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Natco Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the NATCO Pharma Limited Q1 FY '19 earnings conference call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note, this conference is being recorded.I now hand the conference over to Mr. Deepak Malik from Edelweiss. Thank you, and over to you, sir.
Thank you, and good morning, everyone. On behalf of Edelweiss, I welcome you all for the NATCO Pharma's first quarter FY '19 earnings call. Today, we have with us the senior management of the company represented by Mr. Rajeev Nannpaneni, Vice Chairman and CEO; and Mr. Rajesh Chebiyam, Vice President Acquisitions, Institutional Investor Management and Corporate Communications.I would like to hand over the conference to Mr. Rajesh for the opening remarks. Over to you, Rajesh.
Yes, thank you, Deepak. Again, welcome, everyone, to NATCO's conference call discussing our earnings results for first quarter of FY '19 which ended June 30, 2018.As a standard disclaimer, again, during the call, we may be making certain forward-looking statements, which are predictions, projections or statements about future events. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. So also stating that the material in the call, with the exception of the participant questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's expressed written permission.Turning to the earnings details. For the first quarter of FY '19 that ended on June 30, 2018, NATCO had a consolidated total revenue of INR 574 crores as against INR 449 crores for the last year same quarter, reflecting a year-over-year growth of 28%. The net profit for the quarter on a consolidated basis was INR 181 crores as against INR 94 crores approximately last year same period, showing a growth of 93%.Now during the quarter, we had strong sales driven through domestic business, wherein we had good growth in oncology segment, and the hep C portfolio sales stabilized from the prior quarter. Export business contribution from organic products [ such as ] Liposomal Doxorubicin and Lanthanum Carbonate remain strong. We are hopeful of continued growth of generic Glatiramer Acetate.I will -- to get on with the split for the segments in revenues for the quarter. From a revenue perspective for quarter 1, we had INR 67 crores -- these are approximate numbers, INR 67 crores of API total. Out of that INR 61 crores was exports. The domestic formulation total was INR 191 crores. Oncology, INR 91 crores out of it; non-oncology brand pharma, INR 74 crores; and third-party, the same, this is INR 24 crores. On the export formulation front, we had a total of INR 236 crores for the quarter, wherein the profit sharing, that's a [ significant ] portion, was about INR 210 crores.I'll pause here. Now, we'll take questions.
[Operator Instructions] We have a first question from the line of Aditya Khemka from DSP Mutual Funds.
Rajesh, just a couple for you. Firstly on the U.S. front, how Mylan has slashed the list price, and on the sort of call, Mylan said that the ramp up in market share is slower than they had anticipated for Copaxone. Just wanted to know your thoughts on the same, please.
I think a lot of things are already in public domain. The slashing, they said, doesn't really have much impact as it's only gross to net adjustment. I don't think it has too much impact. The market share, as you're aware, in the mid-15%, 16%, starting 17%. See, our expectation is that it will improve over a period of time. I think we just have to be patient with these complex generics. I think our expectation is that it will improve over a period of time, and then we will be able to see good benefit of that in the next financial year. However, I think this will be important for us, but I think I'd like to give it a little more time. I think it should get better.
Okay, fair enough. And this quarter, did we realize any profit share from Copaxone in [indiscernible]?
Splits we're not doing, Aditya. For competitive reasons, we decided not to do a split, especially for the big products. I think what I'd like to say is that we have an arrangement with Mylan and our profit share from Tamiflu from last year, which after adjustments have come through, I think, those contributed the majority of the profit.
Okay. Fair enough. And lastly, on Revlimid, so this Dr. Reddy is pursuing the IPR for the 2022 patent, if I'm not wrong. How do you see that playing out? And how is your interest protected by your settlement with the innovator?
I think we already said this in public domain. The -- we had certain amendments to our ANDA that we needed to do. So we have already done it. We have already filed those amendments recently. We are hopeful that we should get approval by -- in the next few months. Hopefully, by next financial year, we get the approval. So it should be a good thing to have. And regarding the outcome of court cases and all, we'll see. I think it depends on how it goes. But as I said in the past, if somebody else launches, then under the circumstances, I think we can also enter the market, I think. We'll open it when we have to [ face that event ].
We have a next question from the line of Sudarshan Padmanabhan from Sundaram Mutual Funds.
So my question is around the domestic business. I mean, last year, we have seen the hepatitis C franchise drifting downwards. Are these one-offs if you're looking at the business excluding this hepatitis C? How do we see the growth rate continuing? And what is the outlook that you have for the hepatitis C franchise? If you can also give a bit more color on the launches in the emerging markets which you have?
