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Sun Pharmaceutical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Sun Pharmaceutical Industries Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nimish Desai from Sun Pharmaceuticals Industries Limited. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our second quarter FY '21 earnings call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q2 financials and the press release that was sent out earlier in the day. These are now also available on our website.We have with us Mr. Dilip Shanghvi, Managing Director; Mr. C. S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO of North America; and Mr. Kirti Ganorkar, Head of India business.Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for ease of discussion, we will look at consolidated financials. Just as a reminder, this call is also being recorded, and a replay will be available for the next few days. Call transcript will also be put up on our website shortly.The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risks that our business faces. You are requested to ask 2 questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.I will now hand over the call to Mr. Shanghvi.
Thank you, Nimish. Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the second quarter of FY '21. I hope you and your family are safe and healthy.Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR 8,459 crores, recording a growth of 6% year-on-year and 13% quarter-on-quarter. Our Q2 performance reflects our focus on business improvement, which has enabled a gradual recovery in all our businesses compared to Q1 despite market conditions that have not fully normalized.We continue to focus on growing our top line, gaining market share, control costs and ensure business continuity. We will continue to serve our patients and customers while ensuring safety of our employees.Let me now update you on our global specialty business. For Q2, our global specialty revenues was approximately USD 108 million across all markets. Specialty R&D accounted for 37% of our total R&D spend for the quarter. We have recently launched ILUMYA in Japan for treatment of plaque psoriasis and have received a good initial response from the market. Abhay will give you more details on our specialty business later. I will now hand over the call to Mr. Murali for discussions of the Q2 financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q2 financials are already with you. As usual, we will look at key consolidated financials.Q2 sales are at INR 8,459 crores, up by 6% over Q2 last year. This is the highest ever quarterly sales that the company has recorded. Material cost as a percentage of sales was 25.4%, lower than Q2 last year due to product mix as well as optimization of cost. Other expenditure was at 28.3% of sales, lower than Q2 of last year, mainly due to reduced marketing, selling and distribution, and traveling expenses across markets.EBITDA for Q2 was at INR 2,099 crores, up by 30% year-on-year with resulting EBITDA margin at 24.8%. Reported net profit for the quarter was at INR 1,813 crores, up 70% over net profit of Q2 last year. The reported EPS for the quarter was INR 7.56. Adjusted net profit for Q2 was INR 1,590 crores, up by 49% over Q2 last year, with resulting net profit margin of 18.8%.Let me now discuss the key movements versus Q1 FY '21. Our consolidated sales are up by 13.3% quarter-on-quarter and reflects recovery in sales post gradual lifting of lockdown restrictions across markets. We have added almost INR 1,000 crores of incremental sales over Q1. Material cost at 25.4% of sales are lower than Q1 due to product mix, cost optimization measures and higher sales of specialty products in the U.S. Other expenses at 28.3% of sales are marginally higher than Q1, mainly due to increase in R&D spend.We had a ForEx loss of INR 116 crores for Q2 as against ForEx gain of INR 79 crores in Q1, leading to an impact of INR 195 crores. EBITDA for Q2 at INR 2,099 crores was higher by 22% compared to Q1, despite the adverse impact of this ForEx loss. Adjusted net profit for Q2 at INR 1,590 crores was higher than the adjusted net profit of Q1 by about 39%.Now we will discuss the half year performance. For the first half, net sales were at INR 15,926 crores, a de-growth of 1.7% over first half last year. As indicated in the past, the first half of last year included contribution from a nonrecurring special business in the U.S. and hence, the year-over-year sales numbers are not strictly comparable.Material cost for H1 as a percentage of the sales was 25.8%, which was lower than H1 last year, mainly due to product mix. Other expenses were at 28.2% of sales, lower than H1 last year, driven mainly by reduced marketing, selling and distribution, and traveling expenses across markets.As a result of the above, the EBITDA for the first half was at INR 3,824 crores, a growth of 9% over the first half last year, with resulting EBITDA margin of 24%. Excluding the exceptional items, adjusted net profit for H1 FY '21 was at INR 2,736 crores, up 12% year-on-year, with resulting net profit margin at 17.2%. Reported net profit for H1 FY '21 was at INR 157 crores.The company has repaid debt of over USD 300 billion (sic) [ USD 300 million ] in H1 of the current fiscal year.Let me now briefly discuss Taro's performance. Taro posted Q2 FY '21 sales of USD 142.8 million, a net profit of USD 45.1 million, which represents a growth of 21% and 55%, respectively, over Q1 FY '21. On a year-on-year basis, sales for Q2 FY '21 were lower by 11%, while the net profit was lower by 20%.I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.
