Natco Pharma Ltd
NSE:NATCOPHARM
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Natco Pharma Ltd
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Ladies and gentlemen, good day, and welcome to NATCO Pharma Q1 FY 2022 Earnings Conference Call hosted by Investec Capital Services Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anshuman Gupta. Thank you and over to you, sir.
Thank you, moderator, and good evening, everyone. On behalf of Investec Capital Services, I welcome you all for NATCO Pharma's 1Q FY '22 Earnings Call. Today, we have the senior management represented by Mr. Rajeev. He's the Vice Chairman and CEO. And we also have Mr. Rajesh, the Vice President of Investor Relations and Corporate Communications. Over to you, Rajesh sir. Thank you.
Yes. Thank you, Anshuman. Again, good evening, everyone, and welcome to NATCO's conference call discussing our earnings results for the first quarter of FY '22, which ended on June 30, 2021.During this call, we may be making certain forward-looking statements, which are predictions, projections or statements about future events. And anything said on this call, which reflects our outlook for the future or which could be construed as forward-looking statements must be reviewed in conjunction with the risks that the company faces.I'd like to state that the material of the call, except for participant questions, is the property of NATCO. It cannot be recorded or rebroadcast without NATCO's express written permission. We will begin the call with broad highlights and followed by an interactive Q&A session. We hope you've received the financials and the press release that were sent out earlier. These are also available on our website.So we will open up for Q&A, and then we'll discuss [ the tidbits ]. Over to you, Rajeev. Thank you.
Shall we open the floor for questions?
Sure. Let's go.
[Operator Instructions] The first question is from the line of Ravi Dharamshi from Valuequest. Please go ahead.
Sorry. Just wanted to check what is the status on the molnupiravir trials? And what is the time line? And when can we expect kind of an emergency use authorization for that?
Ravi, we already filed for approval, Ravi. So all the data has been shared. We have shared our interim clinical data, and it has been filed with DCGI's office. They are evaluating the file. At this time, I don't have any feedback on when they will -- any time lines or not at this time. But we have filed all the data. I think -- and we have filed that clinical data and all the chemistry data and all that stuff is already done. So we just -- the ball is with DCGI at this time.
Right. One more question on the recovery on the domestic business front. If you can give us some sense on how the things are now today now that the second wave has also subsided. Is the business back to normal? Or where are we in terms of recovery?
I think the domestic has done extremely well last quarter, driven by the pandemic. So we had a few products, which were used in the pandemic. So I think we had a good spurt of -- we had a good earnings in the month of -- especially in the month of April, May, we had very good earnings. May, it kind of petered out -- sorry, June is petered out. So I think April, May, we had very good sales.Regarding the pandemic, I think June has slowed. July dropped dramatically. August, we are seeing things slowly -- the slow increase. I think that's what I'm getting. Actually, it's based on the secondary sales of our product from what I'm getting. Things are -- I think there is some increase in sales, I think that's what we are seeing. Again, it's -- we never predict the pandemic revenue. I mean when it happens, it happens. And -- but our sense is that I think in the next few months, I think there will be an increase in sales.
Just one last question from my end. In our one of our previous interactions, I think you had mentioned that there were some gaps in your overall strategy, one was the domestic piece and second was maybe a front end in U.S. So just wanted to check if there is anything happening on that front? Have you taken any steps for the same?
We are shopping for our U.S. finding. I think we said that in the past. I think we're still shopping. So we're looking at quite a few transactions. But nothing definite at this time where I can say that we're close to a transaction, but we are shopping. So I think that is clear.Regarding domestic as well, I mean, we're always looking for opportunities as well, and we are shopping there as well. So I think -- but between the 2, I feel U.S. valuations are far more reasonable than what's happening in India. So I think that's my sense. But again, we're always looking for an opportunity, and I think that's where we are, yes.
[Operator Instructions] The next question is from the line of Nikhil from SiMPL.
Am I audible?
You are. You are. Please go ahead.
Rajeev, would you tell us how much of the domestic sales would be from COVID and from our regular onco and other businesses? Would it be 50-50 or something?
I -- for strategic reasons, we don't like to spell out literally how much we made in a particular product. I think if you look at the base sale, a good increase has happened on the base sale. So I would attribute a lot of it to COVID. A percentage itself, I don't have an answer to your question, my friend. So I think that's the best I can do. But I think a good percentage of the growth has come from [ CCE ] I think a good trend you can see from last Q and the present Q. I think you see a dramatic increase in domestic. So I think -- if I remember, the percentage is almost a 70% increase compared to the previous quarter. So I think a lot of it is attributable to COVID.
Okay. Okay. And on the export side, if we go by the sequential run rate, in March, we were at 150. And this quarter, we are at 145. Then if we look at it, we had a few product approvals, which we had mentioned that we have launched. So is it like a lot of profit contribution or the partnership sharing will come in Q2, Q3? Or is there...
Yes. Even though we got evero approval in last quarter, the actual launch has happened in this quarter. Because logistically, it took us a while to complete all the 3 validation batches and send. So we didn't launch literally on the day of the approval. There is a lag between the actual approval and the launch. So the actual launch of everolimus [indiscernible] second generic happened in this particular quarter. So there's a bit of a lag there. And strictly it's not comparable because we had the upside of chloroquine and oseltamivire. And now we don't have any sale on those 2 products. So we have minimal sales so to speak. So I think that's the reason why you're seeing a variance in the numbers.But I think the exports will be getting better. I know they were soft last quarter, but I think there was 2, 3 things happened last quarter. I think same -- last quarter -- sorry, same quarter last year, the COVID was raging and there were a lot of supply chain disruptions. So a lot of people bought a lot more stock than normal. That was one reason. And then the chloroquine impact, and of course, we had second wave impact. So these are missing now. So I think that is why they look a little soft. But the business is fairly solid. I think you'll see in Q2 and Q3 things will be fairly steady. Of course, we have our jackpot coming by end of the year. So overall for the year, I think we are very excited about our export business.
