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Sun Pharmaceutical Industries Ltd
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Hello and a warm welcome to our Third Quarter FY '23 earnings call. I am Abhishek from the Sun Pharma Investor Relations Team. We hope you have 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. Muralidharan, CFO; Mr. Abhay Gandhi , CEO-North America; and Mr. Kirti Ganorkar, CEO-India Business. Today, the team will discuss financial performance for the quarter, business highlights and respond to any questions that you may have. For ease of discussion, we will look at the consolidated financials. The call recording and the call transcript will also be put up on our website shortly.
The discussion today might include certain forward-looking statements, and these must be viewed in conjunction with the risks that the business faces. [Operator Instructions] I will now hand over the call to Mr. Shanghvi.
Thank you, Abhishek. Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the quarter FY '23. Let me discuss some of the highlights. Consolidated sales for the quarter were at INR 111,001 million; recording a growth of about 13.1% year-on-year, driven by global specialty, emerging markets in India. Our continued focus on top line growth, operational efficiencies and business continuity is producing results.
For Q3, our global specialty revenue was INR 235 million, up 28.4% year-on-year. ILUMYA and WINLEVI were the key growth drivers for the quarter. In January 23, we announced the launch of SEZABY in the U.S. for treatment of neonatal seizures. Specialty R&D accounted for approximately 26% of total R&D spent for the quarter. Abhay will give you more details on the specialty business later. I have been talking to you about our intent to increase our specialty footprint, especially in our core therapy area of dermatology, ophthalmology, and oncology. One condition in dermatology that doctors find particularly difficult to treat is alopecia areata due to limited number of approved an effective approved treatments available.
With that background, let me now briefly touch on the recently announced Concert Pharma acquisition. On 19th January, Sun Pharma entered into definitive agreement to acquire Concert Pharmaceuticals Inc. These acquisitions add a late-stage asset due Ruxolitinib for treating alopecia areata to our global specialty portfolio. The transaction is expected to be completed in the first quarter of calendar '23. Our immediate priority would be to follow Concert's plan to submit a new drug application for the lead asset to the U.S. FDA in the first half of calendar '23. We can take questions on such today but you need to keep in mind that we will have to restrict ourselves in what was disclosed in the press release issued at the time of announcement. Given that the transaction would require requisite regulatory approvals and the tender offer for the U.S. listed company is expected to come in soon.
In summary, -- we will not be able to guide to peak revenue estimates for the lead product. We will also not be able to guide projected R&D spend to bring this product to market. However, it's important to note that additional costs are expected to be incurred in R&D before the product gets commercialized. We are excited to widen our specialty offering in dermatology and plan to launch that asset across U.S. and other global markets in near future. We will be very happy to bring this product for patients globally. I will now hand over the call to Murali for more discussion of the third quarter financial performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q3 financials are already with you. As usual, we will look at key consolidated financials. Gross sales for Q3 are at INR 111,001 million, up by about 13.1% over Q3 last year. Material costs as a percentage of sales was 25.3%, lower than Q3 last year due to better product mix, including higher specialty sales. Staff cost stands at 18.4% of sales, while staff costs in percentage terms are lower over Q3 last year, the increase in absolute values attributed towards merit increase consolidation of the Alchemee acquisition and expansion of sales force in India. Other expenditure stands at 30.6% of sales higher than Q3 last year. The increase in other expenditure is attributed towards higher selling and distribution expenses, consolidation of the Alchemee business, and higher R&D.
As indicated over past earnings calls, the expenses have seen an increasing trend on account of normalization of business activities. On Halol, we have indicated earlier that Halol shipment U.S. accounted for approximately 3% revenues before the site received import alert. Apart from the loss of revenues for approximately 3 weeks in Q3, there is an increase in expense because of the import alert. This is primarily on account of provision-related inventories and some other items.
EBITDA for Q3 was at INR 30,037 million, including other operating revenues, up by 15.2% for Q3 last year, with resulting EBITDA margins at 26.7%. We have reported strong margins despite normalization of expenses and the impact of sales force expansion in India. Reported net profit for Q3 was INR 21,660 million, up 5.2% year-on-year compared to Q3 last year. Adjusted for one-off effects in both periods, net profit growth was higher than the EBITDA growth for the quarter. Reported EPS for the quarter was INR 9 per share.
Let me now discuss the key movements versus Q2 FY '23. Our consolidated gross sales were higher by about 2.7% Q-on-Q at INR 111,001 million. Material cost at 25.3% of sales and staff cost at 18.4% of sales are almost similar to Q2 levels. Other expenses at 30.6% of sales were higher compared to Q2 FY '23. Increase in other expenses Q-on-Q was driven by higher sales and distribution expenses, an increase in R&D spend. EBITDA for Q3 stands at INR 30,037 million, up by about 1.6% compared to Q2, and EBITDA margin for Q3 was at 26.7% compared to 27% for Q2. Reported net profit for Q3 stands at INR 21,660 million.
