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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 Q3 FY 2018 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nimish Desai. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our Third Quarter FY 2018 Earnings Call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q3 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. Sudhir Valia, Whole Time Director; Mr. Kal Sundaram, Whole Time Director and CEO India, Emerging Markets and Consumer Healthcare; and Mr. Abhay Gandhi, CEO of North America. Today, the team will discuss performance highlights, update on strategies, and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at consolidated financials. Just as a reminder, this call is being recorded, and the replay will be available for the next few days. The call transcript will also be put up on the website shortly. The discussion today might include certain forward-looking statements, and these 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.
Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the third quarter of FY 2018. Let me discuss some of the key highlights.Sales for the quarter were at INR 6,598 crore, a de-growth of 14% over the same quarter last year. The decline is primarily driven by the U.S. business. All our other businesses have grown for the quarter.In line with our EBITDA margin guidance, our overall performance for Q3 reflects gradual improvement in EBITDA margin for over first half of the year. This is despite a challenging U.S. generic pricing environment and continued investments in building our global specialty business.I will now hand over the call to Mr. Valia for discussions of Q3 performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q3 financials are already with you. As usual, we will look at the key consolidated financials.Q3 sales are at INR 6,598 crore, down by 14% over Q3 last year. Material cost as a percentage of the sales was 31.8% higher than Q3 last year, mainly due to year-on-year decline in imatinib sales in U.S., as well as the higher cost of goods for Taro.Staff cost was at 20.8% of sales, higher than Q3 last year. This increase is partly due to expansion of the specialty team in U.S. and consolidation of employees' costs after Biosintez acquisitions in Russia. Other expenditure was at 26.2% of the sales, similar to Q3 last year. As a result of above, the EBITDA Q3 was INR 1,398 crore, with EBITDA margin of 21.2%.Adjusted net profit for the quarter was INR 878 crore, down 40% over Q3 last year. The reported net profit for the quarter was at INR 365 crore, down 75% over Q3 last year. The reported net profit was adversely impacted by one-time deferred tax adjustment of INR 513 crore related to the changes in U.S. tax rates.The reported EPS for the quarter was at INR 1.50, while adjusted EPS was INR [ 3.70 ].Now we will discuss the 9-months performance. For the first 9 months of the year, net sales were at INR 19,355 crore, a decline of 17% over 9 months last year. The material cost as a percentage of the sales was 29%, which was higher than 9 months last year. The staff cost for the first half was at 20.8% of the net sales, while other expenses at 30.5%, both higher than the 9 months last year. All this increase was driven by loss of imatinib exclusivity in U.S., lower profitability for Taro, and challenging U.S. generic pricing environment.As a result of the above, EBITDA for the 9 months was INR 3,767 crore, a de-growth of 50% over the 9 months last year. EBITDA margin was at 19.5%.Net profit for the 9 months is INR 853 crore, which are 2 large one-time which has impacted the net profit. One of them is INR 513 crore, one-time deferred tax adjustment related to changes in U.S. tax law reported in Q3, and the second is INR 951 crore settlement impact related to the Modafinil antitrust litigations announced in Q1 this year. Excluding both this one-time impact, the adjusted net profit for 9 months period is INR 2,316 crore, with a net profit margin of 12% compared to the net profit of INR 5,741 crore for the 9 months last year. The net profit for the 9 months last year included the benefit of 180 days exclusivity imatinib in U.S., which expired in July 2016.Let us now briefly discuss Taro's performance. Taro posted Q3 for FY 2018 sales USD 156 million, down 30% over Q3 last year. For the 9 months sales for U.S. were USD 487 million, down 29% over 9 months last year. Taro net profit of Q3 was at USD 18 million, down by 87% over Q3 last year, which includes USD 38.0 million deferred tax adjustment as related to the changes in U.S. tax rates. Net profit for the 9 months was USD 125 million, down by 67% year on year.I will now hand over to Kal Sundaram, who will share the performance of India and Emerging Market.