And last question on Nexavar, if you look -- go by Bayer own presentation, they themselves are saying that the sales are dropping year-on-year. Do you think that it's still a good enough product for us? Or would you say by the time we launch -- how do you see the position on that product?
I think it's a good product. It's a reasonable size product. I don't know the sale numbers. I think it's like 300-odd million, if I remember right, in that range. I don't remember the exact numbers, so I don't want to guess. But I think in that region, plus/minus. It's a reasonable launch. So you look at it like this, we are the sole FTF, yes? So we have the 180 days. So we'll have reasonable upside. So whenever that happens. I mean we're not supposed to discuss the date, but whenever it happens, it'll be a good one.
[Operator Instructions] The next question is from the line of Mr. Puranwala from Anand Rathi.
Just 2 questions from my end. First, on the India business. What is the status on apixaban? And what is the kind of traction we are seeing, considering I think we have relaunched this product in Q1? So could you throw some light on the new launches on the India business?
I think -- as I said earlier, I think the COVID portfolio did very well. I think apixaban, [indiscernible], posaconazole, baricitinib, these are the 4 major COVID products that we've had. I'm not going to split the sale for strategic reasons, but I think these 4 are the key products. And I think in all of them, a lot of the products have very little competition. So I'd say we did very well in that particular quarter.
Good. And my next question was, is there any update on the crop protection or the agrochem segment? I mean could you provide some highlights on what is the status of the litigation? And are we prepared for launch maybe by next year or so?
So I'll -- let me play it out. So basically -- so we have already announced, as you know, in early July that we got injucted by the Delhi High Court. So we have appealed the decision. So -- and I think the judges are slated for hearing in, I think, around September last week, I think. I don't remember the dates exactly. I think it's around September 20 and 21. I think they gave 1 day to them and 1 day to us. So hopefully -- I mean, again, it's all subject to the hearing going on time and everything going well.So if the hearing is concluded in September, assuming -- I mean, again, that's a big if. With courts, you can never guess. But if all goes well and we're able to conclude the hearings by September end, then the double bench will reserve -- a Division Bench will reserve the judgment. And then we'll -- hopefully, we'll get a decision, which is in our favor.So let's see how it goes. We'll update. Hopefully, by the next quarter call, we'll have some clarity with the cases. And so I think we are hopeful about our legal position, and we believe that we have a very good case. And our view is that if the hearing goes well and we're able to conclude on time, I think we could come back to rabi, subject to the court decision, which is end of the year rabi season.
Next question is from the line of [ Shivaram Gupta from Asta Mine ].
My name is [ Shivaram ]. I have 2 questions. First question is, with some of the cash generating that are going off our portfolio like the Tamiflu and hexy and chloroquine, what is our next portfolio going to be in the next 2 to 3 years? That's my first question.And second question is, we've heard some information from the social media and all that the Morgantown plant has been shut down, which basically does some quality checks for Copaxone. How are the Copaxone sales? And how is it going to impact our sales? And is there any impact at all?
Okay. I'll start on the portfolio. I think in the near term -- obviously, we lost the big ones. But I think we have survived reasonably well. I think -- I know we have not grown, but our profits have stayed flat in the last couple of years in spite of the fact that we lost blockbusters.In terms of portfolio update, I mean, we already spoke about it, but I'll just reaffirm it again. So for this year, my friend, I think there are 2 big ones. So I think the Chlorantraniliprole appeals verdict will be a very critical verdict to look out for. So if that launch -- if that appeal goes in our favor, then there's a reasonable upside that could happen this financial year.And another product that the other gentleman referred to was molnupiravir. Again, we are very bullish about this product. So we have -- we are well prepared for the launch of this product. So -- and it's another -- and this is used in anybody who has mild COVID or in the first line. So -- and we all know COVID is going to be around for a very long time. So we believe that this product has very good potential for the coming few years.So in addition to these two, obviously, we have lenalidomide launch in some major markets. And publicly, we already disclosed that the U.S. launch is in the March quarter of 2022. So some of the earnings will come from there. And the other market also, it's going generic. So we'll disclose the date as we get closer to the launch date.So I think I'm overall fairly bullish. And our everolimus portfolio also should do reasonably well. So we have very good reasonable launch quality that we have sold in this quarter. So I think that will stabilize the business. But I think the -- for a reasonable upside, I think these 3 things will be very important: molnupiravir, the agro product and lenalidomide. I think these 3 are big things to watch out for the next few months, okay?And the last question you had was on the Morgantown shutdown. We have an alternate site where they do the testing. So Morgantown shutdown has no...[Foreign Language]Request for mute, please. Yes. So to answer your question, yes, they have -- Mylan has an alternate site for testing the products. So the shutdown has no impact on us, okay? Thanks. Next question, please.
The next question is from the line of [ Ankush Agarwal from Artifacts Capital ].
Just one quick one. Hello? Am I audible?
Yes, go ahead.
Go ahead, yes.
