that given that Teva brought a claim against the patent. So we'll definitely see erosion going forward, we think, to some extent. But overall, our share is fairly stable so far.
Got it. And second is on the Mirabegron launch. So for the [ brace ] erosion and the competition in Suprep, we are largely commenting that the launches had offset that. So I mean, so going ahead, I mean, how do we see the run rate? I know we have a limited exclusivity here rather co-exclusivity here. But on a quarterly basis, what's the expectation in terms of the sales run rate for this particular product?
Yes, we don't really highlight product wise sales, but based on what we expect from Mirabegron, given the additional competition as well as the other products that we are launching Pred Forte, glucagon others that we have enough plan. And albuterol erosion like what I mentioned, we would expect high single-digit growth over the previous year overall.
Got it. And a final one, if I may, which is a bookkeeping one. So we made a provision of close to $9 million. So I mean, where exactly would that be recorded into the P&L? I'm referring to the Glumetza provision?
As part of other expense line. So yes. So that's one of those items that we planned off even in our disclosure that we paid off about INR 75-odd crores for Glumetza.
So the next question is from Bino Pathiparampil.
Vinita, just digging a little deeper on Travatan which you said will launched next year. There are 2 brands of the product, if I understand correctly. So are you going to address both them or only one?
As far as our plans have entailed. We are looking at the whole molecule. And when we look at the molecule, the oral solid [indiscernible] that is the primary product, [ Otsuka. ] It's $1.5 billion in revenues for the company. So that's the market that we're targeting.
Understood. Second question on [indiscernible] on which I think you have a tentative approval. I think there was some hearing set for this month, August when would that be? And if it goes well? Is it going to be a near-term launch?
Yes. So that's the end of this month. I think it's the last week of August. And we don't know outcome, what the outcome is going to be, but we are preparing for launch in case [indiscernible].
Okay. So if it goes well, it can -- if it goes well, it can [indiscernible] launch?
Yes.
Okay. And one last question on your opening remarks, you had mentioned 2, 3 products for the year. What I believe was glucagon and other was [indiscernible] generic. What were the other 1 of 2 you mentioned?
Ophthalmic, I mentioned Pred Forte, we just got CGT approval on Pred Forte last week. So we're gearing up to launch that product as soon as we can. We have a couple of other ophthalmic products that we are launching in Q3. So I think Pred Forte plus the other...
[indiscernible].
Yes, we mentioned that. So -- but other than injectable doxorubicin as well as glucagon, we should have like 3 or 4 ophthalmic products with -- Pred Forte being the largest.
[Operator Instructions]. We'll take the next question from Krishnendu Saha.
How big are [indiscernible] 50 mg, if 25 mg I suppose, last quarter, we learned it was $700 million. How big is this 50 mg?
I think it's a little bit larger than the 25 mg.
Okay, any number?
It's close to 1 billion.
And just on the annual report, when I was reading to them what I saw the best revenues coming up at INR 67 billion, but when I do the quarter-on-quarter of the disclosures, which we had for the Q4 number, it is INR 72 billion. So I was just trying to understand what is the difference [indiscernible] could you help me out over there, so I'm just trying to understand what would the difference?
Which region are you talking about?
U.S. business.
So in the U.S. business, when you got your annual report, quarter number of [ INR 67.628 million. ] And over here, it's INR 72.462 billion on the quarterly or the Q4 number when you look at. So there are a difference which is pretty big, so I'm just trying to understand...
Included Canada, North America and the like. But you could take it offline and see what are you talking about?
I will take the next question from Saurab Kapadia.
Yes. First on the U.S. market, given the fewer launch in the second half and [indiscernible] in FY '26, how we should look at the U.S. growth in '26?
The '26 should be a very strong year for us. I mean given the current products that we have this year plus Tolvaptan for certain as well as other injectable products like liraglutide and risperidone Consta. We're looking at a pretty solid year in fiscal '26.