Yes, sure. I think I have said this in the past that we are emphasizing a lot on the emerging markets in India. I think we have publicly announced quite a few launches that we have done in the last few months where we are first-time generic in India. If you look on a Q-on-Q basis, I think last quarter, our domestic was doing about, give me a second, I will look that up, INR 165 crores or so -- let me just -- INR 191 crores for this quarter. Q-on-Q last quarter, we did about INR 160 crores or so. So there is significant improvement. So I think it's 2 thing there. One is the hep C dip has stopped, which is very good news. And we see our strong launch is contributing to this. And especially the combination products, Sofosbuvir-Daclatasvir, has done extremely well. And even in the oncology segment, we had some very good launches. I think Posaconazole was one good launch that we had. And overall, I think I'm very bullish about this portfolio. I think it should do very well. And on the emerging markets, I have some good news. I think we got -- first time, we got 2 approvals in Brazil for 2 of our oncology products, of which one of them is -- what's it called -- a first-time generic in Brazil. So these 2 products should help us break even after a period of 7 years. I think first time we'll break even. Our expectation is that we will break even definitely in the December quarter. So the Brazilian [ stuff ] was giving us a cash loss of, including R&D, of about INR 25 crores a year. So that will be stopped. So that's another good news that we have had. And on the emerging markets, we have started a subsidiary in Philippines. And as I said in the past, I think, these countries is what -- India, Brazil, Canada and ROW is what's going to drive our earnings. And I think we are investing in assets in front-end and R&D in these markets.
And as far as the U.S. market is concerned, I mean, you have seen lower than expected sales. I mean, how -- probably not giving exact number. Has there been any kind of delay in booking profits with the partners? Or has there been higher-than-expected price erosion? If you could give some color on that side?
Definitely. I think see -- what you are trying to see, my friend, we are very conservative when we book our numbers. I don't like to book a number, again, take a charge back on it. I think we have always booked money on an accrual basis. I don't like to book on sale. I think we are probably different from most people, okay? That's one difference. Second is, in the profit share that we got in the last flu season, we have not booked all of it in June because there's some adjustments that are there. Substantial portion of profit is still there, which we're going to book in the subsequent quarter, not in this quarter. That's one of the reasons why it's lower. So which means that Q2 will be very good as well. Generally, Q2 tends to be pretty lean for us because it's not in flu season. It's right in the middle. So it tends to be lean, but it will not be lean because of the fact that some the profit has been deferred into next quarter because of those adjustment issues. I still believe and I know for sure that we have done very well, and I think the benefit of that will be shown in the next quarter. I think it's just that I've been conservative because we just wanted to understand the extent of the charge back. And now I think we have a grip on what the number is. So I've been conservative and booked less in this quarter. But I think whatever residual is there we will book in the subsequent quarter, okay?
We have a next question from the line of Rashmi from Anand Rathi.
Just want to know, related to other income, it seems to bevery high this quarter, does it include any one-offs or anything else?
I will read through other income. About INR 20 crores came from the export benefits and service income. That's a recurring item. There's nothing unexpected there. But other income also we had about INR 35.7 crores, of which, INR 14 crores or INR 15 crores came up from the foreign exchange fluctuation. So they are both receivable on March 31. And if you restate those receivables around June, then there's a INR 14 crores difference. I think that was one component. And about INR 20 crores has come from those cash deposits that we have had as interest income.
Okay, okay, and sir, do you maintain your guidance of sales, INR 2,400 crores to INR 2,450 crores? Or do you want to [ change it that ] after this quarter 1?
No, I would not change anything. I think guidance is based on what we believe the business is going to be. And I think, as of today, I think we are okay with the guidance. And as said, I've added 2 caveats to it, I think we want market share of Copaxone to improve by end of the year. And I am also hoping that the Tamiflu will have a significant collapse, and I have estimated a certain amount of collapse. I mean, I'd estimate a collapse of -- whatever we have made, I'd estimate a collapse of about 70% to 80% of what we have made. So if those pan out, I think those numbers seem okay. So those are the 2 caveats I would like to add to the guidance.
Okay. And lastly, can you just give us a split on hepatitis C business during the quarter? What was the total sales? And how much it came from domestic and export?
Yes, sure. Rajesh will do that, will give the amount.
Rashmi, for the quarter, we have -- on the domestic brand sales we had INR 69 crores. Third-party, we had roughly about INR 9 crores, exports was about INR 4 crores.
We have a next question from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.
On Nexavar, just wanted to understand if you have settled the litigation there, and can we expect the launch in FY '20?
It's a tricky question what you asked. I'll answer the easy part, we have settled it. We actually have a launch date, which is already in the agreement, okay? So that's a good news. In terms of -- sorry...
Just wondering on the launch date -- what was the launch date?
No, that's a tricky question. We are not supposed to reveal the launch date. It's not any time soon. It's somewhere in the distant future. The date, we'll reveal -- not at this time, because bound by confidentially, they didn't want us to reveal the launch date.
But it's after FY'20 or it's still FY '20?
I said don't ask me that. I'd be violating an agreement. We will tell you when we have to. I think we will be bound by confidentially, we have to honor that confidentially. Two things are confirmed. We have a launch date, date certain launch. Two, the matter is settled, okay? And we believe we have [indiscernible].
And one more, on -- so did this quarter have substantial contribution from Tamiflu suspension or it was negligible?
I said I didn't want to comment on the contribution. It had an impact, yes. It's from both capsules and suspension, [ at least ] in some portion.
But is it fair to say, the larger contribution came from Copaxone during the quarter?
My friend, I can't answer that question. And I said, during the year, these 2 will be driving the earnings, I told you that, I think, I will leave it at that, okay?
We have a next question from the line of Prakash Agarwal from Axis Capital Limited.
First question on the India business. So cardio metabolic, the initiative that you have taken in terms of adding more products. So where are we? And what is the target we are looking for 2 to 3-year perspective?