Thank you, Mr. Valia. First, let me take you through the performance of our India business. For Q3, sales of branded formulation in India were INR 2,085 crores, with a growth of approximately 6% over Q3 last year, and accounting for approximately 32% of all total sales.As indicated in our previous call, sales in the current quarter are not comparable to periods prior to GST implementation. The current financial it is [inaudible] Indian pharmaceutical market due to implementation of GST, and hence, the industry growth for the full year is likely to be muted. However, for us, the underlying demand for our products continue to remain strong.Sun Pharma is the largest pharmaceutical company in India, and holds approximately 8.5% market share with over INR 116,000 crore pharmaceutical market as per December 2017 AIOCD-AWACS report. As per latest SMSRC report, Sun Pharma is ranked no. 1 based on share of prescriptions with just 11 classes of doctor. For Q3, 16 new products are launched in the Indian market.As indicated earlier, our near-term focus will be normalizing and continuing to grow our business post-GST regime. For medium to long term, we will strive to achieve profitable sales growth with focus on product improvement and building strong brands.Let me now focus on our performance in Emerging Markets. Our sales in Emerging Markets were USD 189 million for Q3 with a growth of 10%, partly driven by acquisition of Biosintez in Russia. Emerging Markets accounted for 19% of our total sales. The growth is broad-based amongst Emerging Markets. There's a minor positive impact of currency movement on our growth in Emerging Markets for the quarter.Now I'll hand over the call to Abhay. Abhay?
Thank you, Mr. Kal. I will briefly discuss the performance highlights of our U.S. businesses. For Q3, our overall sales in the U.S. were down 35% at USD 328 million, accounting for approximately 32% of overall sales. The main reasons for the year-on-year decline in our U.S. revenues include pricing pressure due to customer consolidation, lower generic imatinib, and authorized generic sales and delayed approval of new products from Halol facility. We expect changes to continue in the network dynamics for reaching the products from the manufacturer to the patient.During the quarter, we commercialized generic Coreg CR in the U.S. market. As of now, we are the only generic approved for this product.Let me now update you on developments in our specialty business. During the quarter, we announced the U.S. FDA acceptance of our NDA for our dry eye candidate, OTX-101. This marks a step forward for the specialty of [inaudible] portfolio.We started marketing Odomzo, our specialty oncology product, in the U.S. some quarters back. Some months back, we had announced the approval of a new label for Odomzo by the U.S. FDA, reflecting sustained duration of response for 26 months. We are in the process of ramping up this product, and are leveraging our dermatologic sales force in the U.S. for co-promoting this product to dermatologists.For tildrakizumab, we continue to expect the BLA approval in U.S. in FY 2019. In the near future, we will be participating in the AAD conference in U.S., and we'll be presenting 12 different oral and poster abstract for tildrakizumab.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 Indian specialty initiatives.Formulation sales in the Rest of the World markets, excluding U.S. and Emerging Market, were USD 120 million in Q3, a growth of 6.4% over last year. ROW markets accounted for approximately 12% of Q3 revenue.We continue to focus on developing and utilizing APIs for captive consumption for benefits of vertical integration. For Q3, the external sales of our API business were at INR 370 crore, flat over Q3 last year.We continue to invest in R&D for enhancing our pipeline. Consolidated R&D investments for Q3 were INR 373 (sic) [ 473 ] crore, accounting for 7.2% of sales. This R&D spending enables development of future product pipeline, including specialty and differentiated products.We have a strong pipeline for the U.S. market with 126 ANDAs and 4 NDA awaiting approval with the U.S. FDA. For the quarter, 4 ANDAs were filed and 5 approvals were received. The number of ANDAs pending approval has reduced slightly as compared to Q3's total since we have dropped certain non-viable projects.I'm also pleased to inform you that we recently commercialized Odomzo in Germany, the first European country in which we have launched this branded oncology profit.And finally on the FY 2018 guidance, we continue to expect EBITDA margin in the 20% to 22% range for the first half of this year. R&D investments are likely to be slightly lower than our original guidance of 9% to 10%. Our 9-month revenues have recorded a decline of 17% year on year. We expect our Q4 revenues to be similar to Q3.With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions] We will take the first question from the line of Manoj Garg from Healthco.
