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Natco Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the NATCO Pharma Limited Q3 FY '19 Earnings Conference Call hosted by Edelweiss Securities Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Malik from Edelweiss Securities Ltd. Thank you, and over to you, sir.
Thank you, and good morning, everyone. On behalf of Edelweiss, I welcome you all for NATCO Pharma's Third Quarter FY '19 Earnings Call. Today, we have with us the senior management of the company represented by Mr. Rajeev Nannapaneni, Vice Chairman and CEO; and Mr. Rajesh Chebiyam, Vice President, Acquisitions, Institutional Investor Management & Corporate Communications.I would like to hand over the conference to Mr. Rajesh for opening remarks. Over to you, Rajesh.
Sure. Thank you Deepak, as always. Welcome, everyone to NATCO's conference call, discussing our earnings results for the third quarter FY '19, which ended December 31, 2018. And as a standard disclaimer, during the call, we may be making certain forward-looking statements, which are predictions, projections or statements about future events. Since forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements.Let me also state that the material in the call, with the exception of the participant questions, is the property of NATCO, cannot be recorded or rebroadcast without NATCO's expressed written permission.Now coming to the earnings details, for the third quarter of FY '19 that ended December 31, 2018, NATCO had a consolidated total revenue of INR 580 crores as against INR 573.6 crores during the same quarter last year. The net profit for the period on a consolidated basis was INR 159 crores as against INR 217 crores same quarter last year. The decline in profit during the quarter compared to last year was predominantly due to margin reduction in our products [indiscernible] in the U.S. market. The company remains very positive on our long-term strategy and growth trajectory [indiscernible] here in business attested with our efforts in launch of unique products in India, high-value product filings in the U.S. such as Ibrutinib that we recently disclosed. Approvals of products in Graysville and Canada. And lastly, the company's differentiated strategy in targeting niche molecules in the agrichemical business. We have also disclose the revenue split broadly for the quarter. I'll just reiterate the numbers that we have disclosed. We had a total revenue for the quarter 3 in API of over INR 99 crores. Formulation domestic was INR 164 crores. Of this INR 164 crores: INR 93 crores was oncology, Pharma specialties was around INR 50 crores, INR 20 crores was the third-party and CnD. Our formulations exports for the quarter including profit share was approximately INR 257 crores. Foreign subsidiaries contributed INR 25 crores. Other operating investment is -- income was INR 35 crores for the quarter. We'll pause here and we'll take the questions please.
[Operator Instructions] The first question is from the line of Ravi Dharamshi from Valuequest.
This is Ravi. I just had 2 questions. One question is so our PAT has been progressively declining as we look sequentially from [ INR 220 crore to INR 180 crore to now INR 160 crore. ] Is all the extraordinary profit from Tamiflu out of this? And is there any further risk of Copaxone price risk still built in to this number or no? And my second question is what is the status on the Revlimid approval?
First question is, do we have some contributions from flu? We had some stocking quantity that we built. So there's some contribution in this quarter earnings, but there is substantial decline because as you rightly said, the flu income is falling. So going forward, I think from -- starting from next year, I think the flu contribution will drop dramatically. I think that's our position. And what was the second question you had on...
Revlimid approval?
Yes. Revlimid, I think because of all the issues that we have, the shut down in the U.S., we are not getting clarity. So I'll come back to you on that. As of now, we have not heard from the FDA, because we had a, what you call, some -- sorry? We had some indication that they'll give us some replies but because of all the delays and all the -- we have not heard anything. So I think we'll -- I'll come back to you on that. As of now, we are -- but -- we are hopeful that we will hear an approval sometime in 2019. We thought it will be earlier 2019 but it might be slightly delayed but we're hopeful, it will happen sometime in 2019.
As I understand, Mylan has taken one more round of price cut in Copaxone. So my question is whether that has also reflected in this quarter or it will reflect going forward?
I think what -- good thing about Copaxone is we -- obviously, the contribution of Copaxone was less in that earnings when the year started off. Now I think going forward, the contribution of Copaxone increased dramatically. And -- so whatever we're losing on Tamiflu, I think a good portion of it will be replaced with Copaxone going henceforth.
The next question is from the line of Rakesh Nayudu from Haitong Securities.
I wanted to understand the accounting treatment for your profit share arrangement with these products. Now if I recollect correctly, a few quarters back, the communication was that it's the supplies that's booked up-front. And then the profit share is something which should come around in 2, 3 quarters. Now when I look at the quarterly numbers, we see that when there is a scenario in the market share dynamics and the pricing. But then clearly, I mean, the profit share from the Copaxone still doesn't seem to have come on to our books. So sir, how should we be looking at this? And I understand that the last fiscal, I think, lot of the U.S. revenues were given by Tamiflu and Doxil profit share and revenue contributions. So I mean, can you just -- if you explain as how we should be looking at the profit share accretion of Copaxone into our books?
