Natco Pharma Ltd
NSE:NATCOPHARM
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Natco Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of NATCO Pharma hosted by Investec Capital Services. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Ms. Swapna Bhandarkar for Investec Capital Services. Thank you, and over to you, ma'am.
Thanks, Jacob, and Good morning, everybody. Firstly, let me apologize for the delay. We were facing some technical issue on our side. Having said that, I welcome all to the Q2 FY '22 earnings call of NATCO Pharma. We have with us the management of the company, Mr. Rajeev Nannapaneni. He's the Vice Chairman and Executive -- Chief Executive Officer. Joining him is Mr. Rajesh Chebiyam. He's the EVP and for Crop Health Sciences and Head of Investor Relations. Good morning, gentlemen, and I now hand over this call to Mr. Rajeev to make the opening remarks, post which we will begin the Q&A session. Thank you.
Yes. Thank you, Swapna. Yes. This is Rajesh. Good morning, and welcome, everyone. Again, I apologize for the slight delay in the call. So welcome, everyone to NATCO's conference call discussing our earnings results for the second quarter of FY'22, which ended September 30, 2021. Again, as a disclaimer, 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 the future, 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 the participant questions, is the property of NATCO Pharma and cannot be recorded or rebroadcast without NATCO's express written permission. We'll begin the call with results highlights and followed by an interactive Q&A session. Again, we hope that you've received the financials and the press release that was sent out earlier. This is also available on our website. So NATCO Pharma recorded a consolidated total revenue of INR 415 crores for the second quarter, which ended on September 30, 2021, as against INR 827.9 crores for the same period last year. The net profit for the period on a consolidated basis was INR 65.1 crores, as against INR 203.9 crores same period last year. The decline in revenue and profits compared to last year's quarter is primarily due to a one-off contribution that we had in the last year's earnings. The company is poised for growth during the later half of this financial year, and we're confident of a strong rebound in business. During this quarter, lenalidomide [ started ] in Canada, [ everolimus ] highest [ imported ] in the U.S. launch. The revenues from these products will be realized in the immediate quarters. The company is well prepared for its major launch of lenalidomide in the U.S.A. during Q4 of this financial year. Segmental revenue split for the quarter, as we have disclosed. API, we stood around INR 76.8 crores. Formulation Domestic, around INR 99.8 crores. Formulation Exports, which includes profit sharing and also the foreign subs, around INR 190.5 crores. Other operating and nonoperating income stood at INR 45.1 crores. Cross Health Sciences, around INR 3.5 crores for the quarter. Thank you. We'll take the questions
[Operator Instructions] The first question is from the line of Sameer Shah from Valuequest.
The first question is on the base domestic business. What are the growth drivers from here in terms of, say, product launches, et cetera? We are clocking INR 100 crore a quarter. So what are the plans in terms of launches?
We have some good launches, Sameer. I think we've lined up a couple of good oncology launches that we're having this quarter. We're launching carfilzomib this quarter in Q3, and we're launching [ azatadine ] tablets [ it went down but should pick up ]. And we're expecting approval of molnupiravir this quarter. That is going to be a big one. So not only will it contribute in domestic, it will also contribute in the export business. So that is probably going to be the large, I think, in terms of like high impact, molnupiravir will be a big one in this quarter. So the thing that DCI would clear the pilot in the next week. We are expecting a meeting next week, I think [ it's meeting and ] hopefully everything goes well, which we're able to launch in the month of November. I think that's my expectation.
And the patent thing with the centralized patent pool, that is done? Or that is also something...
We have applied that, Sameer. So what we have done as of today, there's no patent granted. So -- but we apply to medicines patent food, and we are expecting a license. I think that's our expectation.
Okay. Okay. And on the agrochemical side, how is the thing doing that we've launched pheromones and we saw that some announcement by Punjab government that they are going trial pheromones for this rabi season or something?
We have done, I think, INR 3.5 crores. So that's primarily is driven by the product that we've used for cotton, which is [ a primary ] one. Right now, the farmer is not -- I think everybody is not aware of the brand. So we're creating product awareness. So the brand will take some more time to grow. And regarding Punjab and all, we have heard about it, but I've not seen any orders. But say, but that's where we are.
And second question is on gross margins of 75% this quarter. So what led to the drop? And what -- I mean will U.S. launches take it up again? Or there was some exceptional in this quarter?
We didn't have any great triggers regarding gross margins are on the lower side. But I think we see -- see, we had a launch April month and October 1. So we only did stocking quantity all within this quarter. So I think, hopefully, we'll start seeing some scale in Q3. And lenalidomide also, we launched it in September in [ last quarter ]. So I think now we're building the tenders and all. So the benefit of that, you'll actually see it play out in the next couple of quarters. So overall, I think these 2 launches are going to be very good launches. And obviously, we have molnupiravir coming up. So that will be a very good launch. Not only in India, we're expecting a reasonable set of orders for export. And in addition, it will be very competitive. But I think the 5 [ lakhs at launch ]. So hopefully, we'll do reasonably right. And then, of course, we have IMBRUVICA coming up in Q4. So I think overall, I'm positive. I think we will pick up as we go along in Q3 and Q4. Okay, I go to the next caller. Sorry, I correct myself. I said -- I meant lenalidomide, not IMBRUVICA for Q4. Next question, please.
