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Sun Pharmaceutical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Sun Pharmaceuticals Industries Limited. [Operator Instructions] I now hand the conference over to Mr. Nimish Desai, Head of Investor Relations. Thank you, and over to you, Mr. Desai.
Thank you. Good evening, and a warm welcome to our third quarter FY '22 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, our Managing Director; Mr. 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 discussion, we will look at the consolidated financials. And just as a reminder, this call is being recorded and a replay will be available for the next few days. The 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 any 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 third quarter of FY '22. I hope you and your family are doing well. Let me discuss some of the key highlights. Consolidated revenue for the quarter were at INR 98,142 million, recording a growth of about to 11% year-on-year, driven by strong performance across markets. Despite rising costs, we've achieved higher profitability. We continue to focus on top-line growth, operational efficiencies and business continuity. For Q3, branded formulation business in India and emerging markets together now account for about 50% of global consolidated revenues. Let me now update you on our global specialty business. I'm happy to inform you that our global specialty revenue for the first 9 months have already crossed previous full year revenues. For Q3, our global specialty revenues were approximately USD 183 million across all markets, up about 21% year-on-year. The global specialty revenues do not include Ilumetri end market revenues. As you all are aware, we launched ILUMYA in Canada and WINLEVI in the U.S. during the quarter. Recently, we also announced launch of Cequa in Canada. Specialty R&D accounted for approximately 22% of our total [Technical Difficulty].
Ladies and gentlemen, the line from Mr. Dilip has got disconnected. Request you all to please stay online while we reconnect them. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.
This is Muralidharan, CFO. Sorry, we got disconnected. We are back again. 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 key consolidated financials. We recorded the highest ever quarterly revenues at INR 98,142 million in Q3, up by about 11% over Q3 last year. Material cost as a percentage of revenues was 27%. Staff costs were up by 8% year-on-year and stands at 18.9% of revenues. Other expenses, up 13% year-on-year and stands at 28.1% of revenues, increase is attributed towards higher selling and distribution and traveling expenses, while in Q3 of last year, these expense were lower on account of global pandemic. As indicated in our past earnings calls, the expenses are seeing an increasing trend across all the markets as we reach full normalization. ForEx loss for the quarter was INR 106 million compared to a gain of INR 716 million for the Q3 last year. EBITDA for Q3 was at INR 25,574 million, up by 7.5% year-on-year with EBITDA margin at 26.1%. It is important to note that we have been able to record EBITDA growth despite a significant increase in other expenses and a negative swing in ForEx. Reported net profit for the quarter was at INR 20,588 million, up 11% over net profit of Q3 last year. The reported EPS for the quarter was INR 8.60. Let me now discuss the key movements versus Q2 FY '22. Our consolidated revenues were up by 3% quarter-on-quarter at INR 98,142 million, primarily driven by the specialty business. Material cost stands at 27% of revenues. For Q3, other expenses were at 28.1% of revenues higher than Q2 on account of higher selling and distribution expenses. We had a ForEx loss of INR 106 million for Q3 as against ForEx loss of INR 764 million in Q2. EBITDA for Q3 stands at INR 25,574 million, which is flat compared to Q2. It is important to note that in Q2, we had a milestone income of USD 10 million, excluding which we would have recorded a minor growth in EBITDA sequentially. Other income for Q3 was higher compared to Q2, mainly due to settlement income from DUSA Biofrontera litigation and interest on income tax refund. Reported net profit for Q3 was INR 20,588 million marginally higher than Q2 this year. Now, we will discuss the 9 months performance. For the 9-month period, net revenues were at INR 290,403 million a growth of 17% over the 9-month period last year. Staff cost stands at 18.6% of revenues lower than 9 months last year. However, in absolute terms, the staff costs have increased on account of annual merit increases. Other expenses were at 27.3% of revenues, lower than 9-month period last year. However, in absolute terms, the other expenses have increased on account of higher selling, distribution and traveling expenses, while in the 9 months of last year, these expenses are lower on account of pandemic-related restrictions across markets. As a result of the above, the EBITDA for the 9 months was at INR 78,900 million, a growth of 26.5% over the 9 months last year, with EBITDA margins of 27.2% compared with 25.2% year-on-year. Excluding the exceptional items, adjusted net profit for 9-month FY '22 was at INR 60,851 