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Natco Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of NATCO Pharma Limited, hosted by Investec Capital Services.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Anshuman Gupta, lead pharma and health care analyst at Investec Capital Services. Thank you.And over to you, sir.
Thank you, Marietta. And good morning, everyone. On behalf of Investec Capital, I welcome you all for NATCO's pharma (sic) [ NATCO Pharma ] Q3 FY '22 earnings call.Today, we have senior management team, represented by Mr. Rajeev, Vice Chairman and CEO; and Mr. Rajesh.Over to you, Rajesh, sir. Thank you.
Thank you, Anshuman. Good morning. And welcome, everyone, to NATCO's conference call discussing our earnings results for the third quarter of FY '22, which ended December 31, 2021.During this call, we may be making certain forward-looking statements. All statements about future events and anything said on this call which reflects our outlook for future must be reviewed in conjunction with the risks that the company faces. I'd like to state that the material of the call, except for participant questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's expressed written permission.We will begin the call with results highlights, followed by an interactive Q&A session, okay? So we hope you all received the financials and the press release that were sent out earlier. These are also available on our website.NATCO has recorded a consolidated total revenue of INR 590.7 crores, which includes the product licensing income for the third quarter which ended December 31, 2021. This is against INR 386 crores for the same period last year, so reflecting 53% increase in revenue. The net profit for the period on a consolidated basis was INR 80.4 crores, as against INR 63.4 crores same period last year, reflecting an [ increase of 27% ] in net profits. During the quarter, there was a onetime expense against the product licensing income.Specifically on the segmental revenue split, which has also been shared. APIs totaled INR 61.7 crores for Q3. Formulations domestic is [ about ] INR 100.3 crores. Formulation exports, which includes profit sharing, licensing income and also the foreign subs, was INR 383.1 crores. Other operating and nonoperating income, INR 45.3 crores. Crop health sciences is INR 0.3 crores for the quarter.Thank you all. We will open up for questions now.
[Operator Instructions] The first question is from the line of Tarang from Old Bridge Capital.
Just a couple of questions from my side. One, I think that the [indiscernible] of the third quarter, [ not just that ] about the 100% stake in DASH for $18 million. So just wanted to get a sense on the purposes behind this acquisition. How does it help NATCO as you move forward? That's number one. Number two, if you could give us a sense on the revenue and EBITDA ex the product licensing income which is a one-off for this quarter.
Okay. So let me answer your first question. What's the rationale for doing a front end in the U.S.? I mean we have been doing partnership all these years, and I think we have done well. I think we were much a smaller company when we did this partnership, so we needed someone to support us. So I think the strategy now is, for the plain vanilla generics, I think, we want to do our own front end. For complex generics, we want to continue to do partnerships. I think that's what we are thinking. So we needed a front end. I think DASH came along. And it came at a very reasonable valuation, so we thought -- I think it's high time that we start doing our own front end. I think the value clearly is that, as business gets more and more difficult, as you know, it will be better to keep most of the economics with us, as opposed to sharing, because there is not much to share anymore. So that's the reason why we did the acquisition. And also it allows us to [ brand ] ourselves in the front-end market where -- and we are moving up the value chain, okay? That's answering your first question.The second question was what is the difference in the EBITDA if you remove the licensing income. The licensing income covers most of it -- most of the expenses. I think our run rate of revenue is similar to what we had last quarter. I think -- I can't tell you exactly what the numbers are, but I think it's continuing the same way. I think the difference essentially is from the licensing income because we did a licensing income with a particular partner who gave us a reimbursement of certain expenses. And that's the reason why you had this one-off. So to answer your question directly: I think there's no difference between last quarter and this quarter's -- so -- in EBITDA. [indiscernible].
Got it, got it. Just to step back on the first question, right? I mean the -- given that your strategy is pretty straightforward about plain vanilla generics and wanting to do a front-end there, right, would you rather not be better off actually partnering with someone who has a broader portfolio in the front end rather than having your own front end with a limited portfolio?
I think that's what we're trying to see [ probably with the chicken-and-egg ] question you're asking me. See, basically what happens is -- when will I get the broader portfolio unless you start something, isn't it? And I think this is a long journey, my friend. I don't think the asset -- payoff of this asset will happen anytime soon because all the products that we have right now are outlicensed; and they all have 5-year, 7-year contracts. So we can't really get out of those contracts, right, so we can't get [ behind the tracks ]. So clearly, in the nearer term, it's only ANDAs for which we are filing now for which, let's say, launch will happen 5 years, 7 years or 8 years later. That's when we get the payoff. Partnerships and all, there's not much to share, honestly. I mean U.S. has become extremely difficult. There's not much to share. Like nowadays, if you do a product, it's even hard getting licensing deals now. Once there are more than 3 or 4 generics, it's very difficult to get licensing these -- a lot -- there are lot of ANDAs which are sitting in -- with us for which we don't have a licensing deal. And even if we don't have a licensing deal and we want to go direct sources, there is no margin, yes. So that's how hard the business has become. So this licensing model where there's a lot of competition doesn't work. I think that's more or less what we have come to, I think. Sad but true, that's what it is. Complex and sole generic, yes, it works. What you're saying, that might work, right? Somewhere, you need to choose your own destiny, right? I mean your -- you make your own destiny, so to speak, so I think you have to make that call. I mean I've been deferring the decision for many years. I think now I decided I think we should do it, but I think again we -- there's a certain nuance to it. It was a very expensive ANDA where there's like -- the expenditure is like 10 million, 20 million type of R&D expense. That, we want to outsource -- sorry, or partner up, but for the simpler ones, we'll do it ourselves.
The next question is from the line of [ Ahmed ] from Unifi Capital.
Sir, just one question. How is the competitive scenario in Canada for Revlimid, considering how the market share gains and the pricing erosion?