I think Rakesh, the way we booked the revenue is we booked it on accrual basis. And in terms of -- that's your question. You're absolutely right. First, what we do is we sell the replicas to third party sales. Example, we [ have a real simple ] mathematical example. Let's say, we made something at INR 2, so we deliver the INR 2 to Mylan, and he book us the manufacturing margin on the INR 2. And let's say, he sells the products at, let's say, INR 10, so we make a profit of INR 8. But that INR 8 we -- will be accrued over a period of time, when the goods are sold. So it takes -- so when you build something, it takes about 3 to 6 months to sell those goods. So basically, when the INR 8 is accrued, then we book it as profit. I think that's how we do our accounting. It's fairly conservative risk.
If we do a bag-off annual of kind of calculations and see the market share scenario. And then if you work backwards, I mean, currently, I mean, the Mylan sales distribution with around USD 200 million plus. And then we try and -- you see, do a calculation for our potential market share in that. The numbers for me, I'm not adding up. So I mean, is there a timing issue which I'm missing here. I mean, how should I be looking at this?
There is a timing issue, Rakesh, as you rightly said. First, you only build the raw material. Then when the money comes, then you book the profit. I think that's the best way I can answer that question. Maybe I'm not able to understand your question. So if you think, it's like this. It may -- yes, you ask me once more. Ask me again and I'll -- maybe I'm not able to understand what you're saying.
Sir, I just want to know, I mean, right now, the way I'm looking at the economy buildup, I mean, correct me if I'm wrong. I mean, my sense is that we are still not seeing that profit share of Copaxone coming on to the books. So if that is the case, then by when should we expect the profit share to come on the books?
It is there in the books, Rakesh. It is there. It's only a question of, I think, we have to meet certain milestones. Let's say, you meet a certain milestone, let's -- in terms of sales, let's turn the page. So it's getting treated, it's getting accrued every quarter. I think there's no -- I don't think there's any ambiguity. The numbers -- so I tell you what is -- the contribution of Tamiflu was higher. So -- and now, the contribution of Tamiflu ends for this. Especially in the year 2019 would be extremely low. So you'll likely see consistency in Copaxone. And if I don't -- it will likely -- it will actually be much more -- compared to the seasonality whether that relates to Tamiflu, Copaxone will be [ form of a system ].
Okay. I'll take this question offline. One more question on Revlimid. Now with Revlimid, we have a settlement. Now -- and there are some dates [indiscernible] in the market share depletions with Revlimid is my understanding. Now is an approval necessary for us to start booking revenues as a settled partner and potentially even as an AG partner?
It is -- we have to have an approval, yes. We have to sell the product to get revenue, if that's the questions, yes. And we'll only book revenue not on approval. I will correct you there. We'll book revenue on the launch. The launch date as the publication said is March 22 or earlier unless certain circumstances.
Okay. And post your settlement and the subsequent litigations that you're seeing now, in a hypothetical situation of, you see someone coming in for a launch or if a litigation shaping up in a direction other than what we are generally understanding it. Then does leave with -- NATCO, you see any favorable portion to, you see -- I mean, how should we be looking at -- in that case, I mean, if the legal...
I think the question if somebody litigates and launches before '22 will we be able to launch? Is that the question? Is that -- can you -- is that what you're asking?
Yes, yes.
Yes. If that's the question, yes, under some certain circumstances. Yes, we can also launch, yes. That is correct.
The next question is from the line of Nikhil Upadhyay from Securities Investment Management Private Limited.
Sir, if you can just help me understand this -- the agrochemical space where we are looking at an investment. So what kind of a player we would be and what is that whole idea of investment, and how do we see the business place? We will be a B2B player or if you can just help me understand our investment there?
Yes, sure. So my thinking is that we have very good chemistry skills and we feel that there are some niche and interesting opportunities in Agro which I feel are not being exploited. So using the skill set that we have in terms of R&D, we want to develop certain products. In terms of the alliances, western markets is finally, looking for partnerships. Here in India, we have not made up our mind. I think either we do it ourselves or we do through a partnership. I think my product ideas are not going to be a commodity Agro idea. I think we've always known that [indiscernible] does commodity, I guess. I think the idea is to do niche or to do agrochemicals or come up with new ideas on ways of treating pests. So see if the question is why are we diversifying. I think my belief is that we need to reduce our -- if you look at the dark number for our business for the last 17, 18 years, I think, India domestic and U.S. chain mix is what has driven our philosophy of doing business. And I feel, at some level, we need to rethink that margin because the way things are going. And my view is that using the skill set that we have, I think it's a very reasonable diversification. And our idea in the long-term vision is that India domestic ROW brand formulations and what do you call, agro should become almost 70% to 80% of the revenue. Right now, as Rajesh was talking about -- our exposure in the U.S. right now is nearly INR 250 crores over the INR 580 crores in the U.S. Formulations. So if we reduce that and still continue to do the U.S. generics, where we are going for the big jackpot market, I think that's the right one. I mean that's how I take it.