I think the portfolio should do well. I think we're being very aggressive in the portfolio. We have some very good launches lined up. I think right now, the run rate of the portfolio is about INR 50 lakhs to INR 60 lakhs a month. So it's not a large meaningful number as of today. The price -- we took an aggressive position on 1 particular product called Ticagrelor. I think you probably read that in the news. So we wanted to launch and we got an injunction, so that is -- our hearing is ongoing. So we have not launched it because of the injunction. We are hoping we get a positive verdict this year. But again, subject to the court order. So we're hoping the hearing will close shortly. I think 3 of us have been injuncted on this: NATCO, Micro and Dr. Reddy's. These are all there in the public domain. So the hearing is ongoing. So if that comes through, I think cardio should do very well because that's a huge product. There's only the innovator and innovator’s authorized generic [ form ] in the market. So I think from INR 150 crores to INR 170 crores market. So that's one. But apart from this, we have a quite a few ideas. I think we'll plan it out as time goes by.
Any target you have in mind for next 3 years?
I think it can be substantial now. I think -- I have given a general target for the domestic portfolio. I think what we feel is that the portfolio should grow at around 15%, 20% every year on the base that we have.
And Brazil, you said you had 2 approvals during the quarter. So where are we in terms of dollar million currently and 3 years' target? And would it include products like Vidaza,Dacogen and your Copaxone for future [ products ]?
We're working on different products. I don't want to give away the pipeline at this time. We're working on different products, so I think from the portfolio that we have. We anticipate that the Brazil upside will probably take about the next 1.5 years, 2 years, my expectation is Brazil will strongly contribute to our top line and bottom line. As of now, it's losing money. I think first things first, I think we'll break even starting from December quarter. I think that's the feeling I had from the 2 launches that we had. And we also have some good products in the pipeline, which [ I'm ] anticipating approval soon. If those come through, then I think you should see a substantial jump in earnings.
But it [indiscernible] size?
A couple of years, it might. Actually 1.5 years to 2 years.
What's the size today, sir?
Size right now, I think, quarterly run rate of that -- I -- let me just pull that up. Give me a moment. I think it's about INR 8 crores to INR 10 crores -- INR 8 crores a quarter.
INR 8 crores, okay. And we can expect a substantial jump in that?
It will be a substantial jump, and I think we had a onetime [ pick up ] there, so. But having said that, I think, as I said, this cash loss will be arrested and I think we should -- we'll be in the money starting from the December quarter. I think that's our expectation.
Okay, understood. And lastly on the U.S., sir. So what is the R&D run rate we are doing? And what are the kind of filing we are doing for the quarter, full year? And what kind of approvals we're expecting?
I think the ones that we've spoken about, I think our R&D spend, I think, that's for the balance, is about 7%, 7.5%. So we still -- target it to be between 6% and 8%, Prakash. That doesn't change. So it's 7.5%, if you look through last year number. And in terms of U.S. launches, I think that 2, 3 we have spoken about in the past, I think [indiscernible] is one. I think we have a TAD date shortly. I think I -- don't hold me to it, but I think it's a short period, in the next 2, 3 months, subject to FDA approving that. We have a TAD also on Imatinib. So that also, I think, is around in the October -- September, October region, both of them are in that. But TAD doesn't mean that we'll get an approval, but that's the TAD that we have subject to us answering all the questions the FDA being satisfied. And so those are 2 launches that we have in the U.S. right now [indiscernible].
And the filing, sir?
I don't know [indiscernible]. Yes, we have 2 launches, but [ whatever the situation ].
And the filing -- we did any filings for the quarter? What's the filing target for the year?
The filing target remains around 7 to 8, my friend. I don't think we are targeting more than that. I think we're trying to look at more complex generics and interesting products. We hear something good, I think, hopefully, we have targeted some first FTFs. So I think hopefully, if we have FTF and then we are through, I think, we'll probably make some announcements, based on obviously us hitting the goal. But we're targeting at least 2, 3 FTFs this year.
We have a next question from the line of Sriraam Rathi from ICICI Securities.
One question, this is on the profit sharing, you mentioned that some part has been deferred. Is it possible to give some kind of indication, I mean, is it substantial or more than INR 50 crores or less than that, something like that?
Could you say that question again. I didn't catch it. Just because I want [indiscernible].
Yes, you give a profit-sharing amount, you mentioned some part has been deferred because of the conservative policy. So just want to get an idea how...
I don't want to say the number. You'll get it in the Q2 numbers. I will not say anything right now, okay?
Okay, got it.
As I said earlier, going to be a good number. I think we should be able to do well. That's all I can say.
We have a next question from the line of Nitin Agarwal from IDFC securities.
Rajeev, on FY '20, is there any more -- we obviously did speak about it in the last call. But is there any more color that you can help us give in terms of how FY '20 versus FY '19 can play out? Is there any incremental development that happened since last few months?