Okay. And second, on the margin front. So our long-term guidance or the aspiration is 20% to 23% range. So given this quarter and also next number of products we are launching, should we expect to reach that margin level by next year?
So from our perspective, I think 3 or 4 things to be said. Firstly, this particular quarter, there has been a lower spend on R&D. So you got to factor that in the overall margins could have been a little lower, and we do expect in fact the R&D figures to step up in the next 2 to 3 quarters -- from the next quarter onwards. There's, of course, the one-off of the [indiscernible] settlement which is coming also, as you need to tackle that in. But we also have adjacencies, which are not actually core to us at this stage, which also make losses. So that has to be factored in. So the overall guidance that we have been speaking about is essentially moving towards a core of about 23% to 24% in the medium term, and we'll get there.
So how much on a percentage point the adjacencies are pulling down in terms of margins currently?
So OTC is still -- so we expect a breakeven now. We also have diagnostics and digital. We also have the API CDMO business, which is in some base behind the curve. So all of this put together about 1.5 to 2 percentage points.
We'll take the next question from Bhavya Sanghvi.
Yes. This is Surya here. So my first question was on the other businesses -- businesses other than U.S. and India where we across board, we are seeing a kind of robust growth number this quarter. Anything that is driving this? And how sustainable the growth momentum there in all the regions? And what is really helping it to achieve this kind of momentum?
Yes. So really maximizing our portfolio across different regions. The European region, for example, has the benefit of [ faster ] generic that has continued to grow very nicely with limited competition. We also have 1 or 2 additional new products that are launching. So that also will help grow the business further. Other countries, Germany; Australia, have had good new product launches as well. Canada has had Spiriva launch and Etanercept launch. So an overall strong performance, commercial execution and maximizing the portfolio.
Okay. So is it that this other business than the India and North America is likely to gain momentum and hence markets are going ahead? That is the kind of expectation or?
So we expect the overall percentage of U.S. and India has remained kind of the same. And we'll be happy if all our regions grow -- to help grow the company at a double-digit level.
My second point is on the Mirabegron. See how -- given the kind of litigation situation, how long this opportunity be whether one should think about a 180-day kind of a period for this opportunity? Or it could be a long term -- means a relatively longer opportunity also given the -- till the time, the outcome of the litigation is pending?
Yes. So it's very much dependent on the outcome of the litigation as well. And it could be that the exclusivity could be longer depending on what happens with hearing on the [ 780 ] patent. And it's hard to really predict. But at this point, it looks like the next quarter could still continue to be a 2-player market, and then we could see an additional competitor and then depending on the settlements that the other generics have with the brand.
But if you assume the typical brand generic settlement, one would expect additional competition to come in during their -- at the end of the 30-month stay, typically, which is really late next year, late September next year. So again, hard to predict, but it could be extended beyond 6 months.
Okay. Just last one point about the biosimilars, if I may. See, given the kind of situation or development that we have witnessed in the [ adalimumab ], are you really worried about this investment and the opportunities out of the biosimilar? I mean, what I'm trying to say is that you would have seen one of the players out of the 7, 8 launch of [ adalidumab ] have sold the product and all its rights for just $40 million.
While the product is at $10 billion and minimum opportunity, one would be expecting would be a few hundred million dollars out of the product? And the kind of a spend in the development itself would be $100 million-plus or near about $100 million. He is selling the entire opportunity, rights and everything for $40 million. So what to understand out of this? And are you really worried about this fact?
One, we are really glad that we didn't have [ adalimumab ] because the number of competitors, there's -- better intensity there was really, really high and also the brand really held on to the product for a really long. So you were competing -- the biosimilars were competing with the brand.
Having said that, Sandoz has now had some success in that marketplace. So -- but it is the biosimilars have really turned out to be a difficult marketplace, given the high investment, not only the development but access to market and then depending on what the brands end up doing the difficulty in gaining share.
I mean for us, [ ranibizumab ] is more of a later opportunity. It is a smaller product. It's not the $10 billion product that attracts everybody. And yes, there are other competitors, but not in the same competitive intensity as Humira. And -- like I said that it's a more streamlined market access that we are expecting here.
