Sun Pharmaceutical Industries Ltd

NSE:SUNPHARMA

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Sun Pharmaceutical Industries Limited Q3 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. Thank you, and over to you, sir.

[Nimish Desai, Head of Investor Relations]

Thank you. Good evening, and a warm welcome to our third quarter FY '21 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. C. S. Muralidharan, CFO; Mr. Abhay Gandhi. CEO of North America; and Mr. Kirti Ganorkar, CEO 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 the ease of discussions, we will look at consolidated financials. Just as a reminder, this call is being recorded and a replay will be available for the next few days. A 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 risk that our business faces. You're 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.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the third 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 8,782 crores, recording a growth of 9% year-on-year and 4% quarter-on-quarter. Our Q3 performance reflects continued profitable business growth in a market that is gradually recovering from the impact of the global pandemic. Most of our businesses have done well over Q3 last year. Our India and U.S. businesses have also grown sequentially. We continue to focus on top line growth, operational efficiencies and business continuity. Let me now update you on our global specialty business. For Q3, our global specialty revenues was approximately USD 148 million across all markets. Global Ilumya sales for 9 months ended December 20, have already crossed last year's -- last full year's sales. Specialty R&D accounted for approximately 27% of our total R&D spend for the quarter. We've recently initiated Phase II clinical trial for SCD-044 in patients with moderate to severe plaque psoriasis. The Phase III clinical trials for Ilumya for psoriatic arthritis indications are also ongoing. Abhay will give you more details on specialty business later. I will now hand over the call to Murali for discussions of Q3 financial performance.

[C. S. Muralidharan, Chief Financial Officer]

Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q3 financials are already with you. As usual, we look at key consolidated financials. Q3 sales are at INR 8,782 crores, up 9% over Q3 last year. This is the highest ever quarterly sales that the company has recorded. Material cost as a percentage of sales was 26.6%, lower than Q3 last year due to product mix and other efficiencies. Other expenditure was at 27.9% of sales, lower than Q3 last year, mainly due to lower marketing and traveling spend in U.S., India and other markets. As indicated in our past earnings call, these expenses will see an increasing trend in future. once the market situation reaches full normalization. As a result of the above, EBITDA for Q3 was at INR 2,351 crores, up by 36% year-on-year, with resulting EBITDA margins at 26.8%. Reported net profit for the quarter was at INR 1,852 crores, up 103% over net profit of Q3 last year. The reported EPS for the quarter was INR 7.72. Let me now discuss the key movements versus Q2 FY '21. Our consolidated sales are up by 4% quarter-on-quarter, driven mainly by strong sequential growth in the U.S. and India business. Material cost at 26.6% of sales are higher than Q2 due to product and geography mix and certain onetime charges at Taro. Other expenses at 27.9% of sales, are marginally lower than Q2, mainly due to lower R&D spend. We had a ForEx gain of about INR 72 crores for Q3 as against ForEx loss of about INR 116 crores in Q2. As a result of the above, EBITDA for Q3 at INR 2,351 crores, was higher by 12% compared to Q2. Net profit for Q3 stands at INR 1,852 crores, was higher than the adjusted net profit of Q2 by about 16% and was 2% higher compared to reported net profit of Q2 FY '21. Now we will discuss the 9 months performance. For the 9-month period, net sales were at INR 24,708 crores, a growth of 2% over 9 months last year. As indicated in the past, the 9-month period of last year included contribution from a nonrecurring special business in the U.S. and hence, the year-on-year sales numbers are not strictly comparable. Material cost as a percentage of the sales was 26.1%, which was lower than 9-month period last year, mainly due to product mix and efficiency initiatives. Staff cost at 21% of sales, were higher than last year, mainly due to additional field force in India and U.S. as well as the annual merit increase. Other expenses were at 28.1% of sales, lower than 9 months of last year, driven mainly by reduced marketing, selling and distribution and traveling expenses across markets. As a result of the above, the EBITDA for 9-month was at INR 6,176 crores, a growth of 18% over the 9-month last year, with resulting EBITDA margin of 25%. Excluding the exceptional items, adjusted net profit for 9-month FY '21 was at INR 4,589 crores, up 36% year-on-year, with resulting net profit margin at 18.6%. Reported net profit for 9-month FY '21 was at INR 2,010 crores. The company has repaid debt of about USD 490 million in 9-month period of the current fiscal. Let me now briefly discuss Taro's performance. Taro posted Q3 FY '21 sales of USD 140 million and net profit of USD 33 million, which was down by 2% and 27%, respectively, over Q2 FY '21. On a year-on-year basis, sales for Q3 FY '21 were lower by 5%, while the net profit was lower by 51%. For the 9-month sales were at USD 401 million, down 14.7%, and adjusted net profit was at USD 107 million, down 43.6% over the 9 months last year. I will now hand over to Kirti Ganorkar, who will share the performance of our India business.