I think FY '20, I mean, is going quite fast. I think we'll have more clarity in FY '20 by end of this year. But I think the things that we're working on, which I believe will -- which we need to deliver in FY '20 is that Brazil has to turn around substantially. Domestic has to do very well and these 2 -- on the emerging part, [ hopefully ]. These 2 markets will definitely drive our earnings for sure. And the third part is Copaxone should do well, I think, we'll give it a little more time. And I think as you know, Tamiflu benefit that we had, we lost it for this financial, but it won't carry into '20. So Copaxone has to take the slack. So I think that's also important how Copaxone does. But I know Copaxone is not -- it's not doing so -- it's done all right, we could have done much better. But I think we still have time because it has a buffer of earnings on other products that we have. But I think once -- but I think Copaxone has to take up slack in FY '20. I think that will be very important for us for next year. But I think [indiscernible] will take another 9 months, I think.
Sure, absolutely, absolutely. On the domestic business, what do you see driving the domestic business? Because the CnD business is still reasonably small, right, for us to create a meaningful delta. Or do you think it's going to scale up so much over the period of time?
It is like this, I gave an example of Ticagrelor for example. Like, we got injuncted. Obviously, it's unfortunate we got injuncted. But if we got the launch, for example, and could have been 1 of the 2 generics. On a INR 150 crores, INR 170 crores brand. If you're cutting the price of the innovator by half or even more than that and you entered the market, you would have easily gotten a very good share. So we're looking at opportunities like this and have given an example of one that we didn't succeed, but like everything in life, you have to try different things. Sometimes it works, sometimes it doesn't. So these are the type of opportunities we're looking at. And because, you know what, it's not the only one that we're looking at, so there are other things that we're looking in other segments. So I think we have enough ammunition, so to speak, so you have to go at it and then see how it goes. But for competitive reasons, obviously, one wouldn't say what products you want to do. Obviously, you want to sell that, and obviously, you don't want to open yourself up -- you don't open up your strategies, so. Okay?
Sure. On the subsidiary business, barring Brazil, are there any other subsidiaries you'll scale up meaningfully over the next 1.5 years?
I think Canada as well. I think Canada, last year, did about CAD 15 million. So that has also made money last year. So that has done very well last year. So my anticipation of Canada is [ either ] expecting that we hit about CAD 20 million, CAD 35 million this year as well, based on the new launches that we have had. So, I think Canada also [indiscernible]. I think Canada and Brazil I think -- I think Brazil will be more about breaking even this year rather than to make substantial profit in Brazil. Actually, we should see good amount of profit from Brazil in the next financial year, I think that's our expectation.
We have a next question from the line of [ Shrikant Akolkar ] from IIFL.
I had this question on -- over the last conference call, you actually said Copaxone would remain an annuity product. So does that guidance remains?
On what product? I'm sorry, I didn't catch what you said.
Copaxone.
But I'm sorry, I didn't catch the word you said.
Okay. In the last conference call -- last quarter conference call, you had said that Copaxone will remain an annuity product for you even despite the competition. Now when Mylan has cut the prices, does that guidance remains?
No, no, it's still an annuity product by any sense. I mean, I am not taking those words back. What I'm trying to say is that the scale that we expected has not come. That's what I was trying to say. The gentleman was asking me, for FY '20, what is it that you have and what? So what I was trying to tell him was that Copaxone has to improve so that's in our -- so that our earnings will look good in FY '20. But I also told him that it is taking time, but we have time and that hopefully, by next January, we're able to get substantial market share. I'm not questioning the annuity model of Copaxone. What I'm questioning -- what I'm saying is that the scale has to happen where we get -- if you want higher profit, then obviously, it has to improve. I think we can get 15% there.
Okay, okay. And after the Mylan price cut, what is the likely market share that you and Mylan are expecting going ahead?
Good question. I have no idea, so I think we have been struggling. We have been trying. But as I said, we have time. I think we have other things that have worked for us. So fortunately, I think we've had time to go through the growing pains. Critically, I think what I believe is that it should get better over a period of time. And I think hopefully, if it gets -- as long as we give it some more time, I think, my view is that we give it another 2 more months. And as long as it catches up and it improves by next year, I think we're in good shape. I think that's how it gets.
All right. And just last question. How do you see the U.S. market? Because you are already of the opinion that there is a lot of pressure in U.S., and we are reading from the commentary of some pharma companies that the pricing pressure in the U.S. is likely to bottom out soon. So what is your comment on that?
My personal view is, U.S. is a very difficult market, even today. I mean, even if you say the pricing pressure is bottoming out, it doesn't offer a significant upside, I think, unless you have something special and unique. I've said this in the past is that unless you have a unique generic or a limited-competition generic, it's very difficult to make money in the U.S. Okay? That's the first part. The second part is, I think, all of us have done this for many years. I think essentially, if you look at the India pharma model has been that we do great domestic brands and do a U.S. generics business. And we want to grow or drive even now 70% to 80% of every balance sheet. At some level, I think you need to sort of relook at that model, I think how we want to do the sort of the allocation of resources [ to now ]. And in a way, you have to really look at the model because this has worked for nearly 17, 18 years. And I said, I'm not disputing that it has not worked and people have not done well, but I think we need to tweak it slightly. In my mind, I believe we have to tweak it slightly. And we have to do U.S. I'm not saying we should not do U.S. It's still the most important market in the generic spaces. But we need to have other things that we're working on, which are equally important, which are out of the U.S. geography as well. I mean, that's the retweak that I would believe needs to be. In my mind, I already worked it out in my head. I think this is what -- this is how the business is going to be. You have to do U.S., but you should not overdo U.S. like the way all of us have done it, even including myself. I am not saying that I am somehow different from others, but I have done the same thing, too. What I'm saying, even in my mind, I think we should probably move away a little bit from the U.S. and focusing some more on the [ ROWs ]. And at the same time, do certain work where you think there is value. Does that make sense?
