Strides Pharma Science Ltd

NSE:STAR

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Strides Pharma Science Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir.

[Abhishek Singhal, analyst]

Yes, very good afternoon, and thank you for joining us today for Strides earnings call for the first quarter ended financial year 2023. Today, we have with us our Arun, Founder, Executive Chairman and Managing Director; Badree, Executive Director, Finance and Group CFO, to share the highlights of the business and financials for the quarter. I hope you have gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as stock exchange. The transcript of this call will be available in a week's time on the company's website.

Please note that today's discussion may be forward-looking in nature and must be reviewed in relation to the risks pertaining to our business.

After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.

I now hand over the call to Arun to make the opening comments.

[Arun Kumar, executive]

Thank you, Abhishek, and good evening, everybody. Thank you for taking time today and what is otherwise a very busy earnings day in the industry.

Before I start -- I mean, I'd like to start saying that we strongly believe that we've come back with momentum in terms of not only of course correction, but also progressing towards building Strides into a profitable operation during the course of the financial year. We have had one of our most important quarters in terms of revenue growth and had that success -- continued success with the U.S. business. Although we had an adjustment of close to about $5 million in sales, our U.S. business adjusted is now at $51 million for the quarter run rate. And we are confident of growing significantly from there on a Q-on-Q basis.

Led by important product launches, almost 15 additional products are expected to be relaunched between the Endo acquired portfolio and the Strides portfolio, including important approvals that we expect in a few weeks from now that will further aid the U.S. growth. And consequently, we reaffirm our USD 250 million revenue guidance. All our businesses have since recovered outside of the Chestnut Ridge integration that we are still working on. We got the possession of the facility on announcements, but the business transition completed on the 21st of July contractually. And we are now in the process of securing business, bidding for new contracts, and we expect H2 to be strong performance quarters for the U.S. business.

Other businesses, while they grew in constant currency, we had challenges considering that the currencies we operate from ZAR to AUD to euro and the pound were weakened currencies for quite a long period of time and continue to see headwinds. But nonetheless, we believe that the business is on solid footings.

We have, over the quarter, taken very strong measures of combing our business in terms of cost structure, profitability on portfolio, SKUs, line items, and we are very aggressively focused on improving our cost structure. And some of that is already playing through. We grew 9% Q-on-Q, but we had no increase in our OpEx, which is great. Our salary cost is slightly elevated because of the addition of the Chestnut Ridge employee costs, but we believe that there would be further improvements as we focus on optimization, which is an ongoing process. We have also improved our supply chain significantly, resulting in lower logistics costs. And consequently, we also believe there would be more uplift in the quarters to come by.

Our business in the emerging markets delivered its strongest quarter supported by strong institutional business. It's always been lumpy as one would understand the nature of the business. But our branded Africa business continues to perform quite spectacularly, I must say. And we seem to gain important market share in the markets that we operate.

Coming to our emerging -- our other regulated markets, we have been flat in terms of growth, but like I said, it's mainly to do with currency adjustments. And we have also -- we are progressing on taking out certain lines of businesses, which don't make sense and some of those costs have been incurred in the quarter. But as quarters go by, we will see improved OpEx leverage. We continue to stay invested with our guidance to reduce debt by INR 1,000 crores. We expect a significant part of the debt reduction to happen in Q2. We have now more clarity around our request for prepayment from our partners in Australia. And we are also very confident that our improved OpEx leverage, our inventory management will result in free cash generation and also, we have taken various other corporate actions that will result in achieving this target. So there's no change to that overall numbers that we indicated earlier.

In regards to our associate company, Stelis, a biopharmaceutical arm, we received an important EU GMP certification for our 2 biopharmaceutical facilities. Consequently, although we've consolidated a fairly significant loss -- operating loss from Stelis, this has more to do with the nature of the business. We continue to secure customers and receive advanced payments and signing of contracts, but it's a function of invoicing and revenue recognition as per agreed CDMO norms that you see a disconnect between cash collection and invoice. This will continue to be the case even in Q2, but we will see an improved operational performance in H2 from Stelis.