million, up by about 33% year-on-year. Reported net profit for 9-month FY '22 was INR 55,500 million. The company has repaid debt of about USD 254 million in the first 9 months of the current fiscal. As of 31st December 2021, we continue to remain net cash positive even at the ex-Taro level with USD 767 million of net cash. At consolidated level, including Taro, the company has a net cash of about USD 2.1 billion. Let me now briefly discuss Taro's performance. Taro posted Q3 FY '22 revenues of USD 139 million and net profit of USD 26.3 million, higher by 5% and 6%, respectively, over Q2 FY '22. On a year-on-year basis, revenues for Q3 FY '22 were flat, while the net profit was lowered by about 20%. For the 9 months, revenues were at USD 418 million, up 4% year-on-year and adjusted net profit was at USD 99.2 million, down by about 7% year-on-year. 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 Q3, the formulation revenues in India were INR 31,676 million, recording a strong growth of about 15% over Q3 last year. India business accounted for about 32% of consolidated revenue for Q3. Despite the challenging and competitive environment, we have maintained the trend of the past few quarters of outperforming the average industry growth, which has led to increase in market share. Our market share has been gradually increasing over the past few quarters. For Q3, it was 8.6% compared to 8.1% in Q2 as per AIOCD AWACS data. On MAT basis as per AIOCD AWACS data for December 2021, our market share was 8.2%. We have witnessed growth across most of our therapies. The growth was driven by a combination of factors like improved demand for non-COVID treatments, which led to higher growth in chronic, semichronic segment, better patient flow to doctors' clinics and increased health care awareness. As per AIOCD AWACS data for Q3 for some of our key therapy areas like CNS, CVD and gastro, we outperformed the segment growth. As per the data, our growth in CNS was 7.8% against 7.5% for overall CNS segment. In CVD also against 3.3% segment growth, our growth was 12%. Also in gastro, the therapy grew by 15.7% against the segment growth of 10.8%. We had a negligible revenues of COVID products in Q3. Field force operations were near to normal in Q3 with almost all doctor clinics operational. The productivity of the new field force, which has started improving and about 70% of the territories for the new field force are performing as per our expectation, while the performance for the remaining 30% is likely to improve going forward. Travel costs for medical representatives was near to normal, while we continue to see some savings in terms of cost of medical conferences. For Q3, we launched 25 new products in Indian market. Sun Pharma is the largest pharmaceutical company in India, and as per SMSRC report, we are #1 ranked by prescription with 11 different doctor categories. We also continue to remain the partner of choice for in-licensing of products, given our strong #1 position in many therapy areas, including therapies for the treatment of COVID infection, coupled with our large distribution network. I will now hand over the call to Abhay.
Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q3, our overall formulation revenues in the U.S. grew by about 6% over Q3 last year to about USD 397 million. The main driver of growth was the specialty business. U.S. accounted for about 30% of consolidated revenues for the quarter. While doctor clinics were open in the U.S. during the quarter, the situation is yet to fully normalize. Patients go to doctor clinics as well as frequency of doctor calls by our medical representatives are still both below pre-COVID levels. Our specialty revenues in U.S. have grown over Q3 last year, mainly driven by ILUMYA, Cequa and Levulan. Specialty revenues are significantly higher compared to September 2021 quarter, mainly driven by ILUMYA, Cequa, Levulan and ABSORICA. We have done well in the specialty business in U.S. as well as globally over the last few years. Global Specialty revenue contribution has doubled from about 7% in FY '18 to about 14% in Q3 FY '22. As you're all aware, we launched WINLEVI in the U.S. in November 2021. We have received a good response from doctors for the product as well as a need in the market for a new mechanism of action to treat acne, which WINLEVI is addressing. It is the first time that an androgen inhibitor is being used for treating acne. Our established presence in the dermatology market will help in ramping up WINLEVI going forward. For competitive and strategic reasons, we will not be able to share granular details of WINLEVI on this call. Let me now update you on our U.S. generics business. While the U.S. generics business continues to be competitive, the some ex-Taro generic business has stabilized. While we do experience price erosion, we have been able to counter it by a combination of new launches and better supply chain management. During the quarter, we launched 5 generic products in the U.S. market. We have received approval for generic Amphotericin B liposome injection and we are eligible for 180 days of exclusivity for the product under the Competitive Generic Therapy designation by the U.S. FDA. We will