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Strides Pharma Science Ltd
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Yes. Very good evening, and thank you for joining us today for Strides' earnings call for the second quarter and half year ended financial year 2021. Today, we have with us Arun, Founder and nonexecutive Chairman; Dr. Anand, Chief Executive Officer and Managing Director; and Badree, Executive Director and CFO, to share the highlights of the business and financials for the quarter. I hope you've gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as the stock exchange website. The transcript for 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 viewed 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.
Thank you. Thank you, Abhishek, and good evening, everybody. I hope for all of you being safe in this -- in the circumstances that we live in. Before I start, I -- like Abhishek mentioned, along with me today, we have Dr. Anand and Badree and also other members of his team to support us to address any specific questions. Given the situation that we were in the last quarter, especially being in Bangalore, which was a hot bed for the COVID cases in India, especially in the south of India, we were heavily impacted by intermittent disruptions into our -- in our manufacturing. But having said that, I believe, given those circumstances, we have come out with a fairly steady set of numbers. Our strategy is in place. Our order books are full. We had some challenges. As one would imagine, our priority was for safety and health of our people. We are now pleased to say that our plants are back to normalcy, and are -- we are executing to plan. Consequently, we -- you will see probably a shift towards H2. Some of it, like in the U.S. market, would be driven by the fact that we've had improved market share. You will also notice commentary for the first time that the company did have some challenges on a couple of its products, on its base products, which are the larger commodity products that we operate at the base of our pyramid. Having said that, we have leveraged our recent product launches in the U.S., managed to retain our fairly significant gross margin. Albeit growth being tepid, we are very confident that you will see significant growth coming back in H2. And we have -- given the circumstances, our primary obligations during the quarter was to prioritize key accounts to ensure there were no failure to supplies. We did see a depletion of our standard safety stocks in the U.S. given that we had supply disruptions, but that safety stock actually played in our favor that we were not out of stock on any products, and we do not end up paying any penalties for any of our products, which is very critical to be successful in our business. The dampener, of course, has been the other reg markets and especially our businesses to Australia, which, as most of you know, have got significant flow-through margins from gross margin to EBITDA. That's been impacted by the fact that our dedicated Australian facility was the most impacted in the cluster of our manufacturing units. Having said that, that plant is now fully operational. We are working extra shifts to ensure that we catch up on lost ground. And given all of these circumstances, we have, in my personal view, done fairly well coming out from very constrained situations that we all live in. I think that there has been -- obviously, there would be a focus on our U.S. business. I'm very confident that we will meet our range that was guided. H2 will be a strong performance. Like I said, our order books are fairly comfortable, and we are executing. And considering that now, we believe that the COVID cases have come down significantly, and we have taken additional precautions to ensure that even with fewer cases, we should be able to operate fully, we are quite confident that, that is behind us, and we should have good outcomes in the -- in the coming quarters. With that, I'm going to request Anand to give you more detailed opening remarks, and then Badree will comment on financials. And after that, we will open the house for questions. Thank you.
Thank you, Arun, and hello, everyone. I hope all of you and your loved ones continue to remain safe and well during these challenging times. As Arun mentioned, despite COVID-19-related challenges, we have reported a steady Q2 performance. Southern India did see a significant surge in COVID-19 cases during this quarter. That did disrupt our operations and impacted manufacturing and supply of products from our India sites. Manufacturing activity was impacted due to this intermittent shutdown. Out of total India workforce of over 3,000 across the facilities, over 400 of our colleagues tested positive through the quarter. We are also saddened by the passing away of one of our colleagues in our Puducherry plant, who succumbed to the COVID-19. We continue to remain proud of our global workforce for their resilience and their continued commitment and exemplary efforts to curtail this impact during the current crisis period. We continue to pursue a people-first approach and the wellbeing of our employees remains our top priority. The markets in U.S., U.K. and in many parts of Europe continue to witness