So we're not expecting to make significant commercial investment to access the marketplace. We have partnerships with companies in place to really get access and gain share. So this will be not really concerned about the investment that we've made, the investment also relatively speaking, in [ ranibizumab ] has been smaller than products like even at ENBREL etanercept for us or what adalimumab would have cost all the biosimilar companies.
[Operator Instructions] Can we have the next question from [indiscernible].
Three questions. Firstly, if you can talk about the base price erosion that we have currently?
Yes, it's mid-single-digit price erosion.
Okay. And is there any change because even I think other companies are also talking about benign price erosion. So has -- any change happened in the industry structure?
It really has. With all of the challenges one saw with price erosions over the last couple of years, a number of companies got out of products that didn't make sense. We got out multiple products that didn't make sense and all of that had led to drug shortages.
So if you look at drug shortages in the U.S., they are also decade high which has been on the agenda for the policymakers, folks on the hill. So our customers have been very concerned as well about product exits and the economic viability of the generic business for the generic manufacturers. And as a result, we have seen more rationale generic market, so a better situation for our in-line business and to really sustain the generic companies. I mean there's been a lot of scrutiny on GPOs. There's scrutiny on PBMs, really addressing the drug shortages, which is very positive for our industry.
Understood. And with the erosion quite benign right now, is it possible to call out some range of U.S. margins now that -- you are talking about 8 quarters of sequential improvement in the EBITDA. So is it possible to call out the margins?
So we don't really breakout region wise margins, but it's fair to say at this point, it's above the company average.
Okay. That helps. Second question is on the Mexico and Philippines market. We have seen very strong growth for this quarter. So if you can call out the underlying reason? And how should we see the remainder year for these businesses?
So Mexico was -- actually had a challenge last year with the facility being shared for a long period of time due to its GMV status, and that cleared October last year. So -- and after that, the business has started to ramp up. So you see the impact of the ramp-up of the business back into the ophthalmic market and the private segment. So one we'll continue to see that growth year-over-year for Mexico for the rest of the fiscal year?
Philippines looks going sequentially, of course, because Q4 is light. But year-on-year, again, I mean it's a portfolio. It's new products, it's commercial excellence. We're doing well across the board in the Philippines.
Okay. And that will be branded generic business in Philippines, right?
Yes, it is. I mean, when we reported, we reported entire part in that business as well. Yes, as we do, but this was primarily the branded generic business.
Okay. And the outlook here will be continuing of the similar growth for the rest of the year?
I mean double-digit growth is the plan. Yes.
Okay. Okay. And lastly, on the biosimilar business, we had filed a [indiscernible], I think, a couple of years back, and we also have Enbrel biosimilars. So is it possible to update us about the -- about if you are facing any challenge there. And secondly, our Pune Biotech park had received, I think, compliance issues, sometime back. So what is the progress on that part?
So on pegfilgrastim, yes, we had a filing. It's been processed moving ahead. Yes, we had the observations at the biotech facility basis which we've completed the remediation and resubmitted the application as is necessary for this.
I think we're optimistic of clearing the facility from a compliance perspective after which we would expect the pegfilgrastim approval. On Etanercept, as you know, we are commercial in bunch of markets, Europe, Japan and then like, and it moves along as I think we are steadily gaining share in the product. It's still not that large.
In the U.S., it's a little bit of -- is [ 29%, ] when the patent goes off. But as you saw, we just launched in Canada. We launched hopefully, soon in Australia. So we continue to expand into other markets with the Etanercept.
We'll take the next question from Tushar.
Congratulations on the good set of numbers. Just on your guidance for U.S. sales growth. So let's say, for example, the litigation outcome, which is expected today. So clearly, that would be over and above what you're guiding for, right?
Yes, we haven't counted that as of yet. Hopefully, we have more upside.
Secondly, with respect to prednisolone, is this completely manufactured in-house or we have API outsource?
Yes. API outsource, yes this manufacturer [indiscernible].