Yes, Rajeev, if the agrochem [indiscernible] decision doesn't go in our favor, in that case, what kind of cost or damages are we looking at in terms of the litigation costs, damages or inventory write-off you can highlight something on that front?
There's no damages, no, because we have not launched the product. So there cannot be damages when you not cause any damage to anyone, yes? So legal costs are the only one that are already expensed in the balance sheet. So...
In terms of inventory?
So that is not much. Inventory, yes, we have built up inventory. I think we are very clear that if we want to launch a product like this, we need to build inventory. I think the best case scenario is if we get the favorable verdict, then otherwise, we need to carry the inventory into next financial year. The patent goes out in August 22. So that's the worst case scenario. So the launch will get delayed to August 22. I think that is my understanding.
Right. But [indiscernible]?
One moment. Let me complete the answer -- answer the question. In terms of Chlorantraniliprole, I'm not taking a write-off. We believe that we -- if we don't sell it now, we'll be able to sell it in the next financial year. So it should be fine, okay? Next question, please.
The next question is from the line of Nitin Agarwal from DAM Capital.
Rajeev, on the U.S., there has been talk across various companies you've reported around significant pricing erosion in the U.S. Now that is largely for the overall portfolios. But in your portfolio, have you seen anything dramatic on the price erosion side in your in-line product?
I think the other products have been fairly stable. It's been all right. I think we've taken a little bit of hit on the [indiscernible] business. So that is one of the big profit share that we have seen a reduction compared to the last year. So there's been a dramatic drop on that one. But see, Mr. Nitin, that's how U.S. business works. If you're going to see competition, you're going to lose profit. And this business is all about trying to launch difficult-to-do generics and try to be in the first wave. And that's how it works. And I think you just need to come out with a new [indiscernible] every time. So -- and that's the nature of the business, yes. Okay?
And secondly, on our non-U.S. businesses on the formulation side, obviously, you talked about the lenalidomide launch in a few geographies that will happen. Ex of that, how do you see these geographies in terms of the growth visibility for the next 2, 3 years?
It's doing well. I think all our subs are profitable. So Brazil has done profitable this quarter. That's done well. Canada is doing reasonably well. Our other smaller subs like Singapore, Philippines are doing well. We're happy with our strategy of focusing on non-U.S. markets. So these markets now, even in the base case, are representing about 10% -- 13% to 14% of our top line. So there's been a good diversification of our revenue, which was -- these markets contributed almost nothing 3 years ago. So I think we are happy with how we are progressing, and we're also looking to expand other markets, are looking for assets in other markets.So I think the way this business works is, I mean, these are the sweet spots. I think, one, you need to have a smart U.S. portfolio, which are difficult to do. You need to have a smart branded generic business. And three, you need to have a geographical diversification. I think if you get these 3 things right, I think then you can have a successful generic business. I think that's how it works. That's the formula for success. So I think that's what you need to work to, okay?
The next question is from the line of Rahul Veera from Abakkus.
Sir, just wanted to understand like in terms of the domestic formulations, I mean, our earlier top line used to be around INR 800 crores to INR 1,000 crores. How soon can we get back to that? I mean I understand the COVID impact, but ex of COVID impact also, when do we see returning back to that domestic formulations?
I think our peak sales were about INR 800 crores. And I think -- out of which INR 500 crores was hexy, Rahul. So -- and that peaked here. So that hexy has now dropped to like -- annualized, it's drop to, I'd say, about INR 40 crores, INR 50 crores. So there's almost a 90% dip in that business. So in terms of coming back and all, see, we are doing well in these segments that we're operating in. And I think we repositioned our portfolio and focused on the COVID products. So I think -- so you've seen the repositioning that we have seen on the COVID, and that has done wonders for us last quarter. And we have a good position in the COVID portfolio going forward in the next few months.See, what COVID has done is it's done a lot of disruption, honestly. I mean what has happened is the whole today, 20% to 30% of the growth of the business is COVID or COVID-related drugs or COVID-related supplements and so on and so forth. So without being in COVID, you can't do grow in businesses, okay? That's one. So I think in COVID, we have a fairly reasonable strategy.And -- but on the other businesses, I mean, we are doing reasonably well in cardio and onco and gastro. So what we have done is to increase sales, we have launched a division called [ NATCO Reach ]. So we're going to have about 150 to 200 drugs is what we're targeting. So what we believe is this division will focus only on COVID products and other diabetes and all for GP. Because one of the biggest things that I've seen in COVID is a lot of patients don't go to corporate hospitals. They'll actually get in touch with their GPs who treat COVID initially before they go to corporate hospitals.So we have actually launched a division, which focuses on general physicians for COVID and also the allied portfolio of diabetes for the basket. So that is one of the measures that we have taken. To increase dramatic sale -- I mean this is one way. And another way you need to look at an acquisition, a strategic acquisition, which can help you build that momentum. I think there's 1 of the 2 things you have to do, yes.
Right. Sir, because over the next 3 to 4 years, cumulatively, your cash flows are going to be INR 3,000 cores to INR 4,000 crores at a minimum, in my view, in my estimates. So I was thinking why not maybe extensive variation on the domestic side, but why not? It can be a high cash flow throwing business, right?
You don't want to buy something just because you want to buy something. I mean you have to be very careful with how -- you will have some minimum return on capital expectations. See, even if you pay more, then you need to have an idea with that portfolio where you want to take that portfolio. Just because the sake of doing valuation and acquisition, you don't want to do. And I think -- see -- I mean a lot of people have said this to me many times, you get so much cash on books, you never did the acquisition. But see, if we don't find the right acquisition, better not to do a bad acquisition. I think this is my philosophy. I think we'll do it at the right time. I think we just have to -- we have to find something strategic. We just have to be patient. That's all.
