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Natco Pharma Ltd
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Good morning, ladies and gentlemen, and welcome to the Q1 FY '23 Earnings Conference Call of NATCO Pharma Limited, hosted by Edelweiss Securities.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Kunal Randeria from Edelweiss Securities. Thank you.
And over to you, sir.
Thank you, Michel. Good morning and welcome, everyone. On behalf of Edelweiss Securities, I welcome you all to NATCO Pharma's Q1 FY '23 Earnings Conference Call.
We have with us Mr. Rajeev Nannapaneni, Director and Chief Executive Officer of NATCO Pharma; and Mr. Rajesh Chebiyam, Executive Vice President, Crop Health Sciences. I will hand over the call to Rajesh for his opening remarks.
Over to you, Rajesh.
Thank you, Kunal. Again, good morning, everyone. And welcome to NATCO's conference call discussing our earnings results for the first quarter of FY '22, '23, which ended June 30, 2022.
During this call, we may be making certain forward-looking statements or statements about future events, and anything said on this call which reflects our outlook for future must be reviewed in conjunction with the risks that the company faces. I'd like to state the materials of the call, except for participant questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's expressed written permission.
We will begin with the results highlights and then go for an interactive Q&A session. And we have sent a press release earlier. Our results and press release is also available on our website.
Just to summarize. NATCO has recorded consolidated total revenue of INR 918.9 crores for the first quarter of FY 2023, as against INR 427.3 crores for the same period last year, reflecting a growth of around 115%. The net profit for the period on a consolidated basis was INR 320.4 crores, as against INR 75 crores same period last year, more than fourfold increase.
Export sales of lenalidomide product to United States was a major contributor to the revenue and profitability of the business during the quarter. The domestic pharma formulation business remained steady. On the expense side, there was a onetime cost associated with the retirement scheme during the quarter and higher-than-usual R&D costs for product development.
The segmental business split has been shared as well in the press note.
And we will go for a Q&A and we will address your questions. Thank you. We'll take the first question.
[Operator Instructions] The first question is from the line of Ravi Dharamshi from ValueQuest Investment Advisors Private Limited.
My question is regarding the lenalidomide. Can you just explain to us how the recognition is going to happen in this case? Some of it, we had recognized in the last quarter of FY '22. And also there is a split between manufacturing margins and the profit share, so if you can -- whatever you can share. I understand the competitive reasons why you might want not -- not want to share [ a whole lot ], but whatever you can share, that will provide us with some sense on how the cash flows are going to pan out.
Sure. I think, in terms of profit share, we have booked a good amount in Q4 and a good amount in Q1 of this year. In terms of the further revenue, Ravi, I think it will taper off in Q2 and Q3. There'll not be much in Q2 and Q3. I think most of it is booked, so there'll be a little bit left in Q2 and not much, I think, in Q3. I think that's my sense, but we'll see how it actually plays out. Again, Q4, I think things will get better. And Q1 of -- Q4 of '23, the March ending -- to March -- quarter ending March '23 -- and it will -- again things will improve. And again it will be very good again. June '23, again, probably it will taper off. That's what the trend looks like, I think, based on how things are.
So if I am to understand correctly: Whenever the supplies are spent, at that time, manufacturing margins are booked, and maybe some amount of profit share, but in the subsequent quarters when the sales happen is when the profit share is booked.
Absolutely correct, yes, correct.
Okay, okay. My second question is on Copaxone, if you can just give us some sense on what are the trends in terms of volume and pricing.
I think [ our guys ] are doing well. I think -- I don't remember the last, the market share that we have, but I think we have 40s or close to 50, if I recollect, but I don't remember the exact number. But it's steady state. I think overall volume has dropped a bit on Glatiramer because a lot of the product has moved [ to the oral ], as you're aware, but I think -- for whatever size of Glatiramer that is there, I think we're doing very well. And it's been steady-state products, and it's doing well.
The next question is from the line of Ankush Agrawal from Surge Capital.
Congrats on a great set of numbers. Sir, firstly, on [ lenalidomide again. So wanted some trends ] on how do you see [ lenalidomide ] going for NATCO post the first initial launch [ phase ]. The reason I'm asking this is because, in terms of volumes, [ if we say that the max ] volume quota is going to increase from mid-single digits to [indiscernible] next 4, 5 years -- so actually the volumes are going to expand multiples. So based on that, do you think [indiscernible] from the first [ date year ] for us in terms of value will grow? Or do you expect that it will largely be stable in next couple of years given how the market develops?
I -- again, I don't have all the information, but I think my understanding is that [ the generics ] are coming in a staggered manner. So I think it is -- our expectation that -- is that again, until the market formation happens, you can't really tell, but yes, I think our expectation is it will do well for the next few quarters. I think we have good visibility. And I think, as you rightly said, we should get more market share with time; and I think we should do well. I think that's our expectation.