The next question is from the line of [ Ankush Agarwal ] from [ Search Capital. ]
Sir, can you talk about the market formation for Revlimid in Canada in terms of pricing competition and how big this opportunity for us?
Good product. I mean, I don't want to say anything right now because it's a preliminary stage. I think we should do well. I think -- I was interacting with my sales team yesterday on the phone. I think my -- I think our sales team is very comfortable that they'll do well with the product. What market share and what price and all, I think it should do well because of [ advance ] product. I think it will not be in long road like the regular generic. But we have to see -- I mean, at this time, it's premature. I think it's a last-minute question and at end of Q3, I think I can give you a better sense of where we are and how much revenue we're making. But as of now, it's premature. But my sense is we'll do all right.
And secondly, on the revenue in the U.S. side. Can you provide the split between [ major ] strengths because Dr. Reddy has got the final approval for 2.5 and 20 mg strength. And they are going to launch, I think, before us.
For those 2 strengths, is that the question? I think for those 2 strengths, your question is, if I understand correctly, they got approval for 2.5 and 20 before and that we don't have [ a good ] approval and [indiscernible]. Is that the question?
Yes, Yes.
If I understood correct. See, I mean, we’re in the public domain, we have first to file on 5, 10, 15 and 25. They have first to file and 2.5 and 20. We have full approval for the strength where we are FTF. And we have tentative approval for the strengths that Reddy’s have full approval on. So we have to wait for Reddy’s launch, and we can launch after [ they're running ]. I think that's my understanding of the situation. Yes.
That's the right understand. I wanted to understand how the market is split between this strength?
I think majority -- like top of my head, I don't recollect. But I think if I were to make a -- I don't want to speculate. But I would say 90% of the strengths are covered with us. More than 90% of strengths. Roughly, I mean, don't hold me to it. But I think it's in that ballpark. Next question, please. Next question.
The next question is from the line of Prakash from Axis Capital.
Question on -- again, on this -- the Canada Revlimid launch. You spoke about feeling good about the market share, ramp up, et cetera. If you could help us understand how does this work in Canada? I mean, U.S. is a totally different market where you have a partner. So this is we are partner, and what is the market opportunity we are talking about?
Here, we have not partnered at all, Prakash. We’ve bought out our partner, so we're doing it ourselves. That's the first clarification in MPP. The second thing has been doing it after. So all the economics are coming towards directly. That is the second point. In terms of Canada, what is happening is – I’ll tell you what is happening. So we – there are 4 generic launches, Sandoz, NATCO, Dr. Reddy’s and Apotex. Apotex has their own registry -- REMS program. Reddy’s has their own REMS program. Sandoz and NATCO Pharma's product is on the innovative REMS program. Okay.So we have decided to go the individual REMS program. So we are getting good traction. I think there are some people who don't want to change the REMS. So they are comfortable continuing with that. So that business, we're able to get. So that's how the market is. [indiscernible]
Sir, just on the size of the cost on the branded, if you could help that we can break it up, whether it's a $10 million, $20 million product for us or it could be higher? Just on the market side, what would be the market size?
We're already speculating for that. I mean now you asked me a question that I don't have an answer to because the problem is IMS doesn't cover it properly. None of the -- because it's such a controlled distribution, the sale numbers are not known. Like if the development, the innovator disclosures is based on that only time numbers. And if we look at the balance sheet and numbers, they're always very different. So if you were to make an estimate, I think the sale is probably like $400 million to $500 million. I think whatever the public domain documents I've seen or something. I think it's probably around that side. So I think it's probably on that slide, how much market share will we get, Prakash? I think it's doing well. I will say that. And I think the benefit of that, we will see in the next few quarters. I think the numbers that you're speculating, to get those numbers I think I'll be very happy. If we could make $10 million I would be extremely happy. But will we make it? How much will we make and all that? I think only time will tell. I think lastly, this question next quarter, I think we'll get a more -- a better feel for it, I think. Then we'd already be in about 4, 5 months into the launch, then we can probably make an estimate of how we're going to look. So as of now, I can't answer the question. But overall, I think we are positive. I think our sales team is positive. I think we should get good market share. Okay?
Okay. Okay. And on the -- yes, the next question is on the base business. So we have now a good cash pile, and we expect it to have a very, very strong cash flow. I'm sure you have evaluated a lot of assets. Is there any progress on that side whether you want to add something, which is more continuity business and have stable India or something like that? Is there anything? Are there any gaps you have identified within India? Are we anywhere close to closing anything?