I have a few quick questions. One is from our channel checks, can you confirm whether the FDA is re-inspecting Halol this week? Two, on the U.S. business, can you give us the de-growth numbers, exing out imatinib, so for Q3 of last year and Q3 of this year. And lastly, it's our understanding that McKesson is back in the market with a -- doing another round of RFPs, and maybe if you can elaborate on what impact that that might have to the business. Thank you.
About I think Halol, as a policy, we don't respond to the regulated inspections, so I'm not able to respond to that question specifically. Abhay, would you respond to the specific U.S. questions?
I think on the specific U.S. question, if you take out the impact of both the imatinib and the authorized generic, then our sales are much better and our de-growth is significantly lesser than what you see now. Your question --
Could you quantify that?
I think you can work it out, and then Nimish can later on give you the numbers, if you wish.
Okay.
But it's a completely different picture if you remove these 2 products.
Okay.
McKesson, of course, is very specific question, so I don't want to respond to a particular company. But in general, you are right. Demand and pricing pressure continues for us across all the buying groups; not just one.
Okay. So on the ongoing pricing pressure that you're seeing across the U.S. buying groups, is that somewhat quantifiable?
It's product specific, so it's difficult for me to give you a number on a consolidated basis. But I think our overall performance reflects the pricing pressure that the business is facing.
The next question is from the line of Prakash Agarwal from Axis Capital.
Just trying to understand this other expenses at G&A line better. We have seen both [inaudible] 14% decline, [inaudible] 17% decline. What is leading to this? Is there a forex element, or is it the new ways?
On the other expenses, what you are seeing declines for, there is a combination of certain cost improvement initiatives and also the [inaudible] impact.
Could we know the forex impacts?
We don't know.
Oddly, we do not get into specifics on the FX impact.
But if you could just help us. So there would be some increase in the other expenses line, and this is not the base. Is that right understanding?
Based on what we said earlier on the cost initiatives, it's a bit trending down, and there are many moving parts in that. Specifically, we're not going to comment on FX, but overall, I think it's a trending moving downwards.
Understood. And second question on the U.S. business. If you look at Q-on-Q ex-Taro, as you be 90% to be U.S. sales. Obviously some improvement. This could be due to the deferment of sales you mentioned last quarter, or is it the baseline? As you said, Coreg has come in. So it's largely due to that, or there has been a little bit of deferred sales as well?
Abhay, maybe you can respond.
I think in the environment, as any business should, we look at individual products and see whether if there is an opportunity for us to improve our share of the business. And at an aggregate level, therefore, you see the kind of numbers that we will do. So it is not a one-off. It's a team trying to compete in market and win as many accounts and products as possible.
But would we ever recoup some of the deferreds here, some of which we missed last quarter?
Most of it, yes.
Most of it has been recouped. Okay, thanks.
We will take the next question from the line of Neha Manpuria from JP Morgan.
If I were to look at your U.S. sales of movement quarter on quarter, and then look at your gross margins, the gross margins seem to have declined very sharply. Taro seems to be a very small part of this. Could you please help us get some color on what led to this decline in gross margins on a sequential basis?
Should I take this question?
It was funding. Mostly it was funding.
So it's a combination of what you saw Taro, or material cost increase, and also product mix. So that's what I would -- so relatively the impact what is seen in the gross margin for the quarter and the review.
So then it's fair to assume that this is the new base for our gross margins?
We cannot say beyond this. [Inaudible] public informations.
Okay. Then if I would do ask this question, ex-Taro, is this the new base for Sun Pharma?
What I would say is that we are not saying that we're resetting the margin. What we have said is that Taro, we have seen. And there's other margins. We've said there's a material cost increase and the product mix. I think you have to recall how you have to respond to new material cost, I think. Depends on the specific product --
[Inaudible].