Price erosion has been -- I -- top of my head, I don't remember, [ Ahmed ], but it's been quite anticipated because it's been in -- as per anticipation. It's been fairly competitive. I will not say -- there is some margin. We have done well. I can't recollect the market share, but I think we have done well. That's all I can say. I'll give you more color to it. I think, when -- we just launched it last quarter, so we're not having clarity on how much market share we have, but we have done well. And I think -- and the subs are done well. So both Canada sub and Brazil subs have been profitable this quarter. So I think the Canada sub has extremely done well partly because of Revlimid. So overall I'm happy. Erosion has been quite a bit. I think it is not -- but not unanticipated because there were multiple approvals. You had -- as we had Reddy's. We had Apotex. And then there was the [ authorized generic consigned also ]. So I mean it's fairly competitive, but it's okay. I mean -- am I happy? Yes, yes, we are happy with how things have worked out.
Okay. And sir, what was sequential jump we have seen in the export formulation business from 190 crore to 380 crore? Is it mainly because of the one-off licensing income?
Partly because of the one-off, yes, absolutely correct.
The next question is from the line of [ Ankush Agarwal from Surge Capital ].
Yes. Sir, based on the comments that you made around the Canada market for Revlimid and since our launch for the U.S. [ is very new ] -- so how do you think that would play out given that there are same kind of competition? I mean all the players that you mentioned in Canada are going to be launching in the U.S. as well, right, so how do you see that playing out based on our experience on the Canada side?
I think there's a difference in U.S. and Canada. So U.S., I think we are going to be the first generic and we're going to be the only generic, okay? That's the start, okay, right? And so I think that's probably the biggest difference. And it is still a REMS product, so the reimbursement will be -- there's a [ certain cost of ] selling the product because of the REMS. So it will be a little more different from Canada where it was all the generics came in at the same time, so which is different from U.S.
Right, right, but after the 180 days, the competition would come, right, like how it is in Canada.
It will come, but again see. They'll come -- or when they'll come and all, I -- again I have no answer to that question. I -- from what I understand, again, that they'll come in a staggered manner. So I think that's a question I can't answer, my friend. I think let's see. When they come, we'll -- and -- but I'm very bullish about the product and I think we should do well with this product.
Right, right, sir. And lastly, have we started supplying the -- for Revlimid in the U.S., like started...
We -- yes, we already start, my friend. We already start. So we have already released the product. We've already given it to Teva and Teva is ready to launch. And I think, as we have announced in the past, the launch date is in the month of March, which is in the next month, yes, okay? [indiscernible].
The next question is from the line of [ Danesh Mistry from Investor First Advisers ].
I just had 2 questions. One was on the domestic business that you have. So last quarter, you had mentioned that it seems like it's flattening out; and it has. So when do you see uptick in the domestic business? That's question number one. And then I'll come back with question number two after that.
Okay, so I'll answer your question number one. So domestic. See, I think we started the year very nicely because we had the benefit of the COVID portfolio. So that particular month, the June quarter, because of the Delta variant, I think the domestic did extremely well. And I think the benefit of COVID was not there in subsequent quarters. I think that's where you see a dip. So the -- this is -- without COVID, our run rate is about 100 crores a quarter, as mentioned. I think that's where the numbers are, but whenever there's a COVID spike, then the sale goes up a little bit, right? But otherwise, that's a base sale that is there. See, to answer your question about base business and all, I think, see, domestic, we are obviously present, only in limited spaces. I think that's the reason why we are unable to grow, and it's something that we have been working very hard on. So I think we have a good portfolio. I think things are not -- things are stable, okay? Let me put it things are stable. And then we tend to have these one-offs because of COVID. So overall the business has done well, but I think the predictability of business is not there as much as people like -- in your market like to have here. So that is there and we're trying to address that by expanding the portfolio. And that's one answer. Or does that answer your question?
I was trying to understand more on the onco side because I remember, basically because of the COVID lockdowns, a lot of patients could not kind of go for their...
Stable -- onco has been stable, my friend. I think onco has been relatively stable. I think we are happy with how onco has done. All the price erosion, all the COVID issues have been resolved, but see, this COVID is a tricky one, yes. So I mean, for example, January was a bad month because of COVID, yes, because of [ everything ]. I mean, the impact, wasn't as bad as, let's say, like in Delta, but hospitalization was a lot less because, I mean, the -- it was obviously not as bad in Delta, but obviously there was some impact for a few weeks. But this pressure will be there. I mean we have to live with COVID. I think there is nothing we can do, but we'll have 1 or 2 ups and downs. But overall, if we take a 12 months view, it's a fairly stable business, okay?
Got it, got it, understood. Two was essentially with regards to your agro chem business. If I see your segmental results, you've had a 10 crore EBIT loss which is there. So is that on account of salaries, or is there some other one-off expense? And does that equate to the other expenses jumping up from 8 crores last year to about 24 crores this year?
We are losing money in agro. I mean there's no -- we have 2 ways of saying that. And we -- and consistently, we are losing. I mean we're losing about 10 crores, 12 crores a quarter. See, I think the launches that we anticipated didn't happen, as you're aware, so I think this division -- and I think that's the reason why we're getting a lot of pressure on our base earnings. So -- and I think this won't get better. I think, conservatively, a big launch of chlorantraniliprole won't happen because court decision is unresolved. So conservatively, it remains unresolved. Then we can't launch before August of 2022, so a difference, [ a swing ]. See the 10 crore EBITDA loss. If you had to swing it -- let's say you swing 20 crores in that particular quarter. Then you have a 20 crore improvement in the domestic business because you're covering up a 10 crore loss and a 10 crore [ drop ], so to speak. Let's assume we get a 20 crore EBITDA [ before the launch ]. So I think that is very critical for our improvement of base business. And I think that's -- but it is what it is. I mean we make -- I mean I think we just have to wait for this outcome [ you're after ]. And also agro is a little tricky because it's not -- last quarter, we had better sales than December quarter because the product that we had was for cotton. And it was -- [ it can really fall ] between July and September. So like -- so you don't get consistent sale in all quarters. So that also [ is there ], so yes, yes, but overall, I mean, to answer your question: Yes, there's a loss. And the loss will continue until -- my view, till the September quarter.