Thank you, Murali. Let me take you through the performance of our India business.For Q2, the sales of branded formulation in India were INR 2,531 crores, a growth of 1% over Q2 last year, and 6% on quarter-on-quarter basis. India business accounted for 30% of consolidated sales for Q2.Our growth for Q2 was in line with overall market growth, led mainly by chronic portfolio which grew in a single -- in high single digit. The growth in semi-chronic portfolio has started recovering, while the acute segment has recorded a decline, although compared to Q1, the de-growth in acute segment is much lower. For both Q1 and Q2, the chronic segment has continued its growth trajectory. The acute segment still is facing some challenges due to lower incidents of infections and less patient footfall at doctor's clinic.Our medical representatives have started work across the territories, barring those areas that have been designated as a containment zone by the respective authorities. The doctor call rates have improved significantly compared to Q1. Our expansion of the field force in India is complete, and it will help us in the long run to announce our geographical and doctor reach.For Q2, we launched 22 new products in Indian market. Sun Pharma is the largest pharmaceutical company in India and holds approximately 8.1% market share in over INR 1,42,000 crore pharmaceutical market as per September 2020 AIOCD-AWACS MAT report. We also continued to remain the partner of choice for in-licensing given our strong #1 position in many therapy areas.I will now hand over call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses.For Q2, our overall sales in the U.S. were flat over quarter 2 of last year at USD 335 million, but recorded a good recovery sequentially by over USD 50 million driven by both the specialty and generic businesses. U.S. accounted for about 30% of consolidated sales for the quarter.Our specialty revenues in U.S. have increased over Q1. And for products like ILUMYA, CEQUA and ODOMZO, sales are at pre-COVID levels. Levulan sales are yet to recover fully for the obvious reason that patient visits for treatment at dermatology clinics have not yet reached pre-COVID levels.Given our unwavering focus on the specialty business, for most products, we have gained market share despite the challenging market conditions during the last 6 months. Doctor's clinics have been gradually opening up during the quarter, although patient flow and access to industry is yet to fully normalize.Let me now update you on our U.S. generic business. As all of you have seen, the U.S. generic business continues to be competitive. At Sun, generics business has stabilized and has shown growth year-on-year.I will now hand over the call to Mr. Shanghvi.
Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives.Our sales in emerging markets were at USD 210 million for Q2, up by 4% year-on-year and by 21% over Q1 FY '21. On a year-on-year basis, the underlying growth in constant currency terms was higher at about 9%. Emerging markets accounted for about 18% of total sales for Q2.Formulation sales in Rest of the World markets, excluding U.S. and emerging markets, were USD 178 million in Q2 FY '21, up by 10% over last year and 31% over Q1 FY '21. This was mainly driven by all-round growth in multiple markets like Japan, Europe, coupled with growth in Taro's Rest of the World business. Rest of the World markets accounted for approximately 16% of Q2 revenues.We've also done well in our API business with Q2 sales at INR 510 crore, up 9% over Q2 last year. We continued to invest in R&D for enhancing our specialty and differentiated generic pipeline.Consolidated R&D investments for Q2 is INR 613 crore, accounting for 7.2% of sales. Our current generic pipeline for the U.S. market includes 92 ANDAs and 6 NDAs awaiting approval with the U.S. FDA.With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
Sir, first question on the India business. If you could help us give us the split of chronic, subchronic and acute? As I understand, 1% growth is just about the industry growth and we have seen peers doing much better. So, a, the breakup, and if you could highlight what the daily -- I mean you said subchronic is in recovery, acute is still declined, but if you could some -- give some granular detail, that would be outstanding.