Okay, got it. Secondly, sir, Rajeev, I think, a couple of years back, we had this guidance of 1,400 crores of PAT in FY '22, which obviously didn't pan out because a lot of things didn't play out, but now things -- since things have started moving back, so -- any color on if we will be able to achieve that number sometime in the future?
I think -- see, there -- assume a few things. I assume that the profit share that we had in -- will be booked in March, [ but we ] booked it over -- in '23, I think. So in that sense, yes, it has not panned out, but still we've not met the 1,400 crores number, clearly. We are not. And I think that's primarily driven by the fact that the agro hasn't panned out, and our domestic [ has not done well ]. I mean that is the reason why I think we're unable to meet -- I think, these 2 things, we need to address. I -- let me start with domestic. I think domestic is [ steady ], but I think we have money in the bank and I think we are looking at different acquisitions. Hopefully, we're able to strengthen our domestic with an acquisition. I think that's something we're looking at. Agro, we'll share an update [ view ]. We -- the patent expires on August 13, 2022. And we also mentioned in the last conference call that we got sued for a process patent, which is about, I think, around '25 -- I think, December '25 [indiscernible]. So that -- so now what has happened is the judge has appointed a -- what we call a third-party expert to look at whether we are infringing or non-fringing. I think we have taken a position that our process doesn't infringe their patent, and they have asserted that we are infringing on the patent. So they have appointed a third-party expert. So they appointed 2 experts, so their opinion is expected. And we've been told not to launch till the next date of hearing, which is scheduled, I think, around August 22. So subject to a resolution, a favorable resolution, of the dispute with FMC, I think I'm -- we are very about the opportunity that this product presents. So -- but I think it will play out in the next few weeks. Hopefully, we'll get a favorable order, and we'll take it from there.
And the domestic, I just said I think we need to see how -- what we should do on an acquisition [ sense ], but I think, see, what has happened in the business -- I mean I'm giving you -- a general industry [ comment about ] generics is that the market has become extremely competitive. Nobody is willing to let go of market share, so -- and you'll only get growth either by acquiring market share, by buying an asset or into a new launch. So I think that's a challenge in our business today. And I think that's a challenge that we'll see in the future as well, yes. Thank you.
The next question is from the line of Ahmed Madha from Unifi Capital.
Sir, I have a question. Just last quarter, you quantified that we are left with 70%, 75% of the volumes for [indiscernible]. So as of Q1 end, what percent of the volumes we are yet to book. Or it can come in Q2, Q3...
[indiscernible] left. I don't reveal the number, but most of it is done. There's only a little left, I think. I know I'm being a little evasive in answering it, but for strategic reasons, I can't answer that question. But most of it is done, Ahmed. I think that's the best way to answer that question.
Okay. That's -- yes. And second question, on the R&D expense. Can you explain [ what's kind of nature, this -- or unusual ] R&D expenses mentioned in the press releases? And do we consider that this will be the new base of R&D continuing in the kind of cash flow [indiscernible]?
I think so, yes. I think I've said this in the last quarter call as well. I think somebody asked too what we're going to do with the surplus. And I think a good portions -- I think, at least some portion of surplus, we are using or spending on R&D. And I think we want to build another couple of jackpots that we have so that we can sustain the pipeline for the coming decade. So if you see the rise in expenses, there are 2 primary reasons. One is there's an increase in the exhibit batches and the clinical costs. So we're doing hard-to-do generics and we are trying to keep the -- most of the economics for most of the products. So that's a reason why there's a higher expense on the balance sheet, so -- and the second thing is the general increase in the operating costs caused by the macroeconomic environment in the world, as you know. I mean we've seen a dramatic increase in fuel prices, furnace oil, coal. We've seen dramatic increase even in electricity prices, so I think that's probably contributed to the increase in -- or a bit in the OpEx, but I think a good portion of the increase is coming from more spend on R&D, okay?
Got it.
The next question is from the line of [ Hiran ] from [indiscernible].
Congratulations for the good set of numbers. My one question is that, if I see the quarter-on-quarter performance compared to March '22, the June '22 numbers, revenue has increased for more than 30%, 35%, while the costs of material consumed have gone almost half from INR 193 crore to INR 95 crore-odd. So whether there is a reduction in costs substantially or -- and how -- if this is a -- sustainable for the future or if I missed something in the past development...
[indiscernible]. You actually missed something. Basically what happened in -- what we call, in last March quarter was we did a write-off of the COVID inventory. It is not true consumption. So a lot of the raw material that you see is write-off of the COVID inventory. So that's a reason why you see very high consumption. This is -- that's the reason why there's a difference in the [ consumption ].
Okay, okay, okay. So from the current quarter, what I see, the margin and the revenue utilization, these are the actual margins, right? And we can expect this...
[ The margin ] [indiscernible] most of it is actually consumption. And about -- I will say some portion of it is also R&D expense, where when you do exhibit batches, you expense those off, when we do the exhibit batches. A portion of this and a portion of the actual consumption.