Now we will discuss the 9-month performance. For the 9-month period ended in September 2022, gross sales were at INR 325,533 million, a growth of 12.1% over the 9-month period last year. Excluding covid related product sales for the 9 months last year, overall sales were up by about 13.6%. Material cost for 9 months was at 25.8% of sales, lower year-on-year, mainly driven by better product mix, including higher specialty sales. While staff costs of customer sales was similar to 9 months last year, the increase in absolute value is on account of annual merit increase, consolidation of the Alchemee business, and expansion of the field force in India.
Other expenses were at 29.1% of sales is higher than 9 months last year on account of higher selling and distribution expenses and consolidation of the Alchemee business. EBITDA month was INR 88,447 million, a growth of 9.8% over the 9 months last year, with resulting EBITDA margin of 26.8%. Net profit for 9 months was at INR 64,891 million, up 6.6% over adjusted net profit of 9 months last year. As of 31st December 2022, net cash was USD 1.8 billion at consolidated level and about USD 621 million at ex-Taro's level.
Let me now briefly discuss Taro's performance. Taro posted Q3 FY '20 sales of USD 139 million, flat over Q3 last year, a net profit of USD 7.3 million. For the 9 months, sales were at USD 426 million, up by 2% over 9 months last year. Net profit for 9 months FY '23 was USD 18.5 million compared to $30.9 million for 9 months FY '22. Taro's financials for Q3 FY '23 and 9 months FY '23 included the consolidation of the Alchemee business. I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.
Thank you, Mr. Murali. Let me take you through the performance of our India business. For Q3, the sales of formulations in India were INR 33,919 million, up by 7.1% year-on-year. For this 9 months sales were at INR 102,390 million, up by 10.3% on like-to-like basis, excluding COVID product sales of 9 months last year. India formulation sales accounted for about 31% of total consolidated sales. There were no covered product sales in Q3 FY '23 and negligible COVID product sales in Q3 FY '22.
We continue to witness good growth across multiple therapy areas in chronic and the sub chronic segment for the quarter. Sun Pharma is ranked #1 and holds 8.5% market share in the over 1,800 billion Indian pharmaceutical market as per AIOCD AWACS December 22 report. Corresponding market share for the previous period was 8.2%. As per SMSRC MAT October 22 report, we are #1 ranked by prescription with 12 different doctor categories for Q3 FY '23.
For Q3, we have launched 25 new products in the Indian market. The sales force expansion has helped us to declutter our portfolio, and we have been able to expand our prescriber base in key therapeutic categories. We are also increasing penetration in Metros, Tier 2, and Tier 3 towns. Focus in near term will be to continue to improve the sales force productivity. 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 sales in the U.S. grew by about 6.3% over Q3 last year to USD 422 million. The main driver of growth was the specialty business, driven by ILUMYA and WINLEVI. U.S. accounted for over 31% of consolidated sales for the quarter. Specialty sales have also grown compared to September '22 quarter, and we remain excited on growth opportunities in the current portfolio.
Let me now update you on our U.S. generics business. The fan external generics business has marginally declined on Y-on-Y basis due to stoppage of U.S. shipments from Halol in December '22. Over the last year, this business has gained from a combination of new products, market share gains for existing products, and better supply chain management. For quarter 3, we launched 2 generic products in the U.S. on a next Taro basis. I will now hand 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 formulation sales in emerging markets were at USD 257 million for Q3, up by around 7.7% year-on-year. The underlying growth in constant currency value was at about 14%. Emerging markets accounted for about 19% of total sales for Q3. Formulation sales in rest of the world market, excluding U.S. and emerging markets, were USD 189 million in Q3, higher by about 4.8% over Q3 last year. The revenues of USD 189 million includes a milestone payment received of USD 12.5 million.
Rest of the world market accounted for about 14% of consolidated Q3 revenue. API sales. for Q3 were INR 5,154 million, up by around 9.4% over Q3 last year. We continue to invest in building our R&D pipeline for both the global generics and specialty business. Consolidated investments towards R&D for Q3 FY '23 stands at INR 6,702 million, 6% of sales, and this compares to INR 5,471 million, 5.6% of sales for Q3 '22, and by INR 5,710 million, 5.3% of sales in Q2 '23.
Our current generic pipeline for the U.S. market includes 96 ANDAs and 13 NDAs awaiting approval with the FDA. Our specialty R&D pipeline includes 4 molecules undergoing clinical trial. We should be able to update the status of this trial in our next call. The R&D investments have increased compared to Q2, and we expect a continued ramp-up of the same. R&D investments are likely to increase, both for our specialty and generic businesses. The Board has declared an interim dividend of INR 7.5 per share for the year FY '23 against INR 7 per share interim dividend for the previous year. With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions] First mention is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC.
Firstly, on concept, Pharma, I understand. So I don't want any specific number but directionally, if you can help us understand in terms of the cost structure and R&D spend, the intensity would be similar to calendar year '22 in calendar year '23? Or should it directionally come down or go up, if you could give us the direction in terms of cost structure intensity.
No, I think it's difficult to give information in context of what you call limited information we have and also a need to kind of be cognizant of the restrictions. But conceptually, you need to keep in mind that they have announced that the Phase III trial is complete, and they are in the process of filing the product or they wish to file the product in the first half.