be launching the product shortly in the U.S. I will now hand over the call back 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 branded formulation revenues in emerging markets were at USD 239 million for third quarter, up by about 17% year-on-year and lower by about 2% over second quarter this year. The underlying growth in constant currency terms were about 15% year-on-year. Emerging markets accounted for about 18% of total revenue for third quarter. Amongst the largest market in local currency terms, Romania has grown by about 25%, Russia by 17%; South Africa by 33% and Brazil by 29%. Formulation revenues in Rest of the World market, excluding the U.S. and emerging markets were USD 181 million in the third quarter, up by about 3% over third quarter last year. Rest of the World markets accounted for approximately 14% of consolidated third quarter revenues. API revenues for the third quarter were at INR 4,710 million, higher by about 5% over third quarter last year and by about 8% over second quarter. We continue to invest in building an R&D pipeline for both the global generics and the specialty businesses. R&D efforts are ongoing for the U.S. emerging markets, ROW markets and for India. Consolidated R&D investment for third quarter were at INR 5,471 million compared to INR 593 million for third quarter last year. Our current generic pipeline for the U.S. market includes 88 ANDAs and 13 NDAs awaiting approval with the U.S. FDA. Lastly, the Board of Directors today declared an interim dividend of INR 7 per share against INR 5.5 per share declared last year keeping distribution percentage of the profit constant. With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions] First question is from the line of Neha from Bank of America.
My first question is on the U.S. specialty business. Abhay, if I heard correctly, most of the quarter-on-quarter increase, you indicated were some your other products other than WINLEVI. Is it fair to assume that the [ $183 million ] does not include any large launch quantity sort of supplies and therefore, should not normalize. Is that a fair understanding?
What I understood from whatever I could hear, Neha, as you're asking as an extra large stock up during the launch of WINLEVI. Is that the question?
Yes, yes. That's right.
No, I don't think so because I think what we are seeing today is buying from the wholesalers is almost as per what they are selling out of their warehouses. So it's like, so there is no buying that you are seeing at the launch, which will have to carry forward. No.
Understood. And in terms of Levulan and ABSORICA, particularly for Levulan, has the momentum improves back to what we were doing pre-COVID level, particularly given there was a spike in cases again in December. So was there some sort of an impact in December and therefore, you could see more buildup in Levulan as we go ahead?
I think the number of elective surgeries has clearly come down. So if I look at it from a -- on a 3-year basis, we are nowhere near where we were, say, 2 years ago. So -- and that's not because we have lost share. It's mainly because the number of patients who are treated have come down because of new requirements of how many cases you take in a day and can you postpone surgery. So it's definitely not normalized. We see a seasonal uptick in this quarter, which is normal, but the numbers for maybe the last year or even the previous would be higher.
Understood. In WINLEVI, I know you don't want to share granular details, but in terms of initial launch, it's fairly early days. Any feedback that you think you would like to highlight? Is it in line with expectations? And also you say uptick in SG&A. Was that related to WINLEVI launch?
So WINLEVI launch clearly would have increased our SG&A because during the launch, you would have a higher expenditure, that's for sure. See, as I said in my readout itself, for competitive reasons, I wouldn't give too many granular details on this call. But the only thing which I will definitely say is that the initial response has not just met, but maybe exceeded expectation. So of the doctors that we covered for the product in the first 3 months, 80% of them have given at least 1 prescription for WINLEVI, which is a very good indicator. At the interest level at the customers for a new mode of action is very high. And then, of course, it's for us to be able to use that as a base and increase the depth of [indiscernible] prospections from these doctors and continue to improve on our launch performance.
The next question is from the line of Kunal Dhamesha from Emkay Global Financial Services.
So just 1 question on the -- how we account the specialty sales? Do you kind of account we faced as a pre-coupon rate? Or we kind of net out the coupon or any assistance that we provide to customers in our sales numbers.
So this is account that was at of net off the top-line.
Net of top-line. Okay. Okay. Because I think as far as I remember, when we had ABSORICA coupon program, I think at that time, we were accounting the gross phase and then I think coupon was netted in marketing expense, if I remember it correctly.
No, no, no. I do not think so. We have been having a policy of accounting towards the coupon.