Sir, I think I'm okay with the point that basically India and ROW diversification, which we have always mentioned. And basically, it gives sense to the whole table. But on agrochemical, one is like this investment which we have placed out of INR 1,000 crores, so would it be...
Not INR 1,000 crores my friend. Sorry. So it's been INR 100 crores if it's..
INR 100 crores?
Yes.
And so basically, that would be behind the manufacturing?
Yes. That's correct, yes.
But if we look at competing with the existing players like the UPLs or the PIs of the world who've been in this industry and a direct competition in India or ROW markets where these sales have been for a long period of time. I understand that we have the chemistry skill but competing directly with them on a equal line and where we have -- we don't have much of a experience in terms of how the product gets marketed in the agri space with the farmers -- the interaction with the farmers and all.
Good. I think, you see -- I'll answer that question. So if you look at even doing branded formulations in India, I think, when we say the NATCO is doing cardiology or NATCO is doing gastroenterology, we are coming into a space where you have people like [ Sun ] or Nidus who are well established. See, you should understand the -- I think, let me give you a counterpart. I think, NATCO never competes trying to do what the others are trying to do. What we always attempt to do is something new. New means what? New, either means a new technology, which none of them have come up with or going after pattern which none other guys have gone after, or doing a formulation technology with other people around. See, you should take a generic, what you call, space where I'm going to compete with X, Y, Z with the same commodity portfolio as we have, then it will never work. I think that is never the margin. I think, I've heard -- I think, that's normal as always we are going to do something differentiated. It's only worth only if you do something differentiated. And I think I have certain ideas which are -- will be disruptive and will -- what it call -- cause a disruption in a market whereas the market would be created by itself. If you look at our portfolio, I was talking -- a lot of these products that we have done are so unique, but the product by itself, markets itself. You know what I mean? Because of the uniqueness of the fact that the disruption is done. And your question, I understood your point that we don't have a front-end in India. Yes, I don't. I think what we're telling publicly is that this is the idea that we have and the capability [ that we're ] building, I mean, as we move, we have to acquire the front-end capability also we need to acquire. And that is a lack, I mean, that is there. But see we didn't confuse the ideas. So it takes time, but I believe that I'll be able to fill that gap as well over a period of time.
And so, I think this...
My friend, we'll give another person a chance, we'll come back to your question. If you've anything you said, we'll ask operator. Okay?
[Operator Instructions] The next question is from the line of Kunal Randeria from Antique Stockbroking.
So firstly, Rajeev on Revlimid. So if Rajeev starts settling with some of the other filers, does the volume cap for you start going up then?
I can't answer that question, Kunal. It's [indiscernible] confidential. I think the best way I can try to tell is that we will get a good deal -- if we're settling with other people, I'll demand it and see the deal and value meet. That is the best way I can answer your question.
Sure, sure. And the next couple of quarters, any planned launches, is that -- is there an opportunity for us?
But big launches, where? In India you're talking about or the U.S. you're talking...
The U.S.?
Big launches in the U.S. I think we have that and a couple of -- we have Bosentan and Imaginus. But I'm not personally very bullish on any other launches personally, I think -- because I think in [indiscernible] stay Ibrutinib. Bosentan, by fluke, if we end up being the first wave and other people don't get approved, then maybe we'll make something. But if we get approvals, like 10 other guys, I'm not very well sure.
What's holding approvals because it's been about 3 years and there's been no generic player yet, and the REMS product...
That actually does [indiscernible]. You're absolutely right. Both Bosentan and REMS product, I think FDA is working with all the generics to put REMS together, so we're anticipating approvals soon. I think that's a target that I'm thinking. But to your question, that it will make money and all, I'm not ready for this honestly. But if India supplies we actually do.
Okay, okay. And then there were couple of launches that you were mentioning in the cardio-diabetes space in India. So are these on track?
Another good one. It is on track, while tracking distribution. So that's a good one. So now we found the litigation, so we were mitigating in the markets. We think we have a very good case. We'll have some clarity on this in the next couple of months. Again, with cost reasonably priced generic in the market. And I think if we get a good outcome in this court case. I think -- we'll hit our home run. So idea again, Kunal, is to do product-lead deals. Let us not spoil ahead trying to do a commodity play. To get even 2 or 3 of these ideas right, your portfolio will grow about 10% to 15%, I think. And then you have a generic -- your base portfolio, it even grows by certain credits. So I think that's the way forward.
Fair enough. And to launch the plan on buprenorphine already selling Risek in India?
Yes, but there are the authorized generics of the markets. They're not selling it at an affordable price. We have launched it at a 40% discount on it.
And just lastly, it has gone up in the [indiscernible]
And so we get more clarity about this in the next...
Couple of months?
Yes.
Okay, okay. And then the lastly, other expenses have gone up fairly sharply in this quarter. So is this a new run rate or...