Got it. And the other expenses bit. Sorry. Last one, if I can just squeeze in the 8 crores to 24 crores.
Sorry. Say that again. Other expenses...
The other expenses jumped from about 8 crores to about 24 crores this quarter. So just wanted to check the reason behind that.
8 crores to 24 crores.
Yes.
I -- not 8 crores, my friend. It's INR 247 crores. I think INR 88 crores...
I mean -- yes, okay, I may have gotten the...
[ Figures, yes ]. No, this is related with that onetime ANDA expenditure. I think we have explained that at the beginning of the call. The general expenses are in that [ same region ]. And I -- in the same 100 crores per quarter side of [ region ]. There is a onetime expense related with that particular product, okay?
Okay, well, great, okay.
[Operator Instructions] The next question is from the line of Kunal Randeria from Edelweiss.
I hope my audible. Rajeev, just to pick up the previous participant's question: So your domestic oncology used to be, I think, around 100 crores a quarter, I think, around 2 or 3 years back, right? Now my sense is it's more like around 70-ish crores or something like that. So maybe if we can sort of break it down, how much of it was because of competition, how much because of business lost due to COVID. Or any other factors?
I -- peak may be a bit like -- maybe like [ 85, 90 ], Kunal, I mean. Again I'm -- we have 1 quarter, but average is [ sort of about 85, 90 ]. Now it has settled around that number. You're absolutely perfect. The reason why we see a decline [ on quarter ], it's 2, 3 reasons. COVID is a onetime thing. I mean I don't want to attribute everything to COVID. I think the biggest problem we have in the business are twofold. One is the price control. So earlier, we used to have X amount of margin, and because of price control, there is certain drop in the base business. And two is because of competition. We had a couple of generics which did extremely well which have faced competition. I think one particular example I can give you is there's a product called sorafenib, [ where we shared a compulsory license. We ran ] the generic where we were the only generic for almost 8 years. So once more competition came in, obviously the brand declined. But these are the 2 major factors that made all the difference, but it's still a stable business. I mean I'm not complaining that -- it's still a very profitable business for us. I mean we do 250 crores to 300 crores of revenue in that division. [ We start with 60 crores or 70 crores ]. So I think it was -- I mean it's like it's a cash cow for our domestic business, but growth is a challenge, as you rightly said. And I think we are looking at new launches. We always have new launches. Last quarter, we launched 3 products. I think we have launched tipiracil plus trifluridine, where we're the only generic. We launched [indiscernible] tablets, where there's more [ competition ]. We launched [indiscernible] with -- where we launched with [indiscernible]. So it's generic. We launched [indiscernible]. So I mean these are launches that we've done in the last 3, 4 months. I think it's a good business. It's just that I just -- challenge for us in domestic is that [ it gets too competitive only in 1 or 2 seconds ]. I think challenge is we need to expand out. And I think we have done a little bit in cardiology. So we are trying to expand. So I think it's a long-term game, yes.
Okay, sure, but Rajeev, I mean, what are the challenges in growing this? Is it because the competition is extremely aggressive in pricing? [ Where in such a market ] the volumes would be growing.
It's pricing. See, problem in oncology is the discounts are very high in -- there's a gross price and there's a net price. So I think there's always a lot of discounting that you need to do and a limited number of institutions, and so if you lose a few accounts, then there's a dramatic decrease of sale. So I think -- I mean this is a structural issue. I think even domestic -- I mean overall the sector has done extremely well, but our portfolio being a niche portfolio, we're seeing more pressure. But I think what you said is right. I mean one is the competition. I think competition is probably the biggest reason why we don't see much growth [indiscernible]. And see, what happens is -- it's not like -- you can't compare us with like a [indiscernible] like a more stable therapy kind of setup because that has more volume. It's more spread out. So let's say you lose one tender in 2, 3 hospitals. Then it has a dramatic impact on your brand. It's not like in [indiscernible] biotech or a -- cardiology products where the prescriptions are more widely written. So then the volatility of earnings is not as much. So I don't know if that answers your question, but yes, I think -- broadly I think that's how we judge that business. So I think -- how do you get out of this? I think the way you get out of it is you expand your therapies. I think that's the only way you can go.
Sure, sure. Just one accounting question: So how should we sort of assume -- or should we sort of assume some profit share from Revlimid in the fourth quarter? Or will that come from Q1 FY '23?
The launch is in Q4, so there's no doubt about that. So there will be some -- hopefully, there will be some profit share in March. And in every quarter, we will be getting profit share thereafter, so that will become a significant part of the earnings. So I think -- when it comes, I think we will see how the takeup is. I think at this time I don't want to tell you how much and all, but I think we'll have a good start. So as you know, we're the only generic, so I think we should have a very good start. And I think we should do well in the coming few quarters.
The next question is from the line of Rahul Veera from Abakkus.
Sir, in the earlier comments, you mentioned that, ex of the licensing income, broadly [ Q3's sales ] will be similar. So now -- so if we do a little bit of reverse calculation, whether it's Revlimid Canada or Afinitor [ or surplus ] [indiscernible] impact of any of these molecules. So I'm just trying to understand what [indiscernible] the domestic and the other businesses have gone down, which have been -- just been offset by these launches.
So question is why the business is not growing. Is that the question?
Yes, even after the launches.