Okay. Secondly, on the other expenses, was there any one-off in this quarter? Or was there a cost related to the Concert acquisition, which may not be there in the coming quarters? Or was it a normal cost structure?
So it was a normal cost structure as said on the readout, it was on account of the normalization of the operations. There is no one-off or anything related to the transaction.
And last, just a clarification. If I look at our specialty business, the revenue share sequentially have moved up meaningfully. But if I look at the gross margin, which looks flat, can you help us understand this math, sir?
So as of the cost is concerned, while we agree that the specialty businesses have increased, it will help us to improve the margins. However, cost is all the function of product and other geography mix. So as a result of which, what we'll say is that the COGS, what is trending as for our overall expectations.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
This is with respect to the R&D cost on the specialty front. So that has been increasing for the past 3 quarters now. So is it to do with the new indication for ILUMYA?
Yes, I think we have guided that we had challenges in terms of ramping up the clinical studies because of the COVID and subsequently, because of the war in Russia as well as Ukraine, so that has affected recruitment of new subjects. So I think I had explained that we will gradually find a way to identify new sites and find a way to accelerate the recruitment.
That's interesting. Sir, just on your comment in terms of intent to increase the specialty footprint. So if either in terms of the number of MRs or in terms of the absolute cost increase, if you can help us in the FY '24?
No. I mean I -- what I shared is that our increasing focus on growing the specialty business. I mean that doesn't necessarily mean that we would be strengthening the field force of anything at this point of time.
Understood. And secondly, on the India business, where there has been addition of a good sales force. There has been 25, 30 launches on a quarterly basis for almost 3, 4 quarters now. But 3Q FY '23 seems to be subdued at 7% year-over-year. So any particular you would like to call out?
Sure. I think the quarter 3 was slightly below the market, that is 7.7%. But if you look at our MAT December growth, which is higher than the market. So our -- market is growing at 7.7%, and we are going by 11.3%. So in the quarter 3, is what has happened is like, as you know [indiscernible], this was the product we licensed from Merck and they went operated in the month for July. And after that, we have made this product affordable. So these were the big brands where we have made the product attractive and make it affordable for the pressure and so we have lost some top line. But at the same time, we are maintaining our market share in terms of units. So that has impacted our growth in quarter 3. And as well as we have some challenges is one of the business units in gastro, where the growth were not as per expectations. But other than that, all other therapy areas, either we are in line with market or growing better than the market.
So gas flow challenges being addressed now. So we can be back to growth in the coming quarters?
Yes. That's our continuous effort is wherever we see some of the areas not growing as per our expectations. We try and address some of these issues. They take time also. It's not the next quarter, it will get addressed. But over a period of a couple of quarters, I think they should come back to growth in line with market.
And just lastly, if I question so this milestone is in ROW same?
Yes.
The next question is from the line of Kunal Dhamesha from Macquarie.
First, on clarification on other expenses. I think in your opening remarks, you said that there was some kind of inventory provision related to the product being not supplied from Halol, et cetera. So would we be able to quantify that?
So while we have taken the reported provisions not in the inventory and other items on the same time, it's not very significant.
Okay. And there are no kind of failure to supply energy or the remediation costs, et cetera, included in other expenses?
Whatever in terms of needs to be considered in the current quarter has been considered relevant hedge, and then they are not significant enough.
Okay. Perfect. My first question basically is on WINLEVI. So I think this product that featured as a kind of growth driver for specialty sales for the first time. Is there any particular thing that has changed in the U.S., which is kind of helping us grow faster in this product now? Because as far as we are concerned, whatever prescription data we follow is normally showing quarter-on-quarter more let kind of flat prescription data. So is there anything fundamentally changed?
So the prescriptions that you see today are more profitable than in the past quarter because there has been an improvement in taxes -- so I mean have you said that, I mean, on various calls, I have said that the improvement of actors is an ongoing process. There is no finite time to completion of that. It will happen all through the course of the life cycle of the product. And we have a long way to go in terms of improving that even further.
Okay. So is it fair to say you have like onboarded a big kind of PBM right now or in this quarter?
Sorry, can you repeat your question? -- to say one?
We have onboarded a big pharmacy benefits manager or an insurance company who is managing their PBM on their own fund.
True.
And this kind of onboarding, does it help with the negotiating with other guys as well?
I think we have to see. I mean, there are competitive dynamics even amongst the payers, whether it helps us time will tell, but we certainly would try our level best to convince the other payers also to cover the product.
Perfect. And second question on [indiscernible], -- given there is another molecule with a very similar kind of chemical structure approved, will this be counted as a new chemical entity for...
I mean this definitely will be a new chemical entity.
So it would come with the associated exclusivity, et cetera, if it gets approved.
That is correct.
The next question is from the line of Neha Manpuria from Bank of America.
