Strides Pharma Science Ltd

NSE:STAR

Earnings Call Transcript 2021-Q4

[Abhishek Singhal]

Good afternoon, and thank you for joining us today for Strides earnings call for fourth quarter and full year ended financial year 2021. Today, we have with us Arun, Founder and Non-Executive Chairman; Dr. Ananth, Managing Director and CEO; and Badree, ED and Finance -- ED Finance and Group 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. 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.

[Arun Kumar Pillai, Founder & Non]

Thank you, Abhishek. Good evening, everybody, and thanks for joining in what I know is a busy day of pharmaceutical companies reporting today. I do hope all of you are staying safe and your families are all in good health. We much appreciate our employees today as we complete a year of turbulent COVID phases, 2 waves, and we are just coming out of a very difficult phase second wave that has hit Bangalore and Karnataka quite severely. Having said that, people have -- our colleagues at Strides have worked extremely hard to ensure that the lights were on, on all the facilities. And yet, we were able to work most days. So before I start, I would like to acknowledge their roles and thank them for all their contributions. It has also been a sad few weeks for us as we lost a few colleagues which is unfortunate, and we're doing everything as a responsible corporate to take care of their interest -- of their family's interest and while also ensuring that we focus extensively on the quality of life of our employees. Our focus has been for the last several months, clearly, health over profits. And this has resulted in some adjustments in how we conduct our business at some cost. But I think these investments were necessary, and were the right thing for us to do as we are all engulfed in a very complicated situation. We work in a very ambiguous environment where several countries are getting out of COVID and here in India, we are getting into the mid -- we are in the midst of a very severe wave. And in all of these, we continue to be resilient with our business strategy. And I'm going to let my colleague Ananth speak more about what we have achieved in the last year in what is otherwise a very difficult year. We still have shining lights in terms of the pivots that we have built to take this business to the next level. So over to Ananth, and I will spend a lot of time today for those who would have questions on Stelis as I continue to spend more time in that business at the appropriate -- whenever those questions are asked. Thank you all. Be safe.

[R. Ananthanarayanan, CEO, MD & Director]