Okay, sure. And if I look at probably second question is on, if I look at the ex-Taro numbers, the gross margins are kind of sequentially compressed by roughly 100 bps. So would you [ split ] this to geographic mix shift or does the higher raw material prices? Or any particular mix of both the items.
So my suggestion would be that we should report annually in stead of quarter and further Taro also published the results and given the press release in terms of their results and look at that.
Okay. And lastly, if I may squeeze. So we have said our specialty sales are doing well. But would it be fair to say that ILUMYA 9-month sales are comfortably above the FY '21 level?
Yes, they will be.
The next question is from the line of Prakash Agarwal from Axis Capital.
My question is on R&D. Just trying to understand better we've been talking about higher R&D and also expected trials to start further trials for ILUMYA, et cetera. How do we think about it? I mean, if you see the run rate is still about 5.5% under 6%. In the past, we have talked about 8%. So how do we expect the year to close and what's the outlook for the next year? And what kind of trials we're talking about for next year?
No. I think the objective is to spend that kind of money. I think like what Abhay said is that some of the challenges in terms of patient recruitment, especially in the kind of studies that we are doing, which are extremely competitive trials where competition for all potential patients to participate and study from multiple companies are very high. So it's kind of leading to a much lower recruitment and that thereby this. So we are making multiple efforts, including diversifying the geography in which we are doing the studies so that we can spend the intended money. What I think, we share with you every year is the plan to spend. I think your assessment as to we have not been able to spend this effect. But hopefully, we should kind of go back to the kind of money that we wanted to spend.
And does that impact sir, some delay as the trials are getting delayed in terms of the new trials starting and closing and hence the commercialization?
It would have impact, yes. I mean, that's where the effort would be to find a way to minimize that impact.
Perfect. And second 1 was on the U.S. So there was a comment that kind of bottoming out and with the new launches and supply chain improvement, we expect things are bottoming out and to improve from here. But what we heard from the different other companies also is about that pricing pressure has been continued. In fact, we talked about more supply chain challenges like freight cost, et cetera. So I mean, what is changing for us -- are we seeing a spate of new launches? And there are some corrective action being done? Or what exactly gives us confidence on the base business ex-Taro for the U.S.
Typically, in the quarter, we have been able to launch close to 5 or 6 products each quarter. That's 1 thing which helps us and of course, we have been consistently saying on everything we call in the past few years, actually. But pricing pressure, which is product-specific, we continue to face. But then we have to be able to overcome that with launch of new products, which we have been able to and better supply chain management. So these are the only 2 tools, which can help us stabilize our business and find a way to grow in a competitive market.
Okay. So we're expecting launch rate to improve or what is exactly changing?
Launch rate may not improve. I mean, we are very clear on what are the products we have in our R&D portfolio when are we supposed to launch them. And I think, the visibility I have as of now, going ahead is also we should be -- I mean don't look at it as each quarter, but average for each quarter should be in the same range of anywhere from 5 to 6 products.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
One question is on the U.S. specialty business. So this 18 run rate, would you say a bay that this is a new base that 1 which you can grow even in the March quarter? I'm asking because I remember last year, in December, we had some stocking benefit and March quarter number was much lower than the December quarter. Would you say that was just one-off last year, which is not the case this year.
So it's a combination of not just 1 or 2 products, but we also need to see how in Q3, the overall ABSORICA franchise contributes or does not. But the whole idea is, I mean, we'll rerun the business, we don't look at it on a quarter-on-quarter basis necessarily. We look at it that long-term, do we have headroom to grow. And what do we need to do to continuously grow on each of our franchises. And I think, the way I look at it, each business has opportunities to grow their own franchise and their own products. So rather than answer it as of next quarter question, I would look at enough headroom for the businesses to grow their own franchises.
But just a clarity on that, like -- you mentioned that Levulan typically has the seasonality, which peaks out in December quarter. But any other product.
A little bit spills over to Jan-Feb. A little bit spills over to Jan and Feb, which typically in the winter months, which goes up to at least February where you see a seasonal impact on a lot of dumb products, not just Levulan but even acne, there is a seasonal impact.
So -- but other than the term product, the other portfolio normally does not see any spike in these numbers in the [ depending ] quarter.
Not as prominent, of course. Not as prominently.
Sure. Second question is on the other expenses. So as Murali was saying that we have seen increase across the.