Okay. No. I mean I understand the question. I mean I'm just saying it the way it is, yes. It is not growing. I mean that's the fundamental challenge that we have in our business because, see, our -- we have a very heavy exposure in the U.S. And we have seen like the products that used to make good money for us are not making as much money they used to. For example, doxorubicin used to be 100 crore profit share every quarter -- every year, sorry. So that has dropped dramatically, so because there are more entrants. So we are seeing more competition and other smaller products. So that's the nature of the business. I mean that's all I can say. I don't have an answer to your question. I think you'll have to hope -- the new launches will come, and hopefully, they do better than what you've done in the past. And then you can offset the loss. And so I think -- as we discussed, I think Revlimid is going to be a very critical one which will give us growth.
Sure. And any update on Nexavar and Imbruvica?
Imbruvica, I don't have a [ legal ] update. Nexavar launch and all, we'll discuss closer to the date. I can't -- we are not yet -- we're bound by confidentiality not to discuss about the launch at this time, but when we're coming closer to the launch, we'll discuss.
But just any rough estimate over next 12 months or 18 months...
[ I can't answer that ], no. I can't answer that question. It will happen. I -- we will discuss when we're closer to the launch, yes.
The next question is from the line of Ritika from ValueQuest.
Sir, what I understood was Q-o-Q growth in income was completely offset by the Q-o-Q growth in the other expense and which was due to this licensing of product. Could you explain more about what products would be [ inlicensed ]? And what is the future outlook of these products?
I think what we've done -- I think, at the beginning of the call, we have already said what is the nature of -- the complex products, we decided that we would do through partnership. So essentially the income was reimbursement of costs, okay? That's what it was. What products, at this time, I don't want to speak about it. I think, at a later time, I would like to speak about it, but at this time I don't want to speak about what products they are. I think -- once the filings come to a certain stage, I think we will discuss [ about that ], yes, okay?
And reasonable to assume these are for the U.S. market.
They are -- reasonable to assume that it's from the -- for the U.S. market. It's also reasonable to assume that it's complex and big products, yes.
Okay. Sir, second question. In the Q1 quarter, we had commented that we expect to file or -- 2 to 3 FTFs by the end of this year, so could you tell us, where are we in the process? Have we already filed any FTFs?
So far, this year, we've filed 2 FTFs. One, I think our partner asked us not to disclose the name of the product with some -- so I'm holding off on that. The one we filed by ourselves and I want to disclose is [indiscernible]. It's always there in the public domain. There are a couple of articles already written about it, but again it's such a competitive market. [ Even though we filed ], I think 5 other people have filed on the same day. So I mean it is what it is. So I think these are 2 FTFs that we've got this year, yes.
Sure, sir. Sir, lastly -- last question, if I may. Last quarter, we saw in our balance sheet we have 900 crores of inventory comprising of [ all ] molnupiravir, other COVID drugs and CTPR. COVID molecules have been not picking up so much. What is the kind of inventory that we currently hold in that drug? And do we expect any write-offs from these inventories going ahead?
I think there are 2 inventories we are holding. So we are holding inventory on the agro products, the agro intermediates, which we are carrying in our books because we believe that we're able to liquidate them in the next financial year. So that is fine. COVID, yes, I think we are sitting on a lot of inventory. Some, we are able to sell. Some, we're unable to sell. We have to make a call. I think what I'll do is -- I think, after March quarter, I think we'll make a call of what we believe we'll be able to liquidate and what we're unable to liquidate. And I think we'll make a call and we'll speak about it in the next quarter, but you are absolutely right. I think we need to make a call about this inventory. I think we -- molnupiravir, we did reasonably well in January month. Again [ certainly ] it's collapsed. And then we also know that a lot of the market for molnupiravir [ moved ] to Paxlovid. I think that's also our understanding. And we have a reasonably large COVID portfolio. I mean this is not the only one. We have apixaban. We have baricitinib. We have [indiscernible]. We had chloroquine in the past, so we have a whole bunch of portfolio. So we have to make a call, but I think -- in the March, I think we'll communicate what call we have taken on this inventory, okay?
Sir, very helpful. Could you give any sense of what is the total COVID inventory that we hold currently?
I don't want to answer that question. I'll speak about it in the March quarter earnings. I think we -- I can say this much, that we have to make a call. We will speak about it in the March quarter, once we make an assessment once the year ends. And basically, some of the stock, you can sell. Some of the stock will have longer dating, so I think it is a very complex calculation. See, certain things, you believe we'll be able to sell in about a year's time. Then you'll now make a provision. Things that you believe will expire in shorter duration or you don't think has value -- so there's a -- there's this calculation you have to sit and make. I will not want to get anything right now. I'll come back for the next quarter running and we'll discuss that, okay?
The next question is from the line of Ritesh Rathod from Nippon India.
Yes. Rajeev, is there any way NATCO can -- protecting itself, post Revlimid launch, if there is any kind of litigation [indiscernible] or there's a kind of -- and we have seen recently in influenza where one of the [indiscernible]...
I'm sorry, Mr. Rathod, Mr. Ritesh, but can you please speak louder? They cannot hear you. [indiscernible] on your line also.
Is this better?
Yes.
Yes. Is there any way NATCO can protect itself from any sort of litigation post Revlimid launch? We have recently seen in influenza where one of the generic peer group -- peer had to pay for the delay for launch kind of [indiscernible], [ which was a huge ] amount. So how do you protect this profit pool which will be getting from like -- from such litigations which may arise after 2 years or 1 year of launch?
I think we'll be legally advised that -- I think, that we'll [indiscernible]. And secondly, ANDA is owned by Teva, as you are aware. And I think this question is better directed [ to Teva's launch, yes ]. Thanks.
The next question is from the line of Prakash Agarwal from Axis Capital.
Yes. My question is one clarification. So the licensing income and the costs that have gone up Q-on-Q. So they are both related to the same products.