The next question is from the line of Rajat Setiya from ithought PMS.
Sir, just one clarification. Did we say that -- when we said that we have booked most of the numbers in quarter 1 itself and nothing much will come in quarter 2 and quarter 3 and the cycle will begin again from quarter 4, did we refer to the manufacturing margin there or the profit share from revenue mix...
This referred to the -- you mean for this year [ we're seeing ] or the last -- see. Okay, I'll tell you. Let me clarify. The profit share for the launch, we booked in Q4 of last year and Q1 of this year, so far, okay? And the gentleman -- one of the gentlemen asked me, how much of the profit share is still -- as I said, most of it is done. A little bit is left. That will be booked in Q2 or Q3 of this year. And the manufacturing also will be booked in the next few quarters, but the majority of the profit share will get booked when the -- when we get to launch the new quantity Q4; and Q1 of next year, in '23...
So sir -- so a question here. So it means basically we have sold -- we have given an annual volume permission to sell some certain number. And we have probably sold most of that already in the first 5, 6 months. However, if you look at the BMS sales reported in this quarter, they have actually grown. So how is that possible? I mean we have taken away some share from them, for sure, in fact more than our permitted share, in the first 5, 6 months. And we will not sell, [ not ] in the next 5, 6 months. And that's how we will reach to our annual quota. However, we have taken some shares from them, but they have also grown in the first -- in this quarter on Q-on-Q basis, so how is that possible? I'm not able to understand.
[indiscernible] I think there's general growth in the molecule. Again, I have not looked at BMS' statements, so I can't qualify. I can only tell you what I have done. [ I can't ] -- it will be hard for me to judge what BMS has declared, but I think my -- the only logical sense is that possibly the size has grown, but again I can't answer your question.
The next question is from the line of Ritika Agarwal from ValueQuest Investment Advisors Private Limited.
Sir, last quarter, you had indicated that there's 85 crore of agro inventory currently in your balance sheet. And you classified that as a risk. So in the current quarter, of course, you said that you are upbeat on it and expect a favorable outcome, but what is the worst case scenario? What if we do not receive a favorable outcome? What regards this risk?
Good question. I'm not -- we've not made assessment yet, but I can -- what I can tell you is [indiscernible]. Let me tell you what we're dealing with. I think -- I just got an update on the inventory. So the total inventory [ growth ] is about -- a little over 100 crores. I think that's the current -- 108 crores is what I understand. So it is reflected in the inventory of the books, okay? So -- and there is also an investment on the facilities, so which is about 165 crores. I think that is the total investment in the facilities. The question now is what will happen if we get [ the adverse of it ]. I think there are -- let's wait for the lower court [ or, I think ], the single-judge verdict. And even if we are unhappy or if they are unhappy with the verdict, they'll definitely go to a DB. So I think we'll make the assessment in this financial year, so on what to do. And so if everything goes well, then I guess we don't have to provide, but -- and I think, if we're not getting clarity, then we have to make a decision what to do. So -- but these are the numbers. And what to do and all, I think we'll -- let's wait for the clarity and then I think we'll make a decision, but yes, I think that's where we stand, okay?
Understood, sir. Sir, so what you are saying is -- could we expect that these inventory might expire and we might be able to -- we may have to write off if things do not fall in the correct place?
I think I don't want to answer that question. Let's wait for the court to decide. And I think let's see how things go. And we will update you, I think, when we have to make the decision, but I think I don't want to answer your question at this time. But I gave you the broad numbers of what we are holding. And I think that's -- I think [ we'll just close here ] at this time, yes.
Sure, sure, sir. Sir, also last quarter, our inventory was 760 crores. Could you update, what is the current inventory?
As of today -- I don't have the consol with me. I have the standalone, which is most of the inventory. We -- our current inventory is 674 crores. And this includes the agro inventory of 110 crores or 108 crores, whatever that number [ is, yes ].
Sure. And lastly, what is our cash and cash equivalents currently on the balance sheet?
Okay, Rajesh, do you want to answer that question?
Yes. Ritika -- so the -- as of today, it's about 1,134 crores is the cash, cash equivalents. Then total borrowings is about 168 crores. Of that, about 108 crores is [ foreign liability discounting ]; and the 60 crores, working capital borrowing, okay?
Got it.
The next question is from the line of Prakash Agarwal from Axis Capital.
Sir, on R&D, you mentioned you're taking more initiatives and [ filing more complex ]. Sir, which areas are these? What is the percentage of sales we are doing on R&D, especially for the quarter? And which areas are these?
I think I'll answer your question in terms of areas. We are focusing on peptides. We're focusing on oligopeptides. That's one area we are focusing on. And we're focusing on onco products, particularly onco products which require chemical trial on patients in -- so I think these are the niche areas that we're focusing on. As a percentage, I don't have the number on hand, Prakash, so I can't answer that question, but I think we are spending a reasonable amount of R&D, which is reflected in the costs, okay?