Oh, yes, yes.
We have a next question from the line of Gagan Thareja from Kotak Investment.
First question, related to Copaxone. What do you think is behind the slower-than-anticipated ramp-up in Copaxone? And what do you foresee as kind of the competitive scenario in Copaxone in F '20?
What's the reason? I think Mylan has said a lot of things about it. It's available in public domain. I don't want to add anything to that. But -- so as I said, I think we are hopeful that it will get better. I think our expectation is, by next year, we should do well. I think -- I said I'm not worried about the fact that it has not taken off as of now because we have the basket of other products that are doing well. But having said that, I think it's very critical for us that it gets better. And then give us time. I think we're still in June numbers right now. I think in the next 9 months, if it improves, one thing, I'll be very happy. So at least that should give us some time and see how it goes. And then also, it sort of reinforces that, even though we're doing a complex generic, getting market share is not easy, I think, let's be honest about it. It's not -- the conversion will not be mild, not like the way it happens in regular generics. Like, in fact, the conversion rates are much easier and faster.
Does your optimism for FY '20 on Copaxone sort of predicate on a certain competitive scenario or as a base case?
I am not talking about competition, my friend, I think, even standalone also, there [indiscernible] there's not much market share that they have [ taken ]. I think we have the first-mover advantage, and I think we're doing well, I think, considering the situation. I'm still very bullish about it. I think let us not underestimate the value of the asset of Copaxone. I think it's still -- for a company of our size, it's still a substantial asset. And the only – the only question is how value is derived, and that's the only question that we need to ask ourselves. I think we cannot take away the value that it generates, I don't think. It's a great asset in the complex generics, we have to stay for some time. And it's not easy for a new competitor to come in and take market share. We have seen that also. So I'm very -- I'm still very optimistic, I'm still extremely optimistic. But I will tell you, we have to wait. So let's see how this goes. So -- but I'm still very -- I'm very positively optimistic.
Okay. The second question, on the domestic market. One, what sort of sales force headcount ramp-up would you require for fortifying the domestic sales growth ramp-up that you have in mind? And secondly, what sort of fallout do you see from the insurance policy that the government is planning to implement towards October and November this year over a 3-year or a 5-year time frame?
In India, you’re saying?
Yes, yes, in India.
India, okay. Let's see, in terms of the specialty portfolio that we have is that what we have are sufficient. We don't need -- I don't do GPs or [ bio mix ] or any mass products which requires me to cover like 10,000 or 15,000 doctors. All the people that we cover are specialty doctors. So our field force that we have, about 300, 350 people, is more than sufficient for the portfolio that we have. So I'm not worried about the foot on the ground. Second question that you have, on the insurance, I -- there, you get the insurance. I'm not very convinced that it will have much impact on our portfolio, really. Because insurance is essentially what – especially very similar to what a lot of the richer southern states have had already for many years. Like, for example, the state of Andhra Pradesh and Telangana had this program for almost a decade, I would say, or less than a decade, obviously, but for a very long time. And I think a lot of it revolves around quarterly reimbursement and low-value drug reimbursement, not for the portfolio that we have. So I'm not -- I don't think that insurance policy will have much impact on the portfolio that NATCO has.
We have a next question from the line of Charulata Gaidhani from Dalal & Broacha.
My question pertains to the hep C portfolio. What is the type of growth that you anticipate from here? And are you limiting hep C only to India? Or is there a possibility of scaling up?
We have filed in other countries. We are filing -- I think we are setting up programs in Philippines and Indonesia. They are the big ones that we are anticipating approvals for. Other than that, I think India is going to drive most of the earnings. I think India, I think as of now, the numbers are stable. I think that's the best way to put it. I mean, how the year is going to be, I don't know. But I think the way we look at it, the numbers have stabilized. Okay? The dip that we have seen has stopped, and now the numbers have settled around the numbers that we have spoken about in Q1.
Okay. But why did this happen mainly?
Why did this happen? I think this has happened because of the intense price competition. And I think [indiscernible] -- and I think -- and also, we are seeing -- earlier, there was more entrants. Now the entrants have sort of stabilized. And so every generic goes through that [indiscernible]. I think the best way I can characterize that is, like, when you enter into a market of -- when you're first, you get very good market share and it ramps up very dramatically. Suddenly, there are about 10, 15 guys who come and then crack the market. Then suddenly, your sales kind of plateaus or dips slightly or drops slightly, which is what happened here as well. And eventually, what happens is all the other marginal guys leave because they finally realize that there's no money to be made. The top 2, 3 who are there in the segment remain, and then the brand stabilizes after that. So I think what we have seen is this ramp-up and the dip. Now I think we are going through the stabilization stage, so.
Okay. So from next quarter, should we see some upside then? Because I think...
I don't want to say anything that I'll have to take my words back. We'll see. I think we're -- I'm telling you the way it is. It has dropped so far, now it has gotten better. Now we think it's stabilized. Now we'll see how the year [ plans ] out, right? I don't want to say anything that -- because I don't have an answer to that question. We'll see.