lower footfalls at pharmacies, lower surgeries in hospitals, leading to lower prescription rates. Disruptions in manufacturing activity led to inventory depletion on few SKUs at our front ends as well as stock-outs in certain products. Lower order fulfillment, predominantly in our partnered business in Europe and supplies to Australia were also impacted. In the light of this, we reprioritized our operations to ensure we meet customer commitments and thereby maintained healthy gross margins and EBITDA margins in a constrained environment. The reinspection of our Puducherry site has not yet occurred as the U.S. FDA is yet to resume offshore audits. Despite these COVID-19-related headwinds, we expect a rebound in H2 of this fiscal year. COVID-19 outbreak is tapering down with significant reductions in number of cases at our sites. Manufacturing across facilities has since returned back to normalcy, and we continue to closely monitor the situation. We are pleased with the strong order book for other regulated markets, including our supplies to Australia. There is a high focus on inventory replenishment back to our historical levels for better customer advocacy. Let me come specific to the results. We have delivered a steady Q2 FY '21 performance that highlights the resilience of our diversified business model. Revenues in Q2 FY '21 at INR 7,971 million were up 11% year-on-year and in H1 of FY '21 at INR 15,818 million were up 12% year-on-year, led by continued business momentum. We maintained our gross margins at 61.3% and EBITDA margin at 20.8% in this quarter under the constraints. Let me take you through the performance highlights across key specific markets. The U.S. market. We continue to ramp up our U.S. business with a 8% quarter-on-quarter growth to USD 54 million in Q2 FY '21. Our U.S. front end, as you all know, U.S. comprises of partnered business, which is the B2B and the front end, which is B2C. The U.S. front end grew 25% year-on-year for the quarter and contributes 85% of the total U.S. revenues. Market share for key products continues to be steady and new launches gaining traction. Performance was muted as select products went out of stock during the quarter, and we had subdued demand for few products due to COVID. We've witnessed price erosion for the first time in very select base products. However, we had significant market share gains from key products that helped mitigate this erosion. Current portfolio build-out is well diversified with a market of market-leading products to deliver sustainable growth. We received 8 ANDA approvals. We filed 3 ANDAs in H1 and expect to file over 8 ANDAs in second half of this fiscal year. Coming to the other regulated markets, the other regulated markets reported revenues of $32 million in Q2, representing 30% of our Q2 FY '21 consolidated revenues. The revenues for the first half, H1 of FY '21, stood at $67 million with a growth of 27% year-on-year. Temporary softness in U.K. and certain European markets, along with COVID-related plant shutdowns, led to lower order fulfillment for specific products in the other reg markets during the quarter. Supply to Arrotex in Australia were impacted due to the shutdown of our dedicated plant for a prolonged period during the quarter, and we expect to bounce back strongly in H2 during the second half of this year. We do have a strong order book visibility, and that will continue to drive future growth. We continue investments in R&D to enrich the portfolio. We have filed 8 new products and expect to file 10-plus products in the second half for the other regulated markets. In line with our previous commentary, Stride-related market strategy is playing out to plan. Over the years, we have successfully built a diversified regulated market business. The overall regulated markets showed a 15% growth in H1 FY '21 at INR 12,777 million versus H1 of FY '20 and 20% growth versus H2 of FY '20. We expect to deliver sustainable growth as we unfold a large pipeline of products with market fungibility across our business. Coming to emerging markets. Our emerging markets reported a strong performance, with revenues at INR 1,538 million in Q2 FY '21 and INR 3,041 million in H1 of FY '21, a growth of 34% year-over-year. The Africa business grew 21% quarter-on-quarter with healthy primary and secondary sales. While the first half of this year, the H1 FY '21, has seen a strong comeback for Africa, we are witnessing softness in certain therapeutic segments due to lower prescription rates in some markets. The institutional business delivered a steady quarterly performance. Country-specific registrations for the key product, which is Tenofovir, Lamivudine and Dolutegravir, TLD, is on track, and the product will be commercialized during second half of FY '21. As indicated earlier, although Q2 has been impacted by COVID-related headwinds, we expect a rebound in H2 FY '21, and our manufacturing has returned back to normalcy, with a significant reduction in the number of cases across our sites. I would like to reiterate our focus on people-first approach, continuity in operations and supply chain, continued engagement with our customers and conservation of cash. With this, let me pass on the phone to Badree to update you on the financials.