And how many of the filings we've already done? Or all of these complex filings are still WIP.
I will say, some, we have done. And some are WIP. So we're targeting about 8 to 10 this year. So I think what we are spending now are in WIP, [ most of the time ].
Okay, understood. And you mentioned about the -- most of the profit and supply of the goods of Revlimid is largely booked, so how do you expect the run rate for the export formulation business going ahead for the second half [ of the business ]? [ So you ] expect a drop there. Or...
[ I think ] lenalidomide contribution in Q2 and Q3 will be minimal, yes. That's correct. We have the numbers [indiscernible].
[indiscernible] because of that [indiscernible] run rate is different.
I'm sorry...
What is our normalized run rate, base business run rate?
I don't want to answer that question. So I think we will -- because there will be some element of lenalidomide also there. I'll -- yes, I don't want to answer that question at this time, yes.
Okay. And for the India business, you mentioned that you're trying acquisition, new initiatives. So if you could talk about a little more on that.
We're looking at different assets. I think we said that in the last quarter call as well. I think there are a lot of assets available now, so we're weighing different options, and hopefully, we'll be able to close a transaction in this financial year.
Any particular areas we are looking at?
I don't want to answer that question. We're looking at all areas, but I think, once we consummate a deal, definitely -- we'll definitely...
I mean why I ask is because our focus area has been highest MR productivity. With less MR, we get quite good amount of [ sales in those ] kind of portfolios. So is it similar? Or it's we are coming into the broad IPM...
We are coming to broad IPM, Prakash, because otherwise we will not have growth. I think there's a limitation to my niche portfolio. I think we have done well with the portfolio, but there's a limitation of how much we can grow in that segment. We have to go into a -- more GP, [ CP ], cardio, gynec, anti-infectives. I mean the area is very wide, I mean, because we have -- I mean, for us, because we're not present in [ any other -- segments ]. So any segments could be interesting, as long as we're able to get some synergy, [ where we use that segment ] with the acquisition and [ bolt ] a couple of our own R&D products so that we are able to get the synergies. So we are open to any segment, as long as we see that it has potential, yes.
The next question is from the line of Surya Patra from PhillipCapital.
Congrats with the good set of numbers, sir. Sir, just a couple of clarification. See, regards this Revlimid; this volume-limited condition, whatever that is there, for the period. So how rigid is that? And whether the volume condition is for the annual condition. Or it is periodic, like quarterly. [ When should we -- having ] that mid-single digit kind of number? Some clarity, if you can.
It's an annual number, [indiscernible]. It's an annual number.
Okay, okay. So that means one can be having a larger number in the initial period or whichever part of the period. And in another period, it could be [ lull ]. So that can be possible.
That is possible. [ That's happening ].
Okay. Sir, [ maybe ], sir, what is the R&D sequential rise? Let's say, last quarter, what was R&D's absolute amount? In this quarter, what could be that?
I don't have the number [indiscernible]. And I don't have the number, but I think -- I can't answer that question because I don't have the number on hand.
[ Over ] to the last financial year, [ if we look at ], 12% of your top line was spent on R&D. So it's like incrementally higher than the prior year, which was around 8%, 9%.
Okay, okay. My point of what I was trying to draw you, sir: See, basically, sequentially if I see the formulation export growth, it is near about 360-odd crores kind of incremental business, sequentially. And at the EBITDA level, let's say, if I adjust for the previous quarter for the [ adjustments of inventory ] and all that and this quarter's -- these [ voluntary VRS ] payments -- so then there is a 330-odd crore kind of sequential improvement in the EBITDA level. So if I just -- having limited information, just think that, okay, the majority of this sequential revenue rise is led by Revlimid's contribution and same is kind of -- or majority of the EBITDA contribution is also from that only, then the profitability of this product looks really great. It is beyond anybody's expectation in terms of margins for this revenue stream -- whether I am right in thinking that way or if you can give some sense, sir.
I don't give a [ profitability split of product ]. I think this -- I mean, as you know, this product is doing -- we have launched it first, so [ then it's definitely real profitable, yes ].
Yes, but indirectly if I can just try to get a sense like whether the pricing of this product is like 10%, 15% lower than the...
I can't answer that question, my friend. I think I've been forbidden to answer that question. Just [ Teva has ] given us guidance to what we can say and what we cannot say, I think...
Last one question, if I can ask, on that, sir. So is it a 50-50 revenue sharing? Or it is profit sharing...
1/3. It's only 30% to us.
Okay, revenue or profit, sir?
Profit.
So that means -- so you'll be booking partial revenue at the time of listing...
[indiscernible] raw material. And raw -- and most of -- and the profit is booked as and when it's accrued.
The next question is from the line of [ Danesh Mistry from Investor First Advisers ].