Thank you, Arun. Good afternoon, everyone. Again, I want to thank all of you for joining today's conference call and I hope all of you and your families remain safe in the current COVID wave. As Arun mentioned, the FY '21 has really been a tough year with COVID posting significant challenges all through the year. COVID certainly has had a significant impact on our people and our business, too. We are grateful to all our employees and their families for their dedication and commitment to serving patients during the pandemic. Again, as Arun mentioned earlier, we are deeply saddened by the loss of few of our colleagues in the second wave of the pandemic. We continue to pursue a people first approach with safety and well-being of our employees being our top priority. We've taken several initiatives to support our workforce through these challenging times, including providing financial support to secure honorable living for families of deceased employees due to COVID, we've also introduced free vaccination programs for all of our employees and their families and an expanded insurance coverage for COVID over and above the regular medical insurance offered by the company. We provide full medical assistance for the impacted employees and their families, including hospital admissions, support for oxygen cylinders, doctor consultations and have set up a 24/7 COVID helpline, assisting our employees with medications and counseling. COVID has also posed several challenges for our business in FY '21. We witnessed lower footfalls at pharmacies, lower surgeries in the hospitals throughout the year, leading to lower prescription rates, specifically in U.S., U.K. and Europe. While we saw weak demand for certain products in the acute portfolio, the winter portfolio was a complete washout in FY '21 due to the absence of the flu season. Our priority for superior customer advocacy is enabled to focus on building in-market safety stocks and supply chain efficiencies, and this has been the hallmark of a very low historical failure to supply. The disruptions in manufacturing operations during the first wave has significantly depleted our safety stocks on many key products. This necessitated us to increase air-shipments in the second half of the year to minimize FTS and maintain customer advocacy despite very high freight rates. FY '21 also saw significant cost increases attributable to manufacturing disruptions and cost escalations with the logistics cost increasing by about INR 80 crores and the FTS increasing by almost INR 49 crores year-on-year. While virtual inspections have been completed by other regulatory bodies, our warning letter position at Pondicherry continues to remain unresolved as we await resumption of travel by USFDA for reinspection. The current COVID situation does have short-term implications for the business, and we have reviewed our approach from a future perspective. While the COVID first wave saw disruptions in operations and cost escalations, the severity of the second wave in addition has had a significant impact on our employees and their families. In the near term, the operating environment continues to be challenging, ambiguous and uncertain as we continue to adopt the People First approach to tide through this pandemic. We believe that the resilience within the organization and the strength of our product portfolio will help us pass-through these turbulent times. With the near term uncertainty, we have refocused to achieve our longer-term objectives with the 3-year horizon. With a more focused approach and a sharper execution, we will continue to deliver a strong revenue and profitability CAGR with superior cash flows and ROCE over the next 3 years. We are also creating a basket of products, and we'll launch them shortly in the India market to aid COVID treatment and supportive care with the launch of LiposomalAmphotericin B that we announced earlier today being the first one. Also the validation batches of the Sputnik vaccine have commenced in late May from our newly commissioned Stelis facility, with a large-scale facility being on track. We expect to be in the market with the product, as previously announced by October. Coming to our performance for FY '21. We believe we have delivered a healthy performance across all businesses amidst a tough operating environment. Our regulated market business has seen a significant ramp-up in FY '21, growing at 21% year-on-year in line with the outlook of 20% to 22% that we had provided during the year. Our emerging market business witnessed a bounce back in FY '21, albeit on a lower base. We have reported a strong financial performance during the year with a 29% revenue growth to INR 33,308 million, while our EBITDA grew 67% year-on-year to INR 6,497 million. The EBITDA margins for the year was at 19.5%, expanding 450 basis points year-on-year despite a significant cost increase INR 1,293 million from logistics and the failure to supply, largely owing due to COVID-19 related disruptions. The quarter 4 in FY ' 21 revenue was at INR 9,115 million, up 47% year-on-year, and the EBITDA was at INR 1,602 million, up 136% year-on-year. The Q4 FY '21 EBITDA was impacted by significantly higher logistics cost. Increase of about INR 256 million quarter-on-quarter and INR 407 million year-on-year due to the COVID-related disruptions, leading to higher air shipments and higher freight costs. Let me now take you through the performance highlights across key markets, starting with the U.S. We continue to ramp up our U.S. business during the quarter 4, growing 46% year-on-year and 10% quarter-on-quarter to USD 58 million. This was despite headwinds during the quarter, leading to tepid footfalls at pharmacies and hospitals. The revenue for the full year in the U.S. was at USD 215 million, up 17% year-on-year. Our base molecules continue to witness healthy traction, new product launches and the VA business have further bolstered our growth momentum for the U.S. business, offsetting price erosion impact that we have faced in the portfolio. As I said earlier, the winter portfolio was impacted as there was no flu season in the U.S. We continue to invest in our R&D engine, and since April 20 have filed 11 ANDAs and received approval for 16 ANDAs in the U.S. We had the opportunity to launch 6 products in the financial year '21. Moving to the other regulated markets. We have delivered a strong performance across our other regulated markets in FY '21. Full year revenue from other regulated markets was USD 144 million, up 28% year-on-year, led by portfolio expansion and strengthening of print and presence. We continue to ramp up our supplies to Arrotex in Australia, driven by increased volumes and expansion of product offerings. Our performance in the quarter 4 was temporarily impacted due to decline in the retail prescription for prescription and OTC products and weak hospital demand owing to the second wave of COVID in U.K. and Europe. We believe a healthy order book and planned portfolio expansion will drive our growth going forward. We continue to expand our product portfolio for our other regulated markets and have filed 18 new products during the year and received approval for 16 new products. Long-term outlook for this business continues to be robust. This business will continue to benefit from portfolio maximization and better penetration of the front-end markets. To summarize, overall, our regulated market, which now constitutes 80% of our revenues, has grown 21% year-on-year in FY '21 to USD 359 million, in line with the outlook for the year at 20% to 22% growth. The U.S. now contributes 60% of the regulated market business, and the other markets have now gained critical scale, contributing 40% of the regulated markets revenue. Our emerging market business has seen a bounce back with revenues for the full year at USD 90 million. The business has benefited from the launch of TLD, the Tenofovir, Lamivudine, Dolutegravir and the Africa business returning to growth in FY '21 on a smaller base. While in the near term, we are witnessing operational challenges moving to a rampant second wave of COVID in India. We believe we have all the strategic pivots in place to continue on our growth momentum and deliver strong financial outcomes for our stakeholders over the next 3 years. With this, let me pass on the line to Badree to update you on the financial aspects.