The next question is from the line of Kunal Randeria from Edelweiss.
Rajeev, you have been mentioning, right, that you want to buy some strategic assets. So can you, I mean, share with us what exactly you have in mind? And what kind of deals you're looking for? I mean will you co-develop a filing with a partner or in-license straight or buy outright?
I think we've mentioned that in the call earlier. I think what we're looking for are 2 things, Kunal. I think one is we're looking for a front-end presence in the U.S. I'm not looking for any large front-end. I just need a reasonable front-end with a basket so that we can launch our own label. I think we have done a lot of licensing deals for the large ticket in the U.S. And I think especially for the tablet products and all, you need to have your own front-end.The complex generics and all, I'm still comfortable doing out-licensing deals with bigger companies because the regulatory and the expenses and the pathway for that is not as straightforward. So we have changed the model in the U.S. I think we'll do front-end for our straightforward portfolio, but we will do alliance for complex generics. So that's one acquisition target. Another one is the branded generic space, I mean, anywhere India or any other market. So these are 2 areas I believe we need to do, which is, I think, the 2 big things we need to fill in our portfolio.
Okay. Sir, a clarification here. Rajeev, so any other market, I believe it could be, maybe a Brazil, right, because that's your biggest branded market maybe outside of India?
I mean any reasonable market. I mean we look at a lot of opportunities. But yes, I think -- so the core markets are India and U.S. I think these are the big markets. We don't mind looking at other markets also because I'm also very keen on diversification of revenue. But see, it all -- test the transaction by its merit, I think. So we're not averse to any particular market. But anything that -- there are only 2, 3 -- we need to diversify our revenue, build a good branded generic business and have direct access to the market. If it meets the criteria, we'll look at it, okay?
Sure. Sure. And just one more on domestic oncology. Has the competition really intensified or the hospital visits haven't picked up? So do you think that you'll probably be able to go back to a sort of INR 400 crore kind of a peak revenue that you had hit a couple of years back?
I think the portfolio is doing reasonably well. But there is price competition, absolutely, what you said is right. The hospitals are okay. Now like right now, if you ask me this month, things are fairly normal, yes. So at the peak of the pandemic, again, sales dropped a bit. So there's a lot of yoyoing in the sale in onco. And so I think -- I'm not able to predict anything. But -- so we have a good pipeline. We have good launches. So the portfolio is doing reasonably well. I will not say that it's -- it's not doing bad. But again, we have seen -- we faced some brunt of the pandemic and the erosion in the portfolio growth, yes.
The next question is from the line of Kunal from Vallum India Discovery Fund.
[indiscernible]
Kunal, you're sounding very distant from the phone. May I request to speak from the handset?
Yes. I wanted to understand on the safety lab judgment. Could you please throw some light on the specifics? I mean I don't want the exact -- we don't want the exact details. But would you please throw some light on the reasons why the judge decided to rule against and grant the injunction to the innovator?
Why the judge decided to rule against us is your question?
Yes, because we had a fair amount of -- I mean, as a company, a fair amount of confidence that this will work in our favor. So just -- I mean I don't want to know the exact legal thing aspects of it. but just -- I mean does it reduce -- does it materially reduce our chances of getting the correct decision as we appeal to this, given what...
I -- see, I personally believe we have a very good case. But obviously, the judge disagreed with us. And I think we believe we have some very good points, and I think we're taking it up in the appeal. And I think -- but that's the nature of the beast. See, in business, when you do patent litigation, you're going to get some decisions in your favor, and some decisions sometimes go against you. That's the nature of the business. And regarding the judgment, I mean, we -- our lawyers still believe that we have a good chance. We are appealing, and we'll see how it goes.
Sure, sure. And just one question. Lenalidomide in Canada, would it be launched in this year itself in the March quarter along with even lenalidomide in the United set in the U.S.? Or would it be launched at a different time line because...
Yes. I think we are bound by confidentiality about the date. I will discuss it -- I will speak about the data as soon as we're closer to the launch, yes?
And just last question from my end. I wanted to understand whether are we looking to augment our ANDA pipeline, given that -- because when I see the -- when I look at the product line, we do have high-value assets like ibrutinib and Revlimid, I mean, Revlimid coming up in the next -- Revlimid this year and ibrutinib after 2, 3 -- 3, 4 years? But do we have any more plans to add more medium-sized assets where -- which are more niche in nature so that we may have more continuity and less peaks and troughs in our U.S. revenue?
I think we have -- at the portfolio, we have a lot of niches on the 2 you've cited. I mean we have a few other niches where we have [ FTS ]. They're obviously not as large as Revlimid. So we have a very good pipeline. We have about 8 or 10 ANDAs, so -- that we intend to file this year. So I think we have a robust pipeline. In terms of the approval date and launch and all, there's -- some things are 2, 3 years away, but some things that are 7 or 8 years away, depending on how the litigation goes.See, you need to invest for the future. That's the nature of this business. If you really want the big jackpots, you want your 2028 earnings to be very good or 2030 earnings to be very good, you need to invest today. And you can balance it out. I mean like you look at all the big products that we have filed, the benefit of that, these were stuffs that were filed about 10 years ago, okay?So unless you -- the really good stuff, you need to do 8, 10 years ago. And that's how the business works. You need to mix up a little bit. So we need to take care of future 7 to 8 years and, again, balance it out to the near term. So we're just trying to do that in our pipeline. But we like doing things which are more long term than near term, I think, because I believe that's where the real value is, I think.