Prakash, think I've said this. I'll say it again. I think there are 2 weaknesses in our business plan. That's the elephant in the room. So I'll say it the way it is. One is that we need to have a steady branded generic business, which we don't have a larger size compared to our other listed peers.Second is when you go [ branded ] in the U.S. And I think I've told you in the past, is we're looking very -- obviously, all the restrictions are at a critical stage. So we are not closed anything other points there's nothing to report at this time. But we are striving to get a front end in the U.S. I mean, there's various shopping for different assets, and hopefully, we're able to close a transaction. And again, we're shopping for an up-branded generic portfolio, either in India or in the [ out of the view ] market. I think these are assets that we are scouting for. But I also want to say something that we don't want to do a deal in a hurry where we overpay for an asset. And I also mentioned this in the last conversation. Assets in India run away dramatically. That's why, see, I referred it was a deal rather goes to a bad deal. You know what I mean to that. So I don't want to set a timeline on this. But very clearly, I think we have time. I think we'll do it. I'm very clear that we have to do it, and we will do it. But we will do it for the right assets, and that's what. Okay.
The next question is from the line of Rahul Veera from Abakkus.
Rajeev, so a couple of quarters we've been watching whether it was a case of patent against the FMC for our agrochemical molecule, or the recent most against you, Novartis, the entrance into molecule. So we've been losing out on a lot of cases like in terms of patents. Any thought to us, are like has the R&D strength weakened recently? Or what's the thought process there now? From ibrutinib to entrance to [ CTPR ], a lot of cases have been against us.
Shall I tell you something? When you do these things, you get some right, you get done wrong, okay? That's how we look at this. You -- I can't guarantee you. All I can do is let me tell you what our strategy is. Even like the 2 cases that you alluded to, it's obviously vulnerable. I mean that has had an impact [indiscernible] FMC got related to. But again, I'll leave it 2 sectors [indiscernible] I mean, [ these are the good sectors ] that we have had. That did extremely well in the patterning. We've launched our product like the passage being it soon. And we are hoping that we will also settle with molnupiravir. See, when you roll the dice, I'm telling you, you're going to get half of them wrong. And I think you can sort of start obsessing too much about it. I think -- I expect every one success, Revlimid was success in Canada, for example. So that also getting through litigation. Everyone much -- So I mean, we're going to get some right, you're going to get some wrong. And I think that's how it's going to be. And all I can do in this spot is what we are doing. And I think our pipeline is strong. And to further to your point, we're going to do 2 first to files in this quarter, probably shared also. We don't know how it's going to be. But I think we're going to keep at it. But we also have to understand we follow a high-risk model. You're going to get some right, you're going to get some wrong. As they say, you have to roll with the punch. When you lose, you lose. Correct. But I think the pipeline goes and if you get even one right, you're a success, right? So then get, I always say, if you get one of these things right, the whole decade's worth of earnings the dividend. So that's how the -- that's the nature of the beast. I think that's the best way I can answer you question. Okay.
And recently, we've seen on the balance sheet kind of large buildup of the inventory. So this is regarding the Tamiflu soon coming up? Or is the Revlimid or... [indiscernible]
Revenue doesn't have too much inventory. I tell you what you've built inventory. That's built on all the dynamic products. So we have a lot of inventory on apixaban, which did well other than Q1. If you see domestic was INR 200 crores in Q1, and it's primarily driven by apixaban. So we have a reasonable amount of inventory on apixaban. We have inventory on molnupiravir, some of the packing materials, and we have ordered a lot of -- we got to order a lot of raw materials now. And we have inventory on oseltamivir. We have open inventory on baricitinib. We have inventory on [indiscernible]. We have inventory on CTPR, that case that we just alluded to, which is a large set of inventory. So we've built a substantial amount of inventory and all of it is dated. So I think we're comfortable. I think we believe that we'll able to liquidate it. See, these are again business gambles, right? I mean we expected that these losses will happen. And again, with pandemic, what we also found is unless you have stock, you can sink the entire mix. So we're also making a better size, somewhere in this world there will be another resurgence of pandemic and what we think is that by building essentially -- because when the demand happens, all demand happens in 45 days. If we don't have stocks, you can't sell to them any. And very deliberately, I think we -- I would believe I think we overshot our inventory targets by more than INR 200 crores to INR 250 crores. So that INR 250 crores are reflected in finished goods and in raw materials. But that's the nature of the beast, my friend. I think we have to take the gamble. If you get one of these things right, currently, you'll have a huge upside. And that's how it works.
[Operator Instructions] The next question is from the line of Kunal Randeria from Edelweiss.
So my first question, Rajeev, is on molnupiravir. Now several of your Indian peers have also got the license. And in India's largest company also put out a press release saying that they are also gearing up for launch. You seem to very confident on molnupiravir opportunities. I just want to understand the reason for the optimism behind it. Is the market big enough for everyone, you think? And just what's the kind of commercial opportunity that we can expect from this product?