[Badree Komandur]

Good evening, ladies and gentlemen. So profitability, efficiency and growth have been the pillars on which the company has been focusing for the last 3 years. We saw all-round growth across all parameters of performance. If you see the revenues, revenues grew at 21%, gross margin at 22% and EBITDA at 23% and PAT at 34%. All parameters of performance, we saw growth. Robust cash flow generation helped us to maintain the debt at about INR 12.8 billion. Regulated markets on track, in line with the growth that has been given in Q2, between 20% to 22%, we ended at 21%. Gross margins maintained at 60%, despite a lot of headwinds as well as the withdrawal of MEIS scheme. Interest and depreciation are at a very consistent range through the year, showing a better financial leverage. Superior ETR performance, effective tax rate was well within the external guidance of 10% to 12%, and EBITDA to PAT conversion was also very healthy. Reduced pharma debt also due to superior cash flow management, which we had. We had an excellent operating cash flow generation during the year, and we also had a healthy return on capital employed into 12.6% in terms of pharma business, and it grew almost by 20% from last year. And from a balance sheet standpoint, we also reduced contingent liabilities by INR 15 billion. We also received credit rating upgrade during the year. And in H2, we also consciously maintained higher level of inventories to avoid out of stock situations or to have a better customer advocacy and also to cover any situations which can arise because of COVID. So these are the broad highlights. Overall, good growth across all parameters. And with that, I'll pass it on to Abhishek to take it further.

[Abhishek Singhal]

Nirav, can we take the questions, please?

[Operator]

[Operator Instructions] The first question is from the line of Alankar Garude from Macquarie.

[Alankar Garude, Analyst]

Sir, my first question is, since the last 2, 3 quarters now, we have seen price erosion for some of our products. What are the factors driving this erosion? And is it possible to quantify the impact? And when is the situation likely to stabilize?

[R. Ananthanarayanan, CEO, MD & Director]

So yes, we have been seeing price erosions, as we indicated during our quarter 3 -- quarter 2, quarter 3 earnings call as well. And we are seeing in some of our products now significant price erosions that have been happening. Combination of the fact that with probably lower number of approvals coming, many players are now going back to the older product portfolios, and getting in to launch some of those products, which, otherwise, they wouldn't have been interested in. And I think with more number of players, that is what is causing the disruption in the market. Difficult to quantify exactly, but we've seen significant erosions.

[Alankar Garude, Analyst]

Okay. And any idea, sir, when is the situation likely to stabilize and even sequentially, is it better now versus what it was, say, in Q2 or Q3?

[R. Ananthanarayanan, CEO, MD & Director]

So the erosions have continued. We did witness some strong erosions in Q4 as well. However, what we've been able to do is there are products in our portfolio that we've been able to gain some market share and been able to do well because of the fact that we have some uniqueness in the products there, and those products have been able to offset some of the erosions. It's going to be difficult to say when it is going to stabilize in the short term, we do expect some of these to continue.

[Alankar Garude, Analyst]

Ananth, sir, one follow-up on U.S. So how should we look at growth once we move closer to that $90 million to $100 million quarterly run rate, say, maybe in the next 2 to 3 years. Because we had outlined the plan in our analyst meet about 1.5 years back, which included growth from private label, consumer health, specialty and injectables. So does that still hold? And would we be looking at outsourcing R&D in a meaningful way to drive this growth?

[R. Ananthanarayanan, CEO, MD & Director]

So we are using a number of approaches. As we said, we have given the COVID scenario and given the challenges and ambiguity, we have, of course, reviewed back to focus on our next 3-year outlook. And clearly, those are important dimension for us as I've said in my just prior commentary as well, and therefore, we are looking at ensuring that our objectives and pivots for the next 3 years continue to remain in place. We are looking at building and continuing to build on differentiated products into the portfolio and using that as levers for growth. Now obviously, as you would appreciate, what we said 1.5 years back, has had an impact through the course of this year and therefore, the time lines have certainly got shifted, but our focus and our effort on continuing to use our robust portfolio remains in place, and we clearly believe that, that will help us tide over this current scenario.