2 questions on the Concert acquisition. First, if I were to think about the lead asset here, how do you think about reimbursement and formulary coverage for the product. There was -- since this could be seen as more -- not fully, but more cosmetic use versus medical use? That's my first question. And second, how does this product fit into our existing presence in derma with ILUMYA and the other products? Just trying to understand the additional investment that would be required to commercialize this product outside the R&D investment that you mentioned?
So Abhay, would you respond?
I'll respond to the first part. I mean from a science and medical perspective, AA or Alopecia Areata is clearly not a cosmetic condition. However, like what you said, a lot of players, not doctors, but definitely players may have that kind of a perception in mind. And I think the task for us even prior to launch will be to sell the concept and make payers understand that this is a medical condition and not a cosmetic condition. And then, therefore, try and the
[Audio Gap] I think in that, I think the doctors that we are speaking to are pretty clear, and they will also be helping put out that story.
Understood. But is the additional R&D that you mentioned prior to commercialization associated with us helping to help get better formulary coverage when we launch the product?
So data that we will generate from the R&D efforts will be used in various on. The same data will be used with GPs and in a modified form used with payers and PBMs and even the buyers of the product. So data is data. It is how you present it to relevant audiences that will make a difference and eventually how all elements of the market dynamics into play and have a positive impact on the product.
Understood. And my second question, how does this product fit into the existing footprint that we have in derma from a sales force perspective, doctor coverage perspective?
So like Mr. Shang we also said we read out. I mean we have covered in psoriasis, we have products in acne. This was one unmet need. So it enhances the basket of offerings that we have for dermatologists and doctors who treat dermatology conditions. So I think from an indication perspective, it is a clear fit into what we already do. And there is a significant overlap between the HCPs that we need and the HCPs who are likely to be treating...
Understood. And just one last clarification on the R&D spend. Is the additional R&D included in the guidance that we have mentioned in the past of 7% to 8% of sales? Or should we look at it over and above that?
No, I think we are currently underperforming in terms of the, what you call spend. Even given if this gets added, I think we will get the cost only for a month or so.
No, no, sir, I mean from a guidance perspective for next year, since you mentioned additional R&D.
It, we will give next year because I think we will look at the -- all the products in different stages of development, like what I also shared, we should be able to also share some clinical outcome progress with some of the other studies so that we will give that guidance.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
So is it possible for you to talk a bit more about Halol situation in the sense that A, for the 14 exempted products, would you be able to restore all the sales?; B, would you be using the site for non-U.S. markets?; and C, how many ANDAs have been filed from your pending approval? Or any color around any high-value product, so are you looking to site switch...
So I think Abhay can give more information about the exam product and what kind of sales we will be able to maintain. But we will look at what you call the important products approved all in the process of getting approval for switching or filing from additional sites. Okay.
One to add to what Gusain we said, I mean, a lot of business that we will be talking about retaining or losing will be product specific, and the situation is still a little fluid I would say and will be obviously to retain all of it, but I don't think all of it will be -- you can assume will be lost to competition -- and will be to minimize that.
Okay. Very clear. And would you be using the site for non-U.S. market or you would first rather get it back in remediation?
No, I think we are in touch with the other regulatory agencies, but site is being used for supplies to other geographies.
Okay. Okay. Great. Sir, second question is on the specialty portfolio. And the prescription for WINLEVI had kind of dipped around, if I remember correctly, October, November. And they have been inching up, so I think they're back to 8,000 a week. But before that, it used to be 9,000 to 10,000. So we're still not back up. So just any thoughts on that? And second, also on ILUMYA, if I see the IMS dollar data for 3Q, which is October, November, December, it's just flat quarter-on-quarter versus our primary sales being up. So anything to read through or it's just a bit of an aberration.
So the first part to your question, I mean, the prescriptions are moving up, not at the pace that we would like, but they are moving up. And I think we have made some changes to our coping plan, and then we had improvement in the access. So I'm pretty confident that the growth transaction will we be able to maintain -- and this is about your question on in, maybe, of course.
On ILUMYA, personally, I don't see a challenge because of the channel that we are strong in, that is the medical benefit channels, not all of that change that you see in the IMS will be completely reflected. So if I see and of course, on the collation but if I see the sales till yesterday for the month of Jan, I feel pretty strong that the positive momentum will continue.
The next question is from the line of Prakash Agarwal from Axis Capital.
Now I just wanted to understand this import alert situation better. So currently, what I understand is 14 exempted products are not being sold, and there are some activities that would be required to get these products enter the U.S. shores. So is that understanding right? And what is the value of these 4 products?
Abhay, you would like to answer or...
So back by batch, the products that we have in India, we have started releasing to market after discussions with our quality team as well as external consultants unwise. And for the fresh product, which we are getting from India, as you said, is the process to be followed, which we will follow and try and fulfill the needs of the market. And I mean, product twice and category-wise, we don't view our numbers. So I can't really give an answer to your question of the exact contribution of these products.
So of the $155 million, is it half of the product sales? Or is it less than half some direction in health? And when you say badge by batch, it is the FDA -- I mean, you are releasing batch-by-batch or they are accepting batch-by-batch, can there be any clarity there?
We are releasing it batch-by-batch after sort of testing of the products.