Hopefully featured our focus always is to find a way to improve the EBITDA.
Okay. And second, on the R&D question, on the R&D line, that seems to have come off for the last 2 quarters. Is it some deferment in projects? Why have we slowed down R&D in the last 2 quarters? Looking at R&D, has something changed for the cadence to change so much?
So we are really looking at part of the generic R&D, and once we have clarity, we will share that with you. But what you see also here is the little slowdown partly as a result of reduction in the cost of the tildra clinical development cost, because product has been filed and safety studies are kind of getting closer to be getting over. And the new studies that we have started there [inaudible] fully ramped up. So as I said, there is a certain amount of what you call lag between, before it again starts going up.
We will take the next question from the line of Saion Mukherjee from Nomura Securities.
Sir, is it possible to indicate currently what percentage of your R&D is on specialty business?
We are not splitting the R&D between generic and specialty at this point of time. I think -- and we don't plan to do that at least immediately in next few quarters. At some point, when our specialty R&D business will extend, we will start giving more specific information.
Okay. On the specialty investments that we are doing, which as you mentioned are reflected in employee cost and other expenses. As you get closer to the tildra approval, how should we think about these expenses for next year? You think it can go up substantially, or you see a marginal increase? How should we model this?
I think since that's in next year's, we will possibly come out with a much more clearer, what you call expected cost on those at the time when we share guidance. Because there is a certain amount of buildup cost which will be factored into the guidance that we will share with you. But also you should know that a large part of the tildra organization, excepting a few people, most of the people are in place.
Okay. And just one final question, if I can. I was looking at the IMS data. It shows a very significant drop in Absorica prescriptions. Do you agree with that? And if you can throw some light as what is happening and whether it will have an impact going forward.
Abhay, would you like to respond?
We have made a significant correction in our corporate program. So although you see a loss of prescription, which is correct, but it will go down to what you would have seen almost a year ago, or slightly better, and clearly that will mean a more profitable sale of Absorica.
And so that number, the change that you implemented and the impact you're saying is not meaningful from a net realization perspective is what you're mentioning?
Yes.
It will mean a more profitable business, clearly.
Okay, got it.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Just one clarity on the other expense. I know you're not quantifying, but you can just help, because your INR 300 crore drop in other expense in the quarter on a base of INR 1,400 crore, [ realize ] a very significant number. Can you just help at least the FX element you're talking about? Is that INR [ 50 ] crore, INR [ 700 ] crore? Some idea will be helpful. Otherwise, it's impossible to forecast in future.
Meaningful number is what I can tell you. But it's not the only number.
But the way if you can help. INR 700 crore number should I take? A INR 100 crore number I take?
Let's say that if we decide to share this number, we will share it with everybody. But as on to the night, that I think we have it here. [Inaudible] a decision. I recognize the challenge that you and all the analysts will have, because you have to also predict the future for future in cash flow of the company. So you need to understand the new normal.
Just a second question on Odomzo. I just want to understand that versus your targeting formulary coverage, where are we right now? Have we achieved formulary coverage for most of the insurance companies right now?
For Odomzo, as I see that, because of the nature and the size of the product, the formulary coverage is not a major challenge. It's likely to be a major challenge both for OTX-101, as well as for tildra. Odomzo, that is not a major challenge. And also what we recognize is that the IMS is not a clear predictor of the success in marketplace. But Abhay, maybe would you like to share anything more?
No, I think you have covered it. And in the other case, what you are referring to as formulary coverage is a moving target, and you never feel you have enough. So you keep moving up and keep trying to improve it. But broadly, I think I will go with Mr. Shanghvi mentioned as an answer to your question.
Just wanted to get some clarity on this. Can you just elaborate on what the challenge is? Is pricing the challenge, or number of reps supporting Odomzo? Is it like -- let me simplify my question. Is it only a function of time before Odomzo ramps up, or do we need to change our strategy or put more resources behind Odomzo right now?
Abhay.