Sure. Yes. So as I said, compared to Q1, Q2, most of our businesses are doing well. So we have divided this into chronic, subchronic and acute business. So chronic business, both in Q1 and Q2, has shown good growth, and this is a high single-digit growth.Semi-chronic, they offered in the Q1, but they are recovering very fast in Q2. And they are also showing single digit -- low single-digit growth. The most affected business is acute, where we see some recovery compared to Q1, but Q2 still it is showing a negative growth, though it is better than Q1.So overall, there is a recovery in the business from Q1 to Q2. And as the lockdown is opening up, more number of doctors coming to clinic and footfall of the patient is improving, and our call average also is going up, we see that Q3, we will even have better growth numbers.
The breakup, sir? Chronic, subchronic, acute?
Generally, we don't provide the breakup for chronic, subchronic and acute businesses.
Roughly ballpark, sir?
As I said, we don't provide. So there's no point in just roughly giving you the numbers.
Okay. And secondly, on Halol facility status, have you heard anything in terms of inspection and also any update on the [ Baska ] plant?
So I think last time also, I updated that we are waiting for the -- we've completed all our, what you call, responses. And also all the deficiencies have been completed. So we are awaiting any further response from agency. As you are aware, agency is still not visiting international facilities. We are requesting them in case if based on what you call desk audit, they can approve. But I don't think agency currently has a process by which they can approve a facility. So I think it continues to be a work in process.
The next question is from the line of Neha Manpuria from JPMorgan.
Sir, just correct me if I'm wrong, but did you mention that specialty revenues for ILUMYA, CEQUA and ODOMZO are back to pre-COVID levels? Or did you indicate prescription?
You heard it right, Neha. These revenues are back to pre-COVID levels.
Okay. And sir, in case of CEQUA, hypothetically, if we do see generic entry for a competitor product, could you highlight some thoughts on -- would this mean a slowdown in our prescription momentum or would it be actually loss of prescription share? Some thoughts there?
I mean it could probably also grow the market. So sure, it will have some challenges in terms of access because we would probably then have to go through a step-through of generic maybe first recommended. It may also lead to an expansion of market. So we remain positive. And the experience of doctors who have used the product is quite good. So they've experienced a good product. And we are hopeful a lot of them will continue to prescribe which will help us.
Understood. And my second question is on the ILUMYA launch in Japan. How should we look at ramp-up in Japan? If you could give us some color on how exactly it works there?
So Japan as a market, I think, as you are aware, is a 100% reimbursement market and it's state funded. So we have a price approval. We need to kind of go to the next stage of getting our product in various formularies in different hospitals because biologics in Japan are used only in hospitals.And looking at our early response, we are quite optimistic about the acceptance and potential success of the product. However, we need to keep this in perspective that the biologics for psoriasis is only $500 million in Japan, unlike a $10 billion market in the U.S. But it's growing very rapidly. So I think in excess of 20%, 25% annual growth.So we hope -- and we have great expectations about this product. Our acquisition of Pola and our familiarity with dermatologists will help us further, even though the field force that is promoting ILUMYA is a totally independent and a separate field force.
And sir, this entire process of getting it to various formularies in hospitals, is this like a multi-month process or does it take longer?
No, it's a multi-month process.
The next question is from the line of Kunal Dhamesha from Emkay Global.
So first question is on the ILUMYA, especially on the European psoriasis market. So after the launch of Enbrel and Humira biosimilar, have we seen any early trends in terms of how the market will pan out, whether it increases the market size or it kind of increases the obstacle for the targeted biologics in terms of this? Any early trends that you have seen?And second question, on the selling and promotional expense for the specialty business in U.S., so I think that has reduced significantly in quarter 1 and quarter 2. So will there be some structural saving there going forward or will it come back to normalized level?
So, Abhay, will you take the question?
Sorry. The first question was on Europe, so I'm not very sure of the current trends.
Okay. Yes.
I think it's part of our steering committee, I think, in the next 1 or 2 months. We will have more granular details of how they look at the business. So yes, probably this question needs to come back to you.