I'm not able to I have a sort of a mechanical sound when you are speaking, so I'm not very sure, I'm catching your question.
Yes. This second question is outside the U.S., that's on the overall company. This is on other expenses. This question is that as in the initial commentary, it was mentioned that we have seen increase in other expenses across the business segments. But just trying to understand how far away or close we are to the normalized level of the company? Like we've been talking about pre-COVID at a certain level. We will not go back to the pre-COVID level, but how close we are to that number? Are we very close because we've seen, let's say, surprising increase sequentially, which we were not expecting, but are you very much close to that [ normalize ] number now?
So about the thing is that, as I said in my readout that yes, we have been guiding the [indiscernible], the market operations normalize, so which we have witnessed. But more importantly is that the product mix and the job mix also helped us to maintain the margin despite the cost pressure increase. However, having said that, we are having a close watch on that so that we can contain and maintain the momentum of growth on the EBITDA.
Sorry, there was some disturbance -- so net-net, what's the response? Are we closer to the normalized level? Or are we still far away from that?
They go up slightly higher than the current level, but not anything significant.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Abhay, just on the U.S. specialty business. When do you expect the footfalls in the doctor clinic to sort of normalize to pre-COVID level and which products are getting impacted because of that. I guess, it's Levulan and ILUMYA, anything else?
So first of all, I mean the first question, I mean I can -- I really cannot give, Sameer, because even today, I mean, I saw the morning news, the average 7 day cases are still like 500,000. So that's not small. So footfall at the doctors levels are restricted -- and clearly, access to reps also much lower than pre-COVID. When will it stabilize? I mean your guess is as good as mine, so I don't know. And if I look at it very broadly, then every single product, does get impacted. Only the extent of 1 over the other really changes. Elect is at the worst hit, but really speaking, the impact is on all products.
Okay. So Abhay, it's quite commendable that despite lower activity, you are able to grow your specialties so well.
Thank you. I will definitely communicate your comment to my team members. It's nice of you to say that. But the way I look at it, and I guess this is true for everybody. When you have a level playing field, it impacts everybody. So that we are not disadvantaged over anyone else. So it's a common scenario for everybody. I think it's all a question about how you execute in a changed environment as a team and as a company, which eventually makes a difference.
Okay. Great. And the second question is on WINLEVI. I know you won't give any specific detail, but -- you did not cite WINLEVI as 1 of the specialty product that drove quarter-on-quarter growth. So was WINLEVI was not an important contributor because you have prescription trends in IQVIA shows a pretty good traction.
If you recall, I mean, we launched the product only on the 1st of November. So if we didn't have the full quarter, that's one. Secondly, I think November and December are also many days of holidays. So the real impact of WINLEVI sales will not be seen in Q3. Some of it may actually be seen in Q4.
Okay. Just final 1 on WINLEVI, Abhay. That was quite helpful. Is what's the typical duration of treatment if the patient is using WINLEVI. In the sense, is it a chronic use, there is an argument for a lot of repeat users or no?
Too soon for me to really give you a quick handle on that because the 1Q is supposed to be used by a patient for a month. But -- and then even if it is not used, the patient is supposed to discard that and use the next one. So whether that is really happening, whether they are -- this product, unlike an ABSORICA, for example, doesn't have a [ REMS ] program. So the patient may or may not visit the doctor every month. So what kind of prescribing and adherence behavior is being demonstrated, we are also trying to understand more -- and I don't think, I have a very accurate answer for you, Sameer, but it's a great question. It's something that I am also trying to get an accurate answer to.
Sorry, I'll just take one second more. So Abhay, this is helpful. But I guess what I'm trying to say is fine, real life situation is different. We don't know what's going on. But just medically speaking, scientifically speaking, what do you think would be a typical duration? I know it varies from patient to patient, but on an average, is it a 3-month treatment cycle, 6-month treatment cycle? Just any range would work.
I don't know Sameer. I don't want to like give you an answer, which I cannot back it up with scientific data. Because even today, I'm not 100% clear in my own mind whether this has been used in a majority of patients as a first-line monotherapy or in combination with existing therapies. And therefore, if you've used as a sort of a combination therapy with other products. Then what the doctor decides to continue, what the doctor decides to maybe stop or lean away from yes, these are the questions or ad boards, we try and get answers to. As of now, the information is so sketchy. If I give you a sort of a clear answer on this, I may be misleading you.