[Kirti Wardhaman Ganorkar]

Thank you, Murali. Let me take you through the performance of our India business. For Q3, the sales of branded formulation in India were INR 2,753 crores, a growth of 9% over Q3 last year. We have also recorded a 9% growth on quarter-on-quarter basis. India business accounted for about 31% of consolidated sales for Q3. Our growth for Q3 was led mainly by chronic portfolio. For most of our therapeutic segments, we have either outperformed or our growth in line with the segment growth. As reported by AIOCD AWACS, our overall market share in the domestic market has also recovered to 8.0% in Q3 compared to 7.78% in Q2. The growth in semi-chronic and acute portfolio has started recurring. The acute segment is still facing some challenges due to lower incidence of infections and less patient flow to the doctor's clinic. Our medical representatives are fully operational on the field and are visiting doctors for promoting our products. About 90% to 95% of specialty doctors have restarted their practices. But the patient footfall is not yet fully normalized and is at about 70% to 75%. The doctor call rates are improving and are near to normal. For Q3, we launched 27 new products in the Indian market. Sun Pharma is the largest pharmaceutical company in India and holds approximately 8.2% market share in over INR 1,45,000 crores pharmaceutical market as per December 2020 AIOCD-AWACS MAT report. We also continue to remain the partner of choice for in-licensing of products given our strong #1 position in many therapy areas. I will now hand over the call to Abhay.

[Abhay Gandhi]

Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q3, our overall sales in the U.S. grew by 7% over Q3 last year to USD 374 million, mainly driven by ramp-up in sales of specialty products and the ex-Taro generic business. U.S. accounted for about 31% of consolidated sales for the quarter. Our specialty revenues in the U.S. have increased significantly over Q2 and have crossed pre-COVID levels driven by Ilumya, CEQUA and ABSORICA LD. Sales of Levulan have recovered compared to H1, but yet to be fully normalized. Ilumya sales in U.S. for the 9 months ended December '20 have already crossed last full year sales. We continue to improve our specialty revenues in the U.S., driven by a gradual increase in market shares of key products. The generic for ABSORICA is yet to enter the market. And as of now, we do not have any visibility on the direct entry. Doctor clinics have been opened during the quarter and the patient flow and access to industry is yet to fully normalized. Let me now update you on our U.S. generics business. As you have seen, the U.S. generics business continues to be competitive. The Sun ex-Taro generics business has recorded year-on-year growth, driven by a combination of market share gains, better supply chain management and incremental upside from shortages of competing products. As of December '20, generic prescriptions for Sun portfolio have reached close to pre-COVID levels. I will now hand over the call to Mr. Shanghvi.

[Dilip Shantilal Shanghvi, MD & Executive Director]

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 204 million for Q3, up by 5% year-on-year. The underlying growth in constant currency terms were higher at about 11%. Emerging Markets accounted for about 17% of the total sales in Q3. Formulation sales in Rest of the World markets, excluding U.S. and Emerging Markets, were USD 173 million in Q3, up by 12% over the Q3 last year. This was mainly driven by all-round growth in multiple markets like Japan, Europe, and coupled with growth in Taro's Rest of the World business. ROW markets accounted for approximately 15% of consolidated Q3 revenues. API sales for Q3 were at INR 450 crores, down about 10% over Q3 last year. We continue to invest in R&D for enhancing our specialty and differentiated generic pipeline. Consolidated R&D investments for Q3 were at INR 560 crores, accounting for 6.4% of sales. Our current generic pipeline for the U.S. market includes 90 ANDAs and 8 NDAs awaiting approval with the U.S. FDA. Board of Directors today decided to issue a dividend -- interim dividend of 550% or INR 5.5 per share. With this, I would like to leave the floor open for questions.

[Operator]

[Operator Instructions] The first question is from the line of S. Mukherjee from Nomura.

[Saion Mukherjee, Head of India Equity Research]

Hello? Are you able to hear me? Hello?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, we can hear you.

[Saion Mukherjee, Head of India Equity Research]

[indiscernible] bunching up of launches, or any new thought process that you have on product launches in India, are the number of launches going to be a lot higher going forward? Can you just sort of throw some light here.

[Kirti Wardhaman Ganorkar]

Yes. I think I could not hear the earlier part, but you are asking about new product launches in India.

[Saion Mukherjee, Head of India Equity Research]

Yes.

[Kirti Wardhaman Ganorkar]

I think if I see last 3 quarters, consistently, we are launching somewhere between 20 to 25 products in India, which includes the line extension and new product. And I think this will continue to going forward also.