The next question is from the line of [ Jai Shah ], an individual investor.
My question has already been asked. So you can pass on to the next.
The next question is from the line of Nikhil from SiMPL.
Rajeev, my question was, for CTPR, as we understand that the patent will go off in August '22, would you say there is enough complexity on the product that even if it goes off-patent, it would still be good enough for us as a revenue opportunity? Or would you say then it will not be very attractive for us? Just to understand.
See, the thing with August '22 is if the launch happens in August '22, there'll be more competitors. So when there are more competitors, obviously, the value will not be as much. It'll be more valuable if it happens in this financial year, I think, if you were to weigh whether it -- it's better this financial year as opposed to next financial year. To answer your question, it's better if it's done this year as opposed to next year. But again, we just have to go with what the judge says. We'll wait for the court verdict, and then we'll see how the things fall in place, yes.
Okay. And just one last question. I think this is in continuation with the previous question on the volatility. And I understand, like the efforts, which we've put 10 years back have always yielded results. First it was Copaxone and then now Revlimid. But on the domestic side, in last year, a similar quarter when we had discussed -- are you looking at that -- the secular pillars of growth, which can sustain a 10%, 15% growth? How are you looking at building those pillars? Or would you say over 5, 10 years, NATCO will remain as a company which would more focus on onetime big opportunities? How should I understand over the next 5, 10 years, not the near 3 to 5 years? We understand there is a good near-term tailwind. But beyond that, how would NATCO be built as a company?
I think I'm -- it is obvious to us as a company that we need to have more stability in our earnings. I think we've reached -- when we were a smaller company, we could take these risks. And when these things happen, there's a disproportionate increase in our earnings. But now I think we've reached a more mature stage and I think a more stable portfolio is required. I think you're absolutely right. I mean if you don't have an established portfolio, let's say, a larger peer of ours, like Vidaza or Lupin or [indiscernible].But see, thing is -- see -- so you've to put yourself in my position. See, I cannot -- you cannot recreate that basket that they have in the branded generic space because these molecules have been around for the last 20 to 30 years. And I can't launch, let's say, for example, [indiscernible] and try to do something dramatic on that because that ship has already passed.So what I can actually do is only do newer products. That's something that is in my control. So what you'll actually see the benefit of what we're trying to do, I mean, it looks like it's -- we're being disruptive. But see, if you were to establish a very large brand of, for example, a product like apixaban in, for example, this product is going to be around for many years. And the benefit of that, you will see in the next 7 to 8 years. Because a lot of these brands, which were about INR 20 crores, INR 30 crores about a decade ago, have become INR 80 crores, INR 100 crores because of general increase in the market and more acceptance and general secular growth that has happened.But I think the benefit of what we're doing you'll see in the next 7, 8 years, which would bring about more stability. But in the near term, you'll see a lot of volatility because we are trying to do something -- we're trying to get into a market where -- through litigation and also that, it brings a little volatility, but I think you'll see more stability as time goes.
The next question is from the line of Shivam Gupta -- sorry, [ Shivaram Gupta from Asta Mine ].
Sir, I came back in the queue. I have one more question, in fact 2. How are the -- how is the business in the emerging markets like the Brazil and other countries that we are in right now, number one? Number two, we've been replicative of complex molecules and all. Are we making any efforts to develop our own molecule or drug for any of these diseases that are proven in the industry -- in the world right now?
To answer the regulatory side of the question -- the smaller -- our market -- I think we already spoke about that a few minutes ago. I think this business now is contributing about 13% to 15% in that region. So we're doing well in this business, and we're trying to scale this business up. Regarding -- we are primarily a generics company, obviously. So that's most of the Indian pharmaceutical market. I think most of our revenue comes from generics. In terms of your question specifically, are we doing [ an NC work ], we're doing some work. I think it's very early stage. There's nothing to -- I don't have anything to report at this time, but we are doing some work. To answer your question, yes, we're doing some work.
[Operator Instructions] The next question is from the line of Sameer Shah from Valuequest.
Two questions. One is on the agrochemical side. We are -- we seem to be following a similar strategy of targeting blockbusters. So what kind of ramp-up or team size or -- you are looking at this as an optionality to the business? Or you will also make this as a sustainable larger business? How are you looking at this business?
I think this is a reasonably large business. And I think this product is a very large product, and this product represents almost 15% of the whole agro business. So it's a very important product. And so I think -- you -- sometimes, I just said, these things work, sometimes they don't work. That's the nature of this business. We believe that if we bring about 10% to 15% of our top line coming from agro, it's a good diversification. So I think this comes back to the earlier question the other gentleman asked, we don't have stable earnings and how do you get stable earnings?I think how you get stable earnings is when you have a more diversified portfolio, which is diversified in terms of therapies, segments and geographies. That's what gives you stability. I mean that's what stable earnings -- in my world, that's what it means. I think these segments and these entries that we are trying to do in these markets are trying to bring a lot of stability. I think that's what we're trying to do.
Right. And in terms of segments like biologics or some others, these acquisitions, one you said is U.S. front-end where you can market your own molecules. But anything else that appeals to you?