Not really. I think we had a lot of onetime big R&D expenses. Imbruvica was a very expensive filing. So to be clear, Kunal, pondering on the same question, I think we continue to invest in the future. I think we're not concerned about -- you worry about too much of a near term than you affect your future. I think the idea here is that we want the next certain number [ in the mix department ]. So I think that, that's where, I think, the real value is in the U.S. I think -- otherwise, there's very little value left in U.S. So I think that we continue to invest, and I think we're very confident about our future. And in near term, as I said, ROW will drive our run rate.
Sorry just one more question on Imbruvica. So you are the first filer for the tablet and there are some 8, 10 filers for capsules. So I don't think the technology will be any different, so why did others not really file for this?
It's a very simple thing, Kunal. See, what happened was the capsule was an NCE-1 driven filing, okay? So everybody filed on NCE-1, and everybody -- then the other 8, 10 filers on day 1. But what the innovator has done is they've moved the product from capsule to tablet. So when they launch the tablet, there was no NCE-1. So basically whoever files, and because there is no NCE-1, whoever files first gets the 180 days. So essentially, it is a [ rag trip ] among everyone. It's not that I'm the most brilliant person who made the tablet. Anyone can make the tablet. But the way it works is, whoever files first, gets the 180 days. Because it's 1-day driven. So whatever it is, we strategize it in a way that we'll end up being the first filing. Again, I'm not very sure but you have to try. If whoever gets, who files first, gets the 180 days. That's why we did it, right? And there will be subsequent filers but the guy who files first has the advantage. I mean, that's how it is.
The next question is from the line of Prakash Agarwal from Axis Capital Limited.
Sir, first question on China. If you could help us to understand if we are getting queries because we have the injectable portfolio and there are lot of -- I think the laws are changing. So what is the landscape there, and do we stand an opportunity as a -- in the next 2, 3 years?
We're looking at -- we have a couple of filings in China, Prakash. We're looking to enhance the filings. We're going to do another few filings this year. In terms of opportunity, China is good market, the rules have eased. I think the -- approvals will come faster. So potential...
Currently, just like rules are on the talk-talk stage or currently we are actually seeing China actually -- other Chinese players actually coming to us, talking to us, and we're talking to them and is there any progress on that ground?
Yes, sure. I think you've -- the title of couple of Chinese companies could do for further filings. I believe we [ drive more ] front-end than China. [indiscernible] as I talk to, I don't really think they're front-end in China. We're doing a relationship-driven partnership model in China. We will see some approvals from China. But my view is, it will take about 2 to 3 years. But we're doing some interesting filings in China. And I see some advantage. But well nothing in the near term, all at least 2, 3 years away.
2 to 3 years. Yes, understand that. And Revlimid, you mentioned because of this -- the U.S. issue, but we had a TAD date which is gone by or it is in March?
We have a TAD date sometime -- if you -- recently, I think it's that -- and it went by. And they didn't complete the review. I mean we got it from somebody as David said, we had a TAD date in quest. However, they couldn't complete reviewing all the sections, they said they'll come back.
Okay, okay. Because of the shutdown issue, you said?
I am communicating -- this is what they said, I think, that's the best way to say it.
But you are saying you didn't receive any queries as such. I mean they themselves are not done is what I'm trying to understand.
Basically, if you get your TAD is not -- TAD tells you that they'll come back to that -- they'll come with their question on this particular date. They'll come back saying that they've not completed the review and they need some more time. I think that's a few days. That's the best guess. Okay?
Okay, perfect. And on hep C, sir, I mean, that business on a Q-on-Q as well as Y-o-Y, that seems to be weaker. So why and what's the outlook?
It is. I think, challenge is hep C has done extremely well, for the revenue in the past. But now it is served -- it's difficult to cure. The -- they needed to get the repeat patient like in other diseases is not there. I think that is one challenge. And so it has settled down. I think as Rajesh said, I think the deal was INR 50 crores, INR 51 crores a quarter. I think in new -- we're getting from new countries launches will be in the next few weeks. So I think it will settle around at INR 50 crores to INR 60 crores level. I think that's our expectation.
And lastly on filings, sir. We -- last call, we mentioned about the increase in filings, so what -- how much we have done for the last 9 months, and what we're expecting by year-end and next year?
I think this year the target is about 6 to 7 filings. Next year, the target is about 10 to 11.
Okay. Of which, couple of them, I'm sure, would be interesting ones? One is already...
Well the idea is like that. So I think [ while ] starting with the year that we'll do 8 to 10. But at least, if we -- my strategy clearly is that if 3, 4 should be like revenue mid sort of ideas. And 3, 4 will be commodities. But see, the more I discourage those, we could pull-off 1 or 2 ideas that would be for the year, I think you're set. I think whatever business goal I have for that particular market is met. I think my -- always our interaction or -- our strategy has always been we need to get those sort of filings. Otherwise, I don't see much value into this.