We have a next question from the line of Kunal Randeria from Antique Stockbroking.
So listening to Mylan yesterday, according --
Go ahead. Sorry.
Yes. So listening to Mylan yesterday, they have been a bit frustrated with the U.S. health care system. And Copaxone is probably the casualty of...[Technical Difficulty]
It sounds like there is some cross-connection. Yes, go ahead with your question, go ahead.
Okay. So since Copaxone is a causality of the opaqueness in the American health care system, so what is the lever in place that Mylan has to increase the market share besides price? And where do you think this price erosion will finally settle?
I don't know. Honestly, I don't have an answer to all your questions. I think broadly, what happens is -- I don't want to get into, like, what Mylan is not -- it's not appropriate of me to get into. I think the importance of rack and net is what you're talking about. I think what happens in the U.S. is rack price tends to be one number and net price tends to be another number. So rack could be 100 but net could be 50 or 30 or 20, meaning there's a charge that people give. And insurance companies reimburse as a percentage of rack. So what Mylan has done then is they have dropped the rack price so they can put pressure on the reimbursement, I mean, that's what they're trying to do. And what Mylan is trying to say is that there's an element of layering because of the difference between the rack price and the net price. But see, now these are all -- I don't want to get into whether -- what it means and all that, but this is what they're saying and this is what they did. So I think that's the best way to answer you on that point. Yes?
Okay. I guess, they also said something like, despite their product being much -- priced much lower, I think they are not getting the kind of orders. So that's what they are...
I don't want to get into that debate. I think we have already said enough about it. I think I told you what the issue is. I think there's a rack and there's a net price, and I think there's a certain amount of layering that is there, and even reimbursed on it on a certain percentage of rack and that's how it is. Okay?
That's right. And the second question on Tracleer, what's the kind of competition you expect? And have you taken a Tracleer launch in your FY' 19 guidance?
We have -- no, I've taken it for approval, but I don't know how much money we'll make because I don't want to say anything on it because everybody knows in public domains, there's about 8 to 10 approvals so -- 8 to 10 filers. We have a TAD shortly, and there are maybe 9 that we don't have a TAD. But we should get the approval, and we shall also hope that nobody else gets an approval and that we have a first-mover advantage. I mean, those are all like very kind expectations to build on. And so let's see. I think what we need to look for is 2 things, my friend. I think we should look for our approval, and hope and pray that no one else is also there. I think there's a limited amount of competition, then maybe we can do something with it. So it's tied up with Lupin. So the marketing part is Lupin, so. So let's see. I think let's get the approval and then let's talk about it, yes?
Okay. And lastly, what are your plans of commercializing such a complex product as Copaxone or Doxil in rest of the world markets?
I'll speak about that. I think we are looking to file Doxil in other markets. So we'll talk about it shortly. We have done some clinical trials. We'll make an announcement on that separately. So we're looking at other markets as well? Yes, that's correct.
We have a next question from the line of Mitul Mehta from Lucky Investment Managers.
Sir, my question to you is, your onco portfolio, just wanted to know Y-o-Y growth in your onco portfolio? And you have hep C, as you've indicated that [indiscernible] has stabilized, but can we estimate some sort of growth in hep C? Or it will move as the way it is? And sir, on your U.S. business, just wanted to make some sense on the doxorubicin as far as market share goal and what's your outlook on that product. Is it going to be like a 2-, 3-year opportunity or a multiyear opportunity for us as far as doxorubicin goes, and just to get some sense on the cash flow?
Okay. I think -- and I'll start with the Doxil. So Doxil is doing well, my friend. I think I don't have the IMS numbers of how much market share we have, but we think it's strong and we are [ hoping ] on that product. It's doing well. I'm very happy with what we have done with the product. So -- and I think we're extremely happy. And it's contributing to a significant part of our profit. So that answers Doxil. The -- what was the other one that you said? About what you -- what was the -- oh, oncology year-on-year numbers, yes. I think -- let me see if I have the numbers. Give me 1 minute. So the last year, oncology was more of flattish. We had a 5% growth in oncology, Mitul. But historically, we've had around 25% growth, right, on oncology. So this year, I think we should do about 15%, 20%, that's our expectation. But as of now, first quarter has opened quite well, so I think we're doing well.
And in hep C?
Hep C, as the lady asked a question, I don't know that. It's been such a yo-yo product. I mean, it will climb up very dramatically and then it corrected quite a bit. And now it's come back to a certain level now. So we'll see. I'm taking it as it goes.
Yes. And other question on the Nexavar opportunity. Obviously, you indicated that you have settled it. So is this going to be a REMS product for us? I mean, just in terms of what is the market size because trends, from where I was reading, it's $190 million, and somewhere it says $455 million. And so if you can just...
I think if -- I don't want to be quoted. I think just look up their balance sheet, I think it's between the $350 million to $450 million level, I think, somewhere in that range.
And who is the partner with us on Nexavar?
Mylan.
Mylan, okay. And sir, as far as the suspension of Oseltamivir goes, are we -- Tamiflu, I mean, are we going to get something out of it this year, this season? Or we'll be like...
Yes, we'll get -- I think the extent of what we'll get will depend on the competition and how the flu is.
Right, okay. Okay, great. And just in terms of CapEx, I mean, are we more or less...