I think we're the first one to file for the clinical of this product. So we've probably been the most aggressive in terms of the validation batch and building up inventory, doing stability and all that. So we are prepared in every sense in the raw materials and the supply chain. I'm continually confident. But problem with pandemics, Kunal, I think we say with a note of caution is that you will go through months when there's no demand at all or very low amount of demand. This is what we're seeing with the pandemic portfolio. When the peak demand happens, it becomes 20x of whatever your base is. But you always have a base sales, which sticks around 5%, 7% of the peak demand. And suddenly, in like 1.5 months, we'll have a 25x. So molnupiravir is just not only India. I think we'll -- let's not obsess too much about India. Then if we launch right now, there are no cases in India, right? So I think you will see a slow takeoff. But the question is to position ourself promoted when the actual pandemic or a third wave or something happens, unless there's a sudden spurt in demand, let's say you are getting about 10% market share. Your 10% market share or INR 10 crores monthly, let's say monthly sales become -- let's say, the market expands from INR 10 crores to INR 1,000 crores, then you have 10% of INR 1,000 crores. And suddenly, you're are into an interesting situation. As far as this business works, you have to like be promoting it, be there and just wait for something to happen. And the opportunity is just not India, my friend. It's also outside India as well. There -- so I think if the NPP license comes through, which we're hoping, and I think the opportunity and the pandemic is fairly strong outside India at this time, know that. So there are a lot of opportunities. So that's why I think we will take it as a global demand. And for a company our size, if I get INR 1,500 crore [ pop ], I'll be extremely happy. So I think that's where we are.
Sure, sure. That's helpful. And secondly, in terms of -- if you can just maybe guide whether you'll be able to launch Nexavar in the next couple of quarters?
I can't answer that question.[indiscernible]
Sure. Sure. And just lastly if I can squeeze in, what's the cash position at the end of the quarter?
Rajesh, do you have the sheet, no? I think is asking about the cash and the net debt. It's INR 889 crores in cash, shares and bonds, liquid assets. We haven't yet compared to the INR 146.85 crores, of which about INR 54 crores is [ building costs ].
The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.
A question on molnupiravir. Just wanted understand if you are backward integrated to the API level?
We have tied up all the supply chain. I think we're ready for it.
Okay. So you will be sourcing the API from someone?
I don't want to actually reveal what we have done. But I -- what I'm saying is we're ready to.
Okay. Just a follow-up on molnupiravir. So on the export, to tap the export market, would you also -- so would you need to be an authorized licensee? Or even if you don't have, you can still tap the export market?
I think what we're saying is that the focal of getting the MPP license, and I think which will allow us to tap all the major countries, which the license is available. I think that's our expectation.
How long can that take getting that license from NPA?
Again, I've applied. I'm hoping we'll get it. I think in the next few weeks, I think that's our expectation. I think, we'll see. I think we'll see -- but again, I said we have applied and we're waiting for our turn.
Okay. And on the gross margin, you have said there is your profit share during the quarter from the new launches. Is that right? And that's like the gross margin decline?
The benefit of the profit share will happen in the subsequent quarter. So the launch only happened at the end of the quarter is what I said, lenalidomide and [indiscernible]
But you would have profit share from the 2 launches, Afinitor and [ Zortess ]?
No, no, see, I'll tell what it is. Afinitor will be profit share because the partner with Breckenridge. Lenalidomide will be our own sale. We'll see what we have done is only done a transfer to our subsidiary. The sale will -- once the sale is accrued in the market, that's when we actually get -- we're able to book sales.
Okay. So there was a write-off on inventory asset?
As of now, no. I think a good team write-offs are there. I think that is already shown in the balance sheet. For the larger baricitinib, no. Like CTPR inventory and what you call the pandemic inventory, we're not going to write off here. I think we are hoping they've been able to liquidate. The product has dating. So I think they are not in a hurry to write off. I mean, the product has dating between 2 years to 5 years. So I think we'll make a call as before.
Okay. And just on lenalidomide in Canada. You said you are on the innovator REMS. So does that adversely impact you or favorably impact you?
Yes and no. I mean it's one of those judgment calls. I think we did our sales -- our CEO decided to go with the innovative lens because he felt that a lot of reimbursement will be very comfortable because already the sense is already established. So there's people moving more though a granular lens. So that has definite advantage. But obviously, you do your own reps, you have more flexibility and that comes with the established digit ramps. But I think we have made a call to go with innovator REMS. I think we feels good about it. We'll see how it plays out.
[Operator Instructions] The next question is from the line of [ Rajat Setiya ] from [ ITG BMS ].
Rajeev, my question is, you see -- I wanted to understand what is the core profitability of our business. Is it INR 300 crores? Or is it INR 400 crores, INR 500 crores? Because one thing you have said in the past calls is that from cycle to cycle, we have grown our PAT from INR 150 crores to INR 450 crores. But if we take out the onetime settlement out for Revlimid Canada, seems like base is continuing to squeeze.
So what you're asking is if you -- see, I'll tell you what.
What is the core profitability, that is apart from the limit, we thought it was INR 450 crores or so.