So subsequently, the level of profitability would be relatively -- while it is still a CGT product, how do you think about profitability in this?
There's a very good margin -- decent margin product. They will all depend on the number of competitors. And if anyone else gets approval before we launch, we are hoping we can get it to market before anyone else gets approved and if we can, then it's a very nice $200 million brand in which we could have -- enjoy a 6-month exclusivity.
Understood. And apart from, let's say, loss of exclusivity for say, 25 mg [indiscernible] any other potential risk on the already launched product portfolio, per se, which is sort of pulling your guidance -- let's say, high single-digit growth for the U.S. business?
Yes, we're assuming that we'll have some erosion in the albuterol when Amphastar launches.
Understood. And lastly, on the API sales, this quarter-over-quarter, there has been a significant jump. So there also, is there anything to call out? Or this is going to be a sustainable rate, given that at the industry level, the price erosion continues over the last -- let's say 3 to 5 months as well.
Yes. So I think there's some lumpiness, which has led to the additional sales, but we are on a good patent. I think we mentioned last 3, 4 years into a slump as far as API is concerned, COVID and [indiscernible] but it's coming back. Obviously, this is not represented a growth rate as we'll have lower growth rate than this, but it's definitely on the uptake as far as API is concerned.
Prices until recently were as low as [indiscernible], but it's not coming back again. So let's see.
And on India business, if you could just bring the Rx growth in the price volume in new launches for us?
Yes. Sure. So the volume growth was 5%, price was 3.5% and 2.1% was [indiscernible].
So volume growth is quite much, much higher compared to, let's say, the industry growth of -- industries hardly struggling at 3.91%. So anything you want to call out here?
It's been good performance, yes. I don't think we've grown so well in the past on the volume front, you are right, but I mean it's good performance and primarily driven by the non in-license portfolio, it is the in-house portfolio.
So more addition for this year on the number which is disclosed during the presentation?
Yes. So I think we have got a good number on representatives now. Now I think it will be the programmatic few hundred representatives that we add each year based on new divisions and areas. I think there is a plan to add a couple of hundred this year.
We'll take the next question from Shyam Srinivasan.
Just a first one on your balance sheet. We are now showing net cash, right? So -- we've not been in this position for some time, I believe. So just what are the thoughts in terms of deployment of capital going ahead?
So we're happy about the fact that we have -- without debt though its safe, but its not as though we believe that we should be a debt free company because we obviously believe in acquisitions. We have always been a [indiscernible] proposition daily is compelling enough, we were to get that.
And I also believe from a return on liquidity perspective, trading on equity is possible only if you have some debt. But of course, we have hard days in terms of the total quantum of debt that we would have, which we believe that it should be about price that of EBITDA. But that doesn't necessarily mean that I need to borrow only for, I mean, honestly, and as there's a proposition which is compelling.
Understood. So what would be the areas that we would -- since you would likely to acquire you saying what are the areas that are a priority for us in terms of either therapy or geography areas that you would be looking at?
We've always been pretty bullish about India. So if we do convert our things that are compelling, we could look at that. There could be small bolt-on internal generics and other parts also. We also be merely explicit about that ambitions on the specialties.
And last one, just a clarification, Ramesh, on your comments on the gross margins, right? So you said the reasons for the gross margin improvement, if you could elaborate again and you said that this is the new sustainable 64%, is it?
No. So essentially about 68%. The reason is, of course, the sales mix, the kind of products that we bring to the market. This time around, there has, of course, been the inventory impact also. And as you can see, there is a lowering of overall inventory in terms of the consumption itself.
So from that perspective, that has cost a blip of about 0.9%. So you would add that the margins could have been a little higher. But for sure, I think we could sustain that this -- given the kind of product launches that we're kind of planning for the future.
We take the next question from Damayanti.
I have a question on your complex injectable pipeline. So Vinita mentioned -- [ Liraglutide ] launch -- possible launch next fiscal year. So I just want to have some update on your pipeline and specifically on these peptide GLP sort of products?