Sameer, I think, if it's helpful, then WINLEVI like most of the acne products, the clinical trial is a 12-week trial and the primary endpoint is reduction in the severity of acne. Now along with that, all products also have to do 12-month safety study in a certain subset of patients. So my sense is that depending on the severity of patient and the type of acne that they suffer from the duration of treatment will be different. So I think the challenge is to understand what is the percentage of severe, moderate or mild acne patients and how doctors treat them. So if it's helpful.
The next question is from the line of Krish Mehta from Enam Holdings.
Congratulations on a great set of numbers. I had 2 questions. The first of which is on the psoriatic arthritis trial. Could you provide any update on how you're seeing footfalls for enrollment or how we are progressing on that front?
So when I explained about the relative challenge in terms of recruitment of patients, psoriatic arthritis, 1 such trial. So we are not on schedule and we are trying to find a way by which we can catch up by multiple strategy.
Okay. And my second question was actually on the R&D front. As you've seen that the quarterly spends have gone down as a percentage, and you explained that it's due to the lower footfalls. But assuming that the footfall is normalized after a few quarters, how do you see R&D going forward in terms of building a steady state increase in organic R&D versus more acquisitions or partnerships that we saw with WINLEVI. So what's the strategy in terms of R&D going forward?
I think our sense is that the steady-state R&D should be around 8%, 9% because like we have this SCD-044 study in Phase II after the Phase II is complete, we will then have to enroll subjects for Phase III, and that will be much more expensive than Phase II. So like that, there are potential indications that will keep on increasing the cost going forward.
The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.
My question is on specialty spend. So with pickup in all the key brands, how should we see costs moving ahead? And are you near to cost be given for your specialty portfolio.
Murali you will refer to the cost or should I?
No. Generally, I think, Abhay, we haven't been sharing segment-wise, profitability and cost -- but in the past, I think we have indicated that we are in an investment phase in this business. And I think depending on how the clinical trial costs continue and how we capture the clinical trial costs, it will require significant investments going forward. But I think Overall, I'm happy with the margins that we've been able to improve in the old business.
Okay. Just to clarify, on the clinical trial part, obviously, it depends on progress in the pipeline asset. But has like -- have you optimized cost more in the marketing and promotional part for the key brands?
So Abhay that, you need to respond.
Yes. I think for most of the major products, we are clear now what is it that is important for us to succeed and stable expenses. But for a new product like WINLEVI, of course, there will be disproportionate investment going in.
My second question is on your capital allocation strategies here. Like where are you looking to invest mostly, say, for next 1 or 2 years?
I think philosophically, as a company, we have always looked at our preference for investing in businesses or creating businesses with ability to grow steadily year after year. And I think that philosophy will continue to drive our future investment.
Okay. Can you call out like what are your CapEx plan for FY '22 and '23?
I think this year, we haven't given any specific guidance. But in the past, I think we've indicated that our major CapEx plan has been kind of complete till our volumes go up significantly. So until that point of time, I think we will have marginal new CapEx in all businesses, all facilities.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on the U.S. generics ex-Taro, if you could share what kind of price erosion you're experiencing on the base portfolio.
We look at it on a product-to-product basis. It's never on portfolio. And each product has a different kind of scenario? Like I think in the last call, we also mentioned that -- it's not a basket. There are some products in which we face pricing pressure on some products be able to take a small price increase as well. So net-net, we always see there pricing pressure, but yes. But obviously, we wouldn't give a number to saying that we have this percentage of price erosion on the base business.
Okay. Because if like what that net number is and the kind of launches we have and the kind of base at which currently we are like if I normalize the 3Q U.S. ex-generic, ex-TARO sales and we are more or less at a $1 million kind of a number. So going forward, will the new launches be able to offset the price erosion is what I'm trying to understand.
I mean that will be our attempt.
Okay. Okay. And just on the ILUMYA per se, like the conditions of mild to severe psoriasis and the psoriatic arthritis are -- or it often related and the peer having now approval for both the indications. So you see the change in the way the doctors look at like ILUMYA and the peer products? Or you will see still continued prescription rate on a single indication.