[Saion Mukherjee, Head of India Equity Research]

And sir, the next question on specialty. Is there any material contribution from launch in Japan of Ilumya? Or is it largely driven by the U.S. ramp up?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I think we have recently launched Ilumya in Japan. And in the COVID restrictions, I understand that the product has been very well received. And as we are able to reach the hospitals which allow medical representatives to visit, we are seeing good acceptance of the product. And we remain very optimistic about the potential of the product and expect it to become an important medicine for treating psoriasis patients in Japan.

[Operator]

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

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Sir, first question on the cost side. So both on R&D, last time we mentioned and this time also that there are additional indications for Ilumya. So the thought was that incrementally, R&D would inch up, but actually it's down. So what's the thought there going forward? And also on the SG&A, I think, Kirti said that India, we are seeing both where marketing and promotions coming back, field force coming back. So we thought that the cost would also increase Q-on-Q ex R&D. So any thoughts there?

[Dilip Shantilal Shanghvi, MD & Executive Director]

I think some of the R&D expenses for clinical studies, I think, are also relatively slow because the patient enrollment is slow because of the COVID in many geographies. However, I think when things start becoming normal, we will see that increase. Kirti, maybe you can respond about the cost of operations.

[Kirti Wardhaman Ganorkar]

Sure, sure. As you know like Q1 and Q2, as an example, like the travel expenses, both for field and head office are very less. But as the economy is opening up and things are normalizing, and as I said almost 90% to 95% of the doctors are practicing and we are reaching almost our call average to pre-COVID levels. So our traveling costs have gone up, and it will continue to go up in next quarter also. There will be some still say some of the savings on promotional materials, but that also would catch up as we go forward. So as I see like in quarter 3 and quarter 4, these expenses will keep on increasing because now we are coming to almost like a pre-COVID level in terms of activities with the doctors. Still some of the physical conferences and other activities have now started in big way, but small, small conferences of like 10, 15 doctors started happening in December and January.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

I understand that. But we are still down 4% Q-on-Q on the SG&A ex R&D. So I was just trying to understand that if Murali sir can help.

[C. S. Muralidharan, Chief Financial Officer]

So I've specifically mentioned that, as reiterated in the past earnings call, the selling and promotion, marketing and traveling spend will continue to see an increasing trend in the future as we are achieving the market normalization, which Kirti just mentioned and this is going to be across geographies. That's what we are reinforcing, in -- not only in India but in other markets also, the expenses will increase as the market position normalizes.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

No, no, I understand that, but my question is it's coming down by 4% Q-on-Q despite that statement. So what is leading to -- is it expenses related to specialty in the U.S., which is still low or down? Or what are the other elements to the lower cost?

[C. S. Muralidharan, Chief Financial Officer]

See there are many moving parts. So I would not like to get into specific of any particular segment.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Abhay, maybe you can respond, if there are specific things in the U.S. that you can take on.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Yes. Some color would be helpful.

[Abhay Gandhi]

Specifically, I think travel in the U.S. is still not back to normal. Everybody on this call knows that U.S. is reporting high number of COVID cases. I think the last 7 day average is close to 160,000 cases a day. So travel is restricted. To that extent, I think our travel and related costs are continuing to be lower than what we have factored for.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And just last part on the R&D side, what's the outlook here for next year, sir?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So next year, I think we will give our guidance about the R&D spend at the end of our fourth quarter call. But I see that the R&D spend for specialty product looking at the number of studies that we've initiated is likely to grow over the current base.

[Operator]

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

[Anubhav Aggarwal, Associate]

Actually, continuing with the previous question, if I look at an absolute basis, the other expense that we report, on a quarterly basis, we are -- the run rate is roughly about INR 200 crores lowered when we compare to pre-COVID level. I have -- my question is that, Dilip bhai, how much of this do you think can be permanently saved here, I'm assuming like-to-like, I'm not talking about launching more products there for this as a going company sale increase, roughly INR 50 crores a quarter, can we say it here, roughly? Or you think everybody -- everything will come back in a quarter or 2.

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, I hope that we can say. But what I -- my end interaction with all the country leadership teams have essentially meant that once things come back to normal. They don't expect any significant long-term reduction in the marketing expenses accepting some of the expenses which they currently feel do not produce any significant value, but they may divert those resources on some other more productive investments. But study state, we will see a better growth and also possibly increased cost.

[Anubhav Aggarwal, Associate]

Okay. That's helpful, Dilip bhai. Second question is for Abhay. This question is on ABSORICA LD. I just want to check with Abhay that, IQVIA still reports low conversion, but your sales does not suggest that. So is it that the IQVIA is under reporting your conversion of ABSORICA LD? The numbers from last quarter 20% would have significantly gone up now? Hello?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes. Abhay, did you hear the question?