Understand, sir. And lastly on this, we are on track for that INR 700 crore kind of plus/minus kind of run rate for the Pac?
Prakash, what I do is -- I think what I want to say is that I won't -- because Tamiflu has been a great disappointment. I think I said that in Q3. Q4, I'm not able to tell. [indiscernible] was very strong right now, so we have to see how it actually plays out. So I'll give you 2 numbers. One number is without Tamiflu, one number is with expectation of Tamiflu. So I believe we'll be able to generate about INR 635 crores to INR 650 crores [ tied to this ] year, if we assume 0 revenue on Tamiflu. And anything we get on Tamiflu, we can just do a PVT penetration. So if we get INR 50 crores, then it's INR 40 crores, so we can add that. So I think that's what we'll see. But clarity on Tamiflu I'll only get when the season is over. And the sale, as you know, is so highly concentrated in these 3 months, December, January and Feb, it's hard to predict. But compared to -- the last year numbers are clearly not repeatable, I'm telling you that upfront. And the intensity of the competition is being much more busier compared to last year. And so -- but be that as it may, I think we'll get more clarity in there, but this is how I would look at the numbers, okay?
The next question is from the line of Nitin Agarwal from IDFC Securities Limited.
Rajeev, on -- any more updates on the whole Canadian, Brazilian filings that you've talked about in the past?
I think we have few updates. One is Brazil, I think, we have launched Everolimus and letrozole in Brazil. So Everolimus, we have the first generic test for the oncology target. So that is doing very well. I think it has got some small sale in December quarter, but I think we'll see a good amount of sale in the March quarter. And in Canada, we don't have any big approvals this year. I think next year, we're expecting some good approvals in Canada as well. Where we have generics in a couple of -- 2 items. So we'll see a good scale in Canada in the coming financial year, Canada and Brazil.
Okay. And sir, what was -- I missed it. What was the number that we gave for the hep C sales in the domestic market this quarter?
INR 50 crores.
INR 50 crores.
And sorry, what was oncology?
Oncology was INR 93 crores, Nitin.
Next question is from the line of [ Naresh Sai Lily ] who's an individual investor.
Rajeev, I had a quick question about the IPO, which we have taken like INR 950 crores from the QIP side. So what are we doing with that amount? And are we diversifying with that amount? Or are we investing in the current business in domestic market or foreign market?
I think whatever money we are making, we're using that cash flow for the, what you'd call, for the capital expenditure and -- so we're making enough profit, so we're not drifting to the money. So as of today, as of December 31, 2018, our cash balance is, just one moment, give me a second to look at the sheet, our cash balance is INR 1,082,50,00,000. And our debt is about INR 73 crores -- INR 83 crores, I'm sorry [indiscernible]. INR 83 crores is debt and INR 77 crore is foreign basis companies. So total debt is about INR 151 crores. And cash is about INR 1,082.5 crores. And this assumes including cash that we have spent on buybacks.
Sure. And this buyback is going to take -- as you mentioned about the buyback, it's -- you have a time till more 6 months now. So are we still online with the buyback? Or...
Yes, yes. I think we've spent nearly, if I'm wrong or right, our INR 250 crore is the total buyback with the maximum of INR 1,000 a share. I think we're targeting about -- 25 lac share is what we have targeted. So at maximum INR 1,000. So we have set a target of, I think -- so far 3 yesterday, I think we bought -- before the earnings announcement, we've stopped buying for regulatory reasons. We spent -- it's there on the website. We spent about INR 93 crores so far out of the INR 250 crore target, and we have bought about nearly 37% of the targeted amount. And that's equal to about 13.25 actually.
Sure. And one last question, Rajeev. Rajeev, as far as the Copaxone is concerned, when I was looking at the Mylan's market share, as of now, it just shows like 22%. Are we seeing any growth at all? Are we expecting any market share improvement in the next few quarters? I'm not just talking about a month or 2, I'm talking about a few quarters.
Mylan increase, my friend. I think when we started off with the launch, we were stuck at 10% for a very long time. And as I was telling the other gentlemen who asked me, so the contribution of Copaxone was low. Now I think we have hit nearly 25% to 30%. I think that's what my understanding is, including new prescriptions and the business. So I'm just going with what's there in the public domain. So I'm very happy with what's happening with Copaxone. Finally, Copaxone has kicked in. And I think you will see the benefit of that in the next 12 months. I'm very pleased with how things are going with Copaxone. I think it looks like a solid business, even though Sandoz has come much after us. They are not able to -- the first-mover advantage has made a lot of difference. And then Mylan has done a great job with the product.
The next question is from the line of Vishal Manchanda from Nirmal Bang Securities.
On the U.S. market, can you give some color on how launches will be in FY '20 and FY '21? So should we expect some very good opportunities online for Copaxone or Tamiflu suspension?