We are very excited about the new customers that we have onboarded. So we now have 14 new -- 14 customers in all since our inception in the last 18 months and -- as a CDMO company. And we hope that with the recent EU GMP approval, we should have our biological approvals within this financial year for the first product in the U.S.

The -- with regards to our issues, we continue to have our issues with Sputnik. Unfortunately, we have not found a resolution in spite of best efforts with regards to our disposal of our 23 million doses that are in inventory. These doses are -- currently have still good dating, and we have given ourselves this quarter to find solutions both with RDIF and with help from the government of India. There is just no efforts spare to try and secure markets and opportunities for Sputnik. Given the situation that Ukraine and Russia and the sanctions, all of this has negatively impacted our ability to dispose the stock that we have in hand. But we are pursuing all opportunities to ensure that we have -- we find good outcomes.

Our own vaccine, the AmbiVax vaccine, which is our protein fusion vaccine for COVID. We got great outcomes with no significant safety issues and 91% silo conversion. We have now submitted all the relevant data to the SEC for an approval for emergency use in India, and then we will focus on building a booster study program as we believe that COVID, although flu-like these days, is here to stay and there would be opportunities for unique new vaccines that are being developed.

With that, I'm more than happy -- me and my colleagues are more happy to take questions. And like always, if some of you would like to contact us separately, we are always available to take your calls. Thank you.

[Operator]

[Operator Instructions] First question is in the of Vinay Bafna from ICICI Securities.

[Vinay Bafna, analyst]

My first question is on the institutional business. So we've seen a very healthy jump sequentially. The other presentation on this that there was a healthy ramp-up from offtake from one of your partners. Could you probably give some more color into why or which therapies are supporting this business? And what would be the studies and growth for the segment?

[Arun Kumar, executive]

Yes. So the institutional business, as you know, Vinay, is very tender driven. We are a qualified supplier to the global drug facility and also to various other organizations that finance these programs. So we have been a little more aggressive than we normally are because not only does the institutional business is -- it may not be extremely profitable, but it does take care of significant under recoveries and cash flows. So we have taken a position to be aggressive in this business.

We will continue to see growth, but there would be a lumpiness because it's not often that you get such large contracts. Last year, we did about less than $30 million to $40 million of anti-retrovirus. We believe, based on our run rate, we will do a lot more. And that is mainly as we see the market being reoriented from a risk, also from the buyers to various alternative suppliers or because some of the dominant players may not have -- may would have or would have defaulted with supplies.

So we are now getting more and more focused on this business, which is tactical. It is an important business for the reasons I explained. I think we will see growth in this business, but there could be lumpiness Q-on-Q.

[Vinay Bafna, analyst]

That is helpful. I understand the tender business is already contractual. Generally, when you receive such a contract, how long does it last, 6 months, 12 months? We'll have some visibility on it, correct?

[Arun Kumar, executive]

Yes. So typically, you are contracted for a certain volume of the total offtake. Typically, being a fringe player, we would not get larger shares. So for example, if the total opportunities $1 billion, and the top 3 players would typically take 70% to 80% of that volume, we will probably be in the French remaining set of companies that get the balance of the opportunity. We've just been a little more aggressive there. So we have -- typically, you have contracts visibility for long 12-month period. The current contracts that we have will ensure that we have at least 30%, 35% growth over the previous year. But I can't give you more specifics on which quarter and -- but yes, on an annualized basis, it will be about 30%, 35% more than what we did last year.

[Vinay Bafna, analyst]

That's really helpful. Second question is on the U.S. business. So in this quarter, we have done $46 million. If I take into account the spillover $5 million, so approximately $51 million. Our target for the year is $250 million. So that is giving us a run rate of $70-odd million -- $65 million to $70-odd million in the next 3 quarters. How do you see this ramp-up shaping? I mean what kind of product launches or any specific opportunity -- important opportunity which you would highlight, which should help us build this gap because it seems a bit too steep?