[Abhay Gandhi]

I heard the question. Sorry, I started answering on mute. So yes, sorry about that. What I was saying is our conversion still is at around 20%. So I don't think that number has gone up significantly. But yes, every week that we get extra of being in the market, we are trying to see that the conversion rate improves.

[Anubhav Aggarwal, Associate]

So what's the hurdle here, Abhay? My doubt is this -- that product is good here. I further [indiscernible] coverage for between ABSORICA and ABSORICA LD is a little bit better only for ABSORICA LD, that's not the question here? I don't know what is the activity level. Is activity level reps visiting doctors is less than 50% in the U.S.? So why is this product not picking up despite all being positive of the new formulas?

[Abhay Gandhi]

So 2 major reasons. We launched it literally a month before COVID hit us. And the footfall at the dermatology clinics even today is nowhere back to normal. So that has been a big contributing factor towards the slow ramp up. The second reason is, you also understand that in the U.S., whenever you launch a new product, there are many payers and PBMs who take nearly 6 months to start covering your product. You have a new-to-market block. So when you have -- when you combine these 2 factors that you have a COVID environment and a new-to-market block for 6 months, then it always slows down the uptick. The second, we knew we would face, the first nobody anticipated. So I think both factors put together, I think, it's the reason the ramp-up is slower than what we can expected.

[Anubhav Aggarwal, Associate]

If I can just ask a clarity on that. What is the level of field force activity in the U.S. right now when [indiscernible].

[Abhay Gandhi]

Your voice is breaking, sometimes maybe you are closer to the extent -- I'm guessing your sentences. Is it possible to…

[Anubhav Aggarwal, Associate]

I'm sorry, sir. Yes, yes. I'll speak at louder. I was saying that what is the field force activity in the U.S. right now? When in India, it's 90%, 95%, what's the activity level in the U.S. right now for the branded business?

[Abhay Gandhi]

Yes. It's a little different across therapy. But if we have to still generalize, I think face-to-face interactions are at 40% to 50% of where we would like it to be in a normal circumstance. The rest is being tried to make up -- the reps trying to make it up by making virtual calls. But -- and both put together, we would be like 80% of where we would like to be. So it's much different from what Kirti spoke about India. I can only envy those India kind of call numbers, but we are not there as yet.

[Operator]

The next question is from the line of Neha Manpuria from JPMorgan.

[Neha Manpuria, Analyst]

Abhay, on CEQUA, now that Kala is launching their acute dry eye product, do you expect a slowdown in momentum in the product?

[Abhay Gandhi]

I don't think so because the Kala product is essentially for acute treatment like you rightly said. And to my understanding, doctors will be able to find the usage for both the products. So we are actually quite bullish on CEQUA and how we think we should be doing with the product.

[Neha Manpuria, Analyst]

Okay. So you don't see the traction in -- the Kala product impacting our ability to scale up CEQUA?

[Abhay Gandhi]

I don't think so. I think we will continue to try and grow our product.

[Neha Manpuria, Analyst]

Understood. And my second question is on Ilumya. Given the long-term data that you've seen, and now I'm assuming you would have shared that data with the doctors, are we seeing improved traction from doctors based on the long-term data? I mean, are you seeing a repeat prescription from these doctors based on the data that we've got the long-term data?

[Abhay Gandhi]

Q3 performance, as we said, is much better than Q2 and difficult to isolate only one reason for it. But yes, we have been using the 5-year long-term data with doctors and that would have contributed. But the whole marketing and promotional exercise is not just one thing, there are multiple things that we do and to be able to isolate just one reason and say, that's the reason for the sales for the quarter hit on the [ objective ]. But yes, we are excited about this data and customers we have spoken to are already enthused about this data. So there would be a contribution, that's for sure.

[Operator]

The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Congratulations on great pickup on the specialty side. So my first question is regarding the Phase III study for psoriatic arthritis indication. So how many patients you are aiming to recruit for this study? And what will be the cost allocated here? And on same line, what are your plans for study for the gastro indication?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I think our study is adequately powered so that we can highlight the strength of the product for psoriatic arthritis, and we are conducting 2 studies. We do not share study-specific costs. It's included in our -- what I would call specialty R&D cost. And it would be amongst the larger component of these costs. As to gastro indication, I think we have to see seriously evaluate because, clearly, we will be last to the market because all other products are way ahead of us in terms of clinical studies. And in terms of enrollment of patients when we are talking to specialists, we see that even the existing studies are suffering in terms of getting adequate number of patients. So we've not taken a decision finally, whether we will be developing Ilumya for gastroenterological indication or not. But we are seriously, evaluating the possibilities, once we decide then we will share that with you.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Sure. And my second question is on DTM spend for Ilumya and CEQUA. So compared to initial phase of launch, how are these costs looking right now? And what are your plans ahead like it will see better ramp up or these kind of spend level are sufficient to continue the momentum, which we have seen recently?