We are doing well. I think we have planned about INR 400 crores of CapEx this year. We've spent about INR 100 crores in this quarter.
Okay. So balance INR 300 crores will happen in the remaining?
Yes, yes.
Okay. And any inspection that is awaited by the U.S. FDA for any of our plants in ensuing quarters?
As of now, I'm not aware of any.
So we have a next question from the line of Sameer Shah from ValueQuest.
Sir, what is the cash balance that you have on your balance sheet as of now?
As of June 30, we have total cash balance of INR 1,434 crores, including bonds, shares, deposits, financial institutions, everything together, INR 1,434 crores.
And how are you planning to utilize it because [indiscernible] on Copaxone and Tamiflu this year also, you have been generating good cash flows?
There's one thing I need some [indiscernible], give me a second. And the total debt we have is about, including foreign bill discounting, INR 67 crores. Okay? And some of it is advances also. So what are we going to do with the money? I think we're going to spend some on CapEx, but most of it will be left in the fixed deposit portfolio.
But how do you plan to use it? Because that business, that is not generating any yield as of now for us, and cash flow will continue for us. So what is our plan? Eventually, do you -- how do we plan to utilize it?
I think we're taking some very interesting bets on some products. I think we'll probably use it over a period of time. If you are asking me, right now, will I spend all this money? No, I am not spending this money.
Any particular geography, because U.S., you say, is not a very competitive market and India also doesn't need any -- much of [indiscernible]?
Well, it doesn't need -- it depends on what you're doing. It's not like if you're doing, like, small incremental stuff, you don't need that. We have some interesting ideas which will require substantial CapEx. I think when the CapEx -- most parts will be funded with the cash flow that we have. Maybe there's just a little bit in the cash, but most of the deposits will have targets. And I think, see, just because we have cash, I mean, you don't do harakiri. No, you don't go and buy someone for whatever it's worth. So you do when the timing is right. So I think from now, I -- if you don't have a smart idea, it's better to leave it like that. I think that's my opinion. And I think you don't do a subpar investment just because you have the ability to do it.
Are we looking at Europe or something in that geography?
No, my friend, I am still more than [indiscernible] ROW and third-world and some in the U.S.
Okay. And sir, Copaxone is an [ Atoris ] launch. So what is the status? Is it still an [ Atoris ] launch? Or it's on [ mutation ]?
Within that, our agreement with Mylan covers and limits our damage, but there's a certain risk in there, so it's correct.
When will that -- or when will you get clarity that the risk is off?
I think by end of the year.
By end of the year.
But once the appeal is -- the appeal is pending right now, so once the appeal verdict is through, then we will have clarity on that.
So we have a next question from the line of Ranvir Singh from Systematix Shares & Stocks Ltd.
The first, related to Brazil. In Brazil, how is our marketing regimen? Do we have marketing ability or we have some partner there?
They are marketing directly, especially tenders. We're going to do hospital tenders, we're going to do directly. And behind it, I think we're going to do sort of a licensing [indiscernible], but there are 2 aspects to Brazil. I think there's this hospital tender and the branded generic space. So the hospital tenders, we are going to do it ourselves.
Okay. And secondly, on the gross margin. You see, despite this quarter receiving lesser profit share, gross margin has been intact. So just really wanted to understand this kind of question, what's actually contributing there? Because subsequent quarter then again we will have a part of profit -- a bit of profit coming in from third-party sales. So do we expect this gross margin to increase or how it works?
Gross margin is based on -- see, there are 2 things, my friend. I think gross margin is based on the product mix that we have, so that is one. And the second part is sometimes, we stock material, so then the gross margin drops because we're not looking to profit on the raw material. Like, we will have 1 quarter where, let's say, I spent INR 100 crores worth of raw material to our partner with a very low margin. But the sale accrued on that is not booked. The sale accrued is booked in the subsequent quarter. You should look at it on a yearly basis to cover it, to take away the -- you should not look at it on a quarter-on-quarter basis. That can kind of misleads it.
Okay. So on a yearly basis, can you give some indication on what kind of gross margin we should expect there?
I think we've given a guidance on our numbers. I think we'll stick to the same guidance. But if that's what it hands off and similar margins that we had like last year. The gross margin came in based on the price erosion as well. You could do the calculations, greater than what your anticipation is then also the gross margin will drop dramatically. So you should use that as a base and work forward and backward with what -- how the market is.
We have a next question from the line of Nimish Mehta from Research Delta Advisors.
I have a few questions. Wanted just a clarification in your optimism in Copaxone is losing a 5% [ market share ] to more competition at one time? Second, do you see price erosion? Or you still expect price erosion not to happen and market share going up. Just wanted to understand if [indiscernible].
The issue is not price erosion, Nimish. I think Mylan also said their issue is not that of price erosion. We are offering lesser price [indiscernible] and the issue is the conversion. I think it should still convert. I think that's what we needed improvement on. It's not a question of price, I think, an issue of conversion. So I think what I said was that, this time, if the conversion gets better, then we should see some good value for a change. And while the gentleman asked me, what is our -- is that -- so what I told him was [indiscernible], we're giving it some time. So I think hopefully, by next financial year, we're able to see significant conversion, which will help us with our earnings in 2020. So that's what I'd say.
And in that year, do you expect more competition coming in? Or do you expect...