[Arun Kumar, executive]

Yes. So like I said, a lot of our sales is based on the Endo portfolio that we acquired. We took possession of the front-end marketing of the Endo product on the 21st of July. And as they were transitioning this business from Endo to Strides, you obviously serve notice to your customers and then you have to rebate. So we are in that process. And because these are quite unique products, there aren't many players. We are very confident of regaining the market share that sellers had in our products. But this is a process which will take a couple of weeks before we get the contracts.

Outside of that, we have, like I said, about 15 launches or relaunches this year. That is either because we got into cost leadership in certain products or that we have managed to get approvals with past approvals or CD30s based on the kind of interventions we were doing to ensure that we are competitive. So we have about -- including some important approvals in the next couple of weeks, we would have about 15 additional products to be launched in the next 9 -- in the 3 quarters remaining.

[Vinay Bafna, analyst]

So what I understand is probably Q2 would be a step-up from what Q1 would be, but the big jump is going to come in H2 of FY '23. Would that be a correct assumption?

[Arun Kumar, executive]

Yes, there would be a significant step-up in Q2 also, but it will not be -- it will not necessitate a massive step-up in H2, but it's more skewed to H2 simply because of the reasons that I explained to you in terms of the launches -- relaunches.

[Vinay Bafna, analyst]

Okay. Got it. Last question is on the COVID vaccine, so both AmbiVax and Sputnik. Do you really think that there's a very big opportunity there in the future for these kind of vaccines? I mean, especially considering the cases which are exceeding or rather resilience which is building up within people as well as the hesitancy to take the vaccine.

[Arun Kumar, executive]

Well, all are valid points. The only advantage on -- Sputnik for us -- we are a CDMO for Sputnik. We have no rights to market the product. As you know, those rights in India and other markets states with Dr. Reddy. So I can't comment about Sputnik. I'm just a contract manufacturer for them.

But AmbiVax is the first thermostable vaccine and therefore, it's very important from a logistics standpoint. We have positioned this as a low-cost vaccine predominantly for the African markets. And even if 5% or 6% of the global population needs a vaccine out of booster every 6 months, the opportunity is not in the magnitude of what we saw in the several waves of COVID. But there's always -- there are always opportunities. Are we banking big box on this? The answer is clearly no.

[Vinay Bafna, analyst]

Okay. Okay. That is very clear. Just last bit on Sputnik. So you -- in your statement, you were saying that in this particular quarter, we are looking out for some kind of a way out a solution for the inventories -- Sputnik inventories which we have in the books. What could be a potential write-off on these inventory that we have to take maybe 2, 3 quarters down the line?

[Arun Kumar, executive]

We can't get into specifics. It's a little too early for us to do that. Let us complete our exercise this quarter. We don't want to be giving you numbers that gives us the distressed position for us to undersell the product. We think the product is extremely valuable as it is. So we can speak about this in more granularity in our next quarter's results.

[Operator]

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, analyst]

Just on the U.S. sales, they've been steady for the past 2 quarters. And despite the price erosion scenario not changing much. So sir, what is it that is benefiting Strides, in particular, if you could elaborate?

[Arun Kumar, executive]

Well, we've gone back to our previous strategy of focusing on products which are profitable, where there is low competition. Remember, we now have 250 approved ANDAs. We've only commercialized about 50 or 55 of those products in the market today. We do have the luxury to pick and choose and the product and the timing of our launch. That will support our -- it doesn't add big dollars on a Q-on-Q basis. But what it does is that it gives us a steady uptick of the base, but also ensure it improves our gross margins because these products are significantly more profitable than the commodity products.

So we think we have another 50, 60 products in our portfolio that will meet our criteria of gross margins that we would like to be in the U.S. with. And every time we launch 3 or 4 products per quarter, the base, which is not so great in terms of site, gets more and more prominent.

[Tushar Manudhane, analyst]

And with the addition of the step-up in the U.S. sales in the second half, that clearly drives the operating leverage. So that will be a good margin lever. Is that the same or would be more or less similar on EBITDA margin, but that is very different?