Just one question I had is that -- on domestic business, which is there -- you mentioned that, last time, there was some pricing pressure, especially on onco side. So is that past us, number one? Number two is that are we seeing any volume growth or pickup in that piece. And number three is that in terms of our U.S. business or export [ U.S. ex Revlimid ]. I think, last year, maybe some of our influenza business was not doing well because of masking, but any sense on whether you see that improving in the coming year? [ That's it for mine ].
Okay, your first question is on the U.S. business environment. And what's the...
[indiscernible].
Yes.
The second question. What is the first part of your question? I just...
And the first part was essentially in the domestic onco business you mentioned that there was some pricing pressure last -- in the last quarter. So is that kind of past us? Are we seeing volume growth coming back?
I think it's stable. The domestic has been stable. I think we are doing well, and I think we have done well in the cardiology division. I think overall the business is stable, but it's not growing. I think that's the challenge that we're having in that business. I think a diagnosis that we have done in that business is that we are too limited in terms of the reach that we have because we're only covering niche amount of doctors. And even our core business is covered by only 300 reps, so which is not -- I mean, even if they are covering about 150 doctors on average, we are not even covering a tip of the iceberg of the whole -- the ecosystem of doctors. I think the one of the biggest changes that we need to make is cover a larger segment, so we started a new segment now which will give us mass coverage. We're slowly ramping up the reps, so -- but again it's a very slow business unless you do an acquisition where you have a basic portfolio but it doesn't allow you to cover larger segments. I think that's what we need to fix. And that's what we intend to fix in the next few quarters. So that's how the -- domestic.
Regarding U.S. U.S. is -- it's a tough business. I mean that's the only way I can answer that question. I think you need to have a good launch or a niche product. Otherwise, it's very difficult to make money in the U.S. And that's the way it works, and the way the market is set up, that's the only way you can do it. So I think -- does that answer your question? Or...
Yes. Just one question. I think you've been already clear on that, but in terms of the other parts of our business ex Revlimid in the U.S., the last few years, we had this whole influenza thing not working out because of using masks...
I'm sorry. I missed that question. The influenza business also is gone, [ Danesh ]. I don't see it coming back at all. We'll book sometimes some revenue, but the margins are very low. It's nothing exciting where I can come back and tell you that they'll make a substantial dent on EBITDA. If you ask me, the whole Tamiflu thing is dead. And I -- you will -- I mean I'm not saying I don't sell Tamiflu. I mean that is a -- I can't -- I will not deny that, but it's a very commodity product. There's nothing special about it. Did that answer your question?
Yes, it does, very clear.
The next question is from the line of Sameer Shah from ValueQuest Investment Advisors Private Limited.
2 questions from my side. One, on the rest of the world geographies, what are the things, say next 2, 3 years, to look forward to? I think Canada is doing well, but if you can give some more color on the other markets.
Yes, sure, sure. So I think in the earnings, I think, we did about -- in Canada we did almost CAD 9 million to CAD 10 million last quarter, so we've been -- we've done well in that particular subsidiary. [ Let's give you exact numbers. Wait a moment ]. So -- and [indiscernible]. Canada, we booked over 53.67 crores in the balance sheet in Canadian sub. We have done well. Brazil has also done very well. Brazil has done 18.2 crores, so I think both -- so I think our core business, I mean our whole subsidiary business, is doing about 105 crores. So that's a very good situation to be. I think we -- our idea is that we should strengthen our subsidiary business. And all our subs are making money, except for the U.S. [ sub ], which we recently acquired. So that's also something that we need to fix, but overall I think, the near term, to answer your question, to improve our base earnings, we needed to fix 2 things. One is we need to enhance our domestic reach through an acquisition or with new launches. Two, I think, the agro, we need to have clarity. Three, our U.S. sub, where we're launching our own products, that also has to start making money. For U.S., my sense is we'll lose money for the next 1 year, 1.5 years before it stabilizes. So next -- I think our expectation is, by '24 financial year, I think we are able to see some clarity there. Agro, we're waiting. So I mean once the court verdict comes. And domestic, as I said, I think we're looking at different options, but yes, I think acquisition and domestic growth is what's going to -- these are 3 major things that we need to focus on, okay?
And secondly, on the agro chemical piece domestically. While we understand this CTPR, whatever is happening, that we are very clear, but apart from that, if you can -- whether pheromones or everything else. What are the other things that we are targeting? Is there some color on that?
Pheromone is something that we are trialing right now. We have this product called PBW, pink bollworm, in cotton. This has done reasonably well this year. I think our expectation is that business should do well this year. I think our expectation is that, that whole agro business minus CTPR should do about 10 crores to 12 crores this year. I think that's our expectation, but it's not going to move the needle. And I think [ it's -- need a ] larger portfolio. And I think we have other products that we have filed, but we don't have visibility on them at this time. CTPR is the only one that we have visibility; and that's, as you know, a very, very large product. So this CTPR, from what I understand, is more than 10% of the whole agro business, so I think you need to get this right, but you know how we are as a company. I think we always like to bet on jackpots. And it's the nature [ of the bet ], but in the near term, I think that's what you're looking for. I think -- yes.