As of now, I think our focus is on U.S. front-end, and our focus is on diversifying our branded generics business. I think these are the 2 capital allocations I would like to do in the event of an acquisition. I think these are the 2 things we are looking at, at this time. In terms of biologics and all, I mean, I'm always tempted. But again, that's a different -- again, it's a very -- how do I say this? It's a large capital allocation and with a long duration of return.And we're doing a lot of stuff, which is 8-, 10-year return kind of stuff. I mean a lot of the ANDAs we're filing now are launches in 2028 and 2030. So I think we're already fairly investing in stuff, which the payouts are 8, 10 years. I -- if you add biologics to it, then you're adding another one, which will take about 7 to 10 years. So you have to be -- if I see more cash next year, maybe I'll start making the capital allocation. But at this time, I'm not making that allocation.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Rajeev, just on CTPR again. So for your India agrichemical strategy, how critical is a favorable court decision in the launch in the rabi season for this product? I mean does it meaningfully derail that strategy for this business if you don't get a favorable verdict?
So as you spoke about, I think if we don't get a favorable verdict, then obviously the launch will be in August of '22. So if the launch is in August of '22, then obviously the upside that we'd have got for launching this year -- because if you launch now, that's where the real upside is, isn't it? So -- but Nitin, you just have to wait, yes? So I think let's wait and let's see what happens.
Okay. And secondly, in terms of your filings for the U.S., anything that you're looking at for filing? I mean any large filings in your assessment deal for this year that will possibly come through?
I think so. We're targeting at least 2 to 3 first-to-file. So I think we'll speak about it, I think, as the year goes by. By March, I think we're hoping to report at least thereabout 2 to 3 first-to-file. And that's where we are, and very interesting part.
Okay. 2 to 3 first-to-file before March?
Before March is, hopefully, I think if all goes well, yes, I think that's the target, yes.
The next question is from the line of Viraj from Securities Investment Management.
Okay. Most of my questions have been answered. I just have one question on Revlimid [indiscernible]. So we have a volume-sharing agreement with the innovator. And similarly -- similar agreements have also been made by competitors as well up to 2026. [indiscernible] if the inventory will be staying with the first player if this is [indiscernible].
Your voice is breaking terribly.
I didn't understand your question, my friend. Can you -- you have to repeat.
Am I audible now?
It's very garbled, your voice. If you can just -- can you carefully slowly speak and ask your question again, please? I'll...
Sure. So my question is on Revlimid. And it's more of a defining perspective. So we have [indiscernible] and similarly, also...
Your voice is breaking terribly. May I request you to come in a better reception area and talk through the handset, please?
I'm on handset only. Is it better now? Hello?
I'm sorry, my friend. I'm not able to understand your question. Can you just dial back again, please, if you don't mind? Okay. Next question, please, yes.
[Operator Instructions] The next question is from the line of [ Jai Shah ], an individual investor.
Just one question. So what kind of a strategy do we have for the agro business for the next 3 years? Like are we looking to scale up organically? Or are we looking to acquire some company? Like what is it? Also you're talking about some serum-based products that we're planning to launch. So when are we expecting that to be launched? That's it.
I mean we have a whole pipeline. I mean, typically, I don't reveal the pipeline -- we announce once we make enough regulatory progress on these pipelines. So we have an interesting set of about 10 products, I believe, are very interesting and which could make a difference.In terms of pheromones, I think we launched 1 pheromone. So we had the first pheromone for that particular product. We launched a product for cotton for a pink bollworm, which is one of the pest that afflicts cotton. So that product has been launched for the season. So we did a launch this year. So that is driving some of the revenues for this quarter. So we'll see some benefit of that. But -- so we are vetting one other pheromone platform plus our -- and also our chemical platform as well. So we have a portfolio of products. That's it.
Just one question on this. Would the agro business be completely domestic? Or like what kind of sharing do we see between domestic and the international business?
We're looking at both the opportunities, but in the near term, it's primarily driven by domestic.
[Operator Instructions] The next question is from the line of Viraj from Securities Investments.
Yes. Am I audible right now?
Sir, we can hear you, but it's still the same.
Okay. Hello?
Go ahead, Viraj. Go ahead.
Yes. I -- so I just had one question on Revlimid. So we have a volume-sharing agreement with the innovator. And similarly, other competitors also have a similar agreement. It's -- in the -- I mean, what happens in the period between 20 -- up to 2026 if any of the suppliers is facing a supply chain issue or faces a regulatory ban or [indiscernible]. So does the volume come to the first player who has filed the product or it goes to the innovator?
I can't answer that question, Viraj. You're playing out a scenario. I can't answer that question.
Okay. So in our case, I mean, how are we managing the supply chain or the regulatory risk in terms of any prospect of how are we kind of...
I can speak for myself, Viraj, okay? And that's a very good question. What I've done, Viraj, is I have kept 2 plants. So I have -- our primary plant is out of Hyderabad, where we got the approval. And we also have a backup plant in Visakhapatnam, so -- which is in the SEZ in Visakhapatnam. So we also have -- we filed a CBE 30 there. So even that got approved. So we actually are approved from 2 sites, yes. Our primary site is Hyderabad. Our secondary site is Visakhapatnam. So 2 -- because it's such a large product, so we wanted to make sure that we have 2 facilities. So I'm happy to tell you that we have approval from both the sites.
Okay. And what are the challenges you see in terms of scaling this up and capitalizing on this comment?
What challenges do we see in terms of capitalizing...
The risk in terms of capitalizing it, yes.