[Abhay Gandhi]

So I'm not sure if I heard what correctly. Did you say detained expenditure or did you say…

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

DTM, direct-to-market spend for Ilumya and CEQUA, yes.

[C. S. Muralidharan, Chief Financial Officer]

Yes. So I think, Ilumya, we have more or less optimized in the last maybe 2 quarters to where we need to be and looking at what we need to do. So I'm pretty comfortable with our strategy for Ilumya. CEQUA, actually, we are now starting the DTC campaign, not using television, of course, but we are using, I guess other media. And the campaign has been rolled out in the last couple of weeks. But of course, the spend will not be as high as what we had for the Ilumya. So -- but I think the campaign, which has hit the market initial response is very good. We are getting good coverage with that. And I think we'll also be seeing that somewhere in the public domain now. It's also on the website so.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Okay. So we should not be expecting these promotional spend to spike up significantly from here. Like you mentioned, DTM, we are broadly optimized now and CEQUA spend will be much lesser than what we had spent for Ilumya?

[Abhay Gandhi]

For Q4, I have clear visibility. But of course, for next year we are in the process of our budgeting cycle. So we have to see what it looks like, but we will be prudent. At the same time, cognizant of what the market needs for the product to be successful.

[Operator]

The next question is from the line of Sameer from Morgan Stanley.

[Sameer Baisiwala, Executive Director]

Congrats on a great quarter. Sir, is there any update on hollowed remediation?

[Dilip Shantilal Shanghvi, MD & Executive Director]

No. There's no update that we can share beyond what we have shared in the last quarter is that we've addressed all the efficiencies updated the agency, and we continue to be in the dialogue with the FDA about the [indiscernible] site reinspected.

[Sameer Baisiwala, Executive Director]

Sir, any idea based on what FDA is doing that, could it be first half calendar '21, second half for FDA to come down for inspection?

[Dilip Shantilal Shanghvi, MD & Executive Director]

No. I don't think I have any clarity on that. And I don't think they have shared this with us either as a company or even in the association that what is their plan about restarting international audits.

[Sameer Baisiwala, Executive Director]

Okay. And on Ilumya, so good performance, sir. And what's helping you over here in Ilumya ramp up? And more specifically, have found your niche in the market and you're doubling down on that? Is that the way to think about it? Or are you on the main street and out as hard as you can?

[Abhay Gandhi]

In a competitive fighting now this is the only way out. At the same time, we are now clear of what we need to do, whether you call it a niche or a specific customers we need to focus on and specific strategies that we need to do. So I think it's trying to -- it's developing comfort with the market now. And being clear of what we need to do to make it successful. And I think I must give also credit to the team for the execution that they have done of these strategies. So it's a combination of all this.

[Sameer Baisiwala, Executive Director]

[As of which ] therefore, that there is now a good growth runway over the next 1 to 2 or 3 years as we move forward?

[Abhay Gandhi]

Again, I'm sorry, it's little bit of a garbled sound. So if you can come closer to the microphone, please?

[Sameer Baisiwala, Executive Director]

Is it better? Let me speak a bit loudly. So does that mean that you have identified what needs to be done, and therefore, there is a growth visibility of this product over the next 1 to 3 years going forward?

[Abhay Gandhi]

I think let me take the year-on-year, but we are confident we will continue to do well and best we ask and that's the task.

[Sameer Baisiwala, Executive Director]

Okay. Great. Sir, one more on CEQUA. Sir, I just wanted to understand the USP of and Xiidra and CEQUA is early onset of action, 2 weeks and 12 weeks, if I'm not wrong, versus RESTASIS. So even after 4 years of Xiidra launch, its market share, I think, is just about 25%, we are sub-5. So sir, is the fact this proposition has not been so well received by doctors. Is this the way we should think about it? I mean, there's some growth, some -- you can mind some more share, but not an incredible lot. And especially once RESTASIS generics come in whenever they do?

[Abhay Gandhi]

I'm trying to really understand the question and I'm not sure I have understood it correctly. Can you rephrase it for me what you're asking for a little better?

[Sameer Baisiwala, Executive Director]

Yes, sure, sure. Absolutely. So sir, RESTASIS, as you know, it's onset of action is 24 weeks, and the proposition by CEQUA is 12 weeks and Xiidra is 2 weeks actually. And Xiidra has been in the market for last 4 years. And even after that, with such uniqueness of 2 weeks, it's just got 25% market share. So therefore, putting this in context, has this benefit of early onset of action be well received by doctors? I mean, it doesn't look like. And therefore, how much you can go further with CEQUA maybe very limited.