Good evening, ladies and gentlemen. So profitability, efficiency and growth has been the 3 pillars on which the entire Strides has built for the last 3, 4 quarters. So we displayed consistency across all parameters. The profitability and efficiency has been quite good. The growth will definitely come in the H2. The gross margins have been very stable at 61.4%. We have told externally that we will maintain the gross margins of 60% whereby as of Q2, we have done about 61.4%. EBITDA margins, we have done about 20.8% for the quarter 2 and 20.4% on a half year basis, 70 basis points expansion over previous quarter. The manpower costs have slightly increased mainly because of our [ LEP ] hikes and also COVID-related insurance cost. We expect to be in the same percentage range. Operating costs are very stable. We had a reasonably good quarter in terms of cost management. And our R&D cost is about INR 280 million for the quarter. And together, on a first half, we spent about INR 530 million. Depreciation and interest on a half year basis is at a consistent trend. ETR at 6%. We have guided the market that we will be between the range of 10% to 12%. We expect to maintain the same outlook of 10% to 12%. Another pleasing aspect of this quarter is that we generated an operating cash of 2,694 million. We had payouts because of ranitidine returns to the tune of INR 1,200 million. To reiterate, we generated 2,694 million cash on an EBITDA of INR 3,250 million as of H1. And we also spent about INR 1,170 million because on CapEx, mainly on maintenance CapEx as well as we also completed most of our expansion plans in West Palm Beach. And we also invested INR 1,653 million, that is INR 165 crores in Biotech. We have said that we will invest 240 million over a period of 18 months. We have completed 31 million as of this date. The debt is very comfortable at INR 13 billion. We had guided the market that it will be between INR 2 billion to INR 2.2 billion. We are at INR 2 billion as of Q2. And I'd also like to draw your attention to 2 important points from the SEBI results perspective. In Q2 FY '19, on a comparable basis, we had a write-back of some of the obligations, which are not required to the tune of INR 1,063 million. And if you see the comparable quarter, the investors have to take this into consideration to compare the numbers accordingly. And in Q1 FY '20, we had an exceptional gain of INR 414 million because of exchange rates impact on -- positive exchange rate impacts on USD, Australian dollar on the receivables on Arrotex. And broadly, the currency has stabilized at this point of time, and we don't expect any major movements from the current levels. So with this, I'll pass it on to Arun to make some -- give some updates on Biotech and the injectable business.
Thank you, Badree. It's been a good quarter for the new businesses that we are heavily invested in, in terms of outcomes. So from a manufacturing standpoint, 4 of our 5 manufacturing suits are now fully commercial, validated and available for business. From the IP standpoint, our first BioSim, which is PTH, has been accepted for review in Europe. As guided, it was filed in September, and we are now in the review process. So that's -- and we have -- we're obviously hoping for a good outcome here. We will -- we've moved our Glargine dosing by a month mainly because of availability of patient pool for dosing, but that's now been resolved post COVID. And then we have our pre-IND meetings for both PTH and for Glargine scheduled for this quarter. So we are chugging along on that front. As far as our vaccines project is concerned, we are building this block in record speed. We are on schedule to go on stream January 2021. Just to be clear that the last time we mentioned 60 million vial, which is effectively 500 million -- approximately 500 million doses of liquid vaccines and 300 million of lifelines vaccines just for better clarity, we moved that to doses. We are in discussions with global companies to partner to develop vaccines, but we are obviously very selective about that partnership, and we're waiting for the right partner who's already at an advanced stage of having completed Phase I before we take in those licensing. But I think during this quarter, we will have news flow around that. Now with that, I'm now opening the house for any questions, and all of us are here to address them.
[Operator Instructions] The first question is from the line of Alankar Garude from Macquarie.
Arun, Anan, Badree and the entire team, I hope all of you are safe and in good health. My first question is, if you look at our guidance of $240 million to $250 million for U.S. FY '21, so that implies a quarterly run rate of about $70-odd million. And you had mentioned about the VA program starting to contribute from the second half and which broadly, in my view, would be about $10-odd million. So apart from the VA program, if you could help me understand what are the factors which will drive such a sharp improvement over the Q2 level?
Thank you. I'll take the question. So yes, at the beginning of the year, we had guided towards the range that you mentioned, the USD 230 million to USD 240 million range in the U.S. business. But we also, clearly, as we went through in Q1, did indicate that we were cautiously optimistic with some of the impacts that were coming from the COVID with softness in the market. And at that point, we really did not know how much of impact we would have in our manufacturing facilities. Given some of these situations, are we on the trajectory for growth? The answer is yes. Would we be able to be in the $230 million to $240 million? Probably not. It might be slightly around the $230 million region. So that certainly would have an impact, for sure. But our opportunity with the new products gaining traction continues. Our ability to gain market share continues, and we certainly seem poised for the rebound in H2 to be able to get us closer to that.
Understood, sir. And maybe just a follow-up to that. Even for $230 million, so apart from VA program, if you could just help us help kind of break that growth down in the second half?