[Arun Kumar, executive]

You're right.

[Tushar Manudhane, analyst]

Okay. And just on Sputnik, even that it was CDMO also -- whether the vaccine is successful or not, but the successful commercial manufacturing by people would have led to the sales or which was a risk, which was on our books in terms of the approval and then subsequent commercial release?

[Arun Kumar, executive]

Sorry, can you just repeat the question? You're a little unclear.

[Tushar Manudhane, analyst]

With respect to Sputnik, as it was alluded earlier, the contract was such that if the commercial scale-up is being done, then the product sale was very much sure irrespective of whether there is a success for that vaccine or not. Was that the clause for our contract as well? Or this is the risk which we took in anticipation of better business outlook for this?

[Arun Kumar, executive]

This is contractual for all the partners that engaged with the -- on the Sputnik program. There is a guaranteed offtake. And that's what we are now battling with.

[Tushar Manudhane, analyst]

Got it. But unfortunately, that's not happening. So is it getting into some legal tussle or something like that? Or it would be mutually resolved?

[Arun Kumar, executive]

Well, I think the first because this to mutually find solutions, which is what we are doing. We are very engaged with our partners to find solutions and not that they're not trying. We are also engaged with the government of India to try and help. But -- yes, for now, we are more focused on finding a mutually satisfying solution, which is what we said that in the next 3 months, we are going to focus on. .

[Operator]

Our next question is from the line of Sarvesh Gupta from Maximal Capital.

[Sarvesh Gupta, analyst]

So first thing on the U.S. business, this quarter, gross margin are in line with the last quarter. While I think we also had the aspiration of at least reaching midway of where we were before default, which was around 60% and between 50% and 60%. So do we see any upside on that? So that is question number one.

Secondly, on the debt reduction part, we have an aspiration of delivering INR 1,000 crore. So out of this, around INR 500-odd crores will come through the Australian partners. What is the remaining INR 500 crore? And how are we planning that given that we are also sort of making losses in the Stelis business where we might have to fund them more? These are the 2 questions.

[Arun Kumar, executive]

Yes. So we don't give regional-wise gross margin. So your first question is really not -- it doesn't add up because we don't give gross margins by regions.

So on your second point, the -- there are certain refunds and the Australian, as set together, is a little more than INR 650 crores that we are -- we have already secured, and the balance INR 350 crores comes from OpEx leverage. Because, if you recall in Q4, sitting on significant amounts of inventory, considering that we had a sharp drop in our sales in the regulated markets because of COVID. Now a lot of that inventory is getting moved out. Consequently, our working capital has started -- will commence to reduce from Q2 and Q3 leading to a final outcome of INR 1,000 crores that we have agreed.

There is also some corporate actions around network optimization, which will be completed by September, but we are now very confident of getting to the INR 1,000 crore debt reduction that we have communicated.

[Sarvesh Gupta, analyst]

Sir, on the gross margin part, so I'm sorry, on an overall company basis, earlier, we used to be around 60%. And now we are -- we've made like 50% this quarter. So is there an aspiration to reach 55%? Do we think that is achievable? Or is this 50% the new norm at the company level?

[Arun Kumar, executive]

No, it's not the new norm. Now remember that there has been a significant growth in the institutional business, which doesn't deliver 50%, right? So if you do an adjustment for that business where the gross margins are significantly lower, almost half, then actually, there has been a gross margin uptick for the rest of the business.

[Sarvesh Gupta, analyst]

Okay. And do we see further upside to this as far as U.S. business is concerned?

[Arun Kumar, executive]

Yes, we do.

[Sarvesh Gupta, analyst]

And any guidance you would want to give for your other regulated markets, U.S., you have said $250 million in FY '23. But the other important piece is the regulated markets. So any...

[Arun Kumar, executive]

We try to -- in the last 2 years, we've been trying to make a lot of noise about the other regulated markets, but nobody seems to be very excited. Everybody is fixated about the U.S. So that is why we gave a number for the U.S. And this is a business that we are more excited than all of you are. And we continue to grow. But at this stage, we refrain from giving our guidance.