My understanding is that even when we launched the product, I think biologics were -- biosimilars were already there in the market. So I think in any case, looking at the safety and the overall effectiveness and response rate, and we've recently announced our 5-year safety data -- safety and efficacy data.So I think it's clearly a significantly different product compared to the older biologics. So -- and the number of nonresponders to older biologics will always be moved to this. However, as you estimated, maybe initially, patients will be used and put on biologics as they are also put on other biologics in the U.S., but we expect all the IL-17, IL-23 towards increasing future penetration and increasing market share in all the markets, including Europe.Answering the second part of your question, I think in Q3, definitely some of the savings which you have seen in sales and marketing will continue. Q4, even, I'm not so sure, to be honest, as of this moment because in the U.S., the number of cases, of course, have gone up significantly in the past 1 month or so. So how Q4 will pan out, difficult to estimate. But I would not look at it as a structural saving. Given the choice, some of that, we would like to do. And if the situation normalizes, I think the spending should come back to [ the trend levels ]. But in Q3, I think some of that saving will get carried forward.
We will move on to the next question that is from the line of Krish Mehta from Enam Holdings.
So I have 2 questions. The first is that, historically, when you look at our financials, we used to be at a much higher EBITDA margin profile in excess of 35%. So now as we see specialty finally picking up and we're making cost and making profits on it, in the future, do you think we can scale back to those historic margin levels?
No. I mean, unfortunately, we don't give out long-term forecast of both profitability as well as top line. I think philosophically, we would always like to grow faster and improve profitability. So that would be the effort. How successful we will be and what will be the opportunity, we will not know. But we need to also keep this in perspective that in investment in R&D, as we continue to grow our specialty business, we will always continue to invest in that business with a view to create a much bigger future for us in future.So we've just started the clinical studies on EDG agonists, and these are Phase II studies, and they will go on to become Phase III studies. So there will be -- while profitability and turnover and contribution for specialty business will grow, the expenses will also continue to grow till we become a meaningfully sized specialty business.
Okay. And my second question was, can you provide the actual gross and net debt numbers for the quarter ex Taro?
So, Murali, maybe you can brief?
Ex Taro number, one second. We have got net debt as of end of September of over $400 million, ex Taro.
Okay. That's net debt, right?
Net debt. Correct.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Sir, just thinking about your global specialty business, how do you plan to expand the product portfolio, that innovation portfolio going forward?
So Sameer, I think you are aware that we're doing additional studies on ILUMYA for psoriatic arthritis, in the same way like that we're also working on the EDG agonists, and that has potential usage in multiple other indications. We are also looking at it -- if there is an opportunity for us to develop a much better product out of ILUMYA for gastroenterology indications.So I think the idea would be to kind of, looking at our existing portfolio, create what you call a base business, which can then justify and sustain and support our future investments.
Sir, are you looking at another late Phase II, Phase III type of in-licensing acquisition deal of $500 million plus/minus? Is that something -- is this the way you think you can grow this portfolio?
So we always remain opportunistic about potential acquisition opportunity. However, every acquisition needs to kind of justify itself, both in terms of strategic compatibility as well as value for future that we can create.Our belief is that with CEQUA as well as ILUMYA, we have 1 major product in both the therapy areas which we can build on, and ODOMZO in what you call -- ODOMZO and, what you call, Levulan give us a potential succession in onco-dermatology.So I think there is an existing portfolio that we can build on, but we will remain opportunistic. I don't think we have any -- currently, an investment that we are investigating or seriously looking at, but we will remain opportunistic.
Great. And sir, my second question is on the U.S. generic side of the business. Any thoughts on the pricing environment over there? And our expectation of volume gains and new launches, sir?
Abhay, would you like to respond?
On pricing, I mean in every call, I'm repeating the same thing. We haven't seen the pricing environment softening, so to say. And within the current environment, we try and look for opportunities where we can get our share of the business.
Sir, anything on new launches, if you can share?
I think in every quarter, we are able to launch 2 to 3 products, which we incrementally add to our business. We had the same in quarter 2 as well. And I'd be hoping that in quarter 3, we will have another 2, 3 launches coming up.
Okay. Sir, just 1 -- with your permission, 1 clarification. Did you say net debt is $400 million? I thought it was $415 million by end of Q1 and you have further deleveraged $100 million. So it should be actually $315 million or so.
No, no, Sameer. Sameer, the net debt at the end of the 30th September, ex Taro, is around $400 plus million. You listened correctly, yes.