Anyway, Mr. Shanghvi has answered this question in response to a question asked on this call earlier, that not having the indication does have an impact clearly and that's why we are trying to speed up our trial so that we are not disadvantaged versus the peer products.
I'm so sorry, I would have -- I missed that -- so sorry.
No, no.
The next question is from the line of Surya Patra from Philip Capital.
This Amphotericin B is it the exclusivity what you're working for. How big is this opportunity that you think because it's a old product and discontinued by many. But the prescription progression and all that, if you can see then it looks like a larger product than that is looking like? And is it a kind of a rightly timed product approval that we can see considering the COVID trend that is what we are witnessing in the U.S.
No, I don't know what information you have that this is a discontinued product because that's not my understanding. Now, it's the only approved generic and because it is a difficult product for which no generic was approved FDA by a separate direction gave that the first approved generic will get 6-month exclusivity. Once it is approved is launched within 75 days. So we should be able to launch this shortly. It's an interesting product. It's not a very large product, but the sales as well as the growth of the product are in public domain. So you should be able to see that -- and at the same point of time, I think in the U.S., it has never been used for COVID.So -- because this mucormycosis, the problems that we faced in India. It is not a problem faced by any patient in other geographies. So it's not been used for COVID.
Sure, sir. Sir, secondly, on the -- can you split the R&D spend between the specialty and the normal generic?
I think it was part of my readout 23%.
Sure. Sorry. Yes. Okay. I need that. And just last 1 question, sir. Sir, is the price erosion trends for the Taro portfolio is meaningfully different than the non-Taro portfolio? You commented, obviously, it is the price erosion cannot be portfolio-based, but.
No. Also, we can't share any information about Taro beyond what they have shared.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just a couple of them. Any update on Halol reinspection?
No, I think we haven't heard back. I think last time also, I said that is that we requested them for inspecting the facility and we are yet to get any indication as to when they will be inspecting and -- so hopefully soon is our expectation.
Sir, is it hurting our business a fair bit in terms of not getting new launch, new approvals speaking some complex products?
I believe so. Because it would be affecting our business and growth.
Sir, 1 final one. For other income, INR 430 crores, I don't know, if you have given the breakup or is there any one-offs in this?
We have given the breakup in the readout, I just said, Sameer.
I missed that.
It's a settlement income for DUSA Biofrontera of $22.5 million and interest on income tax refund.
Yes. But how much is the income tax refund?
So that we have not disclosed, but the Biofrontera settlement amount $22.5 million is disclosed.
The next question is from the line of Ritesh Rathod from Nippon India AMC.
Can you give some quantitative color on the India outperformance in terms of the -- we had done MR addition. We have launched a number of products. So how much increase has been on the doctor coverage, how effective has been this product launches in the last 12 months?
Sure. Yes. I think India business, as all 3 quarters has done well. I think, we are doing well in India business is a combination of a lot of things. One is whatever strategies we thought during this financial has worked well. The team has executed all the strategies. And the team is also performing above the expectation in most of the territories. We're also focusing on building brands. So that's also working in the right direction as far as the prescription is concerned, we are already leading into 11 doctor categories where we are #1. And the new product launch momentum has also gone up substantially in the last 2, 3 quarters, which is also helping us to grow the business. As I said in my readout, -- we have expanded 2 years back, and that has also worked well for us. Almost 70% of the territories are meeting our expectation. And what we are seeing is that the remaining 30%, how they will improve their performance in the next 1 or 2 years. So India business performance is a combination of all of these things, which are working well, and we are gaining market share after from quarter 1 to quarter 2 to quarter 3. So in quarter 3, we have most with market share of 8.6%. That's the highest in the recent times.
Yes. On the second question on the derma sales force in U.S. from WINLEVI, you will leverage the existing sales or the sales force MR? Or would you have -- would you set up separate thing for that.
We have a separate sale force for WINLEVI and ABSORICA franchise.
So would there be an opportunity for cross leveraging or you would be deploying ABSORICA sales force and basically there won't be any incremental cost at.
There was an existing ABSORICA field force -- and we expanded that to be able to meet the requirement for the WINLEVI launch.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
One question to Maria on the accounting for the specialty sales. I think you mentioned on the coupons that you report sales net of coupons, but what are the royalty for example, ILUMYA that you paid to Merck or WINLEVI that you'll be to the partner? Where is the royalty component shown.