I think the large part of the sale that you are seeing today comes from the oncologist. And like we have also mentioned that we are trying to leverage our derm sales force to improve our coverage, and therefore the output at the prescriptions we get from the derm. So that's the next stage that we are working on, and going ahead, we hope that that will help us to improve sales of Odomzo more than what you see today.
Have you already started pushing it to dermatologists?
In the current quarter, yes we have started.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just on the previous one. Abhay, do you think which will be the bigger indication for Odomzo, would it be onco or derma? And is onco reasonably saturated, or do you think even that part can go up a fair bit?
Indication is same, whether it is for the oncologist or for the dermatologist. And I think the -- logically, the dermatologist prescription should be higher at some point in time than the oncologist prescription. Because long term, the patient is more likely to reach out and stay with the derm rather than with the onc.
Sameer, I think you also have to keep in mind is that average number of patient per dermatologist will always be much lower than the average number of patients for oncologist. So the focused, limited number of doctors giving you large amount of prescription is likely to happen with oncologist.
Okay. And third one, tildra. When is the PDUFA date for this?
It's end of March.
Okay. And a fair expectation to get it approved in the first cycle review?
Actually, I think we have consistently announced, Sameer, that this is something which Merck has filed. So we are aware, but entire interaction with the agency is being handled by Merck. So it's difficult for us to respond.
Okay. One final one, [inaudible]. Given the size and the importance of Absorica in our overall U.S. business, what's the competitive outlook for this? When do you think we should expect the generic? It'd be one settlement or more than that also coming?
Yes, Dilip, please.
I think what you call -- typically, Sameer, if you see most of the settlement, which is there with the first-to-file generic, which I think we've announced the date, sequence settlements will be only after that.
And there are some that you have done, so this --
What we have done, we have announced.
Right. Thank you.
The next question is from the line of Surajit Pal from Prabhudas Lilladher.
Dilip, given that more news is coming on channel consolidation among the big players in U.S., what is your view about state of headwind in terms of price erosion? And do you think we are coming to the end of this cycle, or do you think that it will continue and it maintains for going forward?
Abhay, I think would you like to respond?
Actually, Surajit's voice was very faint to me, so I'm not sure I understood the question.
Basically what I'm saying is that given that the more news flow is coming among the elite players, or among the channel partners, are thinking of consolidating further. So given the state of the price erosion, do you think we are coming to the end of this price erosion cycle, or people continue to go on at a current rate or it maintains? What could be your call for, say, next year, year and half?
It's a question I ask myself every day, and I'm sure everybody in the generic business does the same, but I have no clear answer. From a day-to-day perspective, I'm not seeing the pressure reducing.
Say if [inaudible] than now, do you think there it is [inaudible]? Competitors from India is talking that they're observing that intensity has come down in terms of price erosion.
Abhay --
I think [inaudible] is difficult.
Yes, but you also indicated that it's all product specific. So I think it's --
Product specific, exactly. So there are products that I think the pressure has come down, and there are products that I think it has not come down. It's very product specific, so I don't want to give you an aggregated answer on this.
Products where we are seeing people coming out of the market because products are not viable anymore.
The other question is that in your Asia cost, given the kind of ramping up plan for specialty portfolio, as well as some of the India product also in lineups next 2 to 3 years' time, do you think that current base of 20%, 19% to 20% of is your cost to your sales and 20% to 22% will be enough, or do you think this cost may increase initially as a buildup cost?
That's what I said that when we give next year's guidance, we will give some clarity.
The next question is from the line of Abhishek Sharma from India Infoline.
Saw in the last quarter you had mentioned that your tildra filing in EU, the European agency was expanding the scope of clinical sites on the review. Do we have any updates on that regarding its revision or any further delays or what kind of work is going on there?
That review is continuing.
And does that change your timelines to file in the EU? Or not file, sorry. To get an approval.
So that we had announced not that it will delay the approval.
Right. And any further delays to what you had earlier indicated?
No. Nothing beyond what we announced last time.