Let me answer your question. So let's be very specific of what you've said, and I'll tell you what. Our earnings last year, there is an element of -- that's coming from the settlement, there is an element that's coming to the base business. I would say 2/3 of it came from the base business and 1/3 came from the settlement. And this year also, I think we look at it, we have a run rate of about last quarter we did 75, this quarter we did 65. Let's say, we keep the same run rate, we'll do about 300 or something like that. So that we have the initial launch with our development. So this is what the question with our business is you can't look at -- we are not like the other companies. We always bet on something unique every year. I mean, this year, we made a bet on CTPR and development. It looks like revenue is going to happen, CTPR has not happened. If you look at our 5 years of earnings, there's always an element of base business, and there's always element of the X factor that comes with whatever we do. If you look at consistently in the last 4, 5 years, we're able to pull off something or the other. We look at it initially, we put our time to exclusivity. Then we have the timing to exclusive secondaries from the pandemic, and then there was a flu season that we benefited from. Then we have the Copaxone launch, and then we had Canada, had an upside and we then have the U.S. upside. If you see consistently, right, we're able to get -- pull something off, something every year consistently, look at 5, 6 years. Before that, we pulled out the Hep-C portfolio. So I think that's the nature of our business. I mean, all I can do in my calls, I can tell you like this is what I'm trying, and this is what we are speculating. And this is what we get from these earnings and take these events happen and that all get external. So that's the nature of our balance sheet, my friend. I mean, I don't know to answer your question. So we're not like your other figures. We had a strong, more diversified larger balance sheet. I think we always try things, which a lot of people don't want to try. But I think there's always a high amount of risk on what we do. But if we get it right, then there's a reasonable upside. I think that's how we put it. Does that answer your question? Hopefully.
Sure, sure.
Can I end this with you or can I go to the next caller?
Just one more question, if you will. So as an investor, what should we take away from NATCO Pharma? I mean, if you want to understand the 5 years or the next 5 years of the business because for us it seems like in the next 5 years, right now, it seems like Revlimid is there. And it seems like we are going to be squeezed down again once Revlimid goes out. So can we make a solid core in the next 3, 4 years? Or you think we will be depending a lot on the one-off payoffs?
Here we do a little bit of exiting. Okay, let me just lay out, for example, what I think are interesting with your public business goes so far. I mean, in the next few years. I mean, for example, relevant U.S. is obviously quite interesting. But I also mentioned about development in Canada and the pandemic in the U.S. Those have contributed to the base business. It's not that we're not working on the base business. I mean for example, in the next few years, we have, for example, we have track year, we have a segment date over [indiscernible] suspension tabs, so which is an interesting product. We have CTPR [indiscernible] in part won the case. The launch date as of today is August '22. That will be a reasonable product. We have, for example, we have a settlement with our partner in Australia launched pomalidomide and lenalidomide. So that's an interesting upside that will play out in the next few quarters. We have trabectedin filing with some Europe hospital business and the U.S. [ para, COVID, STS ] So I mean, these are, I mean, some examples of products which could do reasonably, which are not like the development side, but reasonable $10 million, $15 million, $20 million type, $30 million types of opportunities. And you have Nexavar, which that kind of fits into that sort of group. And all this will play out in the next 4, 5 years. So it's not that we just have -- we're not a one-trick pony. We have other filings by the end of the day, IMBRUVICA, where the litigation didn't go well. But again, we have an FDA position on that. And so let's see how that plays out. So that's the end of the decade. And I also said a few minutes ago, we have 2 FCF filings that we will reveal what they are in the next quarter based on it by the FDA. So the pipeline is strong. And I just said a few minutes ago, you get 3 massive-type of opportunities right, and you get like 10 of these mid-sized opportunities right, your decade is done. So I think that's the focus. And regarding the court business and how it affects, I mean we have enough money. I mean, that's not the asset. I think the biggest asset is how we deploy that money to strengthen our core business. I think -- as I said, we'll be [ keeping the assets ] [indiscernible] but I'm not done because I don't think -- I don't want to do a bad acquisition. And I think that's part [indiscernible]. Certainly, I think we have time and I think we'll do it at the right valuation. That's what it really comes down to. Next caller, please.
The next question is from the line of [ Danish Mistry ] from [ Investor First Advisors ].
I had just 2 questions. The first was on your domestic business, which was there. And you've touched a point -- in an earlier call you touched upon how the encore piece has taken a bit of a punch because of COVID situation and patients are going to hospitals. So has that kind of gone around for us now? How do we see traction in the domestic business going on?The second was that the in the [ Agrican ] piece, what will we read? Because possibly the product is going to go off pat next year. And we can look at the full-fledged launch next year. So is that assumption right? Or is it -- are there any more cases, et cetera, to be kind of crossover ahead of launch?Lastly, we have always talked about trying to can get into other set of fields like diabetes and cardiac. So any further progress on that?
Okay. Let me answer one question at a time. So first you asked me about how about the - on the onco. So onco has been stable now. I think it see's seen some price reversals, but I think things are more stable now. I think we'll see more steady [indiscernible] and volatility has dropped now. I don't see more volatility now. I think the whole portfolio has not collapsed to 2 crores a month now. So I think now -- now I think there is not seen much volatility in earnings, so I think that everything has now has settles down. The second question you had was what is the sector doing to [ an answer to these ]. An entire new division [indiscernible]. I think one thing that we have done well covering on its specialists, I think they've done [ GPs ] very well, onco, very well. We have done cardiologists and a little bit of endocrinology. But we have never done the mass market, large volumes. So we started a division called [indiscernible] that covered the GP segment. And particularly, I kept molnupiravir in mind. So because a lot of the time when people get sick with COVID, the first thing they search for is an [ GP ] doctor. So we have a segment that covers physicians in GP because with molnupiravir we're pushing very hard. So we have a specific focus, the division focuses completely on molnupiravir. So that's why we are very bullish about this product. Again, I am also mindful of the fact that COVID is on the lower side, so we have been bullish on the product for the future.And you had a question about the agro business. I think based on the face -- let me comment of this. So based on the patents that we have instituted so far, I think our understanding is that we could launch in August '22. And this is not the only product, as I said, we have been -- but other agro products, we see other opportunities like CTPR. We have not publically disclosed what these opportunities are, but there are other opportunities. I think there's very little litigation in agro. And I think there are a lot of opportunities in this business. And I see we could do more interesting finds, both in agro and in pharmas. I think I'm bullish. But obviously, the outcome of the litigation is what will determine the upside of the business. And that's the challenge.I think when we were actually fighting this product and initiating litigation I think I was altruistic about it, when it comes to that.