[Abhay Gandhi]

So in my view, the early onset of action, and I can only speak for CEQUA, I'm not going to be speaking about Xiidra on this call. The early onset of action is just one of the things that we have been focusing on. I think it is the, again, looking at product our patients who have not done well on the competing products, and they have used CEQUA have gotten good results. I think that is the other thing that we have focused on. And that has also helped us and doctors who have used the product have seen that the product works and works very well. So that, I think, has helped us. So we haven't really focused only on one aspect. We have tried to promote it as a package of benefits to doctors, which they can use on their patients and see the results for themselves.

[Operator]

The next question is from the line of Kunal D. from Emkay.

[Kunal Dhamesha, Senior Healthcare Analyst]

Congratulation on good set of numbers. This question relates to the molecule SCD-044 which we have in-licensed from SPARC. So what is the thought process in terms of selecting moderate to severe plaque psoriasis as an indication? I know there would be clinical consideration and then there will be a commercial consideration. So given you already have 1 product in this category and also this entire moderate to severe plaque psoriasis is kind of moving towards -- more towards biologics. So why not go for a mild to moderate psoriasis, which is still dominated by a 30-year-old molecules, like methotrexate or cyclosporine.

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, I think it's a good question. Challenges that for mild-to-moderate subset of patients, I am not really sure as to what would be the openness of the various formularies to accept a high-priced differentiated product when large number of generics are available. At the same point of time, I believe that while there is an increasing acceptance of biologics for treatment of moderate-to-severe psoriasis. There is a clearly differentiated in a different market for oral agents. So if you have a relatively safe oral agent, which does well and produces good overall outcome, I see a continued opportunity for that. If I see that was the view shared by Amgen when they bought the product, which they bought from Celgene, also BMS when they prioritized their to TYK2 inhibitor for psoriasis over other indications. So I think this market will continue to increase.

[Kunal Dhamesha, Senior Healthcare Analyst]

Okay. But as far as kind of I understood the Amgen bought this product, and now they are currently planning to go for mild-to-moderate psoriasis as well for the same product.

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, I think I agree with you. And even if you don't have mild-to-moderate psoriasis in your label, there nothing preventing a doctor from using it from mild patients. So I think the question is how do you prove your product for difficult patients so that you can develop the confidence of the doctor about the overall efficacy of your product. So if something works for moderate to severe, it's also going to work for mild patients. You don't want to be classified as a drug, which can be used only for mild patients in the beginning.

[Kunal Dhamesha, Senior Healthcare Analyst]

So first, basically, you would go for moderate to severe and relatively once we have established, we can also [indiscernible].

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, then it is okay to talk about mild to moderate.

[Kunal Dhamesha, Senior Healthcare Analyst]

Okay. And the second question, at the -- maybe sounding repetitive, but I believe our spend in U.S. specialties, especially towards Ilumya as we have optimized on many fronts, including DTM campaign or maybe targeting the doctors that you want. So do you think that some of the savings, which we have kind of as maybe side effect of COVID, we have realized that these things are not important from the growth perspective, we are growing and we didn't made that investment, but still we are good? So will the spend for, let's say, Ilumya or specialty will continue at this level in the U.S. market? Or how do you think about that? Or let's say, travel expenses could come back, but let's say, DTM expenses will not come back or some of the other activities which [indiscernible].

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, no. There are -- I think Murali in his readout indicated, that many of the expenses as this life comes back to normal will continue to rise for all markets. That's what I think. So I don't think that our expenses today are only reduced because there are many other expenses, including multiple conferences by doctors, our participation in various, what you call, global meets. So all of these, we are not able to currently invest on, which we will, once the life becomes normal. Abhay, maybe you can add.

[Abhay Gandhi]

So nothing to add to what I said earlier and what you've explained now. So we have to see how the situation evolves. And like you said, when life gets back to normal, a lot of the expenses, which you were doing, in fact would probably return back to where it used to be.

[Operator]

The next question is from the line of Krish Mehta from Enam Holdings.

[Krish Mehta, Equity Analyst]

Congratulations on a great set of numbers. And I have 2 questions. The first one was about EBITDA margins. Like many people have asked already about costs being sustainable or going up, would you then agree that the EBITDA margins in this quarter is a one-off? Or do you think it's sustainable going forward as promotions, marketing costs, R&D or go up?

[Dilip Shantilal Shanghvi, MD & Executive Director]

I think, generally, we don't guide for EBITDA numbers or profitability numbers. At the same point of time, I think I have, even in the previous calls, said that our focus would be to find a way to increase our EBITDA, increase our return on investment and return on capital. So I think if you see as a result of our focus on cash flow generation, we're now down to around $250 million of net debt. And in the same way, as we will focus on improving all of this, I think, I am expecting an improvement. However, as you rightly analyzed, I think there are expenses which are going to go up. Hopefully, our sales growth will make up for that. But our focus on improving profitability will continue.