Correct, yes.
Okay. So basically you've got then a partner who will reimburse those expenses.
Yes, correct, yes.
Okay. And I mean it will be currently [ in the more ] development stage. Or it is nearing filing.
Some, we have filed. And some are in -- close to file, yes, both.
Okay. So it's a handful of products here, sir.
It's about 3 products.
Okay, understood. And in terms of the big ticket launch, obviously we have Revlimid coming, but -- and then you spoke about a couple more, but assuming Revlimid is a blockbuster for, say, maybe next 12 months, maybe 24 months and maybe thereafter, what are the other known variables we have in terms of bigger products? [ As we are ] talking about complex filings in the last 3, 4 years.
I think we have been -- in terms of what we have publicly disclosed at this time, I think, the first-to-files we have, I think that they're on our website. And I think [indiscernible]. I mean the [indiscernible] we have spoken about Revlimid. And I think we have sorafenib. We have Nexavar. We have 180 days. And carfilzomib, we have 180 days [ for one strength ]. And other [ strengths ], we have shared, 180 days. And then Imbruvica is there. And then we have Tracleer. We have first to file for the TFOS formulation. [ Beyond the list, it is ] trabectedin, which is our JV with Sun. We have first to file, shared first-to-file. And then Imbruvica has been already said. So these are the major ones that we have. They are staggered out. I think we have not disclosed the base, but these are staggered out in the next few years.
All right. So our exports seem to be quite on track; and with very good, strong growth visibility. I just wanted to understand the outlook for the India business, which has seen some ups and downs given that hep C also down, oncology also down and now a little bit stabilizing with some COVID portfolio. So a, yes, how do we see the growth going forward? What are the steps we are taking? And do we still plan to use some cash to scale up the business? Or is there other thoughts with that?
We are -- in a way, are trying to strengthen our domestic business. And I think we are trying to find an acquisition which -- [ in respect to that ]. So we are seriously looking at branded generic portfolio, yes, to acquire. Now that we have plugged the U.S. front-end gap, we're looking to plug the gap in the branded generic portfolio as well. So we are looking hard for an acquisition. So hopefully, we'll -- be able to get something in the next few months. I think we are trying very hard. We're looking at 2, 3 acquisitions. Now we have the cash in the books, so -- and we are expecting some cash flow in the next few months. So I think we are looking at some opportunities. I think we'll be able to bridge the gap. I think that's the idea.
And these will be like more like the chronic portfolio that we are looking at which are more sustainable. Or how -- what are you thinking in terms of [ bridging the ]...
[indiscernible] in terms more sustainable, established brands and which would allow us to have more predictable revenue. I mean that's what we're looking at, those type of acquisitions.
Okay. And any other areas you are looking at in terms of deployment of cash that you will be generating over a period of next 12, 24 months?
This is probably the biggest one. I think this is what I want to -- see, Prakash, it's very -- we have something what is going to happen and we're going to use this cash. [ This lasts however it -- long it lasts ]. I don't want to give any time lines on that, but we will use this cash wisely to build a more -- broader portfolio in terms of more sustainable and more predictable cash, yes. So I think that's more or less what we're looking at. And we're looking at different acquisition targets. I think, once we reach a stage where we are close to an asset, I think we can discuss what we are able to do, but [ as you know, we are ] actively looking for it.
Okay. And what's the cash balance as of now? I mean the net cash.
As of December 31, we have total cash, excluding stock, of 775 crores. And total debt is about -- if you remove foreign bill discounting, which is 190 crores, we have a debt of -- including that, it's 300 crores. Without the foreign bill discounting, it's about 210 crores.
[indiscernible].
Yes.
210 crore is the debt and 775 crore is the cash.
Yes. And if you include foreign bill discounting, the debt is 300 crores. If you remove the foreign bill discounting [indiscernible] those get -- negated each other, but actuals [ what we hold in the bank in ] cash is about 210 crores. And cash on books is about 775 crores. And this is after the DASH acquisition. I removed cash from the -- whatever we have spent on DASH.
Yes. And this includes this MedPlus stake sale that [ you have done ].
Yes. That is shown in the comprehensive income. As you see in our earnings, it's INR 80.4 crores, but the gain of the MedPlus is shown in the comprehensive income. If you include -- the way the MedPlus gain is captured, it's captured through the comprehensive income. So to include the MedPlus shareholding gain, our profits are INR 108 crores this quarter.
Okay. And is there any other -- I mean, any remaining -- stake in MedPlus remaining?
I -- we still have like 3 lakhs 25,000 shares of MedPlus sitting in the books. And it's reflected in the cash balance.
The next question is from the line of Nitin Agarwal from DAM Capital.
Rajeev, just taking forward from the previous questions. You talked about the landscape for the U.S. getting tougher. Given the fact that our business model historically has been driven around -- built around doing complex filings, how are you seeing the landscape for these kind of opportunities over the next [indiscernible]? Are there enough of these $50 million, $100 million opportunities around? Or are they very difficult to come by? I mean, how do you [ explain ]?
There are opportunities, Nitin. There are. It's harder than before, obviously. Clearly it is harder. And I think there are opportunities. I think we will take a global approach to these opportunities. It's not completely bet on the U.S. You need to look at multiple markets so that the R&D expenditure that you're incurring is -- it's spread out over multiple markets. Your return on capital is much better, but the U.S. is hard, clearly. I think U.S. is extremely hard, and I think you need to have a more diversified geographical spread. I think -- I've been saying this for many years and especially in the last 2 years. I've been very vocal about this, right? U.S. as a business model has become extremely difficult. And I think that's why we have topped up other subs. I mean Brazil and Canada have done extremely well. If we look at our consol numbers: A significant part of our profitability is coming now from subs in Brazil and Canada, so both the subs have been profitable. So some of the margin is captured in Indian subs, wherein some of the margin is captured in the subs there. So early, I mean, this is the way the world is going to be. And I think -- very clearly, I think you need to have a strong strategy which takes you out of the U.S. Even though you're present in the U.S., you need to have a strong strategy which takes you out of the U.S. Otherwise, [ the ticket ] is going to be very hard. This is my personal view, but yes, yes.