[Alankar Garude, Analyst]

Fair enough. And my last question is, so we have a contract with RDI for 200 million doses, but our capacity is at least 500 million. And you have mentioned about being in touch with other vaccine developers. Any broad time lines which you can share when it comes to signing further deals?

[Arun Kumar Pillai, Founder & Non]

Alankar, hi, this is Arun. 200 million doses of the Sputnik is 400 million jabs because its a 2 jab component. So we're almost fully sold out on capacity.

[Alankar Garude, Analyst]

Understood. So no further deals likely, at least not meaningful, right?

[Arun Kumar Pillai, Founder & Non]

We continue to focus on different types of vaccines. And we're building in Stelis capabilities around all kinds of actions, including mRNA and DNA vaccines and also the peptide based vaccines. So what can I say, watch the space.

[Operator]

[Operator Instructions] The next question is from the line of Anmol from JM Financial.

[Anmol Ganjoo, Director]

So just a couple of follow-ups on what got discussed earlier. So the U.S. run rate, at least from a top line perspective in the context of pricing erosion, this quarter has been rather good. Just trying to understand that while time lines have shifted, you did speak about $60 million, $58-odd million, hitting $90 million, $95 million mark. But what are some of the monitorables externally that we should be watching to make sure that we are on track and what's the gap between where we are versus where we aspirationally want to be in 2, 3 years? And so if you look at the current exit run rate, we are around $240 million. There is still $140 million gap versus where we want to be in the medium term. And what's going to be the drivers of that, given that pricing pressure in the U.S. seems to be uncertain. Any thoughts around that? And what should we be watching to make sure that we are on the trajectory, even though delayed?

[R. Ananthanarayanan, CEO, MD & Director]

Sure. So one, certainly, a major pivot for us is our portfolio, and we continue to build on our strong portfolio. Our R&D engine continues to crank up products and to continue to file. So portfolio is certainly continuing to be our focus area, and that will certainly help us in the part of moving towards achieving our results. The reason we've said about -- so there are -- what happens from an external factor. There are 2 or 3 elements, right? One is clearly, the ambiquity coming in with the COVID wave impacting. And obviously, as you would appreciate, that when it does impact like the COVID wave 2, then we do have impact of people. We need to put people first. There are disruptions in manufacturing and so on and so forth. And therefore, in the short term, that does create some challenge and pressure in the system, number one. Number two is we still haven't seen U.S. come back to pre-COVID days on the volume pickup because of prescription rates and the surgeries. We hope now with the vaccination drive going up in the U.S. that hopefully, some of those scenarios should start coming in. The third dimension across is that, as I mentioned in my commentary, our customer advocacy, which is a focus on and highest priority for us have been on the basis of having key product inventories and safety stock in the U.S. With the disruptions, we have had an impact on those safety stock levels. And hence, to be able to get that back to track, we have had to do air-shipments, we have had to do -- move from -- take slots what those are available, and that has caused us a significant increased cost as well. So coupled with price erosions, increased costs, some of that have had an impact in the U.S. However, from a positive note, our portfolio continues to be able to play out. And therefore, in the mid to long term, that will continue to give us the benefit that we had laid out in the past for the growth of the U.S. business, and we remain pretty confident about where the U.S. business will take us in that time horizon.

[Arun Kumar Pillai, Founder & Non]

And Anmol, Arun here. Just to give another context on that. And for the last 3 years prior to this our advocacy costs has been -- failure to supply was less than 0.5% of our sales. And if we took these efforts to incur such significant costs, it's only simply because we know this is a problem of the industry, but we wanted to stand out in the crowd, even when we had competition and price erosion. The best thing was to just let go of a product is to retain not only the market share of most of the products where there is price erosion, but also to ensure we retain the customer by ensuring that they've got the high level of service levels that they've got used to, although we ended up paying a lot more than what we'd have normally paid. So I think all of this will play out in our favor. And compared to the peers in the industry, we still see growth in our portfolio. And with improved products being launched, I'm very confident that U.S. will get to the guided numbers sooner than later.

[Anmol Ganjoo, Director]

Yes. I have another question. Obviously, you know that COVID has deeply impacted the way things are done and businesses have been disrupted. If I look at the real impact, I mean, the greater part of the impact should be in this quarter, right? While the reported quarter, we probably just said 15 days in the second wave. So if you just to quantify disruption in terms of what got reported today versus what's likely to happen next quarter? Any kind of directional guidance in terms of what the impact would be...