No, what -- I think what he is asking is that at the end of first quarter, the number was the same. So if you've repaid what you've repaid, then how the number hasn't changed? That's his question.
Sir, end of first quarter number was different, sir. I will take it off-line with him.
Okay. Yes, you should take it up off-line.This time, of course, we will be, what you call, also publishing partial balance sheet numbers. So that will become...
The next question is from the line of Surya Patra from PhillipCapital.
Congrats on a good set of numbers. Sir, just first question on the specialty business. Just recently, what we have announced about the 5-year sustainable -- sustained efficacy and safety data. So what significance it adds to the ILUMYA's progress, although we have seen a kind of strong sequential as it is Y-o-Y growth for ILUMYA's prescription count in U.S.?
We essentially give the doctors the confidence that when they start putting a patient on ILUMYA, it not only works but it works for a long period of time. And I think 5 years data is significant where a lot of patients actually on biologics may or may not be able to sustain results for that period of time. So I think skin clearance up to a 90-plus PASI level for 5 years is very significant from a customer perspective. And when I say customer, it is both doctor as well as the patient.
Any commercial sales out of it, sir? Is it possible?
I mean the data is hardly a week or 10 days. So we haven't done any modeling on how this particular data will impact your commercial sales. But obviously, when your team members are able to use this and speak about this data to doctors, I mean we definitely hope commercially, it will benefit the product and give it 1 more [ flip ] to grow the business.
Okay. Sir, just extension of this question, sir. In fact, for the overall specialty business, how should one really look at the progress of...
Your voice is breaking up?
Yes. Just a second. Just a second. Is it fine, sir?
Yes, much better. Thank you.
So I'm saying, sir -- so how should one really look at the specialty business, let's say, over a 3- to 5-year period in terms of sales progress or profitability or in terms of the core IRR of the business? Why because we could be seeing a depressed -- at this current moment because of the promotional spend on selected projects, which can gradually see a kind of a better improvement with the penetration and all that, but subsequently, we can add up a couple more projects there which can further bring in some kind of weakness in the overall earning efficiency of the specialty project.So in fact, if you can provide some clarity, let's say, over 3- to 5-year period, what business books one should really anticipate for the specialty business? And also, if you say, this is a global practice also that for any lead molecule, if you can provide at least competitive positioning, progress and all that, at least quarterly for your lead molecules on the specialty side, that can really help in evaluating and valuing the company better.
I couldn't understand what part of it was the question.
The question was -- yes. So my question was that over a 5- year period, if we just try to evaluate or see what kind of business progress the specialty efforts can see? And what IRR kind of target that you'd be having or that you are anticipating for this business, sir?
I mean I'm speaking from a U.S. perspective, but the specialty business is something we are also trying to reach a global market, not just the U.S. Others, of course, would be a significant part of it. And the idea which we have been saying on calls, Mr. Shanghvi has been saying this, is to create this into a meaningful business for the organization, which can both bring in top line reasonable profitability and enable us to keep investing in the business.Having said that, I mean, IRR numbers, I don't think we are giving out on calls. Each part of the business is different. So for example, you will have -- let me take an example, the Levulan business will always be a profitable business because it is a legacy business which was acquired. But there are certain parts of the business like ILUMYA, which we are in the investment phase, and are likely to continue to invest for the next maybe a couple of years. So different parts of the business are in different stages of its own life cycle. So at an aggregate level, I mean we hope that, sooner rather than later, we start generating returns from the business.
Okay. Just a similar question, sir, on the domestic formulation side. And what I have seen that, obviously, that the domestic formulation business, obviously, this is undisputable -- undisputed leadership positioning that we are having in most of the therapies where we have kind of a meaningful presence. But it is -- so it is -- I believe it is just like a kind of FMCG kind of a business because sure, it is -- the brands are ever-rising and consistently gaining momentum, expansion and all that, and no greater investment and all that.So then, obviously, this is a kind of a business which can -- which ideally should be valued at a significant value -- significant multiples. And just like any FMCG company like, for example, similar size of the business of India domestic business if we consider, the company like, let's say, Nestlé, who is having a similar revenue base, but it is valued like possibly a few times of equity value for the domestic business what we are currently having.So it is -- I think, sir, if we can possibly segregate our business and report the segmental performance, let's say, into the 4 broad categories or whatever the broad category like U.S. specialty, U.S. generic, branded business, it could be including domestic as well as the ROW market, and separately API. So that also can provide a kind of a better understanding of all the progress of each segment and hence, the proper valuation of the company like Sun Pharma, which I believe it is really undervalued.