[ Sorry to ] sort of take that a little further. So if you say that we're talking about a $100 million product hypothetically where you're saying you need to have a pan-global strategy, typically in products like these, how will you split the -- how much U.S. would be? For example, 50% will be U.S. 60% will be U.S. and then you make the balance in the non-U.S. geographies. Or how do you think of -- opportunities like these will crystalize in general?
I mean, how do you want to look at it? See, look. I'll give an example of -- I mean I'll give you a simple mathematical example so that you understand. If we look at earlier, people would spend, let's say, $100 [indiscernible] product. They will either do it in India and U.S. And I would have been very happy because that will cover like 70%, 80% of your balance sheet revenue. And as we got these 2 markets, right, you are very happy, but now what has happened is U.S. is not giving you the return that you want. So at least you leave out U.S. and India. You need to find 4 or 5 other countries where you can monetize your assets. What are these countries? I mean we formed Brazil. We formed Canada -- and maybe 1 big Western European country which we are not present; and maybe a little bit in ROW, like Indonesia, South Africa, such countries. So you need to have a model which diversifies you from India and U.S. And you include like 7 middle-income or high-income countries, yes, which where you have a reasonable presence so that, whatever you're spending, you get a little more return on your capital. Because if we look at the Indian's generic model, it's primarily [ a U.S., India-driven ] model. And I think we need to get out of that and, I think, build a model which is more global, which is a lot of guys are doing now, I think, but more strongly than before, I think, clearly. I think that's the only way this business is going to work.
[indiscernible] [ values you get ]. On China, where are we? [ Is there any ] progress on our China initiatives?
I -- we are not having front end in China. Or we are all doing partnerships only. We have filed for a few products. We filed, I think, 4 or 5 products. There's not yet a single approval. We're expecting it's just a couple of approvals this year, but as of now, we don't have approvals [ in that area ], okay? Thank you, Nitin.
The next question is from the line of Ravi Purohit from Securities Investment Management.
[indiscernible] questions have been answered. Thank you.
The next question is from the line of [ Shivram from Aster Minds Enterprises ].
Rajeev, have you signed any contracts with -- for Revlimid in Canada which are definitive and long term? First questions [indiscernible] questions...
I didn't understand your question, [ Shivram ]. Could you say that question, could you rephrase that question one more time, please?
So there is some news about NATCO signing long-term contracts with government of Canada for the supply of Revlimid. Can you confirm if that is true?
I don't know. With -- [ our guys ] sign different contracts with different...[Technical Difficulty]
The management line is reconnected. Thank you. And over to you, sir.
Yes. So I apologize for the disconnect. I think the call just dropped off. So the question of the gentleman was have we signed contracts with government of Canada. I think I -- Canada works on a provincial basis. I think our guys bid in different provinces, and they win different contracts in different states. That's how -- in different provinces. I think this is like routine tender stuff that happens. I can't specifically say that I -- top of mind, I can't recollect which particular [ problems they won ]. Some, they have lost. So I -- but I think this is something that happens on a routine basis. Is that -- answer your question?
Yes, yes.
The next question is from the line of Nikhil from SIMPL.
Yes. Am I audible?
Yes, yes. Go ahead [indiscernible].
Yes. Rajeev, one question just on the U.S. part. When you said that doxorubicin was contributing almost 200 crores on a yearly basis, and now that has dropped out, even if I do a back of envelope and [ say at ] 25 crores, 30 crores and remove the licensing income, it seems the new launches which we did in Canada and Afinitor and 180 day with [indiscernible] and everything, the number seems to be pretty low as compared to what we were even thinking in Q3. So has there been a significant execution fallout? Or is my understanding wrong?
[indiscernible] brands have done well. See, also what happens is, based on the surplus we have, we plan expenditure also, right? So I think that's what it is. And I think we have done -- for example, we ran 2 first-to-files last quarter. And so there is a significant amount of R&D expenditure. So I think that's the reason why you will see -- basically what you do is you look at the surplus that you have in this particular year and then you budget how much surplus you're going to have. Based on that, you plan your expenditure. Do you believe that you're going to have, let's say, INR 100 of surplus? Then you say, "Okay, fine. I'm going to spend [ like ] INR 30 or INR 40 on R&D, which I'll expense in our balance sheet." And that's the reason why, for example, this particular product will be outlicensed. We expense that completely on our balance sheet. Then the -- what we call the -- then we wouldn't have -- we would have had a loss in the quarter. So I think you need to make those calls all the time. And I think, based on the -- I mean, the surplus, you make these decisions. So...
But Rajeev, sorry to interrupt. I was more focusing on the revenue side. So we have reported INR 383 crores on the export business, including the license income and everything. And during the call, you said that some of the products like doxorubicin have seen a significant price erosion. Even if I just add back those numbers and [ set off ] the license income, considering the launches which we did in Q3 like Revlimid Canada and Afinitor, it seems the numbers -- are they completely in the books in terms of profit sharing and everything? Or is it like it's not completely reflected in our revenue? That's what I'm trying to understand.
What is -- I mean...
It's Reflected in the book, [ called ] profit sharing and...
Yes. Everything is reflected. All the profit shares are reflected. See, [ everything that we are ] selling in Canada and all [ and lenalidomide ] reflects in our books directly. There's no sharing of revenue...
So it seems that market share in Revlimid Canada and even in the products FTF and other products which we launched seems to be pretty low. Or either the price competition is too high as compared to what we were thinking we could be building in terms of the revenue.