[Arun Kumar Pillai, Founder & Non]

We don't -- as a company, we can't give you a directional guidance. I mean, your statement itself guides in terms of the challenges all of us are facing. In the first wave, we had plant shutdowns mainly from lockdowns. In the second wave, it has impacted people very close to us and it's a very different situation. So we grapple through all of this, and we are confident that we will come out about this fairly strongly, but I think it's a fact that the whole industry is facing not because of lack of order book, but with the human challenges that we face. So I think it's unfair to put a flavor to what it will look like. We have never done it before, and we don't intend to do it in these more difficult times given the circumstances. So I hope you appreciate that.

[Anmol Ganjoo, Director]

Yes. That's quite understandable. So my last question before I get back into the queue, is the RFID contract Sputnik. What all are we liberty to disclose in terms of commercials, economics. And once these 400 million jab orders delivered the commercial impact on balance sheet and what happens once these orders are met? Is it capacity, which is going to be used year after year, although with a lower throughput, thoughts around that would be extremely helpful. And anything around the competitive landscape because we do hear about RFID being fairly active in terms of its vaccine rollout and using Indian spare capacity?

[Arun Kumar Pillai, Founder & Non]

Well, I think for most of the players who are partners with the RDIF are not spare capacity holders. They are players, new players like us who have migrated from biopharmaceuticals to vaccines to cater to the opportunity that is there, but also to ensure that we play a part, which is material in trying to solve for the problem that the world is facing. The RDIF has got a very significant back order of its programs worldwide, and it's registered in over 65 countries. And they are dependent fairly on the Indian landscape to cater and supply this demand. Having said that, the Sputnik V is a complex product as in there are 2 components. Component 1 is similar to the Johnson & Johnson product, and it's relatively easier to make. And Component 2 is a very complicated product, but that's what apparently delivers a better efficacy in terms of the drug. Having said that, as this is a viral vector, we have established a brand new facility, a brownfield facility where we've -- from retrofitting to validation is 150 days. And it is one of the largest viral vector facilities in this part of the world. Obviously, after Serum, who has got a significantly larger capacity than us. We are confident that because it's a dedicated bespoke facility for Sputnik, and it is a complicated viral vector, which typically cross contaminates with each other, we are in a good state to solve for this. We just announced that we have started a validation batches. That's a big step, considering that we were last of the block from all RDIF partners who have signed up the deal, and we are confident that our 3 validation batches will get over by June. After which, we can give you an indication of what kind of yields we'll get, what kind of throughput we get on this product because these are products that we have not yet have great experience manufacturing, not only us, but everybody else. And maybe we will have a lot more color for you in the next call. Having said that, from an economic standpoint, I mean, obviously, for confidentialities and other reasons, it's not possible for us to disclose. But we believe that the investments will get a fast recovery with the opportunity that Sputnik -- for that matter for anybody. And viral vector facilities are typically used for cell ends mainly for gene therapy. And we are -- we believe, as a CDMO, we can bespoke our facility going forward once COVID is solved for, if we have to move away from viral vectors to other programs. So we have made a conscious decision of getting the space with a calculated analysis of what the opportunity stays on a tactical basis, but we believe that while RDIF has got several partners. Eventually, when they will probably narrow down that to the number of players they have to play, we strongly believe that we will be one of them that will continue to be a partner with them. So we are excited about this opportunity, but we are yet not exuberant about what this will all lead to. So I think we should be able to call out some kind of indications in our next call.

[Operator]

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, Research Analyst]

Just on continuing on the vaccine front, like how big is the validation batch compared to a commercial batch?

[Arun Kumar Pillai, Founder & Non]

So we can't give you exact details. But typically, the scale is 10x typically. The validation batch to commercial batch is 10x. And if we have to give these volumes of 200 million doses, then obviously, we need to have very significant capacities to deliver these numbers because these are all-time contracted, right? So you can't just apply it over a long period of time. So yes. The capacity we have built, it's there in our document, it's 24,000 liters, which is a very significant viral vector capacity on a global basis.

[Tushar Manudhane, Research Analyst]

Got you. Got you. And given that this -- while this vaccine was not something which was under the planned understudies or under the CDMO thing. So as the other segment which is the non vaccine part, how that business is shaping up in the Stelis -- on the Stelis front?