Okay. And they are accepting it.
Yes.
And... I think you should have clarity that it's a decision by the sun quality to release the batch. FDA doesn't accept anything. Everything that we do is open for future audit.
Okay. But when you release it batch-by-batch, it can be sold in the U.S. market. Is that understanding?
Batch-by-batch release for the U.S. market.
Okay. And sir, direction on the 14 exempted products, it could be less than half or around half of your $155 million sales?
So as we mentioned, we are not giving any suspect of product-related revenues disclosure. Okay.
And overall, I think making you have cited that the total impact on the overall company sale is not more than 30%. That should give us some direction.
Right. And sir, when you said that you have taken some provisions. So is it adjusted with COGS? Or is it a line item with other expenses? How should we think about that? And going forward also, how has all the provisions taken yet?
It's lying in both in COGS and other expenses and are not very significant share in the year.
Not significant, hence forth...
I said the -- whatever we have baked in, in the current quarter in the COGS and other expense line is not very significant on hand.
Okay. But most of it has been taken or is yet to be taken, sir?
We have baked in whatever is we are fully aware of completely we've recognized it.
Okay. Okay. Lovely. And lastly, on ROW and AM sales. So dollar terms, we were looking at 2-year CAGR and clear CAGR, it remains a 2%, 3% kind of CAGR dollar terms. So is there any focus in terms of additional launches? Or is it because of the high COVID base? Or how should we think about growth in ROW?
I think the growth is significantly more than 2%, 3%. I don't have 3-year data in front of me. But if I understand the relative percentage that the emerging market has other markets have on the overall company performance. It's not -- it's actually gaining in terms of overall share. So in spite of growth in other markets, it's growing faster.
So I have data from Q3 '21 to Q3...
I think can you then take it up separately with Abhishek and rework the numbers.
The next question is from the line of from Shyam Srinivasan from Goldman Sachs.
Just looking at Global Specialty sales Q-o-Q, $200 million has gone to $223 million. I'm excluding the milestone. That's about $20 million-odd. But when I look at non-Taro U.S. formulation, it's flat, right, to $82 million in to $83 million. So just want to understand growth of specialty, U.S. versus or U.S. looks like there's been a bigger contribution from non-U.S. I'm obviously making an assumption on non-Taro generics, but just wanted your thoughts.
We have the data... But I think for a specific reason, we are not sharing the details on this. And I understand that it creates a challenge trying to estimate -- our own general feedback is that I think the business is growing both in U.S. as well as in other geographies.
But just anything on ROW because intuitively seems to have grown faster. So have we done better in any of the other markets. I think that's where the underlying question was...
So you're asking for specialty business or do...
Yes. Just I'm doing only a only specialty, global specialty and non-U.S.
Specialty business and ROW is not very large.
Got it. Got it. Helpful. Just a second question on...
What you must be mixing up is that the royalty income is included in the...
No, no. I excluded that... I excluded the $12.5 million 200 million has gone to INR 220 million...
It is a very small part of the overall business.
Got it.
The U.S. and euro.
So I meant non-U.S. has even Europe. So if there is something that's happening incrementally in Europe, either through Almirall or others, that is also something that will be useful to know.
No, I think Almirall is doing quite well with the product, and that is why they triggered the milestone -- but I don't see a dramatic difference in the performance. And you need to know that in Europe, what happens is that different countries based on a different point of time when they get reimbursement, the sales pick up.
Got it, sir, helpful. Just a second question on the Concert deal from a financing perspective. I think I missed the ex-Taro cash balance for the quarter or the December end, how will we be financing it? And just the next few steps, if you could highlight, what should we be looking out for?
So we already given our -- in the press release in terms of the options we have in terms of financing the transaction. So beyond that, we will not going to comment how would be funding this transaction at this point of time. And the process will also be shared, which has been filed with Concert also, so which is out in terms of what we're following the listen entity.
The next question is from the line of Sayantan Maji from Crédit Suisse.
So I believe in the initial readout, the year-on-year increase in specialty was driven by ILUMYA and WINLEVI. So what would you like to quarter-on-quarter increase in maybe -- is it maybe a human -- or has there been a benefit from seasonally and stocking up as well because dermatology portfolio usually a favorable seasonality in 3Q...
There was a lot of break-up from the audio so I'm really not sure what the question is.
Yes. So let me repeat it. Is it better?
Yes, much better.
So I was saying I think the initial... You mentioned that the year-on-year increase in specialty was mainly led by ILUMYA and WINLEVI. So I just wanted to check if the actors for quarter-on-quarter increase as well? And would seasonality and stocking up...
Sorry, I'm sorry, again. Are you what you said, are you? And then I couldn't get on a couple of...
Yes. So I was asking seasonality and stocking of benefit over the mail. Is there…
There is no real stocking about this quarter.
Okay. And my second question is on Concert acquisition. So there is an admin litigation that is going on between InSight and Concert. So would the outcome of this event be a material one in order to launch the product on time? Or is it something which is already taken care of.
We are aware, but we are not commenting on that at this point of time.