Yes. So [ Liraglutide ] both Victoza and Saxenda we have filed and based on the CRL. As I mentioned, we expect them to get launched next year and glucagon is the one that we would expect later this fiscal year. Based on where we are with the filing with the agency. Doxil, a smaller opportunity, but launching in the next couple of weeks.
So those are the near-term injectable launches. In the next fiscal year, hopefully, with subject to, of course, FDA approval, we should have Risperdal Consta launched as well. We just recently had an inspection for [indiscernible] site, and that was successful. So we hope next year, we're able to launch that product as well.
Okay. Great. And also, if you could update on the Dulera filing, I guess that's also one of the opportunity, which we were looking at.
Yes. So Dulera, we have a pending CRL that our team is working upon. It is taking a little bit longer to address the agencies queries, but we expect in this fiscal year to be able to respond and potentially, that could be a product also that is available to launch next fiscal year or fiscal year '27.
Okay. Okay. Coming back with this complex injectable. So you will be doing in-house manufacturing for all the products, even Liraglutide, et cetera, from your Nanomi facility or you have some partner -- partnership there?
We have CMOs. I mean, for example, on Doxil, we have a CMO, a partner rather. And then in Risperdal Consta, we have a CMO where we do our manufacturing in Europe.
And other comp is injectables, it would also happen from Nagpur.
Yes. Glucagon and the Liraglutide would be from Nagpur site.
We'll take the next question from Amey Chalke.
Most of my questions have been answered. Just one on the inhaler pipeline, where are we in terms of filing for [indiscernible] and also the complex injectables [indiscernible]? Thank you so much.
Yes. So we are, again, we're pretty far along in development with Respimart as well as [indiscernible] both platform products, the first products. We plan to take exhibit batches this fiscal year. So hopefully, next fiscal year, early fiscal year '26 be able to file to the FDA.
[indiscernible]?
Yes, [indiscernible], actually, we dropped it. We -- based on the competitive intensity there, the number of folks that got approved, we didn't think it was worth investing into the development of the product.
So we'll take one last question from Kunal Dhamesha.
We have 5 minutes more, so we can take [indiscernible].
Okay. Sure. Kunal, you can go ahead with the question.
One for [indiscernible] since we have seen a lot of shortages in the U.S., and there has been improvement in price erosion. But in terms of business structure have you seen any improvement, let's say, longer-term contracts, better working capital, receivable days. Anything on the business front, which would have structurally improved due to the [indiscernible]?
I mean structurally for us, there have been a lot of improvements based on what the team has been working upon from a working capital standpoint from managing the gross to net lines, the [indiscernible] to supply penalties, the back orders, the returns, all of that management has improved significantly for us over the last couple of quarters based on which one sees really limited leakage from a gross to net standpoint.
So structurally, from an overall market perspective, there hasn't been a material change. There have been some new players that have entered like [ Mark Cuban, ] Amazon is getting into -- as it has gotten to generics in the last couple of quarters, but one hasn't seen a material shift from a channel perspective. But overall, the market time dynamics have been more stable, was led by all of the pressures that led to a number of drug shortages, they exits in the marketplace. So we are hopeful that this continuous for the industry.
The second one is a [indiscernible]. So the CGT is it linked to the patent that shouldn't get approval before we launch the product, is it the condition?
Yes. So CGT products until you launch. I mean the -- if there are others that can get approved, they can also get a CGT. So we have our CGT status with the product. We'll have a 6-month exclusivity. But -- and of course, we can forfeit if we don't launch it at a certain time, 75 days after, but of course, we intend to launch as soon as we can. But if the others they will get approved within -- before our approval, they will also enjoy 6-month exclusivity. So they need to be shared exclusively.
But we have already got approval, right?
Yes.
Anyone takes approval before our launch, then we get shared exclusivity, is the correct point of thinking?
Yes, that's how we're looking at.
Sure. So then the launch should be even, and we will be just building inventory?
Yes, we're building inventory right now. Yes.