[Operator]

The next question is from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Arun, in your presentation...

[Operator]

Can you speak up a bit, Nitin?

[Nitin Agarwal, analyst]

Hello, can you hear me?

[Operator]

Yes.

[Nitin Agarwal, analyst]

I see in the presentation, you've talked about cost reduction being a major plan for this year. Now we don't -- this quarter we still have a presumably high fixed cost in terms of staff and plus the expenses put together, higher Q-on-Q as well as sequentially on a Y-o-Y basis. How should we look at this staff cost as an expense number as we go through the quarters?

[Arun Kumar, executive]

Yes. So the staff cost has got a certain element because we've had some high-level actions as part of our research strategy. Consequently, there were certain costs associated to those actions, right, which is a one-off cost. Also in terms of our transaction, accounting on the Chestnut Ridge facility, we had certain benefits related to employee costs, which is now -- in the last quarter, which is now normalized. You should assume that including the typical increments and variable pay that we should be able to or contain slightly lower than these numbers going forward throughout the year. That's how you should look at that.

As far as OpEx is concerned, you will notice that while growth increased by 9% Q-on-Q, our OpEx actually dropped by 2% over the last quarter. You will see that to be the trend as we improve our supply chain and reduce our airfreight costs, you will see that dropping down. And that is where the leverage will start flowing through the business.

[Nitin Agarwal, analyst]

Okay. Sir, do we see -- the staff cost, you mentioned maybe some -- probably flat to us some reduction on the Q1 numbers. But on the OpEx, is there a possibility of absolute reduction? Or it's just like -- or as a percentage of sales, you see this number coming off?

[Arun Kumar, executive]

No, there is an absolute reduction in the works, and it will not flow through throughout the year. But in H2, you will see a new number, which will be the new norm at which we will be in absolute terms. I mean the only variable factor there would be the freight cost that will -- that is dependent upon sales.

[Nitin Agarwal, analyst]

And secondly, on the U.S. business, you've talked about you've got 250 approved ANDAs. In your assessment, how many marketable opportunities are there amongst -- in that portfolio in terms of products that you can actually get to the market over the next couple of years from a commercially viable perspective?

[Arun Kumar, executive]

Yes. So like I alluded in the last earnings call, we have identified 60 products that meet the criteria for us in terms of gross margin and market share. So aspiration -- sorry, my apologies. We mentioned that we have 60 products to launch in the next 3 years. We would achieve the first lot of 20 products this year, 5 products have been already launched in the 6 -- sorry, 3 products have been launched in Q1, and we have about 16 products that will be launched in the rest of the quarters.

[Nitin Agarwal, analyst]

And Arun, just looking out, if you were to look through this entire 60 product launch over the next couple of years, I mean what is -- do you want to just probably give us some sense on the size of the business you're looking at in that case?

[Arun Kumar, executive]

No, Nitin. These are very difficult times for us, so as not a guess. I think what it does do is let's not focus on revenue, let's focus on gross margin expansion. These 60 products will deliver that goal for us to be where we traditionally used to be at the 22%, 23% EBITDA. Our aim is to get there in the next 4 to 6 quarters, if not earlier.

[Nitin Agarwal, analyst]

If I were to sort of get it right by FY '24, and we should be back to the 21%, 22% EBITDA margins for the business.

[Arun Kumar, executive]

Correct. And the 60 products will play an important role but the growth is actually coming from the other regulated markets. And although the top line growth is not visible in the other regulated market, the margin expansion is actually happening in the other regulated markets, and it will keep on increasing more in absolute numbers. And in the other regulated markets, we also have a fairly significant B2B model. So you will not see the percentage gross margins moving. So we are positioning ourselves more for absolute gross margin growth. You'll see that also in this quarter that we've actually added INR 30 crores of incremental absolute gross margin. And that's our focus, first, let's improve our gross margins, reduce our OpEx and let's not be so much worried about our percentage EBITDA.