The next question is from the line of Krish Mehta from Enam Holdings.
The first question I had was on Concert acquisition. So the cash balance of concert seems to be at $140 million. So how will we be treating this cash balance? And will the cash balance in concert be fungible for Sun Pharma going forward. We'll be using this only for concert?
So we will be dealing with the opening balance sheet as per the purchase accounting post transaction close.
Okay. That's helpful. And on the generic pricing erosion for Taro, we just wanted to understand on given that the operating income has picked up this quarter versus the last quarter, do you kind of see this trend continuing for Taro? And how do you see the generic pricing trend for the extra business in terms of new product launches and market share gains in existing products...
So Tara has been in their release, said that we continue to see pricing challenges. I think beyond that for us to respond on this call would not be appropriate.
Okay. Good luck. Yes.
The next question is from the line of Nitin Agarwal from DAM Capital.
Sir, first on the Sespe launch, if you can just provide us some sense of the opportunity, the way we're seeing -- we see this opportunity for this product going forward?
So we believe it's a very good product in a little serious indication of neonatal seizures, where there was no approved product and only this equates are available. And therefore, I think we license it from start just launched it literally last week. So too soon to say that we are, obviously, the...
Sir, this is the operator. Mr. Gandhi, the audio is not...
Can you hear any better now?
Yes, sir.
So I don't know how much you got or what I said. I think we believe it's an important product and in neonatal seizures, which is a very serious indication and a good product is something that is compared to the doctors and the institutions as well as to caregivers of the patient. So I think we are very hopeful this will be a good product that going...
And then just following up on that, the giant fiber products, which are unapproved products, which are there, is there a time line for the FDA to remove them from the market? Or how does that process go?
And it's some modeling, which we did, but it is not definitive of how it will be looked at by the FDA for different products, it could be treated differently, and it is also a function of to be able to believe that there will not be any drug shortage and the new product will be agent of demand of the market...
So this is not a laid out procedure that once you get an approved product for -- in our category, there is...
Rate out procedures that have within x number of months or weeks, the existing products for us to go out of market. There is no such established procedure. But it's something that we will have to work with the FDA convince them and it's set calves.
And on this exclusivity period, how long do we exclusively do we get on a molecule like this? Is this a regular 2 commercial exclusivity will be how long for this kind of product...
Mr. Agarwal, may we request that to turn to the question queue for follow-up questions. We'll take the next question from the line of Vivek Agrawal from Citi Group.
The question is related to the recently acquired Can you also...
Hello, Mr. Agrawal. Please use the handset mode, sir. The audio is not clear from your line.
That question is related to Zuricilendinib. So sir, can you also comment on the step profile of the drug, how this is compared to the product...
No, I think whatever is in the public domain based on which I think it's a relatively safe product with what I would call a benign kind of side effect profile that was reported in the studies that are in public domain. The Phase III studies, I think, are in line with or maybe in the line with that. So I think it's a safe and very effective product. That's why I think I talked about this in a context of best-in-class product...
We'll take the next question from the line of Damayanti Kerai from HSBC.
My question is on Halol again. So what kind of remediation cost you foresee for resolving the pending issues there? And also, how do you see your U.S. generic sales trending over next few quarters, ex-Halol, -- do you think you have headroom to minimize impact of sales lost at Halol from other facilities...
We shared at the time of sharing the information about Halol, is that based on this, we expect the impact to be less than and of the total sales, and we are not changing or revising our guidance because of this. Now...
Regarding the cost -- yes, regarding the remediation cost, which you might be spending for issues there?
So I think we are not sharing specific information, but there will be a certain amount of consultants and remediation costs associated with the bringing the facility back in compliance. There may also be some new investments which may be required. So -- but that's part of the remediation process.
And any timeline like what you're targeting by when you can see regulation of issues because this plant has been under FDA's for some time now.
So I agree with you that it has been under scrutiny and in an OAI status for a very long time. So we need to find a way to resolve the issue. And that's what we are working for. Okay.
My second question is on Taro Financials. So the SG&A associated there seems to be trending at around $50 million a quarter. So how should we see this cost going ahead? I understand that this includes Alchemee, but if you can comment on SG&A number for Taro...
Taro has published the results, they also give in the press release. Being a public company, I don't think we'll share more information than what we have shared. Okay.
My last question is, where do you book Almirall related benefits in your financials?
Milestone income, we said is coming ROI.
So this is milestone income. But in a regular quarter, where do you capture this number if there is no milestones like normal contribution coming from Almirall.
A normal sales cost overall will sell to Almirall goes to revenues.
The next question is from the line of Bino Pathiparampil from InCred Capital.
Most questions answered. Just one question, believe by, like you shared the revenue contribution from Halol. Would you be able to do that regarding the Mohali facility as well because there is still some FDA issues going on there?
I mean I don't have the details with me. But I mean, we don't either give out revenue from plants or from separate businesses. Halol we care about because I think it's important for investors to be able to evaluate the impact.
Understood. Yes. And just would you be able to define the market in terms of number of patients treated a year for this indication, et cetera? Something like that...