The next question is from the line of [ Prinakanth Benalji from AUM Capital Private Limited ].
There is a news article that you are investing in that cell therapy start-up eye system (sic) [ Eyestem ], sir. Can you please throw some light on it, sir?
Yes, sure, sure. I think, as part of our -- we have about 30 crores to 40 crores investment that we do in health care-related sectors. So as part of that -- and I think we're not -- as you know, we want to build -- so the future of the business is doing innovative work. And in our core business, we don't -- our focus is primarily on generics. So we do some work, but I think most of it is on generics. This is an interesting opportunity that we're investing about $1 million, 7.5 crores, [ for something less than $1 million ]. And this is -- this start-up is doing some work on macular degeneration. So I think it's a very interesting niche portfolio, but it's a very minority single-digit share. It is nothing substantial. It is just part of our larger portfolio just to get a feel of what's going on in the ecosystem. So we do these investments just to get a feel of the ecosystem, yes.
Okay, sir. Sir, next question is, sir, actually agro chemicals has been just a minuscule part of your revenue, sir. Actually, sir, are you contemplating any ways to actually increase this revenue share considering the fact that you have a number of stiff competitors in the Indian market also kind of both national as well as international?
I think we are. I think we'll -- we're looking at acquisitions in this space. And we're also looking at some success in our product launches, but the business at this stage is in an infancy. But I think our thinking internally is that this business has to go large. And I think, hopefully, it will become about 10% to 15% of our sales in the next 2 to 3 years, depending on our success.
Your next question is from the line of [ Gagan Thareja from ASK Investment Managers ]. Mr. Thareja, I'm sorry to interrupt. We are not able to hear you.
Can you hear me now?
Yes.
Yes.
Yes. Speak a little louder. Go ahead, Gagan. Go ahead...
Yes. Sir, on CTPR, you -- I think you indicated that the patent goes off by August of 2022, so irrespective of the litigation, you should be able to launch one way or another, right?
No. I've answered that question, Gagan. I think you missed the answer. I'll just tell you this again. The patent of the product goes off on August 13, 2022. We have been sued for a process patent, which is how to make CTPR through our process, for a patent which expires in December '25...
[indiscernible].
We are telling the court that we are not following their process. We have a non-infringing process. So the court has said that we will -- court has appointed a third-party expert to evaluate what our process is and compare it with their process. [ And it relisted ] the matter on August 22, and we are awaiting the expert opinion. And once we get a favorable outcome, we'll be able to launch the product. I think that's what I said.
But does that mean that other companies can potentially come in and launch their product post 13th of August, who would not have challenged...
Anybody who has a non-infringing route technically can launch the product. I think that's the best way I can answer that question, yes.
Okay, I get it, sir. Sir, second question is on the domestic sales. You indicated that it's not grown year-on-year. And if I look at one of your competitors, AstraZeneca, who has oncology portfolio in India, they have grown significantly over the last 3 years. Has there been a case of them bringing in some patented molecules which might have impacted the existing generic portfolios in oncology and therefore sort of shifted market shares [ a bit ]?
Astra's business model is different. Our business model is different, okay? What Astra portfolio has done is something I can't comment on because I have not -- I'm not -- I don't understand it. I don't know it. What I can tell you is about the generic portfolio, which is what we have as a company. The portfolio that we have has done -- has been steady, and we have seen price erosion. It's not a true comparison because theirs is a innovative portfolio. Ours is a generic portfolio, so I think that's -- I think it's not a fair comparison because it -- we are operating in 2 different environments. And overall our portfolio [ has started ]. I mean there's nothing to hide there, I think, because of the limitations of the segments that we're covering. I think we have good launches that we are planning. And so we are seeing the sale (sic) [ sales ] has been steady. I will not say that -- it has not declined. It has not increased. I think it's been steady. And I think our idea is that we need to launch new segments and consolidate that segment...
Okay. And sir, final question, on U.S., if I can. I mean a lot of your peers have indicated continuing double-digit, in fact mid- to high double-digit, sort of a base price erosion on their generic business. What has been your experience on your portfolio? And what has been the year-on-year sort of performance for your base portfolio in U.S.?
I think -- see. If you remove lenalidomide, which is the elephant in the room, the other portfolio has been steady. It has not -- it has in fact maybe declined slightly, but it has been steady. But we have made it up with like launches in the other ROW market. I think that's what has happened, but in the U.S. pricing is difficult. I think I have always said that. I think -- unless you have something interesting and special or limited competition. It's very difficult to make money, so I think we have been reasonably successful. I mean we had a reasonable launch of everolimus last year. So it's not that all of it -- it's been a complete decline in the business, but having said that, see, it's a tough business. I mean I can -- there's no way getting around that, but still it's a very important market. You just can't avoid it because 50% of the pharmaceutical market is the United States. So we just have to be there and just try to do something interesting and just hope that it works. That's how [ you're going to do ] this business.