No, I agree with you. I mean, generally, when you tell any entrepreneur that your business is undervalued, you will see very little resistance. So that part, I think, is clear. And my suggestion to you is that we have challenge in terms of segmental revenue sharing because it will potentially create some future challenges for us and operating challenges for us.But if you wish to look at our India business, even though SPLL, which is 100% subsidiary of Sun Pharma, and we give separate annual report of SPLL, even though it's not a complete India business, but it still represents a significant part of our India business and you will get comprehensive information about growth, profitability, cost where it is going. So hopefully, that will help you understand and value the business differently if you think that is useful. And we will continue to internally debate that -- whether we want to or we should, at this point of time, give segmental revenue.
The next question is from the line of Shatayu Mehta from Tata Investment.
I just wanted 1 question, accounting. Your subsidiary, Sun Pharma Global FZE, it has made a loss of around INR 3,000 crore in FY '20. If you can just help me out how the performance has been in first half, please?
So Murali, maybe, if you can respond?
So Sun Pharma FZE is a pass-through entity. So that's not a requisition of the number what you're creating and you also see in the notes that, that entity is under merger with us. So we are going to market with the Indian SPIL. So in the first half, there is no concern as such.
Okay. But can you just share what kind of number it is?
No, we -- for the subsidiaries, in the [ integral period ], we don't disclose numbers separately. However, in the annual reports, all the subsidiaries, as Mr. Shanghvi pointed out recently, will be available for you.
Okay. But whether there's been turnaround or whether it is...
No, it's a pass-through entity. So I need not...
So what loss you see there is not actually a business loss, so I think...
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
...
Sorry to interrupt, Mr. Srinivasan. Sir, your voice is sounding very soft. Can you speak a bit louder?
Yes, sure. Is it better now?
Much better.
Just the -- on the U.S. elections, last day of polling today, both candidates have actually talked about price control -- drug price control. And if the polls were to be believed, I think Democrats -- if they were to come, any thoughts on -- now that you have a U.S. specialty business, what are your thoughts on drug pricing? How do you ensure that payers, patients paying them get the best value for money? So if you could share your thoughts around that.And now that ILUMYA has been 2 years in the U.S., if you could share something in terms of what are the price -- net price increases that you have taken on that part?
So Abhay, you can talk of the price changes for ILUMYA.
Sir, 5% is the price change we have taken this year to give you a [indiscernible].
Okay. So I think if I see the various announcements which President Trump has made and also, what I see is a, what you call, manifesto and poll or election promises of both the candidates, both of them want to find a way to effectively control drug prices. There are some potential directions coming out of their answers. Say like they want to negotiate Medicare prices because as on today, the government doesn't negotiate.So like that, they are talking about a few things. But we have to finally see how it turns out and then assess what is the final impact of that on the business. However, if I look at the valuation of the major pharma companies, I don't see any significant negative impact of this pronouncement on their valuation.So I have no clue as to finally what is going to be implemented because that's an -- idea and execution have big challenges in the U.S. system because it needs to get approved by senate, it needs to get approved by -- even if the President wants to do a few things.Abhay, you have something to add or maybe I said something which is not correct?
No. I think we are only as wise as what we read today. Both the presidents, the incumbent and the challenger, have made different announcements. But what actually will get implemented and in what form, I think we have to wait and see.
So, Abhay, on the net price increases for ILUMYA?
I said, we have taken a 5% increase this year.
Got it. And my last question is on the gross margins. I was just trying to -- clearly, Taro's gross margins have been coming down. But if I just strip that out and just look, ex Taro, gross margins have actually been going up. In fact, this quarter number was some 77%, 78%. So just want to understand from a non-Taro perspective, some of the drivers of that margin going up, if you could help us understand qualitatively?
Murali, maybe you can respond to that?
Shyam, as I said in my readout, the margin expansion in terms of loss margin is contributed both by the product mix and the various cost optimization measures and, of course, the highest special revenues in the current quarter. And this has been a continuous effort to improve overall the margins for us through various cost optimization measures.