Yes. So it is -- one is the market share from our base product. Some of our base products, we've had an advantage where some of our competitors have had disruptions, and we've gained market share. So that's one that will continue to play out during H2. We've seen that during this quarter. That will, of course, come into impact in H2. That's one. Second is the new products that we had launched earlier, that continues to keep building on the momentum. That's the second dimension. And to the point that you mentioned on the VAs, yes, it was -- some of that was to play out in H2, which we still believe will play out in H2. So it's a combination of all the 3 that will help us progress towards that direction.
Understood. And my second question, sir, you mentioned about fungibility of portfolio in your opening remarks. Now barring this COVID-19 disruption in the second quarter, where are we currently in terms of progress towards maximization of our U.S. and Australian portfolios in the other regulated markets?
Yes. So we continue to progress on the portfolio maximization. As I said, our R&D focus on filings in the other regulated markets is on an increased level, number one. Number two, we've picked up the filing momentum, as we indicated. As I indicated just in my commentary just now, we've already had about 8-plus products filed, and we are going to file another -- sorry, 8 products filed in H1, and we are going to file another 10-plus products in the other regulated markets. Now all of these are coming in through maximization of the portfolio that we have with the IP from the Australia market.
And any ballpark number which you can provide as to how much of this maximization we have achieved 'til now? And how much can play out over the next few years?
We have significant leeway to do on filings in the other reg markets. So there's still a lot of headroom for filing. We will continue to focus on increasing our filings for the other reg market. If you recollect our commentary in the past, we've said that the investment that we needed to do to file for the U.S., we are almost coming towards the end of that investment cycle. And all the investments in the R&D are oriented towards the other reg markets. So there is a lot of headroom still for leverage of that portfolio, and we'll continue to focus on that. I can't give a very specific on how much percentage, but yes, there is a significant number of filings that will continue to happen through the second half of this year but also into next year and so on.
We'll move on to the next question that is from the line of Nitin Agarwal from IDFC securities.
On the TLD opportunity, 2 things, one is how competitive are we are on the products? And what kind of opportunity and what kind of market -- addressable market size will we -- will we be participating in on this opportunity?
Yes. So let me answer that in 2 parts. One is the TLD opportunity that we have currently now is with the WHO PQ approval that we have received part one. And because of the WHO PQ approval, we are now already filed dossiers for approval in countries that have WHO collaborative procedures for approval as well as in countries in Africa that follow the NMRA, National Medicines Regulatory Agency (sic) [ National Medicines Regulatory Authority ] procedures, which is individual countries that will need to file and all of this have been done. We expect the approvals to keep coming during November and December, and we should keep getting those. And therefore, it enables us to participate specific to all the opportunities that come through the global funds into these countries. The second part of the TLD products is the PEPFAR-related area, and that is an area where we are looking to file. The work has progressed significantly. We will be filing pretty soon. And once that is done, then we'll also have the opportunity to participate in the PEPFAR-related contracts. So the opportunity that will start off in H2 will continue through into the next year as well as all of these approvals come in place.
And Anan between the 2, what is actually size addressable market for us to participate now it has been in [ Rosen ]?
The addressable market from the WHO approval perspective is close to around about $200 million to $300 million. That is the overall addressable market, and the PEPFAR market is another -- actually it's another $200 million, $300 million market.
And we should be able to get some fair share of this $400 million or $500 opportunity over a period of time?
We will work to get some fair share of that market.
And secondly, on file in [indiscernible], any update on that?
So FDA has accepted the file. We did receive an acceptance of the file, which is a positive news. They did come back with a very initial information request, which is a minor clarification on one of the sections, which has also since been provided. So it's under FDA review. The fact that one is acceptance, plus the second receiving an information request, gives us a very positive signal that FDA has already started their review.
Okay. And lastly, I don't know, on -- when we look at -- you mentioned Stelis Bio -- the Stelis business and Stelis Bio businesses, I mean, how should -- if you take a 2-, 3-year view of these businesses, I mean, what should one look at -- look out for at a very high level in terms of the value-creating opportunities in these businesses? And in the near term, what sort of time will we see drag on the consolidated financials once they start to get consolidated?
So we -- if you look at the business, it has got a CDMO part of the business, which includes biologicals. We have now started onboarding customers and validation work is happening. COVID is not supporting customer audits and stuff like that. But in spite of that, we have started onboarding customers. We expect from a manufacturing recovery, that should be in line for next year. We expect SteriScience to file approximately 15 ANDAs in the next financial year. There's a lot of work that's already happening, including the first filing from SteriScience for a proprietary injectable in a device within this financial year, and we expect approval flows to happen in 9 to 10 months. And of course, we have already filed our meropenem dossier. We expect an approval by May of next year in Europe and then with the BCP process. So by second half of next year, I like to believe that we should be aiming at an operational breakeven in the combined SteriScience and Stelis business.