But going out in the year, are we very close to where we used to be. And in the next 6 quarters or 7 quarters, that's the new norm of what we used to be, and that's what we are very confident of getting that. And that may come at rightsizing some network optimization because we have too much manufacturing infrastructure for the kind of business that we run today. And so all of that will flow through to deliver very different results.

[Nitin Agarwal, analyst]

Okay. And lastly, on the debt number, you talked about -- so just to understand that right, we have currently a gross at debt about INR 2,700, crores, INR 2,800 crores, you're talking of this gross debt going down to like -- by INR 1,000 crores by the end of the year. Is what the guidance is?

[Arun Kumar, executive]

Correct.

[Nitin Agarwal, analyst]

Okay. And last, if you can squeeze a little more. On Stelis, you were talking about in media about value -- some plans about the value and lock in the business, if you can probably help us understand that a little bit more?

[Arun Kumar, executive]

Yes. So basically, we committed to our investors that we will look at all options for Stelis. So we have now engaged with bankers to look at all our strategic options, including raising in new cash into the business and that process has just not commenced, and we'll keep you updated on progress. It is a value discovery process, and then we will decide what's the best option for Strides and for Stelis. We all know that this is a high CapEx long gestation business.

We're very happy with our order book, but the significant mismatches kind of magnified with our problems with Sputnik in terms of cash needs and what cash we generate from that business. So that is why we constantly consolidate a fair amount of losses on an equity accounting. Although Stelis is well funded to take care of those obligations. It is important that we also have a war chest in terms of what we want to do. This business is extremely profitable, adjusted for the base, but we currently operate the business at 7% to 10% capacity. And we really need to have all the capital that's required to ensure that some of the large companies that we are engaged with are very comfortable in terms of our going concern status, to be honest. And we are very focused on achieving this. We have appointed bankers, and we'll keep you posted on the end of every quarter and how that's going.

[Operator]

[Operator Instructions] Our next question is from the line of Deepan from Trustline.

[Deepan Shankar, analyst]

So firstly, wanted to understand, so the recent announcement of fundraising of NCDs for about INR 150 crores. So earlier 2 quarters back, we had a plan and the Board approved for 4 million warrants and raising INR 194 crores. So what happened to that? And is this additional to that? Or we have replaced the same?

[Arun Kumar, executive]

Warrants is not for 4 million. It is for 2 million warrants, and that is for about INR 95 crores. And that is on track, but that money goes onward for Strides contribution to Stelis to maintain its ownership. And that is why those warrants are used for. This is a temporary financing as we are ramping up our business, as you can see. We obviously need working capital to support growth. And we don't want as we get our debt reduced, which will happen in Q2, Q3, Q4, we need to focus on achieving our near-term goals. And that is the reason why we are -- we sought an enabling resolution to get additional financing up to INR 150 crores.

[Deepan Shankar, analyst]

Okay. Okay. Could you update us on kind of cost of financing for this structure?

[Arun Kumar, executive]

We don't go into specifics. Our cost of money is approximately 9.5%, 10% globally, including exchange rate, cover and all of that. So this is a small amount of money in our total debt book. It doesn't change the total net cost very significantly.

[Operator]

Our next question is from the line of Harshal Patil from Sharekhan.

[Harshal Patil, analyst]

Sir, just needed one clarification, the most of my questions have been answered. So this was with respect to the U.S. business. So here, we've been talking about a very strong product pipeline coming into the picture, probably over the next 1 to 2 years, 3 years' time line. But as of now, if we see -- sir, if you could just provide some inputs on how has been the price erosion? Is it getting worse? Or is it like looking getting better? And with these new product launches, how should we look upon at the margins for FY '23 as an exit?

[Arun Kumar, executive]

Yes. I think I answered most of those questions to the previous, but I will still answer that. So we think the pricing pressures in the U.S. market is more or less settled. It is still in sporadic or in specific products, we find pressures when companies are looking for increased market share.