Yes. Just if you could rank order, I'm not looking quantitatively, because the numbers seem to be almost like 1 way. So I'm just trying to -- curious -- is it specialty where the realization is now starting to improve? What could be the bigger drivers if you were to rank them? That's what I'm looking for.
So in the quarter, we have said that higher specialty sales the current quarter did, of course, one of the components. In the readout, I did mention that. So that's one of the -- but then we are saying continuous focus on cost and improving measures also is a major contributing factor.
We will move on to the next question that is from the line of Anubhav Aggarwal from Crédit Suisse.
Question on CEQUA. Just trying to understand, could you be just give a sense that out of the total patients that we're serving today on CEQUA, the majority would have been new patients to the therapy or would they have -- those patients would have tried either Xiidra or RESTASIS and would have come to CEQUA. Sir, which will be bigger segment?
In the initial phase, and CEQUA is now almost a year old product. We launched somewhere in November of last year. So in the initial phase of the first, let's say, 4 to 6 months, there were a lot of warehouse patients, which we were able to move to the product. But I think today, there are 2 segments. And I think the larger segment is new prescriptions. We still get patients who have failed on either of the two competitors out of the product. But my sense is that the larger component will be newer patients.
Okay. That's helpful. And secondly, what are your thoughts on DTC campaigns for CEQUA? I know last 6 months have not been the right period to look at it, but at some point in time, would you look at it?
We are initiating the DTC from this month actually. But of course, having said that, it is not going to be television advertising like we did for ILUMYA. So it will be using other channels to reach out to consumers and customers both.
Okay. Okay. That's helpful. And second question was on ABSORICA and the ABSORICA lower dosage version. So we are almost 2 months away from generic entry -- possible generic entry in this product. Because of situation in the U.S., IQVIA suggested they've been only able to share about 20% of the market rate. Is there any other difference that we have that we can like save a larger franchise of ABSORICA getting impacted from potential generic entry over there?
You're right. I mean we have been able to take 20% share from ABSORICA onto the LD formulation. But as you know, because of the COVID environment, we have lost valuable time. Trying to do the best we can, but if there is a generic which comes in December, that could have an impact on the business.
So there is no other defense that we can -- still available with us which can save us at the last moment?
Not from a product perspective, but there are other strategies we are toying with. But obviously, on the call, I will not be able to spell out some of those strategies.
The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.
Yes, sir, post the 5-year data -- strong 5-year data of the ILUMYA, would there be any change in DTC strategy for the ILUMYA?
Not much from the DTC. I think the first objective will be to use this data to communicate with the doctors. And I think that is where I think the medical reps and the MSLs, and even the [ FRMs ], who will speak to the payers, would be more important. And I think the focus will be on communicating with the health care professions. I think this will be the key.
The next question is from the line of Nimish Mehta from Research Delta Advisors.
Following up on the previous question, now that we have this strong 5-year data, is there any idea as to which other company would have done a similar trial? And if yes, how does it compare? How does our data compare with other company's data?
In the IL-23 space, I haven't seen 5-year data from the competitors...
Abhay, we announced also in the press release that this is the first IL-23 five-year data.
[indiscernible] said that they would also be working on that kind of data. And at some point in time, they may be able to present it. But I think being first to market with this data is positive from our perspective, and we will try and use that time to the best of our advantage.
And also, I think, Abhay, I think if you see qualitatively, the data reflects that over time, actually, the percentage of PASI 90 and PASI 100 increases.
It improves, yes.
Yes. Sure. No, the data looks very strong. I'm just trying to see if there is any comparable data. Even in IL-17, if you know of any company which would have undertaken such trials, some perspective on how does it compare with any other -- not -- IL-23, you are the first one, but within IL-17, how does it compare?
So my sense is everybody will have a 5-year data. Because these are regulatory requirements for you to do 5-year safety studies.
And sir, how many would have published it so far?
Everybody would have. I think if you can see Cosentyx, all of them came before us. So their 5-year data should be available.
I see. But do we have any idea as to how does it compare -- how does our data compare with their data? Obviously, we can look up, but your perspective will be very useful.