All right. Just from an understanding perspective, is it something which has expanded ever since you announced this last quarter, or is it still what you had expected when it began?
I think when there was something that was likely to impact approval, we announced. If there is let's say a further change, then we will announce.
Right. The other one is on Absorica question to Abhay. Given the fact that we are now are reducing copay support, if I understood this correctly, does that risk the patient switching to isotretinoin generic, given the fact that similar generic alternatives are available in the market?
Before we took that decision, we had done a modeling of what we think we will expect to see, and I think we are trending along the lines that we expected. So sure, that really put us at risk is always there. But I think the idea is not just to have a large prescription base, but to also have a profitable prescription base.
And does that also risk alienating some of your channel partners, say, pharmacy chains, et cetera, who would prefer a better copay system?
I don't think they expect a better copay system.
So it's just related to the patients, and that's something that you modeled.
Yes.
The next question is from the line of Manish Jain from SageOne Advisors.
Dilip, I just wanted to know on tildra, until what stage do we need to keep taking support from Merck? Is it just restricted to getting the approval and ongoing clinical trials for additional indications, or will they play any role on the marketing side as well?
I think, Manish, what we have announced is that the filing for the U.S. will be done by Merck. And since they would have their BLAs filed by then, up to the approval, they're actively involved. The initial supplies for tildra also will come from the Merck until we, let's say we relocate manufacturing to another supplier. For the purpose of the marketing, as well as the promotion of the product, I think it's a Sun product post-approval. So there is no active involvement from Merck for approving the promotional material or supporting marketing activity as a part of the contract through the agreement. We have good relationship with Merck, so that if we wish to consult them or if we wish to take their view on whatever that we want to work on, I think that at least we have been able to access that input from them.
And typically, when one is looking at a product like tildra, what can we look at as the launch period cost? Where should we assume 6 months, 12 months, 18 months, broadly?
To my view is that if you call larger, I would call it investment phase where typically you will spend more than what you will sell. I would say anywhere between 2.5 years to 3 years is what you will achieve, depending again on the product. Some products will start responding much faster, so you let launch phase maybe 1.5 to 2 year.
This is very helpful.
We will take the next question from the line of [ Ashish Condelvo ] from [ Bear Consultancy ].
Just wanted to know, what is the total debt has been added in this quarter, or has it been reduced in this quarter?
Nimish, we don't have the number. Maybe post the call, you can share the number.
But it's not so significant. [Inaudible]. It's a routine business activity.
There is no significant change.
Plus, we were still paid something, because we had more money with the funds, mature fund for liquids. We have reduced our borrowings, but we can chat with you.
The next question is from the line of Alok Dalal from CLSA.
Dilip, my question was with respect to emerging markets. 3 years post the Ranbaxy acquisition, where you are in these markets today, and how you are seeing the next 3 years?
I think we are happy with the progress that we have made and our performance in the emerging market. We have been able to rationalize the operation state of it, low margin products, improve the overall profitability margin on the product, streamline the structure. Also streamline the internal processes for filing new products in emerging market. So hopefully that business will continue to grow over next 3 years.
The [inaudible] with the initial phase now behind, is it fair to assume that you will grow faster in EMs on a constant currency basis than what you have done in the last 3 years?
We don't give 3-year guidance, so I think you're asking for a longer period. But yes, I think it's our -- philosophically, our view is that emerging market is an important and good opportunity for developing a profitable growth business.
And is it the possible to share the sales split in EMs line like we used to do that in the past? Can Sun also give those numbers?
Country by country, you're saying.
Yes, the key markets.
Currently, we have no such plan.
And any comments on the profitability in these markets 3 years out past? How is the profitability in these markets?
I think many markets which were, let's say, mildly profitable or loss making have become profitable. I don't think at the budgeted level, or even at operating level, after providing for corporate overheads, there is any market in which we actually lose money.
The next question is from the line of Nimish Mehta from Research Delta Advisors.