Right. That's helpful. And lastly, Anand, did we get any opportunities in our portfolio, I mean, I guess, to participate in any of the COVID treatment options in any meaningful way? Does that mean essentially one tailwind that most companies have enjoyed over the last 6 months or so?
So I won't say very specific to COVID treatment, but there have been products that have been used in symptomatic treatments from some of the products in our portfolio. And obviously, some of those products, we see some pull in those, but we don't have anything which is very specific to.
So Nitin, I think, is specifically referring to Fabi, which we announced first off the block amongst Indian companies. We do not sell in India, as you know. I must tell you that we have also become now the first company to have successfully completed a bioequivalent study to the innovator, and we are very focused on being able to sell the product at the right price point and in the right -- in the regulated manner. I'm not suggesting what is sold in India is not. It's just that we do not have the infrastructure and capability to sell in India. We are not set up for that, and we just want some more clinical evidence to emerge. There's a lot of work happening. I think you will see some news flow around on that. Give us a couple of weeks, and then we'll come back to you on that.
The next question is from the line of Anmol Ganjoo from JM Financial.
My first question is to Badree. Badree, the Ranitidine recall, the charge of $16 million, we've seen an impact on that on cash flows. Where in P&L is that accounted for? What is the P&L vision of that?
It has been taken in Q4. We had accrued for $21 million in Q4 for a recall plus the returns in Q4 results getting paid in the current quarter.
Okay, that's helpful. So given that the withdrawal of export incentives, so the impact of that for the full year? Any impact you see on the gross margin for the recall in the next year? Any thoughts on that? And what we are budgeting? And what's the incremental impact on that one?
Yes. So in the first half, we didn't have much of an impact. But a yearly impact is about $6 million. So the half yearly impact will be about $3 million. That will definitely reflect in cost line.
And we would have mitigants to that by the way of process improvements, product mix, et cetera, or do you think that this...
Yes. Work going on on that.
Okay. Okay. That's helpful. Second question is on the U.S. Dr. Anand. Dr. Anand, you did talk about feeling pricing pressures. Is this pricing pressure that you were alluding to broad-based or it is limited to some specific products where we could see some kind of a turnaround going forward? Or...
Yes.
Can you just give more color on pricing pressure after many quarters, a comment of yours?
Sure. Sure, Anmol. So as I said, this was pretty much the first time we've really seen a pricing challenge or pricing pressure coming into us. It was certainly in a couple of our base products. We didn't see it all across. We did see it in a couple of our base products. Having said that, we had pretty good market share gains in some of our other key products that have been able to -- we have been able to take advantage of to overcome the pricing pressures that we have. The reason we are bringing it is that this was really the first time that we've seen in any of our products. So this certainly was a new one for us.
And just a follow-up on this. So basically, we did around $54 million, which will kind of adjust for ranitidine, which is still all in growth. Do you expect this to pull for the rest of the year? I know you alluded to $220 million, $230 million kind of a number. But on a sustainable basis, is U.S. now and it's going to -- consistently doing in the neighborhood of around a $60 million revenue run rate?
Yes. We -- so we will certainly be showing -- we will be able to show sequential growth in the U.S. business. We are certainly confident of coming back, as I said, in H2 and demonstrating that. Certainly, we should get to an exit run rate that should be able to give confidence of getting towards the guidance that we had set and then further grow beyond that into the quarter 1 of next year.
So Anmol just to add to Anand. Arun here. What one needs to appreciate is that in spite of ranitidine, like you correctly alluded, we've been growing quarter-on-quarter on our front-end business, and that's been reflected even in the last 2 quarters post ranitidine. We have a very measured way of introducing products in the market. We haven't changed that. It's reflected in the gross margins that we continue to deliver in spite of ranitidine being one of our largest margin product. So that's very important to understand and appreciate in our model. This is a slow and steady climb Q-on-Q, but what we do is sustainable. And there are no one-offs in what we present in the U.S. numbers.
And just to remind, as I said in my commentary earlier, the front end grew by 25% year-on-year for the quarter. So that's something to keep in mind as well.