No. Revlimid has just been launched. I mean the product has been launched only last quarter. And even everolimus also, we launched recently only.
Yes, so...
The [ market's reflection ] will come as we go along. In terms of -- I mean, to answer your question: I think everolimus and lenalidomide is what is driving the export business right now. They are [ really what -- I think now it's what is ] driving the export business. And lenalidomide Canada is -- I mean, is helping Canada's -- driving Canada's profitability.To answer your question about price erosion. Price erosion is the nature of the beast. I mean I can't really do much about that. It's not in my control. And I think -- in terms of market share, I think we have reasonable market share. I think somebody asked -- particularly asked me what is the market share on these numbers. I said I can't [ sum that ] because we've just been launched. I think we'll give more color to it as we come -- in the next quarter, we will have more clarity about our market share. So with -- the databases don't get updated within 3 months of the launch. It takes a little more time, okay?
Sure. Lastly, on domestic side, in one of the participant question, you said that we will have to broaden out our therapy areas. And you mentioned that one is acquisitions which we are looking at, but [ naturally ] are we looking at something organically developing ourselves? Or would the focus of new therapy additions be completely through inorganic route?
Both organic and inorganic.
So anything in the next 1 year in terms of organic side, any new therapy area or division?
We're sticking to these divisions only. I think we have some ideas. And typically we don't reveal the pipeline on a call. [ So when we ] launch, we can articulate what our pipeline is.
The next question is from the line of Rahul Veera from Abakkus.
Rajeev, again now coming back to if you consider ex of the licensing income, with the EBITDA 70 crores to 80 crores. What is the share of U.S. and India? So I mean I'm just trying to understand because there will be limited contribution from the [ financing this season ]. So what's, let's say, the base erosion in Doxil or Copaxone now, sir?
What is the contribution of U.S., you're saying. And what the contribution of India in EBITDA is what you're saying.
Yes, sir.
I don't have that number of -- split. I don't have.
Okay, okay. And again going back to previous participation -- participant's question of -- all the launches, everolimus or Revlimid, are -- is there a frontloading of costs in the number? And probably the profit share will come from -- a higher profit share will start flowing in with some better market share next quarter. It's something that is what we're expecting.
No, I'm not expecting, I think, [ but fairly ] the numbers are the way they are. And I think, if you get more market shares, then you get more sales and more profit share. So there's always pressure in -- see, it's very tough to judge. I mean what you're asking is to predict revenue in the next few months for products where there's a significant number of competition. I -- honestly, I can't answer your question. I -- we just have to go with the flow, and I think I can speak about it as things go along. I can't make any predictions such as of revenue.
Sure, [ no problem ]. So in terms of Copaxone, Doxil and Fosrenol, are we making any substantial money there as of now?
Copaxone [ is amazing ]. Copaxone is still our #1 product. So in terms of revenue. What's the other one you said?
Doxil.
Doxil is down quite a bit. Doxil is down -- 80% down compared to what we used to make before. Lanthanum, we make reasonable amount of money, but I -- from what I understand, there are 2 other generics competitors [ who had passed a code ] last month. So I think that's [ again on ] those 2 products. I think Cipla and [indiscernible]. I think both of them got approved [ just start of the ] -- I think, in June and January, I think. This is what I understood.
Right, right. And sir, one of your peers in Tamiflu have written off a lot of inventory because of the expiry dates. So are we seeing that peer pressure [ found also ] on the Tamiflu side?
Our contribution from Tamiflu has been low, but as I said, I said we'll make a call in the March quarter on the COVID inventory. I think we'll make our call. We will speak about it in the March quarter, yes.
[indiscernible].
I said, all inventory, we'll make a call in March quarter now that the COVID wave is over. So I think we will make a call in the March quarter. Basically you make different provisions based on your dating of your products. So we will make a call in the March quarter based on how the portfolio is moving.
Sure, sir. We are -- I mean, as of now, whatever we spoke in the past 1 hour, it seems like a lot of the profit that is going to be generated via Revlimid [ is going to be set off by all ] the write-offs now.
See, my friend, I think what I can tell you is that, see, the numbers [ are the way they are ], right? You can't -- we -- what we are communicating is the nature of the business. And beyond that, [ I don't know ]. I -- so we -- that's how it works. So what I can tell you is about strategy. I can't tell you why you're not getting better realization on this product because it's the nature of the beast, isn't it? So -- and I think it is also very interesting. Revlimid is going to drive our profits, clearly. I think that's the way it is. And there's no 2 ways of [ hiding behind it ]. I think it is what it is.
The next question is from the line of Chirag Dagli from DSP Mutual Fund.
Rajeev, this is slightly a higher-level question. If you look at pre Copaxone FY '16 and versus, let's say, the annualized run rate currently, we had roughly moved 1,000 crores sales to about 1,600 crores; and EBITDA from 250 crores, 260 crores to 360-odd crores, right? Of course, over the last 5 years, we've accrued reserves, but pre Copaxone versus now, the base business has not moved materially. We are again at a juncture where we are going to get windfall gains from another large product, Revlimid, in the U.S., so the question there is how different do you think the next 5 years are going to be for the base business versus the last 5 years.