So is it safe to say that domestic, the domestic business will continue with the formulation will contribute to about INR 100 crores run rate going forward? Or do we see that kind of slowly inching up?
It will inch up. I think, certain enough, I think my position is very high on [ monofluvian ]. So I think that [ development is the result ]. Having said, even if we get a INR 50 crores, INR 60 crores profit from that business, then that's almost like adding 15% gross to our business. For a [ low bid ] type of business is a reasonable sum. And so -- yes, I'm bullish and at the same time, if there is another time to make any small level kind of thing -- I think we know that COVID is going to be [ among ]. So then we're well positioned the next INR 150 crores, INR 200 crores [indiscernible]. Next caller.
The next question is from the line of Ritika Agarwal from Valuequest.
My question is on the CapEx front. We spent INR 85 crores in the first half on CapEx. So could you explain the nature of this? And what is our CapEx guidance for next 2 to 3 years?
Just one moment, I'll just take that in one moment to check this out. So, so far, I think, yes, in that region, we have spent about INR 72 crores is about the figure. But again, yes, I think that sounds about right. I think we just -- these are just maintenance CapEx. We're not doing any large CapEx per se. We're just replacing reactors, replacing blocks and so on and so forth and this is just replacing blocks. But nothing dramatic. I don't think we'll spend more than that. The budgeted CapEx per year is about INR 314 crores. So I -- my sense is we'll probably spend about 60% to 70%. I think I said that earlier.
And so over the next 2 years?
I don't see any large CapEx spend, honestly. I think we have enough assets now. I think, like you look at domestic -- sorry, the export business, we have one plant in Hyderabad. We built another plant in Vizag. So both are FDA approved. So we have enough capacity there. So we're trying to get more products in so that we can utilize this capacity. So that's it. API, also [ is that ]. I think we have one specific -- Hyderabad and one that's in Chennai are domestic. Also, I think we have one specific in [ Uttarakhand ] and agro our facility in [ it's in Melot ]. I think, facility-wise, I think we are good. I think we did a lot of CapEx in the last 3 years, and I think we are well positioned. I think -- I don't see any large CapEx as of, I think, dramatic.
Sure. So lastly, on Coragen and in Rubik litigation that is going on, any timelines or you would like to call out or when do we see this materializing or things coming to some conclusion?
I'll answer that question, but I'll try answering it. August 16, I think, is the next scheduled hearing for the Coragen in India. So let's hope we're able to wind up the hearing and the judge is at the decision. But again, we can't say how these things go. So it will be hard to sit, so December 15 and 16. So that's the next state of hearing. And on the IMBRUVICA, we have filed and at fiscal appeal in U.S. takes about 18 to 24 months. So let's see how it plays out. I think that -- more or less, I think that's my understanding of what's going. Okay.
The next question is from the line of Nikhil Upadhyay from Securities Investment Management.
Just a quick question. One is, if we look at the export business with the profit contribution, like for last 3 quarters, we were doing a run rate of INR 150 crores. And in this quarter, we've done INR 190 crores. But if we go by Teva's call, they said the Copaxone prescriptions in U.S. have declined further. So this -- so have we seen a further decline in Copaxone revenue and like INR 60 crores, INR 70 crores is from the new businesses? Or that INR 150 crores was the base and the specific phase the new products which we have launched? If you cannot give the number, just an indication of how is the...
I think -- I don't remember the market share that we have. I think -- from what I understand, our market share has increased. I think we're actually doing well now in Copaxone market share. And in terms of sales, it's been stable. I have not seen a decline in revenue, it's been fairly stable in the last few quarters. And in terms of the increase in all, I think we had -- I think we had smart last year the same time, Q1 were selling -- we sold a lot of chloroquine, so that vanished. So then now I think there's a pickup because of effect or so. And so we had Tamiflu stocking up, so this year, we don't have it. So these activations keep happening, it's part of the business, I think. Does that answer your question?
Yes. Secondly in [ Fortinet ], what we understand it was a 2-player market, and we were the third player to enter. And I think it was a $200 million to $250 million product. So have they seen more players entering the market? Or is it still a 3-player market? Just some sense, if you can give.