I don't want to reveal all the new launches for strategic reasons, my friend, Vishal, so I won't answer that question directly. I think we expect some good launches in -- I think '22, we have already publicly said that we have very good launches with Revlimid and there could be Nexavar and other products in the future, Everolimus. In the near term, 1 month update is not giving much guidance on what launches we have. One, we don't have any big launches, two -- that we've publicly stated; two, a lot of the big launches are in the RoW and India market, so not driven by U.S.
Okay, sir. You said Everolimus, Nexavar and, sir, Revlimid, all these could be in the FY '22 time frame and beyond?
I'm not telling you exact date, yes, but a lot of them are launched post -- '22 and post '22, I think. These are the big ones that we have. And I think the way I look at it is from '22, '23 and '24, I think we're very positive about our future. And in the near term, I think the way we want to drive our earnings is with aggressive RoW launches. I think in the near term, Brazil, India will be driving our earnings. And I'm very bullish about our launches. And I think as earlier -- as the earlier gentleman asked me about launching Liposomal Doxorubicin, I wish we were litigating the markets on it. But see, these sort of launches, if we get at least 2 or 3 of them right, I think we will be in a very good shape. So I think that's what we are targeting.
And sir, in Brazil, what is the size that you would look at for each launch in terms of the peak sales? So like, can we expect a $5 million peak sale from a launch?
It is the product-driven strategy. Like -- as Nitin was asking me, what launches do you have? So as an example, with Everolimus in Brazil, it's nearly a $7 million to $8 million launch. It's my estimation in the next 12 months, that's how much [indiscernible] you're going to get. You might say what is so special about it? The profitability on this $7 million, $8 million is very high. It's helping us pay -- whatever cash flows that they're having in Brazil will be taken care of. So the idea here is like this, or the strategy is, you identify about 8 to 10 opportunities and target sales of about 7 million to 10 million on each one of them, either it could be India or RoW. And they should be disruptive in nature because nobody else is doing it. It should not be a commodity play and should have a limited number of competition. If you get -- target about 10, even if we get 4 or 5 of them right, when you add $30 million, $40 million to your revenue, then I think you're in a good shape. So -- but also what I'm trying to say that because we are doing these special unique launches, you'll get some of them wrong also, meaning if you could get injuncted or something couldn't -- may not get that outcome that you expect. But even if you get even 40% of it right, I think you're in a good shape.
So basically, in the basket, you can build about 4 to 5 launches in markets like Brazil and Canada.
Canada and India together, yes, I think RoW market together, yes. I think the idea here is to get our -- keep it in the earnings. Doing a $1 million, $2 million launch doesn't make much difference. You need those $10 million to $15 million launches. I think our focus is completely on those type of launches.
And coming to India, do you -- is there anything you've heard on [ Belinda ] litigation?
That is again another idea that we had, but unfortunately, we got exempted. But the court has reserved the orders. We're awaiting verdict any moment. I think we should get a verdict in the next couple of months. Again, classic INR 140 crores, INR 150 crores sales [indiscernible] in the markets. I think we're authorizing a little faster. And if we're able to get a favorable [ quarter ] then launch, you can make -- you can do very well with these sort of launches.
Okay. And finally, on the agrochemical space, could you guide on whether the molecules we are targeting are kind of new molecules, or they are existing molecules on the market? And is that complex a very few [indiscernible] telling you?
A little bit of both. Some existing, some new. Some new, fresh ideas. A little bit of both. I can't give away the strategy on a conference call. But I think you will -- as and when we make significant launches, we will make announcements. Okay?
The next question is from the line of [ Tanush Mehta ] from Dalal & Broacha.
Sir, my question is regarding the increase in other expenses [indiscernible].
The other expenses primarily are driven by bio studies. And we had a couple of trials that we are doing and then some exhibit batches for 2019 filings. So we did some heavy-duty exhibit batches for launches in 2019. So those R&D expenses got figured in that. So that's the reason why. And we continue to spend aggressively on these complex generics, so that's the reason why. And now we have a stronger balance sheet than we had in the past. So it gives me a little more room to be a little more aggressive. And it's also our accounting treatment because a lot of this R&D stuff we expensed it upfront. We don't do amortization for R&D. So that's why we expanded, and that's why it shows the way it does in OpEx.
Okay. And -- so was it a ForEx loss this time, sir?
I'm sorry?
Was it a ForEx gain or a loss this time?
I didn't catch what specifically you said. One more time? What is the gain, you said?
ForEx gain.
We didn't have a ForEx gain this quarter. I don't think we had a ForEx gain. The way it was, I think we had INR 4 crore, INR 5 crore loss this quarter, I think, because of the way it works. We don't do any hedging because it's one of those, the amount receivable, I think we book at a higher exchange rate. There's INR 6.9 crore loss in the earnings this quarter.
The next question is from the line of Rakesh Nayudu from Haitong Securities.