[Krish Mehta, Equity Analyst]

Okay. And the other question I had was about ex-Taro consolidated debt. So could you just give the figure for what it is as of day for ex-Taro?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, Murali, maybe.

[C. S. Muralidharan, Chief Financial Officer]

Yes. Ex-Taro the consolidated net debt is around INR 250 million. That's what Mr. Shanghvi just said, ex-Taro.

[Krish Mehta, Equity Analyst]

It's $250 million or $150 million?

[C. S. Muralidharan, Chief Financial Officer]

$250 million net debt.

[Operator]

The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.

[Vishal Manchanda, Research Analyst]

On traveling and promotion costs, could you share at what percentage would we be compared to last year, say, if we had 100% spend last year, are we at 50%? Or are we at 25%?

[C. S. Muralidharan, Chief Financial Officer]

Can you just repeat the question, please? It was not clear.

[Vishal Manchanda, Research Analyst]

On traveling and promotion spend, where are we today in terms of percentage? So like compared to last year, are we at 25% or we are at 50%?

[C. S. Muralidharan, Chief Financial Officer]

The overall the other expenses constitutes many moving parts. So which would be very difficult for us to pinpoint percentage any particular nature of expenses to disclose on that level.

[Vishal Manchanda, Research Analyst]

Okay. Second one on ABSORICA. So once generics enter in ABSORICA, would you still continue promoting that product? Why I'm asking so is will the kind of quantum of sales around that product allow you to spend on sales force?

[Abhay Gandhi]

So LD we will clearly continue to promote because it is a different product. So we will continue to promote the LD. And of course, we are -- we have -- we will be making changes to see that the spend is such that we are able to continue to work in to field force that we have and be able to grow the brand.

[Vishal Manchanda, Research Analyst]

Okay. And just last one on CEQUA. Are majority of the patients who are on CEQUA would be kind of fair to say are nonresponders to RESTASIS? And any sense you would have on whether those -- for those nonresponders are -- have -- do respond to CEQUA, so nonresponders to RESTASIS responding to CEQUA?

[Abhay Gandhi]

So really speaking, that kind of granular data, I have -- do not know -- to be able to very clearly answer your question. Yes, in the initial phase for the first few months, we actually got the warehouse patients of nonresponders. As more and more doctors have used the product and seeing that the product is good on its own merit, we are getting fresh starts also. But exact proportion and how much of it is [ fresh ] and how much is nonresponder, I would not really have to break up.

[Operator]

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, Equity Analyst]

The first one is on the non-Taro U.S. revenues. They are up quite a lot sequentially, 22%. I know you don't disaggregate into specialty revenues and generic revenues there. But just wanted to get a sense of how the generic piece is performing in terms of at least the direction? And I think in the opening remarks, you also talked about shortages. So is it related to generics again?

[Abhay Gandhi]

So I think in a market which is very competitive, I said in my readout as well that the generic business has actually shown growth when you look at quarter-on-quarter, and we look at 9 month over 9 month. So I think they've done well. It's a combination of gaining market share for products that we [indiscernible] growth. And a lot of credit goes also to the team back in India in operations and quality and supply chain in a difficult environment has enabled to keep the supply chain very, very functional. And that has helped us to make most of some of the market opportunities, which came during the last 9 months. So I think it's a good execution by the team on multiple fronts which has helped the business to grow.

[Shyam Srinivasan, Equity Analyst]

So Abhay, in terms of pricing environment, are you seeing what we saw in 2020 kind of remain relatively benign, relatively is the word I'm using? Or do you think, as things are opening up again? You're starting to see [ price ] erosion also come back.

[Abhay Gandhi]

I wish I could give you better news, but I would not say it's relatively benign. It's always product specific. So there are certain products where it is literally benign Certain products, nothing much has changed. It's a combination of it. But overall, directionally, we still continue to see pressure.

[Shyam Srinivasan, Equity Analyst]

Got it. And my last question is on the India business, grew 9%. And I think the opening remarks talked about chronic growth. So I'm assuming it's growing faster given where acute demand is. So just want to understand how the price and the volume dynamics are? Recollect the last few years, we've had a challenge growing volume growth in -- I'm talking about industry here. But just want to get a sense of how your domestic chronic business is panning out.

[Kirti Wardhaman Ganorkar]

Yes. So as I said earlier -- this is Kirti, in amongst 3 businesses what we have chronic, sub-chronic and acute portfolio. Chronic has done relatively well, and it has not impacted much by the pandemic. So we are continuously growing both in terms of units as well as in terms of value, and that is also helping us to gain a market share. So the issue is with the 2 other businesses where sub-chronic is now started showing a rebound. And in quarter 3, it has already doing a good rebound. And quarter 4, also, it will improve. And acute business will take some more time to come back like a normal situation or pre-COVID levels. So overall, to answer your question, yes, we are growing both by volume as well as value in chronic segment.