First on the U.S. business, I think you mentioned that we have a [inaudible] for second quarter in the third quarter. So does this mean that the actual sales for the third quarter is lower than what is in focus? And if yes, then how should we look at it, and what is the baseline things that we should look at?
Abhay, would you respond?
I think you're probably better off looking at it as what we have done in Q4 -- as Q3, rather, is similar, a number that we can still achieve in Q4 as well.
I see. But that usually means that Q2 sales have not been [inaudible]. I'm just trying to understand what -- maybe [inaudible] Q2 now, but why would --
Your question also assumes that in existing products, our other products we won't improve on the next quarter.
Okay, understood. The second actually is on the sales guidance that [inaudible] given about the low single-digit decline. I'm sorry, high single-digit decline. And now we are heading towards almost high double-digit decline. I'm trying to understand is it because only of Taro, or is it also because of something else? I wonder if you can tell us what is the reason why it's not meeting the guidance, is what I'm trying to guess.
I think if you do mathematic -- and it's not high double-digit decline -- the most we may miss the guidance marginally.
So the 9-month decline is about 17%. So when we are talking about the high single-digit decline, should we say --
I think there's no sense in discussing this on phone. Maybe that you're looking at different numbers, I'm looking at different numbers. Resolve this with Nimish subsequently.
Okay. So we are likely to meet the guidance, is that a fair assumption?
I said that we might miss the guidance marginally.
Marginally. Okay.
Next question is from the line of Ashish Thakkar from Motilal Oswal Securities. Ashish Thakkar from Motilal Oswal Securities, your line is unmuted. Please proceed with your questions.
You can take the next question, please.
We have the next question from [ Charluat Digradani ] from [ Dalal and Praicher ].
My question pertains to you made the mention that you have dropped certain non-viable projects. I wanted to know if you could quantify them. And how have you taken it? As an impairment or as a part of your R&D?
Typically, R&D is fully charged, so there's no need to take any impairment. The second issue is that the -- this is after evaluating whether the product, if approved, is something that is attractive enough for us to launch a lot, and whether it will require the subsequent investment required for getting [ peer ] approval of the product. So if it isn't way, some of the products we would have dropped.
How many -- how big would it be in terms of whatever has been sent so far?
I'm not able to respond. It's not a big number. And also, it started material issue as a percentage of R&D cost.
Okay. And my second question pertains to there have been certain withdraws from the U.S. market by Sandoz and Teva. Do you see the situation improving because of this?
I think market will continue to dynamically readjust to pricing pressure, as well as relative attractiveness of different products. And that's like little bit a new normal. And as I said, that there are products where we are seeing price changes upward because of the market dynamics. But I'm not going to respond to specific products.
The next question is from the line of Rahul Sharma from KARVY Stock Broking.
One thing [ I need ], have you withdrawn certain of the pending ANDAs like what we have done the preceding quarter because of the changing competitive landscape?
Yes, Rahul. That is what it is.
Okay. So how many would be pending as of date now?
We have given the details. 126 pending ANDA approvals.
Okay. So probably another 10, 15 have been withdrawn?
We haven't quantified, but if you do calculation, look at last -- this and also look at new filings we have also shared with you, then it's easy to do that calculation.
Can you please read out on the guidance which you had given? I probably missed out on certain aspects.
Rahul, Nimish here. In interest of time, probably you can call me after this call gets over, and then I'll explain it to you.
Okay, thanks.
The next question is from the line of [ Sardamut ] from ULJK Financial.
My question is that we are hearing that next big thing in pharma is venturing out into the complex generics and biosimilars. So I wanted to know what will the impact of this generic consolidation in used market on these new products which we are venturing out into.
Abhay, would you like to respond?
Honestly, I don't know how to understand the question.
That makes two of us. I think you're asking us to predict future in an uncertain environment.
If pharma companies bleeding is the generic consolidation and other effects. But if we are moving into something which is a newer, so it must not -- like how that it impact the complex generics. Because biosimilar is the most difficult part. So if it -- the rollout of biosimliars and look at complex generics and specialty molecules, so how does that grow the future?