Rajeev, just on this agri initiative, I mean, it's looking exciting given that there's a fair bit of overlapping technology and chemistry skills that you already possess. But from a commercial perspective, can you broadly highlight as to what would be your go-to-market strategy? I mean, will it be a direct branded approach or cramps? How are you...
Yes. I'm not a big fan of cramps, Rakesh, I -- cramps, you don't get much bonds. And I think if we look at NATCO, we're always -- there's a front-end. So India, I want front-end. Western markets will [indiscernible]. I think that's my thinking.
Okay. And how should we be looking at the operating spend on this? And when should we -- what should be the time lines for commercialization of these products?
It'll take at least 2 to 3 years, not in the near term.
2 to 3 years.
Next question, please? Can you hear us? Anybody else? Anyone?
Right, sir. Sir, the next question is from the line of C. Srihari from P.C.S. Securities Limited.
My question mainly pertains to development. I would like to know what is the competitive scenario and what is the probability that there could be a significant time gap between others getting approval and yours being left behind? And secondly, for the agrochem side of it, I mean, can you give some time lines that are in the commercialization? And what is the kind of sales potential you see from it?
First question, development. I think, as of now, in terms of litigation, this is the most advanced compared to the other litigants. It's all in public domain. I'm only telling you what's there in public domain. So we'll see [indiscernible] trials and then we'll see [indiscernible]. I'm just following the litigation like the way you are. So I don't have any extra insight than as far as available in public domain. But what we do have is the settlement built as innovator, which gives us an advantage. That's all.
Is it implicit that once they get approval, you can launch it or...
Under certain circumstances, yes. I think the way you want to look at it is -- I mean, if you are a NATCO shareholder and you're only concerned about -- and obviously, you're only concerned about our earnings as opposed to other people's earnings. The most beneficial scenario would be the relaunch, then gather and this launch [indiscernible]. That's what happened and that's probably the most beneficial scenario. But what exactly happened and all, your guess is as good as mine. But throughout the -- because of our settlement, I think we have a advantage for this particular scenario. However, again, only time will tell. Okay? And your second question on the agro -- and just to answer on development also. If somebody comes and jumps the gun and launches ahead of time, under certain circumstances, we can also enter the market. So that also is one of our ag scenarios, so that also we'll do well. So that answers your question on development. On agrochem, I think it's premature to talk about how much revenue we're going to make. But my idea here is that -- agro is that we want to bring it to about 10% to 15% of the total revenue of the company in about 2 to 3 years. And that is the target that we...
And is there going to be a multipurpose plant? Or is it dedicated for routine products?
It's only dedicated for agro products. So agro foundations and agro tech -- we call it as agro technique.
So within agrochem, it's a broad basket basically. It's not a single product or something like that.
It is not a single product. They're doing multiple products, but yes, multiple baskets.
The next question is from the line of Hari Belawat from Techfin Consultants.
[indiscernible] inquiring this capital expense [indiscernible]
Mr. Belawat, I'm sorry, but there is a lot of disturbance from your line.
This is regarding capital expenditure. How much do you plan in next 2, 3 years, sir?
I think our target this year was about -- our capital expenditure target for this year is about nearly INR 400 crores. I think the same level increased INR 50 crores to INR 400 crores, I think, is what we intend to spend every year.
Okay. So this year, you are spending around INR 400 crores. Where is it going to generate revenue for the company?
When is it going to generate revenue? Okay. So what are we spending on? So what we're -- one, we are spending on a facility in Vizag which was a clone of our facility in Hyderabad for tablet. And in terms of revenue and all, the Vizag facility, I'm intending to do our 22 products from Vizag once we get the approval. So the idea in Vizag, first of all, is the plant has just started operations. So I think our commercial operations will start next year, but the large income outcomes will probably take about 3 years from today. That's where we expect. And it's among the CapEx, as I said, we're spending a little bit on R&D. We are just upgrading our [ regular ] facilities, and then we're spending on upgrading our primary API site in Hyderabad. So most of it is just upgrading for new products and just doing maintenance CapEx with some of the plants that were older, so we're just renovating them just to meet the newer GMP standards. Okay?
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
So my question pertains to Copaxone or any of your profit-sharing agreements. If there is a price decline by the partner, how much does it impact your profit share?
It does impact. How much does it mean, if we're giving you...
Is that tenth of proportion? If there's a 10% decline in the prices, then your profit share would go down by...
Yes, I was kind of after that question, [indiscernible] because it is a bit difficult. Each part is unique. Some are more mature generics, some are -- some products won't see further erosion. But competition has an impact on earnings, clearly it does. To quantify and all, it will be difficult to quantify, like, in the sort of conference call. But yes, it does have a significant impact.
Okay. And my second question pertains to agrochemicals. By when do you expect commissioning of the plant?
The facility should be ready by end of the year -- by end of this year. My target is by '19 end, the facility should be ready. The regulatory approval and the field trials, things take time. So in terms of commercial revenue, I think it's obviously 2 or 3 years away. But in terms of the facility and all, I think we will be ready by end of this year.