[Arun Kumar Pillai, Founder & Non]

It's doing very well. Currently, we have significant demand because of all the challenges and all the newer drugs that are being repurposed for COVID or typically mammalian products, so we do have a fairly strong book. We guided that after many years, of having invested we'll breakeven on our nonvaccine business. We are well ahead on track to get there this year.

[Tushar Manudhane, Research Analyst]

Great. Great. And just lastly on this, the usage of the Series C funding for enhancing the capacity, the mammalian block and further enhancing vaccine block the tentative time line for this?

[Arun Kumar Pillai, Founder & Non]

Sorry, what funding is that?

[Tushar Manudhane, Research Analyst]

The usage of capital, which has been raised at Stelis.

[Arun Kumar Pillai, Founder & Non]

The recent CVC, yes. We will -- we expect all our CapEx to be completed within this financial year.

[Operator]

The next question is from the line of Prakash Agarwal from Axis Capital.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Just one question on the unit economics of Sputnik vaccine. So you mentioned that you would grow commercial scale from October. I mean -- so I just want to make -- understand, we are doing the full drug substance and fill/finish along with that. And I mean to the MRP, how much do we make? Is it a cost-plus kind of thing? Or how should we understand the commercials?

[Arun Kumar Pillai, Founder & Non]

Well you shouldn't understand the commercial, Prakash, because I just told your previous colleague that we can't give you any detail. These are contracts that are confidential in nature. And we are not a marketing partner. We supply -- we are a contractor to the RDIF and RDIF takes the decisions on what price it needs to sell to any country of its choice, including that of India. So we have a fixed-price contract with them and then what they do with the product is entirely at their discretion.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And this fixed price is what I'm trying to understand, both for fill/finish as well as drug substance, right?

[Arun Kumar Pillai, Founder & Non]

Yes.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And fair to assume that this would be over and above our company level average EBITDA margins or gross margins?

[Arun Kumar Pillai, Founder & Non]

As you said that.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And the quantity you said is 200 million doses over a period of time?

[Arun Kumar Pillai, Founder & Non]

Yes. Typically, these contracts have to be executed within a year, and that's the case with everybody. Because hopefully, the -- everybody hopes that we get the herd immunity with vaccination by then and then it depends upon how the antibodies play out. And is there a need for boosters and then which, by then, there will be an update on which of the vaccines are more safer, more efficacious. So we don't -- so at this time, it's tactical for everybody. And then obviously, we just do not know how this is going to pan out. So we are constantly looking at the opportunity and building out from there.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Perfect. And the second one for this -- the tie up you've done with the Taiwanese player, amphotericin. So this would be market in any time now, and this would be comparable to the existing products by Cipla and Wockhardt?

[Arun Kumar Pillai, Founder & Non]

So this is bioequivalent to AmBisome, which is the innovator, Gilead, and the product will be in the market in the next few days.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And pricing-wise, sir?

[Arun Kumar Pillai, Founder & Non]

Well, Prakash you can keep asking me, but you know you're not going to get this from us.

[Operator]

[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital.

[Sarvesh Gupta, Founder]

Congrats on a good set of performance. So first question is on this increased cost of around INR 130-odd crores this year because of logistics and other reasons. If I sort of add it back, then our EBITDA margins on a steady state could look at maybe '23, '24 instead of the reported '19/'20 so how should we look at it? Do you think that these will be recurring for the coming year as well? Or these were relatively one time?

[R. Ananthanarayanan, CEO, MD & Director]

So clearly, this is not onetime. This is at least we anticipate with the ambiquity this to be there for a shorter period of time. As we've said, in the shorter term, we do anticipate this because 2 things, right? One is clearly we need to continue to keep building the inventory of the products in the market, which is what our focus is. We don't want to lose out on customer advocacy, number one. Number two is that freight costs have gone up, whether it is a sea freight or whether it is airfreight, in both those cases, the costs have gone up significantly during these times. So we don't see it coming down in the immediate few days or weeks of this quarter, we believe this will continue in the shorter-term period. And then probably as the COVID wave settles, this would likely settle down as well. So in the shorter term, I don't think -- it wouldn't be right to anticipate this is onetime.

[Sarvesh Gupta, Founder]

No, not on the shorter term, but maybe in the second half of this financial year and next financial year, do you think that this will...