I do remember exactly what you're saying. I think the first generic on that has been 6 months, and then -- and I think we got approved after 8 months. And I think I heard -- I think Insta got up to it. I don't remember who the third player is. I don't want speculate too much about that. I don't remember.But what you said is right, I think it was like a 3-player market. You're putting me on the spot, I don't have an answer to your question. But I think it's like 3-player market, I think that's my understanding. The market size is a little smaller than $200 million, I think, before it went generic. So -- but I think in terms of sales-wise, my friend, I think we do better with [ Fortinet ] that's what my understanding, especially if it's not 10-milligram, it is extremely well product. I think that's what my understanding is.
Okay. And lastly, in September quarter, we generally used to fill this Tamiflu APIs for the flu season and which used to reduce our gross margin. But this time, there is no Tamiflu API sales and API sales are largely in line with what we've been doing so. But still, there is almost a 500, 600 bps fall in gross margin. If you can just help me understand what has gained exactly? Because even if I compare against June quarter, there was a lot of this COVID sales which was there in our numbers, which was a lower gross margin business, which I suppose is not there in this quarter. So I'm not able to add these things.
No, the answer is very simple, you already answered the question. I mean we used to have, if you traditionally follow our numbers for the last 4, 5 years. We used to have a lot of talking points about oseltamivir, and now we don't have it. The reason we don't have it is because of behavior change, and this is what has happened. So we see what has happened is because of COVID and the masking and the vaccine, the number of people, both in the news, sales have dropped dramatically, [ they have affected ] activity retail selling. So for anemic supplies, a few governments of like we're doing even there are some territories, oseltamivir sales completely collapsed. And it also affected our base revenue dramatically because there's absolutely no sales. And we have seen that across the world, if you observe a number of the core medicines, allergy medicine sales have drop dramatically because of COVID. That has been one more challenge in our earnings. I mean, that's the nature of -- I mean that's what ended up happening. And so we're trying to adjust now. I think we have more nearly that EBITDA has completely gone now. So I think that's the challenge that this is. It doesn't look like it wants to get better. I don't see that product coming back the way it used to be. That's the way it is, so...
The next question is from the line of Gagan Thareja from ASK Investment Managers.
Am I audible?
Yes, speak a little louder, man.
Okay. Sir, can you split the -- I mean, give some idea of the Eliquis sales bump up, which you would have had because of COVID. Because if I understand it, I mean, pre-COVID Eliquis would have been, on an annualized basis, INR 60 crores, INR 70 crores product for you. Or am I...
I don't give a split for competitor reasons, my friend. I stopped doing this for the last few years. For competitive reasons, we're just giving away what you're doing. So I think broadly, I'll tell you, trend-wise, I think you're right about Q1 having a good representation of [ apixaban ]. But I -- generally, we don't. And Q2 onwards, the bulk is not there. Clearly, I think what you said is absolutely right. Split by product, I'm not doing. But strategically, I'm not saying.
Okay. And second question is around the onco portfolio, which last year took a sharp dip because of COVID. Would it be fair to assume that when onco normalizes, you would have hit back the FY '20 sort of numbers in oncology? Or has it settled somewhere below that? And with the new product additions set to go up?
It has settled down, but you have settled on slightly lower than what it was pre-COVID, and I think it's mostly because of price erosion. But it has tightened up. I think the sort of swings that you saw in the past are not there.
And the other products, which you didn't see in the other than Eliquis, products like [ Pomalyst ] or [ ticagrelor ]. If you could give some idea of how those are faring for you?
[indiscernible], it has done reasonably well. [ Debigatran ] has done reasonably well. But [ ticagrelor ], apixaban did extremely well because of COVID, so -- because they're all used in COVID treatment. So in that sense, I think there's been a pop, but now they are settled on to more normalized sales. But I think all the brands are doing reasonably I think -- but apixaban is probably our biggest inventory.
Right. And sir, if I'm allowed 1 more.
Yes. Sure.
TG Therapeutics came out with data on ublituximab for multiple sclerosis, and at least the data that they put out seems pretty healthy and strong. Do you consider this as a -- I mean, in future, obviously, a possible competitor to Copaxone?
I don't know the metric. That's a question I can't answer. I don't know how to answer that question. I'm sorry me. Next caller, please.
The next question is from the line of Nitin Agarwal from DAM Capital.
On the oncology business in India, has there been any change in the market competitive dynamics over the last couple of years?
I mean there's a small kind of price erosion. Things are more settled down now. I would say that there's going to -- be it 2 years, 2 things have happened. One is price control. The price -- and because of price control, MRPs have dropped because MRPs have dropped, then there were further distorting that was expected by the supply chain, so which brought down further margin. And then you had a couple of events like COVID, we had COVID in May, June, July, as you're aware, and then we had COVID last year in October, not October -- early COVID in May, June of last year. So whenever we have these events and then patients coming back, so we have a fairly -- a fair amount of disruption. But right now, things are stable now. I don't see much -- you will see more consistent revenue now, except for when we stock products for new launches. But otherwise, we're seeing fairly consistent numbers. But they are lower than what they were pre-COVID numbers because of competition. Okay.
But Rajeev, just to push that, has the market been impacted by entry and more competitive pricing action by some of the newer guys? Or has there been new multiple -- you guys have entered the business or anything like that, which has happened this way?