I think I covered the first risk. You asked me, do I backup facility? Yes, I have a backup facility, and I have what -- and we have approvals from both the sites, which is a very good to be -- position to be in. In terms of the upside and all, I mean, let the market formation happen. So -- I mean there's simple rules in life. I mean your -- how much -- it depends on how the competition comes in. There are many competitors. And obviously, you will see further erosion. So we are just trying to see when the other guys come, and then we can make a judgment of where we are. So I think -- I don't have an answer to that question. So we'll -- I think only time will tell.
The next question is from the line of [ Jai Shah ], an individual investor.
One question on Revlimid. So we have an arrangement of revenue sharing of about 30%-70%. This might be a nice question, but does that arrangement stay even after the patent expires in 2026?
Yes.
So like is there any way that we can amend the agreement after the -- because the profit might be very -- the profit there might be very, very low.
The arrangement is the way we have penned the agreement. I think if we make a lot of money, we'll share a lot of money. We'll make less money if sales [ is less money ]. That's how we look.
Next question is from the line of Rahul Veera from Abakkus.
Sir, just one quick question on Revlimid. In terms of the backward integration, like securing the supply chain from KSMs to APIs, where do -- I mean where do you see any -- do you see any risk there in the system in terms of our volume that has been decided for us?
In terms of supply chain, in terms of the raw material supply, you're saying?
Yes, yes.
We have secure on supply. I think we have already ordered the quantity that is required for the launch. So we're good to go. I think we have secured everything. So -- and because it's such a large product, we bought enough API, which will cover enough demand. So we're all set to go. I think -- I don't foresee any challenges on the launch. We have ordered the API. We've got the capsules. We've got both the sites approved. We have covered every possible base. So I think we played this out in our head, and we have done all the investments which are required to cover to secure the launch.
Right, right. Just a thought process. Like because of the COVID, a lot of plants [ PPA ] plants or even different facilities, we saw some shutdown. And as you mentioned out at the starting of the call that COVID is here to stay. And suddenly it shouldn't happen that because of a supply chain from our raw material supplier, the plant at the last moment or during a launch time is shut for 2 months and we are stuck?
No, no, no, I think we've been very cautious in this product. I think we have ordered the API. We already have the stock. And as you can see, we have approved 2 sites for this product. So we have done everything that we should do to protect this upside.
The next question is from the line of Ashish Thavkar from Motilal Oswal Asset Management.
Sir, one question on this Coragen. So earlier, you used to guide for around INR 200 crores to INR 250 crores in peak sales if you have got a favorable approval in time. But supposing if the approval comes, obviously, during the expiry time, would you still say that whatever we have guided, we could still make 30% to 40% of that number?
You're asking me something I have to judge. What I can tell you is this, okay -- I mean I'll be very straight with you. If the launch happens now, we'll make more money. If the launch happens later, we'll make less money. I think that's the best way you can answer that question.
Okay. Is there varying patterns of quantum, like less would be far lesser, you are saying? Or you would still be satisfied at the end of the day?
You -- I'll be most -- it will be nicer if it happens sooner than later. But at the end of the day, we have to hope that -- this is all subject to the court case, I think we have said that in our communication many times, right. What I can tell you is the opportunity -- I can tell you that we are challenging the market, but it's all subject to the court verdict. And I think if the court verdict is favorable, yes, of course, we'll have the upside. But that's how it works. I mean if you get it right, you get it right. And if the court verdict is not in your favor, then it's the nature of the business. I mean you -- then you launch later. So -- but it's a risk that you take, and sometimes they work, sometimes they don't. That's it.
Yes. Yes. Fair enough. Sir, next question on this [indiscernible] partner for Revlimid. So was just curious to know why are the terms more favoring the partner and not us in terms of when it comes to profit and revenue sharing?
I signed that agreement many years ago. I signed it when I was a much smaller company. So I think at that time, we needed coverage of costs and so on and so forth. So I think -- so that's the nature of -- we had signed it then. And at that time in life, we were not such a large company. Will I sign an agreement today? Obviously, no. But you've signed it then and you honor what you sign. So that's how it works.
Sir, would it be fair to assume that for IMBRUVICA the terms would be in our favor?
Yes. IMBRUVICA is a higher profit share. It's a more -- it's a 50-50 share so -- less the cost of API, which is captive. So it'll -- then we have -- then we actually will get majority of the revenue in our favor. But that was signed much later. So obviously -- so we got -- and we have invested a little more on that. So -- and we're a bigger company now than -- so I think -- this is a function of how much of the money you're putting on the table, right? If you put less expense on the table, then obviously the other partner will ask for a higher share. But if you put more money on the table, then obviously, you can ask for a higher share. It's all directly linked with what you're willing to risk.
The next question is from the line of Alisha Mahawla from Envision Capital.
Sir, my first question is with respect to -- in the domestic business, what is the factory to grow our cardio and diabetes portfolio because it has been -- we have been quite positive on it. But what is the strategy to really grow it?
I think we spoke about that a few minutes ago. I think we have these 3 segments that we are active in: gastro, onco, cardio-diabeto. And I think we have a good pivot on the COVID portfolio. And I think -- I alluded to the products that we launched in the COVID portfolio. And last quarter, we did reasonably well. So I think we are there in all the major growth portfolios at this time. So we have a very good pipeline. I think we spoke about molnupiravir as well. So that's going to be a big product as well. So that's it. I think we're looking good.But it will really make it a very large business, and we also need to obviously probably do an acquisition because we still have a very limited coverage. For example, before we launched this new division that I spoke about, we only had 300 reps for whatever business that we do. So if you look at yield per man, I think ours was probably one of the best in the industry. But again, I don't cover a large set of doctors. I mean if we talk about our other peers, they all have 5,000, 10,000 reps. We only have a fraction of that. So I think to achieve that, you need to cover more people and have a larger portfolio. So either you get that through more launches or you get that through an acquisition.