[Arun Kumar Pillai, Founder & Non]

No. Hi, this is Arun here. If you recall -- if you go back to history, the company has been at this 23% to 25% EBITDA for at least 7 to 8 quarters. So we are in range to answer your question. How long will COVID last and what is it going to cost? And these kind of extra costs is something what Ananth is saying is that rightly that we can't establish today, and it could go on for a year, 18 months, 3 months, 6 months, so we don't know. So this is this -- with the adjustment that you have made, we -- this is an in-line performance of what the company has done in the last 2 to 3 years, very focused on profitability and improved gross margins as a strategy and that's playing out. It's been adjusted for events that are not in our control.

[Sarvesh Gupta, Founder]

Understood. And on your investment book, I understand what is the Stelis related investments? If you can break it up between the other joint ventures and subsidiaries as well?

[R. Ananthanarayanan, CEO, MD & Director]

The investment has got 2 parts. One is the CHC business as well as the Stelis. So these are the only 2 investments we have in our balance sheet.

[Sarvesh Gupta, Founder]

Understood. And finally, on this Stelis recent round, of around the Series B round, we decided to fund around $14 million. So is it the end of commitments from the Stride side? Or are there some further rounds which are being contemplated as well and further commitments go into that?

[Arun Kumar Pillai, Founder & Non]

No, this is the last, and this is mainly to retain a certain ownership in the company that was critical for Strides from that perspective. And it's a warrant which Strides can convert at leisure. So there's no pressure. It's mainly to do with the cap table.

[Operator]

[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital Advisers.

[Nitin Agarwal, Head of Research]

Ananth, maybe I missed your initial comments. But so when you look at the U.S. business now for the 3 year target, I mean in your assessment, how do you differentiate yourself with the peer set? It's a fairly competitive and a very crowded market now on the oral solid fight in the U.S. business. So how do you propose to -- how do you see Strides differentiated as a business from where we are?

[R. Ananthanarayanan, CEO, MD & Director]

So I'll answer that in 2 dimensions, Nitin. One is clearly -- even with our existing portfolio, while we have some products where we've now seen increased competition, and therefore, some of the pricing pressures, we still continue to have a set of products in our portfolio that are differentiated and does not have enough competition there. And they are one -- some of them are challenging, both from the scarcity of API as well as the difficulty to make the formulation. And therefore, while we've had price erosions, we've been able to overcome that because of some of those products that have stood by us. And therefore, if you look at it in quarter 4, despite the flu season not being there, we've been able to get to a $58 million revenue, right, and a year-on-year growth in the market. Having said that, we are continuing to fortify our portfolio, and we will continue to build a set of products that are continuing to be differentiated and complex and our portfolio choices are shifting to be more and more complex products that we believe will continue to help us take through to that 3-year view horizon that we talked about.

[Nitin Agarwal, Head of Research]

And then at what point in time, do you see some of these newer sort of set of products coming through and start making an impact on the portfolio?

[R. Ananthanarayanan, CEO, MD & Director]

So we certainly expect as the approvals keep coming, hopefully, through the coming year and the next year, we certainly believe they should all start adding up.

[Nitin Agarwal, Head of Research]

And from a 3-year target perspective, what -- are we still running with a $400 million number at the end of 2, 3 year or is there a different number that you quantified?

[R. Ananthanarayanan, CEO, MD & Director]

So look, we certainly had that approach, and we continue to have the approach towards building the $400 million. Having said, will there be an impact in the shorter-term and that can have a pressure on the time line? Yes. We're looking at several means and several opportunities to see how we can bridge that impact on time, and we are doing a review on those as well. But our approach and our strategy continues to pivot on being able to get to that target that we had earlier outlined.

[Nitin Agarwal, Head of Research]

Last one on that. Any updates on our acquisitions, ANDA acquisitions that we've done on the soft gel plant as well some of the other ANDAs facilities that you've acquired. Do you see some of them start making any commercialized over the next year or so?

[R. Ananthanarayanan, CEO, MD & Director]

Yes. So let me first answer about the products that we acquired in the portfolio. Some of them have certainly been positive for us and impacted us positively, and that's what has helped us the differentiation that I talked about in being able to withstand some of the pricing pressures. So clearly, some of the products from that portfolio has made a positive contribution towards that. And they are difficult as well as scarcity on the API that we get benefit out of, number one. Number two, on the soft gelatin capsule facility, we've continued to keep doing the tech transfers and filing the products to the U.S. and again, with some of the delays in the product approvals, we await FDA approvals to come in and we'll start continuing to play on those products.