Okay. And how much is the CapEx spend on that?
I think we publicly stated that already. I think we are -- in the first year, we are spending about INR 100 crores.
Okay. So that is a part of this INR 400 crore which you mentioned?
Some portion of it is covered, most of it is not spent. I think most of it will be spent in the financial years 2019 and '20. This year, I think we spent money mostly on just to get the site started, just we bought the line from the industrial board of Andhra Pradesh, and then we've got the lines cleaned up. We started basically with construction. So the expenses have not been so much. A lot of the expenditures will be next year.
The next question is from the line of Nitin Agarwal from IDFC Securities Limited.
I need to have a quick one. What would be our R&D spend this year, and what's -- I mean, what's been the increase over the last year?
I think our R&D spend per year typically tends to be about 7% to 8% of [indiscernible].
Towards 7%, 7.5% last year. So about 120-odd.
7.5% of sales. So I think we should be able to -- my view is that we'll probably spend a little more. I think probably be 8.5% to 9% this year.
Sorry?
In the same level or slightly 1 or 2 percentage more, but in that same region.
The next question is from the line of Kunal Randeria from Antique Stockbroking.
A couple of product-specific questions. So firstly on Nexavar, did Mylan have a settlement for a Jan 2020 launch?
I'm not supposed to talk about the date because of bond of confidentiality, but Mylan settlement is [ not pending ]
Yes, that's what. So -- but then, could it be FY '20 launch or not?
I can't answer that question, Kunal. The date is bond by confidentiality. I've already indicated to you. I think it would -- it will happen in few years from now. But I can't indicate the exact date.
Okay. And what about your type curve? And I think you have a tentative approval. Is it a -- what would be the market spend? And when do we expect to launch it?
Launch, the date, I can't answer, I think, the question. But it's directly related to Lupin. Regarding the size, it's a niche product, it's not a huge product. I think it's like -- last time I checked -- I don't know the exact numbers on top of my head. It feels like about 50 million to 70 million type of product. I don't know what exactly, but in that region [ necessarily ].
The next question is from the line of Prakash Agarwal from Axis Capital Limited.
So a quick clarification. You mentioned 10% to 15% in 2 to 3 years for the agri business. And you also mentioned that revenues will kick-start in 2 to 3 years. So I understand whenever it comes, it will be a big bang.
We're trying to develop, yes. I think that's why -- that's the target. As you know, the company always tries big bang. So I think the idea -- the model always is to do a big bang idea. The idea should be so disruptive that people -- it should be a no-brainer to buy our product, and that's always my thinking. And that's -- I think that's the idea.
And 10% to 15% is top line or bottom line or both?
I'm projecting top line based on certain [indiscernible].
And would it be fair to say that the profit forecast has always been there, like 30%, 40% [ on the ] margins. So this would have similar kind of margins?
Everything that we do, Prakash, obviously, we always do high margins. I don't do -- I especially don't do commodity business. I think we are not geared to do a commodity business as a company. We always focus on niche high-value opportunities.
So it could be more towards 10% to 15% on bottom line?
What you're asking is very hypothetical, Prakash. I think for now, I mean, safely what I can say is that we -- see, I've said 2 things a few minutes ago. What I said is that we want to diversify our portfolio, bring in enough other streams of revenue, which are unlinked with the U.S. generics. And -- so that we have a more diversified portfolio and if there are opportunities, primarily in the emerging markets. So I think agro diversification is to meet that sort of goal.I'll take my last question now. Yes?
The next question is from the line [ Yogansh Daswani ] who is an individual investor.
Sir, just a quick question on the CapEx that we have done so far in the year of around INR 500-odd crores of Vizag facility, I believe. So in the last con call, you mentioned that in FY '19, you should be seeing it getting completed. So are we on track?
Yes, that's what I said. I think total CapEx as we planned, I think so far, we have targeted INR 400 crores. During December, we spent nearly INR 300 crores. And with the Vizag facility, the tablet line for -- regular tablet line is always ready. And the onco tablet line should get ready by June. And we -- and this is doing validations at this time. And we expect commercial production to start in the next financial year.
Next financial -- so mid-financial year, I believe, there?
Very soon. I think we are in February '19. So I think in the next few months. In less than 3 months, I think we should be ready with the commercial launch.
Fair enough, sir. And R&D figure that you mentioned, sorry, I missed out. You said 8.5% to 9% of steel for FY '20?
Typically what I'll be asking how much we usually spend. We spend about 7% to 8% a year. And I think we bumped up the R&D slightly this year. I think in that region, it may go up to 8% to 9% on the higher side, but it's in that region is what I said.
Ladies and gentlemen, that was the last question for today. I would like to hand the conference over to the management for closing comments.
Again, thank you very much. Have a good day.
Thank you. On behalf of Edelweiss Securities Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.