That's helpful. My second question is to both Arun and Dr. Anand. So when I look at the amount of COVID impact for the quarter, 400 out of 3,000 employees in factories and that, it's fairly widespread disruption. I'm assuming. So congratulations for navigating that well. But a natural follow-through of that would be that there will be a lot of pent-up opportunities for which there should be a spillover in the next quarter or at least H2. So if you could just directionally quantify what is it that -- of the business, which has permanently lost as a consequence of fairly widespread COVID impact in the organization? What of that is permanently lost or what could potentially come back because a lot of that is manufacturing disruption in the reg markets. So that would be helpful. Because I think it's fair to assume that some of the business won't just go away.
So Anmol, to answer your question, no business or no business lines or customers have been lost. What has happened or what could have happened or what may happen is that we will incur some incremental costs, which we probably have already done in the last quarter. [indiscernible] land and subsea, the same goes for air to maintain a high level of customer efficacy. So this -- there is really no loss, permanent loss of any business that has occurred. It's a catch-up that we have to do. And now that our plants are back to normalcy, we are very confident that H2 will start reflecting those actions that are already we are seeing witnessing in our manufacturing operations. So we do not do any spot businesses as a company. Ours are all long-term contracts based on very measured approval strategies, launch strategies, and we do not do any opportunistic business.
That's helpful. Now moving on to the Biotech part of the equation. So we have now a INR 30 crores loss here. I know you alluded to some numbers in terms of what our overall investment is going to be. But what is it that's the monitorable that we should be looking at in terms of this, assuming the critical size that we would have been excited about for some time? So are there any key points that you'd want us to monitor and which it could be around in any recent time frame, any advice?
See, Anmol, you must appreciate that the Biotech business is a high CapEx and extremely long gestation business. We are in the cusp of having completed that cycle. So the heavy lifting, the investment phase, we have taken all that hit, right? We are now commercial in 4 of our 5 suites. We are onboarding customers. This is a small operating cost structure, but a high CapEx structure. So it's very light on OpEx, it's very high on CapEx. We have completed the CapEx cycle. So as soon as -- you'll probably see OpEx leverage. This is a business where gross margins are significantly higher than what the company does today. And the line items on OpEx is very low. So the EBITDA margins are significantly higher, as is the case for most other companies. I think they are about 15, 16 months away before you can see the hockey stick situation in this vertical. And that's mainly to do with the work that we are doing in Stelis clients. Because that's the injectable business that will create quicker outcomes because the cycle time for approval. Programs like PTH, there are only -- there's only one generic player in an $800 million product. So all of that adds to this confidence that this is a business that will play out to plan. It's taking a lot more time than what one would like to see, but that's what -- that's the nature of this business. It is a 7- to 10-year investment if you are a pure-play regulated player. We do not have so much of an emerging market strategy, as you will know. So our products developed are for global standards. It takes time to develop products. Clinical studies are a little more complex, more expensive, and we are not capitalizing. And that's why you see the losses. But I think an operating breakeven should happen fairly quick, followed by an EPS accretion in that 15- to 18-month time line.
We'll move on to the next question that is from the line of Vinay Bafna from ICICI Securities.
I have a couple of questions. So firstly, on the Puducherry plant. So I understand that the -- the regulatory inspection from FDA. And I think earlier, you had mentioned that about 4 to 5 critical products are fired from this plant. As we've not seen any sign from USFDA for any reinspection, there's a possibility that a clearance for the warning letter on this plant may take some time. So how long before these products lose viability or the criticality in their nature?
I think you weren't probably very clear so for Anand's benefit, I'm going to address your question. Puducherry has got only one critical product that is material. Everything else is not so important, and we have otherwise found another house -- home for it. And so we are not so much concerned about it. The one product that is very critical, continues to be in a CGT category in the FDA for the last 5 years, 4 years, so whenever CGT started. We have a few queries that the FDA has asked us to do. We are continuing to do that work. So that means we are engaged with the agency. We are hopeful that the recently received closure of inspection from Europe for the site after the FDA events would be a document that we could provide to the FDA. FDA has asked us to give us more information around that, which we have and which we will provide as a supportive. And to see if we can try and get an approval quicker. But outside of that one product, nothing is material or that has already not been mitigated. If you recall when the warning letter was issued, we did mention that we would take those products to other sites. Anything which is material will be taken to other sites, which is what we have done.