[Nitin Agarwal, Head of Research]

Okay. And excuse me, last one, but we have -- there has been some increase in staff costs and other operating expenses in this quarter versus what you've seen in the first 3 quarters? Is there anything specific that you want to call out on -- for those cost items for this quarter?

[R. Ananthanarayanan, CEO, MD & Director]

You asked about stock cost, right?

[Nitin Agarwal, Head of Research]

Staff cost and the other expenses?

[R. Ananthanarayanan, CEO, MD & Director]

Yes, yes. So there are 2 things. One is that in -- if you see the last quarter call, we have specifically said the staff cost will be between 16% to 17%, and we'll end the year at 16.5%. That's the exact the point at which we have ended because we had alluded in the last Q3 call also. As far as other expenses are concerned, the other costs, other operating costs are impacted by the logistics as well as the failure to supply.

[Operator]

[Operator Instructions] The next question is from the line of Jigar Valia from OHM Group.

[Jigar Valia, Head of Research]

My question pertains to the Stelis Series B round. So that's the $70 million or the $14 million is the gross number or it's the partly paid number and there would be an additional element?

[Arun Kumar Pillai, Founder & Non]

Sorry, your question was $70 million?

[Jigar Valia, Head of Research]

Yes, the $70 million, the Series B round of which Strides will be subscribing this $14 million, so is it the partly paid amount? Or is it the gross amount and the actual outflow right now is this?

[Arun Kumar Pillai, Founder & Non]

So there are 2 parts to the fundraise. There was a $70 million and $125 million B and C series. The B was to existing shareholders, which is partly paid up, but it has to be paid up fully before listing. And for the -- and for Series B it is a fully paid check.

[Jigar Valia, Head of Research]

Right, so the $14 million is the gross number or the net number. So is this $14 million -- is it you paid...

[Arun Kumar Pillai, Founder & Non]

No. $14 million is 100%.

[Jigar Valia, Head of Research]

$14 million is 100%. Okay. I got that. Second is would you be able to quantify what is the present -- if you'd be able to tell us what is the debt level at Stelis right now? And broadly, if any, ideally, what should one look at on after debt servicing or...

[Arun Kumar Pillai, Founder & Non]

About INR 400 crores is gross debt and cash is about INR 300 crores.

[Jigar Valia, Head of Research]

Got it. And last question, qualitatively, how should one look at the 3 pieces biosource, biopharma and vaccines. Vaccines we've discussed a lot, but on the biosource and the biopharma side, qualitatively some inputs from a long-term?

[Arun Kumar Pillai, Founder & Non]

Biopharma, insulin and the GLP portfolio. We have also announced today that we have submitted our first NCE-1. I mean, we are ready to file our first NCE-1 GLP of $8 billion product on day 1. So this is Stelis's first big program that we have partnered with other global player, and we will have one more GLP there this year. So there are 2 GLPs that will be filed, which is a large part of the diabetes business. The Glargine Phase I studies are going on. We have completed all the clinical clamp studies, and we're waiting for the readouts. This has been impacted by COVID by a couple of weeks. So probably in about 3 to 4 months, we'll have the clinical readouts, and that will give us the impetus to start work for the Phase I studies for U.S. and Europe. So that's going well on the product standpoint. We are responding to EU queries for our first European filing, which is due in August, and we are on track to do that. So we expect an approval in about 8 to 9 months after that. And we also have, in the CDMO business, which is the Stelis BioSource, we are -- we have 2 parts of the business. One is a drug product and a drug fill finish. On the fill finish, we are more or less fully sold out by about 2026 for capacities. Based on the contracts that we have signed now and where exhibit batches are being taken by customers. Our first ANDA has been filed by a customer from that facility for a potential target approval date within this year. So all the boxes are being ticked at Stelis and there are -- it is on the right track.

[Operator]

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.

[R. Ananthanarayanan, CEO, MD & Director]

So once again, thank you all for your time today to participate in this call. And certainly, we wish all of you and your loved ones remain safe during these challenging times and look forward to our connect during the next quarter. Thank you.