One thing you have to keep in mind is that attractiveness of a product is a function of how many people are competing for market share -- that's because it's attractive -- however complex it will be. But beyond that, I don't think we can respond. In the sense that if the complex generic that we are working on, on day one, if there are 4 players, then it will not be attractive anymore.
The next question is from the line of Dheeresh Pathak from Goldman Sachs.
I think I heard that you said that formulary coverage is not an issue for the Odomzo, but might be for tildra and OTX. Can you just compare and contrast what characteristics does Odomzo have and the other two don't have so that formulary coverage is an issue for one and not for the other?
I think it's simply [inaudible] size of market and [inaudible].
Is of market, sorry?
Yes, is of market. I think somebody's making noise.
Dheeresh, it's coming from your end. There's some airy disturbance. If you're on hands free, you will need to keep that off.
I'm not. I'm on the headset. Is it better now?
Yes.
Sorry, sir. Go ahead.
Odomzo is a small product, and the disease which affects relatively small number of patients. So that is never under significant scrutiny. Essentially, it's not a very tightly managed [inaudible] in the space that it competes in. But psoriasis or dry eye will be a tightly managed formulary. So one would have to work towards winning your place in each of the formularies one by one. So it will happen over a period of time, and it's not necessarily going to be very fast. That's what we are trying to communicate here.
Okay. And can you indicatively mention the sales force that we have for Odomzo?
You're talking about number of people?
Yes, who are marketing the product in U.S., both derm and onco.
Generally for confidence reasons, we are not sharing specific sales force numbers.
Okay. And lastly, if I understood correctly, we have the marketing infrastructure in place for tildra, but we don't yet have [inaudible].
Sorry. We missed the last part. Your voice broke off.
The sales force for tildra, that is still not in place, correct? Is that correct understanding?
Recruitments are on. It's not in place, but the recruitments are on, and in some places, we have recruited. Some we are in the process of recruiting.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
There was a recently [inaudible]recalls for this last month. I just wanted to understand, in your analysis, was that limited to a batch, because the reason is recall mentioned was lack of assurance of sterility.
I think it was a failure of certain systems because of which we had to recall.
But this was very much limited to the recall quantity --
One specific batch.
Okay. And other question was on tildra. For the questions which are asked, you [inaudible] of extended review. Was something of that sort picked up by U.S. regulators? Did they come back with some questions related to that?
Nothing that we are aware of.
And lastly, you have indicated earlier that specialty, you expect as EBITDA breakeven, assuming you don't -- that should take up any of the [inaudible]. Do you think you still get around that region by FY20 now?
It all depends on actually how much we decide to invest. Because both the products, tildra as well as OTX-101, are marketing intensive products. It depends on how much we decide to invest on marketing. [Inaudible], then it will break even. If we feel excited about the product enough to invest, then maybe for few more quarters, we might lose money.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Didn't they just -- what I've heard from M&A, are you still on the lookout, and what is it that really excite you?
I think we want to -- we have shared this with you also in the past is that we want to develop attractive products by playing for, developing a global [inaudible] business. So those are the kind of products and companies that we are looking at. But I think also, apparently we are focusing much more on execution, including strengthening execution on filing, on approval, on launch, and on maintaining consistency of supply chain.
And second question is when your R&D team is working on generic pipeline for the U.S., when you look at the lay of the land over the next 3, 5, 7 years, based on the work being done internally, do you think that this is attractive market? Do you see there is fair bit of opportunity to go forward?
I think rather than taking a view on the market, there are always attractive products. For some [inaudible] relatively short period patent expiry is lower down than what it used to be in the past. So to that extent, I think the cash flow can get deferred, and it will need to be justified in terms of net present value to the current investment [inaudible].
Thank you. Due to time constraints, that was the last question. I now hand the conference over to Mr. Nimish Desai for closing comments.
Thank you, everybody, for joining us on this call. If any of your questions have remained unanswered, please send them across. We will have them answered. Thank you, and have a good day.
Thank you very much. Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.