All right. Another question that I have is on the sales part. So I understand that we are on -- we're going to commercialize the vaccine part of the business sometime in Jan '21, and we have a target about making a breakeven in FY '22. How important is the whole vaccine portfolio or the vaccine manufacturing unit to perform with mid-COVID for that that breakeven? I mean, how critical is that?
It is not. So just like I mentioned to you that the vaccine -- my indicative time lines that I mentioned today were the same that were mentioned even before we decided to set up the vaccine line. So the vaccine, it potentially just accelerates that time line or creates a different opportunity. Also for clarity, we have never said that we will be manufacturing vaccines by January. We said our cycle will be ready. We are working with partners. It's a function of getting the right partner. It's a function of the partner getting the right clinical outcomes on a COVID product. So before we get super excited that we have 500 million doses, and we can potentially produce $1 billion worth of vaccines. I think we should just be realistic that the vaccine block is designed in such a manner that it can produce vaccines, biologicals or other injectables, and we do not make certain types of vaccines like live vaccines or mnRA vaccines for this particular reason. So I would like to believe that this gives us an additional opportunity, but this is not the pivot for that platform.
That's very helpful, sir. Just a one clarification. So on meropenem, you said that you're going to file it in May, and then we are expecting approval no later or the approval is expected in May?
I said the meropenem dossier has been filed in Europe, and we expect approvals to come in from May.
We'll move on to the next question is from the line of Bhaskar Bukrediwala from ASK Investment.
Good set of numbers. Congrats for that. Just wanted to understand a couple of things on the U.S. portfolio. What is the price erosion, if at all, we are seeing on the portfolio as of now? And in terms of our existing products, what sort of growth are we seeing? And therefore, as a combination of price erosions, plus the growth into our products, existing products, what is the sort of growth visibility that we have?
So as it relates to erosion specific to products, we don't source those. You'll appreciate we can't get into those granular details. In terms of growth, we've said that some of our critical products have had a jump up in market share. And the jump up has been pretty significant. And that is going to help us to continue in our growth trajectory to get the overall business growth that we said. We talked about the U.S. and the other regulated market, put together the regulated markets growing at 20%. So the market share gains will help us in that trajectory.
Okay. So broadly understand. I understand that we will not like to talk about specific price erosion. But broadly in the U.S. market, as the price erosion largely comes down, would it be more in the range of 3% to 5%?
I think you should take this in the spirit of our communication, open communication. We have been consistently saying in the last 12 quarters that we have no price erosions as a statement of fact. In this quarter, we have seen, for the first time, price erosions on a few programs, 2 products, 2 or 3 products. Having said that, then there is no erosion on gross margins and there has been growth. You will understand that there has been price opportunities or increased market share that have also occurred. So it's a combination. We are just making a statement because we provide a lot of granularity around price erosion because if you have checked symphony for the last 12 quarters, you would not see any price erosion from us. And if you check now, you will see. So that's the reason why we've been upfront with this information. But that doesn't mean that the business is at risk or the growth is at risk. It's contrary. We are saying that in spite of that, we have maintained our margins, and we have increased our growth.
We'll move on to the next question that is from the line of Tushar Manudhane from Motilal Oswal.
Just on this, given that the number of employees that got impacted by COVID. So you have spent some amount of one-off for that kind of a…
Sir, there's a lot of disturbance from your line.
Am I audible now?
Sir, there's background disturbance from your line.
Am I audible?
It is not clear, but you're audible.
Just would like to understand, given the number of employees that got impacted by COVID. So was there any one-off incremental expense associated with that in this quarter or we'll have it in the coming quarters?
Yes. So we had -- we have taken insurance for pool for employees. It's somewhat overall in the Q, in the H1 results, it's about 2 million. So.
Got it. And just on the net debt number. So any guidance would you like to give by [indiscernible]?
We don't given any guidance but we'll be between the INR 2 billion to INR 2.2 billion range. So our net debt is at INR 13 billion and we hope to maintain that range.
We'll move onto the next question. That is from the line of Tushar Bohra from MK Ventures.
Sir, you mentioned a couple of times in the presentation as well as on the call, on product stock-outs or supply-related disruptions, which impacted your portfolio. Just want to understand if there was any penalty or any kind of payouts related to that? Or if you could quantify the total opportunity loss for us relates to these product stock-outs across markets?
So yes, we did have some very marginal impact on penalties, nothing very significant to report in it. But the major impact was on our inventory that we hold in market, and we've always been saying that's clearly been our strength for ability to turn around and complete and provide products to the market. So our inventory has got depleted quite a bit because, obviously, the manufacturing was interrupted. And in some products, we had a very limited number of products, we have stock-outs. But specific to penalties was very marginal.