I think generally, doctors who use both IL-17 and IL-23, their feedback has been that IL-17 produces faster response, but IL-23 produces durable response. And within IL-23, we believe that ILUMYA has done even better, both in terms of durability as well as in terms of improvement.
I see. That's very interesting. The second thing I just wanted to know about the generics business. I mean we have had some time since we had a low competition launch. So any idea or is it kind of contingent upon our [ alone ] status? If not, then when do we -- when are we likely to see any important launch mission where we might be the first or second one to launch literally in the market? That perspective is very helpful.
No, I think unfortunately, we've not given any data about growth for this year. But whatever information that we share about potential annualized growth will factor our expectation of approval of these products.
That I understand, sir. I'm just trying to understand the launches of important complex generic product. I don't want a number of launches, but...
No, but I think you have to understand that the -- for difficult-to-make products for which no generic exists, FDA on last day can also ask you a question that can potentially delay your approval by 1 year. So I don't think that it's fair for me to give you any date unless and until we have an approval.
Okay. I understand.
So we have a peptide product in which now FDA has asked us that you compare your impurity level at different stages in your shelf life compared to the innovative product. So I have to then do stability study for both my and innovative product for 2 years before I can respond.
Okay. Okay. And following up on that, with your permission, is there a policy likely coming from FDA related to complex generics? We've been hearing about it sometime back as to whether they will help generic companies expedite complex generic approval. Now that they also depend on...
No, I think there is an existing policy where people who are filed or who wish to file, FDA consults, but FDA will not help you make the product. They will tell you what you are supposed to do, and they will talk more frequently to you than otherwise.
The next question is from the line of Sanjay Shah from Alphaline Wealth Advisors.
Sir, as regards to the ILUMYA, we have different dosage that is of 200 mg ILUMYA. What we have got approval from EU, correct me if I'm wrong. So what is the potential of that going ahead?
Abhay, you will respond?
I don't think I've understood your question because in U.S. we have only 100...
He says that 200 mg, what will be the...
In Ilumetri, we have 200. I think in...
In Europe, Abhay, we have both 100 and 200. In the U.S. -- so what he is saying is, what is the potential for 200?
In Europe, you're asking or in U.S.?
In Europe, in Europe, in Europe.
In Europe, I think the product is designed and marketed as a self-injectable product, where I think they have a value for both the strengths. The data that we had submitted in the U.S. and the permission for which we have is only for the 100 milligram. And the product is designed to be a medical benefit product.In Europe, I think Ilumetri, they have both the strength. But even there, I think my sense is, and I don't have updated data, maybe we will try and get that. But I think 100 milligram in the Europe still sells more than 200, but I could stand corrected. We will verify that.
Abhay, you're right because 200 mg is only for obese patient above a certain weight class.
Right. Sir, my second question is regarding API. What opportunity do you see in that API? And do we have any plan to...
Your voice is breaking up. So would you be able to speak louder or come closer to your mike...
Yes. Can you hear me now?
A little better.
Yes, it was seen that API...[Technical Difficulty]
Actually, it's gotten worse.
Sorry, to interrupt, sir. We're not able to hear you.[Technical Difficulty]
Can you hear me now?
Yes, sir.
Sorry, sorry, sorry. Sir, it was regarding API business, I was talking. What opportunity do you see on that side? And do we have any plan to grow that business?
So we clearly look at API as an important component of our business, but primarily with a view to strengthen our dosage form business. However, looking at the diversity of products that we make, many of these products have significant potential to sale. And that is the reason why we are focusing on it. And now that we are focusing on it, I think it's growing quite decently. So we will continue to grow that business.
So we have not planned any massive CapEx for that or increasing that -- ramping up the business?
No, we are all the time investing in that business because today our API turnover is almost twice the turnover of what it was 3 years or 4 years back. What you see is the external turnover. What you don't see is what it is supplying to Sun Pharma? So if I look at the total volume produced by API business, it's more or less doubled in 4 years.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Nimish Desai for his closing comments.
Thank you. Thank you, everybody, for taking time out and joining this call. If any of your questions have remained unanswered, please do send them across, and we will have them answered. Thank you, and have a good day.
Thank you.
Thank you, ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited. That concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.