The next question is from the line of Kartik Mehta from PhillipCapital.
Yes, all my questions have been answered. Thank you.
Okay, thank you, Kartik.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Rajeev, a quick one on Revlimid. Are you doing continuous manufacturing and supplies to Teva? Or are you doing it on a campaign basis?
We do it on campaign basis.
Okay, yes. That's why you have 2 quarters when you get a lot of profit share, et cetera; and 2 quarters when you're not getting.
It depends on like -- yes, in a way, yes, sure. Yes, that's correct, yes, yes.
Okay, great. And just one final one on this. Even when the other competitors do launch end of September, whenever they do, it's highly volume-controlled launches. And my guess is that market would always be undersupplied, so therefore, is there really a pricing risk here? Or do you think that you can maintain a high profitability and pricing for a period of time?
I think the product should do well. And I think that's the best way to answer that question. And regarding the other competitors and all, I think there'll be staggered entries. So that will obviously play a role on the price erosion, but it will be a good product overall, yes.
The next question is from the line of Ravi Dharamshi from ValueQuest Investment.
I just had a small follow-up. Did the current quarter number have any contribution from Nexavar?
It did, yes, it did. Yes, it did.
The next question is from the line of Sandeep Kothari from East Lane Capital.
Rajeev, a quick question on the FMC litigation. Appointing of an expert committee or experts, is it [ very normal ] in process patents in India? Or this is something unique. And do you have a say in appointing this or could fix up somebody and appoints them? Or -- and what is the potential for delay? There have been a couple of hearings. It's now 22nd August. So just how this plays out.
How it will play out, I don't have an answer to that, Sandeep. I don't know. What I can tell you is the process, okay? So in our experience in litigation, at least I would like to say that we are fairly experienced in this because we've done a lot of litigation patents in India. In one other case, we also had, yes, an export appointed. When the court is unable to decide or, well, if they need technical help, they do ask an expert. So is it unusual? No. I think we had it in the past. This is again -- this is the second time it has happened. That's the first question. The second question is there are 2 experts appointed. So essentially there's a panel that the court has. So we chose one member and they chose one member. So I think we're just awaiting what we'll call their response on the questions posed by the court. Once the opinion comes, how quickly the judge will make a decision? Hopefully, soon. I think that makes -- and I think that's our expectation, but I don't want to speculate on a time line at this time. I think it is what it is. I mean we are hoping that we'll get clarity in the next few weeks. I think that's all I can say.
The next question is from the line of Nikhil from SiMPL.
Am I audible?
Yes. Go ahead.
Yes, Nikhil.
Rajeev, just adding 3 points in the whole discussion. We mentioned that we do campaign production, which means we provide our substance to [ Teva ] on a quarterly basis. And then [indiscernible] also mentioned the profit booking happens as it accrues, which means when we do the sales, then only a profit will be booked to us. Now if we add -- if we go back to what Teva and BMS reported on a sequential basis in their revenues, I'm unable to add up what you [ faced ] in what happened in Q4 and Q1 because [ neither ] Teva has seen such a strong sales growth on a Q-o-Q basis in their generic business. Nor BMS has seen further strong de-growth [indiscernible] in the U.S. generics -- U.S. business, so how do we add these two with your commentary?
Nikhil, first of all, go read the Teva, I mean, statement carefully. They have clearly stated that lenalidomide is a significant what we call contributor to earnings. And for the size of Teva's business, lenalidomide doesn't make much of a difference because of the size of Teva's balance sheet. It makes a lot of difference for us because we are a smaller company. And regarding BMS' numbers, I -- again I don't -- I can't comment about BMS' numbers, but I can only talk about what market share we have taken and, I think, what we have accrued. And as I said, there's a general increase in the portfolio of that, what we call -- of the product, so therefore maybe it's not impacting. I'm speculating, but yes, I think that's what I believe is probably happening.
[ What I'm ] saying is that -- so is this right, that the profit will accrue only when Teva sells in the market?
Absolutely correct.
Then it -- does that mean that, Q2, Q3, Teva will not sell anything in U.S.?
Nikhil, I -- okay, fine, I'll answer this question again. See, what is happening is there's a limited amount of quantity that is given. So because you have a limited amount of quantity that's given, basically what happens is a lot of the sale happens as soon as we launch. So basically, once the quantity -- what you call -- is done, then the sale kind of tapers off. You understood, Nikhil? I -- Nikhil, I suggest that you have a separate call with [ our IR ] [indiscernible] [ actually explaining ] the process, yes, okay?
Sure.
The next question is from the line of Ankush Agrawal from Surge Capital.