And just a follow-up on that. We see about -- I think about INR 150 crores inventory rise in September over March. So we are saying that probably the inventory levels should have been much higher? Or has this just been recouped towards the end of the quarter?
So this is more accounting, and Badree will explain. Badree, do you want to take it up?
So there are 3 factors contributing to this. One is that there is an increase in the front-end inventory. We have to replenish the stocks, and we had to -- we had to give most -- more inventory at the front-end. So yes, we changed our norms. Second is in terms of consolidation of our German business, which we acquired in last year, we started consolidating from the current year on. That also contributed to the increase in the inventory. Plus, there have also been some increase in the manufacturing inventory just to fill in the stock.
Okay. Second, sir, we -- I suppose we are typically entering into the stronger part from a seasonality perspective, H2, also with the flu season being there. Sir, we've done about slightly more than 10% growth in H1 Y-o-Y. Plus Europe, we had this one-off in Q2. Should we expect then, therefore, even other regulated markets, along with your U.S., a much sharper Y-o-Y growth in H2 over the previous-year base?
We certainly expect the other end markets showing a better growth in H2, you're right. Clearly, our order books reflect that, plus our ability to get the supplies into Australia, which was impacted as well as the partner business in Europe, which was impacted, will all rebound back in H2. So the answer is yes.
Sir, one clarification on the -- on Stelis and SteriScience. So what Arun mentioned was that H2, sometime around this time, next year, we should break even operationally on the combined portfolio. Stelis plus SteriScience. But Stelis alone, the guidance was for Q4 FY '21 or maybe Q1 FY '22. That still holds for us?
No. It was not guided like that.
Okay. But then can we have some guidance, sir? Stelis alone, when do we see, let's say, the INR 30 crore loss this quarter on Stelis less CHC, when do we break even on this portfolio?
Stelis will take at least a year more to break even and that INR 30 crores to become 0. But what we are saying is that SteriScience will ensure that there would be a positive contribution.
Okay. And sir, one last, if I may, quickly. Potassium chloride, we had some recall in this quarter. I suppose that was a big product, although I don't know the size of site. But overall, it was, I think, about $200 million product. What is our guidance, sir, on that one? When should we be back in the market? And was there any impact because of that also for the quarter?
It's not a $200 million product. The one that you are referring to $200 million is the extended-release one. This is not the extended-release one. The product that we had was an isolated case. We had 2 batch recalls that we did was an isolated case of the specific batches in question, which we obviously recalled with RU, and we've got all the corrective actions in place. So we don't see any impact going forward.
Ladies and gentlemen, we'll be taking the last question. That is from the line of Alankar Garude from Macquarie.
So one question on the CGT product, which was under regulatory review. Any update on that?
So we continue to do the work that FDA has requested. FDA had asked for -- given us a deficiency that we needed to respond to. All the work that we need to do to respond is in progress. And as soon as we complete, we hope to respond back to the FDA and continue the review of that.
Any broad time line, sir, or how much time would it take?
It's a little early at this time because the work is an extended work that we need to do because it has some bioequivalence component into it. And therefore, it will take a little -- we can probably give a little bit more granularity maybe in a quarter or 2.
Understood. And secondly, sir, when do we expect consolidation of SteriScience and Stelis with Strides? I think last quarter, we had mentioned at least for Stelis fourth quarter or first quarter of FY '22?
We are still maintaining that.
Okay. Okay. And finally, how is the capacity utilization at our Singapore as well as the Florida facilities moved in the last 1 year? And so assuming we exclude this recent disruption, where do you expect it to be in the next maybe 6 to 12 months?
So Singapore facility is currently at about 50% utilization, and we expect with more of the product transfers that will happen, that will step up and go up. In terms of the West Palm Beach facility, we should start commercial product supplies beginning in -- towards the end, either in December or early January. We are waiting for the CB 30 grant from the FDA for product transfers that we have done for the first product. There are subsequently several other products that are in various stages of CB 30 filing. And so quarter 4, we will see revenues coming in from the West Palm Beach facility.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you very much, ladies and gentlemen, for joining us together on this call today. As we indicated earlier, despite the challenging quarter, steady performance, we are very pretty excited about the second half of the year and look forward to the rebound. We hope all of you and your loved ones stay safe and well, and we'll see you back during the next call. Thank you.
Thank you.