Again, I am reading what you are reading. So it's a tough one to get competition in. Anyway, even if competition comes, getting conversion also is not easy, as you've seen that kind of also, okay?
Yes, one last thing. Out of curiosity, you launched the [ Pomalidomide and Carfilzomib ] and [indiscernible] market. So aren't we constrained by any patent [indiscernible] what could be the competitive landscape [indiscernible]?
See, my friend, [ Pomalidomide and Carfilzomib ] are generics. So we don't need to do clinical trials, we need to do [ biosimilar ]. And...
We also did -- they don't have -- they don't do their [ company protections ]?
I'm sorry, say that again, my friend? Say that again.
The -- sir, they don't [indiscernible] the production in there [indiscernible]?
I understand I will have to wait. I -- now you hold me to it. I can't answer a question. [ Pomalidomide ], I don't think there are any patents, top of my head. I stand to be corrected if I go into it. But I don't think any patents on [ Pomalidomide ]. [ Carfilzomib ] has a patent, but I think we have challenged it, and we're earning the profits.
Okay. So anybody who wants to launch will also have to go through the challenge, right? Is that a fair understanding?
So far, we have not been injuncted on patent. There is a granted status on patent, we have challenged it. So far, we've not been injuncted.
We have a next question from the line of Dilish Daniel from Geojit Financial.
Sir, what about the status of Revlimid, since we have the patent in [ French bank ]? So what is the competition? And have any chance that we will be launching it earlier than 2022?
Settled it. So I think just to refresh you, we have settled the product. We have a launch date in March '22 for a limited quantity. And so we're expecting approval, as I said at the beginning of the call, hopefully by end of this financial year. And about others, we'll see. I think it's others come in, then some of the clauses will kick in. But we'll see how the others do, but our launch date is fixed. Yes?
We have a next question from the line of Srihari from P.C.S Securities.
Sir, since you indicated that you expect gains in market share for Copaxone in FY '20, I would like to know if you have considered any significant price correction? And secondly, on the staff cost, came in -- except for Q4, where it was around INR 110 crores, it's been in a range, so is there any ballpark figure that would be [indiscernible] can work with? And finally, was there any impact from the China factors as far as the raw materials are concerned?
I think Copaxone, I already answered this question. I think I already said, I think, on what are our expectations were. To answer your question on the HR angle, I think Q4 had a bonus and HR expense. So that -- I think that's why the -- on Q4 to Q1, there's a difference and the wages have dropped because we gave a onetime bonus to the employees because we had a good year. In terms of wages, going forward, I think there'll be a 15%, 20% increase, driven HR costs because we recruited people and then they'll -- increments that we give to the employee. So it remains stable, that's our expectation. And you had one more question, I think I missed it.
Yes, China factor.
Relatively, I think China factor hit the industry very hard. I think it's been less reported and less understood. But especially on some of the products, there's been a dramatic increase in raw material price, which has affected the earnings. Fortunately, for our portfolio, we had impact from 1 or 2 raw material suppliers. But overall on our portfolio, the impact has been mixed.
Okay. So just to reiterate, I mean, for Copaxone, you don't expect a significant price correction in FY '20?
I said it's not about price correction. I answered that question with the other gentleman on the line. This is for a [indiscernible] [ conversion ], right? So I think we will see -- you are asking me about something that's going to happen in 2020, and this is not -- if you ask me today, I can't predict what is going to happen in 2020. All I can do is give you like what my expectation is in '20. I think we are hopeful that we'll do, I think, our expectation. Now you're asking what the price erosion in that year is, what the market share that year will be? And our expectation is that we get good market share and we get a good price. But however, I think time will tell. I think that's the best way to answer the question.
That's fine. And in products, you don't expect a significant price correction?
You infer what you want, my friend. I think we will leave it at that, okay?
We have the last question from the line of Vishal Manchanda from Nirmal Bang.
On Copaxone, wanted to understand, Sandoz was selling that generic version and that brand, while you are not. So is it that Sandoz has some differences with -- differences from Teva's Copaxone and that is why they sell it under brand? Or they have -- there you are different reasons for them to?
No, no, no, Mylan also has a brand. Mylan also has a brand name on it.
So why is it, sir, you're selling it under a brand name? What impact the subsidiary it would be, too?
No, it doesn't. It's an area that -- it is just a generic substitution, the way of selling a product. I think Mylan also has a brand, these guys also have a brand.
Okay. But does that lend more sustainability to the business, is that the reason?
Possibly. I think we believe that there's some element of promotion involved in it, so I try to reflect taking it to the business. Yes.
Okay. And any other reason?
No, not -- that's the way it's sold. I think that's the best way to explain that.
And on the conversion aspect, just trying to understand, is it back to the federal appeals court ruling is pending, payers might be going slow on the conversion, as when as, in case the federal court ruling goes against, they will have to reconvert patients to Copaxone?
I don't think so. I don't think that's true.
Sir, we do not have further questions. That was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir.
Yes, thank you very much. Again, thanks for all your questions. And we will upload the presentation with the segmental breakdown as well end of the day. Any questions related to this call, please feel free to reach out to us. Thank you very much. Thank you so much, Deepak.
Thank you very much, sir. Ladies and gentlemen, on behalf of Edelweiss Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.