I think, see, if we look at our journey over the last 5, 6 years -- so we had windfall gains in both -- Tamiflu. We had windfall gains in Copaxone and we're anticipating some gains in Revlimid. So that's the nature of [ our way ] the business works, isn't it? So we've had the ability to deliver something every few years, which has allowed us to do something special. I mean Doxil did well. [indiscernible] [ was there ], but that's the nature of the beast. I mean the business -- if you have a smart idea, you do very well with it. And you [ hit footholds on ] for a while and then it goes away. You just have to come up with a new idea. I think that's how it works, so -- and that's -- I think that's where we are. So in terms of how the future holds, I think we are very acutely aware that we need to strengthen the base business. I think, I mean, this is something we have been working on for the last 2, 3 years. I think Brazil and Canada additions is part of that. We have built that business from scratch organically. Building a business organically takes 6 to 7 years, and I think we went through that journey in these markets. And our agro foray is also part of that so that we can diversify our revenue so that we're not so highly dependent on one-offs from the U.S. market. I think this is what we have been working on continuously.The benefit of that, we'll see in the next few years. I think -- by the time Revlimid tapers off in the U.S., I think we will have built a large-enough business within all these segments so that, when it tapers off, the base continues to be strong. I think that's continuously our endeavor. And this is what we have been working on, but you we try to build things organically, you don't see results like overnight. [ You're saying, at least next quarter, we show mid-300 crores ] in a non-U.S. revenue in this particular market. It doesn't happen like that. It takes time. And see, a lot of the articulation that we do in terms of agro and all that, it's a process. I mean I -- what I can tell you is that like this is what we are doing and this is what we believe. A launch will happen. This will happen in this particular month, so -- and based on this particular event. So I think, to answer your question: I think this is what we have been working on. I think we are very conscious of what you have said. And I think it -- we are very clear that this has to be done and I think we're working towards that. And I believe, by the time Revlimid goes away, I think we'll have built this business to a significant size so that the base is much stronger, okay?
Understood. And just a second one, on CTPR. How many -- do we have approvals across multiple crops, et cetera? Because I understand this product is sold across multiple crops. Do we have -- or do we need approval for all the crops before we start scaling up?
I don't want to hazard a guess on that one, but I think we have approval for multiple crops. [ I think that's understood ]. Is that...
[ Yes ]. When we register, it is applied for the multiple crops, Chirag.
So we can immediately access the entire 1,400 crores market [ in India ].
Yes. I think that's my understanding, yes.
The next question is from the line of Kunal Randeria from Edelweiss.
Yes. Rajeev, just building upon one of the previous participants' question on complex generics. So it's not as if there are a dearth of products in the U.S., right? Some of the U.S. companies have actually revealed their pipeline, right? [ Kind of ] products like Risperdal Consta, Sandostatin LAR and [indiscernible] and so on. So I'm just wondering. Where -- why is it that a lot of Indian companies which were developing it have not been able to sort of develop these? Because these can be very lucrative long-term opportunities.
Okay, I'll answer your question. By the way, we are not revealing the pipeline. Revealing and all, you don't reveal at the time in R&D. You only reveal it when you reach stage of filing, where you've done the clinical. You have done the filing with the ANDA. That's when people start revealing. [ They don't, never know we revealed ] at the time of the R&D because it's only an idea, right? So unless you execute the idea, you don't reveal it. That is one. Second is your question, why don't -- Indian companies is -- are not successful in complex [indiscernible]. Is that the question?
Yes. I mean at least in some of these products. I remember, for Sandostatin, for example, a lot of the Indian companies are trying to develop, I think, in the last 5 years.
Well, I think these are very tough to deliver, Kunal. I think that's what you need to appreciate. I think they're very hard to deliver. And when it comes through, obviously there's a huge upside, but it takes a lot of time to deliver. If you're able to pull off like 2 of these products in a decade, you have done a great job. I mean look at our own Copaxone success. I mean we've done it 10 years before the actual launch actually happened, and now it's a very stable revenue stream for us. So these are very hard to deliver, Kunal. It's not easy, as I said, but everybody has their own -- I mean everybody has their own complex and big pipeline. So again, we are privy to what is publicly said. I think Indian companies are also doing that. I don't say that they're not doing it, but success is very hard to come by. I think, clearly, it's not easy.
Sure. And I'm not sure if you reveal this, but would you be sort of comfortable in making a domestic acquisition in excess of, let's say, 2,000 crores, 2,500 crores given the kind of cash flows you will be generating in the next few years?
I'm open to every -- any transaction, Kunal, but as long as it is right for the company, right? I don't want -- we should do what is right. We will fill the gaps in our pipeline, as the gentleman asked me earlier, but we need to use this cash in a way that we -- where we are able to fill the pipeline; and build, strengthen the base business. I think -- at the right valuation, at the right price, at the right synergy, I think I'm open to any transaction.
We'll take one final question and wrap it up.
The next question is from the line of [ Sai Pavan Kumar ] from -- an individual investor.
Rajeev, this is [ Suropeni Sai ]. I'm a individual investor in NATCO for past couple of years. Sir, my question is what I've understood from the other -- almost my queries got answered but one question I have, sir, futuristic. Like next financial year, we will have very good revenues from the Revlimid U.S., so -- and you also said that, the base of the business, we've already strengthened by the time Revlimid gets phased off. Or you may have -- and you also have staggered launches going forward in couple of years, so can I assume that the revenue what we're going to see in the next financial year is sustained for a couple of years, maybe next 3 to 5 years, sir?
That's a question I can't answer, honestly, [ Pavan ]. I don't know, but we are hoping it will hold up for a bit. It's a reasonable opportunity. I think, let's see how it plays out...
But [indiscernible] maybe 2 or 3 years we can -- maybe down the line -- or 2 years...
I will never make a definitive time commitment on how long it will hold up. It will be a good thing, as we'll hold up for a while. Again I can't judge what the market dynamics are. See, that's -- I think that's all I can say. I -- but what -- the question I can answer is what will I do with the money. I think the question I would like to answer is that. And I think clearly we have to use this money in a judicious manner which allows us to strengthen our base business. I think that's essentially where we are at this time, yes. Thank you all.
Thank you.
[ Go ahead ].
Okay, thanks. Thank you very much. Again, the transcripts will be up when it's available. Thank you all again. Have a good day.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.