Our model is to go back to our traditional portfolio of niche complex or some kind of difficulty. And out of our 250 products, about 100-odd products meet that criteria and we are focusing on that. And therefore, we are not so much a me-too player of generics in the U.S. market. We've probably slipped back in the last couple of quarters to that model, but they now reset the company to the new model. We are excited a lot of products that do not make any sense for us, and we're adding more products, which add value.

So we are, in many cases -- if you look at our portfolio, in many products, there are no -- not many competitors. And it's further magnified by the fact that there is no Indian competition. And that helps the price positioning and the modeling of our business. So I would not want to comment generally, but for the products that we operate, we do see some cases that we are challenged. We let go those businesses when the challenge is unfair for us to be in the market, but more and more we are winning back contracts at our terms maybe not the market share that we want, but slowly, we pick up market share over a period of time.

So overall, we think everybody has their own business model for the environment that they operate in for the environment that we operate in, we see more stability than the commodity products, and we'll continue to focus on it given that we have a large portfolio to support.

[Operator]

The next question will be from the line of [ Omkar ] as an individual investor.

[Unknown Attendee]

Am I audible?

[Arun Kumar, executive]

Yes.

[Unknown Attendee]

Sir, just wanted to check from Endo portfolio products, are the getting manufactured at India or they are getting manufactured at U.S. facility?

[Arun Kumar, executive]

At the U.S. facility.

[Unknown Attendee]

Because in second quarter, you were saying you are bringing those products back to India for a better margin. So that was a sentence I remember from your end. So they are getting manufactured at U.S. only you are saying.

[Arun Kumar, executive]

No. So whatever is currently marketed is sold in the -- it's manufacturer in the U.S. plant and those -- and that plant is not a cheap manufacturing plant, right, being in the U.S., you obviously, our cost of production is significantly higher. Those products where we don't make margins producing in the U.S., we have brought them to India.

[Unknown Attendee]

Okay. And so slowly certainly, we will manufacture in India and you will export to U.S. Am I right?

[Arun Kumar, executive]

Yes, you're right.

[Operator]

We have a follow-up question from the line of Sarvesh Gupta from Maximal Capital.

[Sarvesh Gupta, analyst]

Sir, just 1 question on the comment you made in the call that earlier we were into products which were slightly more niche and differentiated and where there was less competition and some level of difficulty of production maybe which is why there was less competition. So what was the thought process behind us slipping back into sort of a more less differentiated and we do sort of product. What was the thought process if we were to -- because you said we slipped into that sort of a territory? So what was the strategy behind doing that? And hence, it did not work well for us and now we are sort of reverting back to our original model, if you can throw some light.

[Arun Kumar, executive]

I think it's to do with the post-COVID environment, right? So during COVID, so if you look at small products, and niche products, they are typically acute products. They are not chronic products. Chronic products is where you get big volumes, big revenues. And if you are fully integrated, you often still make fairly significant margins. Our model has always been the acute portfolio. And during COVID, there was no usage of acute products, usage dropped in many cases, below 50%. So the company obviously needed a certain revenue line to keep the lights on.

And more back took a lot of this commodity portfolio for larger market shares. And obviously, that strategy didn't play through. So it's nothing to do with previous management or leadership or anything, it's the environment in which -- which kind of forces company to shift gears. We think first, COVID, our tried and tested model works out better and that's what they're just redoing.

[Sarvesh Gupta, analyst]

So for the acute products for us, which were less volume, but maybe higher margin and more differentiated. Now you feel that both pricing as well as volumes have stabilized to what they were before COVID and that's the extent.

[Arun Kumar, executive]

And just also what has done for us is that we see further reduction in the number of players because many of them exited because they didn't make add up, right? So the market opportunity for us in some of these products have actually improved because we stayed invested with those products.

[Operator]

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

[Arun Kumar, executive]

Thank you all for joining in. And like I mentioned in my opening statement, if you have any specific questions, please don't hesitate to contact us, and we'll always be available to answer them. Thank you, and have a good weekend.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Strides Pharma Science Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.