[Shyam Srinivasan, Equity Analyst]

Yes. But is there a disproportionate or a higher than usually contributions on price you think, Kirti? Or how should we think about it?

[Kirti Wardhaman Ganorkar]

No, no, no. If you can -- all this will be in public domain, if we look at AWACS and IMS data, there is no disproportionate growth from a value. So what we are growing is almost in line with market in terms of both volume and value. But our entire focus of India business for last 1.5, 2 years, we are focusing only on unit growth. So all our efforts, all our communications, everything towards field is more focusing on how do we grow on unit and how do we generate more prescriptions -- new prescriptions from the doctors. So there's a lot of emphasis on the unit growth. So if you want to gain a market share, then we have to grow faster in units. That's what we are tracking.

[Operator]

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

[Nitin Agarwal, Head of Research]

Sir, just a question on the generic business that you discussed. Sir, we've been still spending a fair bit of R&D spends on generics, let's say lion's share of our R&D spends, and the business has actually -- has not grown much in the past because of various competitive pressure in the market. And overall, qualitatively, how are we viewing this business in terms of -- is it still focus business for us? Is there some change in the way we're looking at growing this incrementally going forward? What kind of opportunities do we so we see here in the business?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So first important information you need to keep in perspective. When we say generic, it's not only U.S. It's U.S., Europe, Rest of the World and India. All of these R&D expenses are captured in the generic heading. So and what you're looking for is only growth out of our U.S. business. So I see the return on investment for R&D, then our overall growth and investment is justified in terms of continued investment. So I think why we will continue to invest in the R&D for generic and find a way to grow faster than the market in each of the geography, we will also ramp up gradually the spend on innovative R&D. And hopefully, as we continue to ramp up our innovative product sales, it will justify that investment.

[Nitin Agarwal, Head of Research]

And sir, generics as a business are up, are we still -- do we still remain in the U.S. generic business? Does it still remain an attractive business for us?

[Dilip Shantilal Shanghvi, MD & Executive Director]

[indiscernible] it's an attractive business.

[Operator]

The next question is from the line of Nithya from Bernstein Research.

[Nithya Balasubramanian, Research Analyst]

So I just had one question on brands in the U.S. So there is, of course, the cost of building out a sales force, but you're just setting up a brand. But in terms of marketing spend, including DTC spends, how do you know -- how should we think about it? Is this something that's likely to [indiscernible] through the license brand or just something that will come down after 2, 3 years because you've achieved a minimum level of awareness? How does it typically work from there?

[Abhay Gandhi]

Typically, when you launch a product, you have disproportionate expenses to try and get quick access. And I'm answering this question very broadly because your question also is a broad one. But once you have a certain foothold in the market and a certain decent share of the market, then that funds that you see in the initial phase always stabilizes to a certain extent. And you are able to then -- as a proportion of sales or expenditure or a percentage of sales or expenditure will start coming down as a percentage of sales.

[Nithya Balasubramanian, Research Analyst]

So no, Abhay -- sorry, if I may just clarify. I think as the revenue ramps up, I'm sure you're driving operating leverage. But at an absolutely level, do the spends actually come down, let's say you've done your television achieved some basic level of awareness that you wanted, will you actually stop spending on television? Would you [indiscernible] your spend normally come down? Or on an absolute level, it's expected to continue to grow a little bit?

[Abhay Gandhi]

As I said, we're still working out on the budgets for next year. So at an absolutely level, directionally, I don't think it will come down significantly. It may not go up significantly. But it will not come down significantly as well.

[Operator]

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

[Anubhav Aggarwal, Associate]

Yes, just one question. One clarity on the U.S. speciality, actually 2 global specialties. The $40 million increase that you've seen sequentially, is there any restocking benefit there because some of our areas are ophthalmic, dermatologic, et cetera. So is there any restocking benefit there? Or this is a new normal will only grow over this stage from now?

[Abhay Gandhi]

So December month does see a little bit of a buy in, but it is not an extraordinary level. And remember, in the context of the market, we are much smaller as a total business. So the buying will not be as high as for some of the major brands. So December always sees some [ dime ]. Not just for the specialty business, but to a certain extent, even for the generic part of the business. But that's not something which is so high that I will start clearly fair in the next quarter. I hope that answers your question.

[Operator]

As there are no further questions, I now hand the conference over to Mr. Nimish Desai for closing comments.

[Nimish Desai, Head of Investor Relations]

Yes. Thank you. Thank you, everybody, for taking time out for this call. We know it's been a busy day with multiple pharma companies announcing results. So thanks for 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.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.