The royalty expenses or expense of payment.
Can you say that again.
Royalty payments or expense of payment.
So that will be captured in other expenses?
Correct. Other expenses.
Okay. And second question is to Abhay. On the ILUMYA. Just want to understand that for this product, roughly Medicare and Medicaid put together will be -- what percentage of the product? I'm not interesting the exact figure, but will it be less than 50%, more to 50%, some indication.
Sorry, what is the question?
ILUMYA revenue, how big is Medicare and Medicaid put together?
It is a significant portion, but I would not be able to give you an exact percentage, but it's meaningful.
So I was trying to say, will it be more than half or less than half when you say meaningful?
I really don't want to get into that granular detail because what you're asking me the question of strategy and that information may hurt us.
The next question is from the line of Anubhav from MC Research.
A couple of questions on specialty. One, could you share views on competitive landscape for ABSORICA as such? And what could be the market share now? Is it still around 7%?
So all are forms of ABSORICA, but the original brand [ LD ] and the authorized generic put together, we are more or less has been maintaining the market share we had earlier. I think marginal bit, but more or less there.
Okay. Okay. That's great. And secondly, last quarter, you mentioned that for Levulan, there was some supply chain issue -- if you can just mention what was the issue. It was more from the supply or raw material side kind of or distribution side? And given that issue, are we over with that issue?
So more to do with the quality testing, which is outsourced because, of COVID, they had their own issues. But this quarter has been much better, and I think the next quarter, we'll be able to improve further.
The next question is from the line of Saion from Nomura Securities.
Sir, on emerging markets. In your initial comments, you mentioned some strong growth across markets, and we have seen that traction in the recent past. Sir, can you provide some color what is driving it? Is there a COVID-related element there? And how sustainable the growth in the emerging markets that you're seeing?
I think a large part of our emerging market business is branded generic business, and they are all based on generation of prescriptions. So there is a certain amount of consistency and continuity in that business. Now, I don't have that level of granular understanding of different markets that whether the markets are positively impacted because of what you call COVID or not. Generally, in most of the geographies that I'm familiar with, COVID has a negative impact on overall business. And we don't have a large portfolio of COVID-specific products in emerging market. And also, if you see over the last few years, emerging market has been consistently growing year after year. So hopefully, we should be able to maintain that continued growth.
Okay. No, sir, I'm is saying because despite COVID, we are seeing good growth in those markets. So sir, are you -- in terms of strategy, are you looking at own development products or partnerships -- is it new products or market share gain in existing products? Broadly speaking, I know it may be different for different geographies. But any broad trend that is there driving the growth?
So actually, I think it will be both the increased share of business and new product. What I think the business has made up in spite of significant erosion in currency of some of the key geographies, say like Russia, South Africa, Brazil, which are important geographies, which have seen significant erosion in the value of their local currency. So, if we actually adjust for -- or at a constant currency, actually, every year, emerging market has grown at double digit.
Okay. Just 1 question on capital allocation because your cash generation is quite strong. So you have been investing in specialty quite a lot as you were building it out. At the same time, you -- what kind of opportunities you're seeing, let's say, in branded business in India or emerging markets or even in U.S. generics. I mean, given all the pressures that are there in these markets, do you think, there is a possibility of opportunities beyond specialty? And if there are, would it make sense for some to sort of pursue such acquisitions, especially meaningful ones.
No. I think in the past, we have indicated that we are continuing to look at specialty assets either existing products or products close to market. Our existing businesses where we believe that we can add value and the product business is of strategic long-term importance for the company. So that philosophy continues to be the same is that we want to find a way to put our capital to use, where by it can help us grow profitably year after year. Challenge for us has been to be able to get businesses which we believe that will help us. Hopefully, I think, we should be able to break this, what you call drought of potential acquisitions that we've seen in the last few years in next maybe 1 or 2 years.
Okay, sir. That's helpful. And sir, last question, if I can, the specialty number. Is it possible to break up between U.S. and non-U.S. Or any color in terms of growth that you want to give between U.S. and non-U.S. geographies.
So we are sharing the global specialty revenues for competitive reasons like [indiscernible].
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Nimish Desai for closing comments.
Thank you, everybody, for taking time out to join this call. If any of your questions have remained unanswered, please do send them across. We will have them answered. Thank you, and have a good day.
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.