Rajeev, sir, [ on our domestic ] acquisition that we've talked about. So will it be possible for you to quantify in terms of what kind of size we are looking at? So for example, currently [ we have this 1,000 crores ] cash, so will it be around that number? [ Could it be ] materially higher given the kind of cash flow we will be getting?
We're looking at any good opportunity. I -- so I don't want to comment on the size, but I think we have to start from there. So anything in the 100 crores to 200 crores sales range will be interesting, to start with, sales range. And then it depends on -- what multiple they'll ask, I don't know. So it all depends on how the negotiation works and the nature of the portfolio and the profitability of the portfolio, yes, [ and given ] [indiscernible], yes.
Okay. And secondly, on the CTPR again. So you mentioned that [ the first the -- case is on ] the lower court and then they might again appeal to the [indiscernible] and all that stuff. Sir, don't you think there's a material risk then to keep getting stretched; and the opportunity for us, by the time they're able to do it, is not really there?
I think, see, it's not [indiscernible] high court. So basically what happens is typically a single judge, single bench judge will -- a single judge will give an order. And whoever is aggrieved will go to the double bench. And so that risk is there. I mean that's the nature of the beast. I think that's all I can answer to that. So that is [ true then ]. Your question is there's a risk that if the DB can overturn a decision. Yes, there's always that risk in any court case, but [ absolutely it's what you think ].
The reason I was asking that, even if you get a favorable outcome over the -- and they can -- again appeals, then we are again not able to launch. Because it has already been delayed by more than a year now [indiscernible] from the initial. And then we run into major risk of [indiscernible] because, if we get -- continue to get stretched, both the -- opportunity just keeps on [ reducing ]. So that is what I was asking, but okay, [ like both you ] yourself [indiscernible].
Question is -- let's see. I mean I -- let's not speculate. Let's wait for the order and I think we'll see what happens. And see, that's the nature of the -- I mean that's how the legal system works. I think -- I'm not getting into whether NATCO gets favorable or FMC gets favorable. Whoever is on the losing side will appeal on the DB, isn't it, double bench?
Right.
And if you're not happy with DB, you'll go to supreme court. That's the natural course of the process. And it is what it is, I mean, yes. That's all I can say, so you just -- and let's wait for the verdict. Then I think we can give you more light on where we stand and what we are doing.
The next question is from the line of [ Mitesh Shah ] from Nirmal Bang.
I'll just have one question about the domestic. As you said, that we struggled mainly because [ of the smaller of the team ] size and we are looking [ for the -- more assets ]. So how it will work, that of the -- of first ramping up our size and then looking the assets? Or the -- straightaway [ with the assets ], we are taking the team as well.
It depends on the nature of the acquisition. I mean we have ramped up the people, but the people are not yielding much. I mean revenues that we're getting from the NATCO division, which is the more -- wider-coverage division, is not as much where it is meaningful. So if you do an acquisition, typically they'll give you people. Sometimes they give you a brand. It depends on the situation. To answer your question: The best way to ramp it up is with the people and the brands. That will be the most ideal way of looking at it, yes.
Got it. And the -- any particular team size you are looking to increase in next couple of years?
I answered that. I think -- the first one, I think, in my mind I am looking at a sale target of about 100 crores to 200 crores and whatever multiple that the deal transaction ends up being.
No. I'm talking about the team size you're ramping up over the sort of 2 years.
You need like to cover like -- see, the biggest segment that we're not covering is consulting physician and general physicians, so you need -- to do an [ all-index ] coverage for a segment like that, probably you need like 300, 350 people, which is double of what we have at this time.
The next question is from the line of Ahmed Madha from Unifi Capital.
[ Do you recall if we have a new update on settlement ]...
No. There's been -- no, no. At this time -- nothing at this time.
Okay. And just a confirmation: So from March 2023, we will have [ hired a team approaching the market ].
That's correct.
The next question is from the line of Ritika Agarwal from ValueQuest Investment.
Sir, I have a question on domestic formulation. So last quarter, you had indicated that 100 crore base run rate is what we are at currently in the domestic formulation, and we expect 10% to 15% growth this year based on the new launches. Do we still stand on this, what we indicated last quarter?
I think so. I think things are okay in domestic. And I believe, I think, we'll be able to meet that target. I think, yes, that's our expectation. That's correct.
The next question is from the line of [ Gagan Thareja from ASK Investment Managers ].
This one is again on CTPR. If the verdict goes in your favor, you would -- you will be given an exclusivity for the launch of CTPR. Or because the patent will have expired any which ways, you will be launching with other people in the market.
[ We'll be the first to have launched ]. India doesn't have a comfort of exclusivity like the U.S., so yes. [indiscernible] also could launch provided they have a non-infringing route on the process.
Okay, but I would have thought there's a marketing exclusivity period for a launch in a [indiscernible] format -- no.
No, no, no, absolutely. So this is my last question, yes. Okay, thank you. Thank you.
As that was the last question for today, on behalf of NATCO Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Got it. Thank you. Thank you all. Have a good day.