I mean I don't have the number in front of me, but yes, that number is available. So I will share this with Abhishek with the investors call, and maybe you can connect with him offline.
The next question is from the line of Harith Ahamed from Spark.
On the Concert acquisition, would you be able to comment on the purchase price allocation with the consideration of $570-odd million reflect largely as intangibles on our balance sheet? Or will there be a significant goodwill creation? And the intangibles will be amortized over what period, if you can give some color.
So we -- as we explained in the opening remarks on 19 January we signed a defensive agreement. The traction has to close, which we expect to close probably in the first quarter of this calendar year. Once completed, we will do the full loan purchase this accounting at the time, relevant things to be taken care.
Okay. And from an accounting standpoint, these payouts associated with the CVRs, will there be a liability created on our balance sheet for these potential payouts...
There are multiple options available to treat this type of continued value rights, which will evaluate along with the consultants or time of fines repurchase is accounting.
Okay. And then one question on generic Revlimid, we've disclosed a settlement for that product. Any color that you could share on the time lines for launch. Will this be an FY '24 launch for us? Or is it much later.
I think we've given some guidance in the past... We are on track for launch -- that's what we... Yes.
Okay. But we're not confirming it's an FY '24 product.
No. All we have said is that we are on track as per the settlement with the innovator to launch. And there is no change in that in the quarter. Yes.
The next question is from the line of Surya Patra from Philip Capital.
Just first question on the Concert again. Sir, how critical is the long-term tolerability study for the success of the molecules -- and that is one. And secondly, whether this is just a lead molecule that is what we are acquiring through this acquisition? Or there is potential other platform technology as well as the product opportunity that we are acquiring.
So I think the key focus or interest for us was Duroxalotinib and its proximate to market and its ability to help the alopecia areata patients who are currently not having any approved good approved product for treating that condition. However, the company also has licensed products to other companies. And they have some products which are not even licensed, but they have intellectual property. So I think as we develop better sense and understanding, we will share if there is any significant additional opportunity that we are able to identify from the pipeline.
And this is a cash debt-free kind of acquisition, sir? Because I just wanted to have more clarity about the cash number that what we are seeing in...
Acquisition, cash will come along with the company.
Sure. Okay. My next question is on the cost side, sir. So basically, we are seeing a kind of some impact, obviously, on the other expenses front, and that could be because of multiple factors. But I'm just trying to understand to what extent this is led by, let's say, tariffs underperformance because it is Alchemee acquisition post that, obviously, we are seeing some impact on the cost side. So if you can say on that front.
We are already in the lead outset that the increase in other expenses is driven by the higher selling and distribution expense across various geographies, higher R&D spend, and also the consolidation of our IT business. Separately, we will not be able to give any number of what's related to Alchemee as other components, which is flying into other expenses.
Okay. Because if we just add the licensing income, then the cost structure even looks slightly deteriorated, so that is high. this licensing income -- sorry, the milestone income would be a kind of a pure cash component -- this is for that cost structure looks slightly deteriorated. That is why...
But license income is not part of the revenue, right, rating operating revenue.
Okay. Okay. And just last one question, sir, relating to the R&D. Now considering the kind of nature of our activities and the intent to expand our specialty portfolio. So let's say, in the next 2 year period, the R&D spend mix towards the specialty would be to what extent of the total R&D spend.
So I think we've shared with investors that our focus is on creating a significant additional engine of growth through specialty business. And we have been diligently building that business. And that business will require investment in new clinical studies, R&D. So we will commit all of that whenever that becomes necessary. But we don't give guidance beyond the next year. So that's where I think I have the challenge. But directionally, I think we would be strengthening our ability to execute on various specialty-related investments.
Next question is from the line of [indiscernible] Financial.
I just had one question. Would it be possible to give us it for the pricing-led, volume-led, and growth for this quarter and 9 months?
No. I think actually with the what you call syndicated reserves as well. I'll give you that.
We'll move on to the next question from the line of Smith from IDA.
Why have we discontinued A&D approval for [indiscernible]
What is that?
Generic Wella... Carrie's.
Carrie project...
Yes, right.
No. What is the question?
I mean why have we discontinued the A&D approval?
I don't know what for tariffs. Is that of public domain information, I don't know. We don't give information related to future products.
No, because it is approved and then we'll discontinue it.
So there must be a business reasons.
It is a fairly large product in U.S. So is it still a meaningful opportunity for us.
I need to check back... Since we are not aware, I think it's better that you speak to Abhishek and get information on this.
The next question is from the line of Mayank Hyanki from Axis Mutual Fund.
I have 2 questions. The first question is on the nature of other expenses. So I think you have commented that selling and distribution costs have gone up a little better. So I wanted to understand what is let this increase in some of distribution costs for the quarter? And is it a structure increase...
So selling and distribution expenses, I mentioned that increase across novelties. However, we also mentioned specifically the sales force expansion is fully completed in the beginning of this fiscal for India. So obviously, in the current year, you will see a full expenses related to ascending for those new field pools added. So that's why overall, you're seeing an increase in the higher S&T spend.