Sure. And with respect to the agrochemical portfolio, so while we are expecting rabi launch for CTPR and we do -- last call, you did mention that as a pink bollworm product that you have launched. What is our agrochemical pipeline looking like? What are the number of launches we're looking at, say, next year if you want to be in time for the kharif season for this business to grow substantially over the next couple of years?
We have a pipeline. I think the big one, obviously, but -- so the pink bollworm, we already launched, okay? So that is already there in the market. So we just did a launch this year. I think, hopefully -- I think it's a new concept we are selling. It's the first time in India. So we'll see the benefit of that in the next couple of years.Regarding Chlorantraniliprole, I mean, it is subject to the court verdict. So we'll see how that goes. In addition to that, we also have other products, but they will start kicking in around '22, '23. So we have a pipeline. As I said, we don't usually reveal our pipeline. I think we want to get closer to our marketing approval, then we'll speak about that. So -- but to answer your question, we have a good pipeline, yes.
The next question is from the line of Vishal Manchanda from Nirmal Bang.
On agrochemicals, could you share what is the burn that you are taking in your numbers currently? What is the cash burn?
I'll tell you top of my head, I can't collect exactly, but I would say about INR 15 crores to INR 20 crores a year. I think that's the burn we're probably facing at this time.
Yes. You said INR 50 crores?
1-5, INR 15 crores to INR 20 crores operationally, less depreciation of the asset. I don't recollect what the depreciation of that asset is. But it's INR 150 crores to INR 200 crores CapEx and depreciation on that, plus the cash burn of about INR 15 crores to INR 20 crores at this time, which is yes -- we already -- I mean it's reflected in the balance sheet.
Okay. And on the pheromone product, are there entry barriers, which would restrict the competition in the product going forward? And something on how fast this can scale up? And what's your expectation on the scale-up of this product?
So we're working with a partner, ATGC, on this. So we -- and the technology is from them. In terms of scale up and all, the pink bollworm has been a reasonable launch. But the problem with the pheromone platform is the adaptation. You can't -- it is not like -- it's not like a generic when you already have a very large market and then you're cutting price and you're entering and the market is already well developed. So you just have to do a discount and you start getting market share.Pheromone is the exact opposite. So what it is, is essentially -- what you're trying to do is you're trying to build a concept and sell the farmer the concept of using the product. So that takes about 2, 3 years. So I think to say that there will be a dramatic increase in revenue, probably not. I think it will probably take a couple of years before you actually see the benefits of that. At this stage, I think we're just trying to get the adaptation going. So people have to adopt. So it takes time. So -- but you'll see the benefit of that over a period of time. Yes. So I think -- so I'll take one last question if anybody has.
So the next question is from the line of Kunal from Vallum India.
I have a single question. I wanted to understand commercially, how hard would it be for any player, considering after the last set of agreements, you'd have probably 8 to 9 players in development who would come into the market gradually. So how hard would it be for any player to build share? I mean, the reason why I'm asking is that if it is hard for -- and I'm talking about building share commercially. So in terms of the commercial challenges of getting a market share? Because just -- I mean the direction which I'm thinking about is that if it is hard for someone to commercially build share, then it will be -- it would have a higher incentive for them to probably reduce the price a bit and that will be dilutive to all the players involved.So I mean, because we saw the same case happening in the case of Copaxone where Mylan found it very hard to gain share because of XYZ reason and the price had to come down quite a lot for Mylan to have a reasonable share. So I mean -- so effectively, Copaxone ended up making half the half profits of what it could have made if the pricing would have not been eroded. So I mean, just applying the same scenario to Revlimid, I mean, how do you think about that?
I think -- I mean you can't really predict the future. I think what I can say is that we have the first mover advantage. I think that is worth something. And so we are the first generic. So that makes a lot of difference in our business. And typically, on these REMS type of products, we are the first generic. And once the registry is -- and you start the registry and you are the first generic that's getting dispensed, I think generally, you tend to do reasonably well and you get to keep market share.So I think -- and the price and all, I mean, you're selling generics, my friend. Price has to go down. That's the nature of that business. So I think initially, when you're in the first wave, you obviously make more money. But as more competitors come in, prices do fall. But that's the nature of it. And I think you can't really stop that by any sense. You just have to come of it more interesting things and offset what you're losing. I think that's the nature of the business. Okay?
But if the price declines much, much faster than, I mean, what anybody would expect in a scenario like this, I mean, that could also be profit dilutive, could you say that? I mean...
Obviously, no -- I think, yes. But see, thing is until the market formation happens, until we see how the other generics play out, it's very difficult to judge. I mean -- so only time will answer that question. What I can only tell you is that we are -- we'll be the first generic from what I understand. Based on what is there in the public domain, I think we should do well. And we're hoping that we should do well with this product. Yes?
Thank you very much. Ladies and gentlemen, that will be the last question. I will now hand the conference over to the management for closing comments.
No. Thank you so much, guys. Thanks for attending the call, and very nice interacting with everyone. Thank you so much. Good night. Yes.
Thank you, all. Thank you, all. Yes.
Thank you. On behalf of Investec Capital Services Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.