And on the India business. How are we planning to offset the impact from a patent expiry next year will be in the license business?
Yes. So I think that's the challenge in the diabetes portfolio. So obviously, we worked through most of the loss of exclusivities. We have one coming up maybe at the end of Q4. We believe that we will continue to grow diabetes in this financial and through the financial year so, right now at some 3% odd growth, it will actually pick up, but we will have the challenge in Q4. But once we have that in Q4, we're done, I mean, from that perspective, going forward, we should be able to continue growing the diabetes portfolio.
Sir. And would we be retaining the trademarks that we have created after the end of [indiscernible]?
Will we be retaining the trademarks that from the brand?
Yes. Hopefully, we'll know soon. But as a percentage, per se, it's actually still coming down. IL was about 16%, 17% some time ago last quarter, but that has gone up a little this time around. But in the general sense, the overall savings has been coming down over time.
Because the other molecule in the same category has one generic is that the correct way to understand?
It basically looks -- it lasts for a particular period of time for the contracting that they lose exclusivity. And if we do make a bit for it and we do buy it, then we continue with the charging license in that it's basically an acquisition from our perspective.
And then once we do that, do we have plans to manufacture it in-house? I assume currently, we will be importing the product from the [indiscernible]?
That's the intention for example, we always excited to do that. So through a B2B [indiscernible] own factories.
Then the EBITDA impact would be minimal, right, even if we lose some market share if there...
Yes. I think typically, a market share comes down, obviously, the pricing comes down, but the margin profile improved substantially. So what we see, I mean, in the first year, you do a little less. But in 2 or 3 years, you get back to higher than original profitability. The volumes surge because there's a reduction in price.
We'll take one more question from Harith Ahamed.
Yes. So just a couple of questions. If I heard correctly, you shared guidance of around INR 1,800 crores of R&D spend for FY '25. So that's quite an increase over FY '24. Just trying to understand which are the areas that you're spending incrementally?
So majority of the focus on the R&D front is on complex generics. So the largest increase is on the respiratory products. In particular, the [ Respimat ] and the [ Ellipta ] platforms that also Dulera additional work that we are doing to respond to the [ CRO ], followed by injectables. So I'd say it's a 60% investment around complex generics and inhalation and injectables and then some percentage in biosimilars and the rest is oral solids.
Okay. And the U.S. margins, which you said is currently above company level margins. That's post R&D. Is that understanding correct?
That's right. That's right.
Okay. And last one on the long-acting injectables front, after Risperdal Consta, are we close to filing or are we in late stage of development on any of the other candidates there?
No. I think Risperdal Consta was the primary one that we were interested in on -- there are other long-acting injectables that we are pursuing, but more on a 505(b)(2) platform that early stage, I would say, and we'll look forward to the Risperdal Consta approval and launch, while we progressed the pipeline of the 505(b)(2).
And with your permission, just a quick one on Liraglutide. You said that's one of the launches that you're expecting for FY '26. So how should we think about the competitive dynamics there? Do you expect to be amongst the first few players to launch? Or are you expecting a bunch of players to launch around market formation?
It's hard to predict because it's a really difficult product to make and get the approval from a current experience. So we would expect that it will probably be a staggered launch with the players as opposed to everybody launching around the same time. And hopefully make for a better market because of the fact that when you have a staggered launch, it's always more rational than everyone launching at the same time.
Okay. Thanks, Harith, and to all the participants. I now hand the conference over to the management for the closing comments.
Thank you, everyone. Thank you for your questions. Hopefully, we've been able to respond to all the questions you had on your mind. Obviously, our team is available to address any other questions that you've had. As we've shared, we are very excited about the start to this fiscal year and based on the momentum that we have across all our regions as well as the new product pipeline. We look forward to continue to grow on a more profitable basis. So thank you again, and we look forward to talking to you soon.
Thanks, ma'am. And that concludes our session. On behalf of Lupin Limited, we thank you for joining us, and you may now exit the webinar. Thank you.