So this is something you are saying it's increased across the employment as well as SG&A.
Yes. Across related to the new field for expansion is obviously the full year impact is there, plus also the related spend on the S&D related to the force.
Okay. Understood. The second question is on the Halol side. I mean we continue to trouble in this. So my question is what is the core reason for distribution alone? I mean, most of it, of course, in retrospective, but -- and what have we done to like address it over the past few years?
Clearly, whatever that we thought we needed to do, we've done, but it was not adequate. So we need to strengthen our ability to ensure that the expectation of the regulatory agency are met. We believe that we've now put in place appropriate focus and structure so that we should be able to meet the expectation of agencies. I think at the same point of time, we need to also keep in mind that a large number of our other facilities supplying to the U.S. are in compliance, and we continue to, what you call, grow our business in the U.S. In spite of significant pricing pressure as well as what you call challenges in the market, please?
So is it because -- I mean you all understand Halol is one of the large and old complex, which has got multiple bases of production -- so is it because of it being an old plant? Is it because of shortage of proper skill sets? Or is it because of the volume standard of? And is this something which -- I mean, the practices here is something that you would be having across your other sites as well because of -- it could be a systematic issue which has to be addressed?
I think the company policy is that what the changes we make in one plant, if it is applicable and relative to other facilities, it is automatically put in priority for implementation in that facility. Now, Halol, rather than being an old plant, I think we've made huge consecutive investments, and it's become a very large and complex facility. So we have to find a way to reduce the complexity.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just a quick question. The products which are of a lot of interest is Semaglutide and Liraglutide, and it could be an interesting market. So any thoughts you can share? I can see that Sun is among the 4 to 6 filers for this product. Do you think it can get competitive, you still think it's going to be attractive opportunity? Just your thoughts would be great, sir.
So Semaglutide is far away, Sameer, I think Liraglutide is relatively reason. But my expectation is that by the time the patent expires and we can come to the market, a large part of the current, what you call patients would have moved over to Ozempic. So to that extent, we have to look at the residual market at the time of patent expiry.
Okay. That's great. That's very helpful. And just one more, if I can, on drop, and that is JAK1 and 2 inhibitor, and we have this Olumiant in the market. So is that pricing and other JAKs are those pricing survey a good benchmark for our product? I know it's still some time, but any thoughts on that...
So my assumption is, but we have no firm decision to pricing could be... Sorry, you are saying some...
I think the idea would be to develop a comprehensive understanding on the price at which we can fully benefit from the value of the product and also patients have ability to access an effective treatment option.
Next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC.
Quick clarifications, sir. Firstly, in the press release, we have mentioned that the adjusted for one-off the PAT growth in this quarter was higher than EBITDA. So can you just help me what was the one-off of last year same quarter?
The last same quarter, we have disclosed they were internal refund and then we won settled with income. Those to a has been sustained. Next. Okay.
Okay. And in terms of the net MR addition in 9 months this financial year, can you share that number as well?
Yes, that's in India market. edition.
We have completed the MR addition like 1,000 MR we have added in this financial year. So that part, we are completed.
We'll move on to the next question from the line of Kunal Dhamesha from Macquarie.
So just on the euros, with the current kind of clinical data we have, would we be able to apply for approval outside the U.S. with the current data...
Yes, I think we have to evaluate country by -- I mean, geography by geography, some geographies may require additional studies. Some geographies, we may be able to file the existing portal. So we have to take if it needs extra investment, we have to take country-by-country decision. But it's a large enough product for us to seriously look at potential across geog.
So Okay. And those additional studies would be more like a bridging studies or kind of a full-fledged tire that we need to come back at least for the bigger geographies like Europe.
My understanding is that Europe may not require an additional study because quite don't be in the study but also in Europe. So it may not require a separate study. I'm talking more about Japan, China in these countries where maybe what studies will be required, we have to get interact with the regulators and develop an understanding.
Sure. And just on Mohali, after it has been kind of classified as OAI -- has there been any communication with U.S. FDA in terms of further Capa, et cetera, we would all submitted?
I think there is a structured process about updating FDA above probably what you call response for 3 and what we are doing. So that -- and there is a certain period of-- as we follow...
The next question is from the line of Prakash Agarwal from Axis Capital.
Just trying to understand the Taro cash, I understand Taro has a separate company, but you are the promoters and Taro is not hosting any calls anymore. I mean, how do we think about the utilization of that cash? Can they use this cash for similar asset acquisitions like you did in the specialty side? Or it's been there for long and is accumulating. So what are the thoughts as a promoter?
So the idea would be to find a profitable end use of the surplus cash, so that it can be put to use. And we constantly evaluate opportunities both in Sun as well as narrow also has a separate business development group, and they also constantly evaluate opportunities. So hopefully, I think with the rationalization of valuation, we should be able to do something.
And just a request, if you could have at least an annual call for Taro, that would be very useful.
We would communicate that or share it with you.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Abhishek Sharma for closing comments.
Thanks, everyone, for joining in today. Kindly reach out to the IR team for any remaining questions that you may have. Good night, everyone.