I think that is in that [indiscernible]. Generally, domestic is fairly hypercompetitive. And I think if you look at the last 2 years, the emphasis on domestic has increased so dramatically now. And people don't leave a single order. I mean it's almost -- because everybody loves domestic right now. That's why all my questions are always revolving around domestic. So people find this more stable business compared to the export business, which the exact opposite in perception a few years ago. I think that's the lay of the land. I mean, we're going to have competition. And I think we're not -- we're doing generic. The way you sustain sales as you build your core brand. At the same time we launch and do new launches, and that's how the momentum is maintained. We had some very good launches this year. I mean we -- for example, we launched [ Altrumabag ], a Novartis product. So that -- we are the only [ generic core data ] for that at this time in India. So that has done well. And as I said a few months ago, we're launching this quarter carfilzomib and [ Azatadine ] tablets. So I mean it's a good business and a good stable business. And I think we have a good setup and I think we do well. So I think -- but as I said, you have to keep the machines running while there's new launches and that. So I think that's a mix of base business and new launches and client growth. Okay.
The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.
Sir, lately, Delhi High Court has granted an Indian [indiscernible] with respect to Entresto. So basically -- so will that impact NATCO?
We are not -- we had [ injunction ] on that product some time ago, Vishal. So as of now, we have -- we don't have sale on that product at all. So as of now, if in terms of financial impact is 0. But obviously, it's an opportunity that was missed, right? I mean, if we had the opportunity to launch that product and the market size of the product is very good right now. I don't know about the numbers, but it's like hundreds of crores. So it would have been nice to have the generic version of that. But as I said, I mean, you're going to get some right, you're going to get some wrong, but some of the businesses I think just go at it.
Sir, just one more. Earlier during the call, you hinted at some launches beyond the ones -- beyond this large ones. So could you just -- one I heard was [indiscernible]. And was that in Europe or in U.S.?
And what I alluded to, I think the gentleman was asking me specifically what other products that we have. And I cited about 7 or 8 opportunities, which I said were reasonable opportunities, among them is YONDELIS. YONDELIS is filed in both Europe and in the U.S. market. So U.S., as you know, we have a [ par of for ], we have an MPF upon that. So it's a partner -- partnership with Sun Pharma. Similarly, we have a partnership with Sun Pharma in Europe as well, and that -- so I think that's -- I have not speculated the time of the launch because at this time of streams, it's one of the big breaks that we have in our pipeline.
And you also said lenalidomide in Australia also is scheduled some time from now?
Yes. We have settled it recently, pomalidomide and lenalidomide, both together we expect in Australia. So that is another interesting side. We will not disclose the date because of a bond by confidentiality. But yes, that is something that -- we have an approval on both these products in Australia already. And we are hoping, I think, on the day of the launch, I think we should do reasonably well here.
Okay. And sir, just one final one. On the NATCO's working capital is significantly higher versus peers. So is it just because that your sales is a bit lower because you report only profit share and not be any sales in the U.S. Is that the reason for the working capital to appear apparently higher in reference to the sales? Or...
Our working capital is higher because of the stocking quantities because we take a lot of risk, my friend. I build inventory, I think I said a few minutes ago, we have inventory on all the pandemic products. Then you [ add the inventory ], a with very significant amount of inventory on CTPR, that is one of the biggest contributors of the increase in working capital. I'll give you an example of what the problem is. You see, CTPR was building inventory before the current season for June, because the majority of the sale happens within July and September. And if we don't have inventory, then you can't launch the product. You see what I'm trying to say, right? And if the launch gets delayed, then you're sitting on the inventory because all the sale gets concentrated in the 3 months. So -- but that's the nature of the business. I mean, we call -- we do so many pandemic and talking products. That's the reason why we have high inventory. And what I also said was that we're hoping that we'll be able to liquidate that in the next few months, based on our expectations.I'll take one last question. It's getting late. So I'll take one last question.
The last question is from the line of Nikhil Upadhyay from Securities Investment Management.
This is regarding one comment, which Rajeev, you made that in Canada, if we make $10 million kind of a profit on delimit, we would be very good. Is it your expectation it's much lower than that, considering the market is like between 4 players, and you have -- you believe you have a better presence with the innovator REMS? That is one. And secondly, do you think this whatever profit we make can sustain for 3, 4 years? Or do you think that will go off in 1 or 2 years? It's a 1- or 2-year opportunity? Or do you think it can sustain?
See, I have no answer to any of your questions. So the $10 million number is something that Deepak threw at me. So then I answered it by saying that it would be a nice number to have. In generic, you can never predict what will happen. I will not hazard a guess. What I said was it is older at that level, I think I'll be very happy. I think that's our expectation. And how market formation plays or around on it, it's a question that only time will tell. And as said, I will give a better insight of it because if you ask you question, let's say, in our call for December earnings, hopefully, we'll have a call from [indiscernible] so then we will have a better idea of what to expect. I think he was speculating, so I was speculating back. Well, thank you all. Again, any questions pertaining to what we discussed in the call, please feel free to reach out. We will also be put up on the website. Thank you all. Thanks.
On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.