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Sun Pharmaceutical Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Sun Pharmaceutical Industries Limited Q4 FY '18 Earning Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nimish Desai. Thank you, and over to you, sir.
Thank you. Good evening, and a warm welcome to our Fourth Quarter and Full Year Fiscal '18 Earnings Call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q4 financials and the press release that was sent out earlier in the day. These are also available on our website.Let me introduce the management team. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. Sudhir Valia, Whole Time Director; Mr. Kal Sundaram, Whole Time Director and CEO of India, Emerging Markets and Consumer Healthcare; and Mr. Abhay Gandhi, CEO of North America.Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for ease of discussion, we will look at the consolidated financials.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 the website shortly.The discussion today might include certain forward-looking statements, and this should be viewed in conjunction with the risks that our business faces.You are requested to ask 2 questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.I will now hand over the call to Mr. Shanghvi.
Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter and full year of FY '18.Let me discuss some of the key highlights. Our overall sales for the quarter were at INR 6,711 crore, a de-growth of 2% over the same quarter last year. The decline is primarily driven by the U.S. and API businesses. All our other businesses have grown for the quarter. In line with our EBITDA margin guidance, our overall performance in Q4 reflects a gradual improvement in EBITDA margin over the first half of the year. This is despite a challenging U.S. generic pricing environment and continued investments in building our global speciality business.Our full year revenues have declined by 14% year-on-year. However, on a constant currency basis and adjusted for GST impact, there is only a marginal miss in our original guidance. I am happy to share that we have recently received approval for Yonsa in the U.S., which can be an interesting product. This is a step towards building our speciality business in oncology. For U.S. generic market outlook, we expect the market to remain competitive. Given the changed business dynamics, many of our R&D projects have become unviable, and we are rationalizing generic R&D spend. We've announced a dividend of 200%, which represents a payout ratio of 27%. This is lower than last year, but all of you will appreciate that we are investing for future and has hence need to conserve cash.I will now hand over the call to Mr. Valia for discussion of the Q4 performance.
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q4 financials are already with you. As usual, we will look at key consolidated financials. Q4 sales are at INR 6,711 crore, down by 2% over Q4 last year. Material cost as a percentage of the sales was 26.4%, lower than Q4 last year, mainly due to better product mix as well as our lower COGS for Taro.Staff cost was at 20% of sales, higher than Q4 last year. This increase is mainly due to expansion of the speciality team in U.S. Our other expenditure is at 32.5% of the sales, higher than Q4 last year, due to an higher R&D cost and increase in investment in building the speciality business.As a results of above, the EBITDA for Q4 was at INR 1,417 crore with EBITDA margin at 21.1%. Net profit for the quarter was at INR 1,309 crore, up by 7% over Q4 last year. EPS for the quarter was INR 5.5. Excluding the onetime tax benefit, the adjusted net profit for the quarter was INR 1,050 crores.Now we will discuss the full year performance. Net sales were at INR 26,066 crore, a decline of 14% over last year. Material cost as a percentage of the net sale was 28.5%, which was higher compared to the last year. The staff cost for the full year was at 20.6% of net sales, while other expenses were at 31%, both higher than last year. This increase was driven by loss of Imatinib exclusivity in the U.S., lower profitability for Taro and challenging U.S. generic pricing environment.As a result of the above, the EBITDA for the full year is INR 5,185 crore with EBITDA margin at 20%. The net profit for the full year is INR 2,162 crore. There are 3 large onetime item, which has impacted the net profit number. One of them is INR 259 crore onetime tax benefit reported in Q4. Second is INR 513 crore of onetime deferred tax adjustment related to the change in U.S. tax rates reported in Q3. And the third is INR 951 crores for settlement impact related to Modafinil antitrust litigations announced in Q1 this year. Excluding all these onetime impacts, the adjusted net profit for the full year is INR 3,367 crore with net profit margin of 13% compared to the net profit of INR 6,964 crore for the full year last year. The net profit for the last year included the benefit of 180 days exclusivity of Imatinib in the U.S., which expired in July 2016.Let us now briefly discuss Taro performance. Taro posted Q4 financial year '18 sales of USD 175 million, down 11% over Q4 last year. For the full year, the sales were $662 million, down 15% -- 25% over last year. Taro net profit Q4 was $86 million, up by 4% over last year. Net profit for the full year is $211 million, down by 54% year-to-year.I will now hand over to Kal Sundaram, who'll share performance of our Indian and Emerging Market business.
Thank you, Mr. Valia. First, let me take you through the performance of our India business. For Q4, sales of branded formulations in India were INR 1,963 crores, a growth of approximately 2% over Q4 last year and accounting for 29 -- approximately 29% of sales.Growth for the full year was at 4%. As indicated in our previous calls, this was a transition year for the industry with the introduction of GST in India, and hence, the growth comparison to the previous periods will not be appropriate. Post the GST adjustment, the full year growth was approximately 9%. Our efforts to improve productivity is paying dividend with wage inflation for the field force more than offset by incremental sales. Our core therapeutic area segment continued to show sound growth, and thus enabled us to maintain leadership in these therapeutic areas. Sun Pharma is the largest pharmaceutical company in India and approximately hold 8.5% market share in over INR 1,19,000 crores pharmaceutical market as per March 2018 AIOCD-AWACS report.As per latest SMSRC report, Sun Pharma is also ranked 1 based on the share of prescriptions with 13 classes of doctors. For Q4, 15 new products were launched in the Indian market.Now let me focus on performance in emerging markets. Our sales in emerging markets were at $199 million for Q4 with a growth of 10%. Emerging markets accounted for 19% of our total sales. The growth is broad based amongst emerging markets. Key markets contributed to the growth were Romania, Eastern Europe, Middle East, North Africa and some Asian markets.Now I will hand over the call to Abhay. Abhay?
Thank you, Mr. Kal. I will briefly discuss the performance highlights for the end of [indiscernible]. For quarter 4, our overall sales in the U.S. were down 3.3% at $368 million accounting for [indiscernible]. The main reasons for the year-on-year declines in our U.S. revenues include pricing pressure.
Excuse me, this is the operator. Mr. Gandhi, sorry to interrupt you, your -- but your voice is breaking up. If you can check that, please.
Am I audible completely now?
Yes, this is better, sir. Thank you.
Okay. I'll go back a sentence, if I have broken up earlier. The main reasons for the year-on-year decline in our U.S. revenues will include pricing pressure due to customer consolidation, lower generic Imatinib and authorized generic sales. On Absorica, as you know, we have made certain changes in the co-pay program because of which prescriptions have gone down. However, we expect sales and profits on the product to improve going forward. A recent development was the announcement of measures by the U.S. government to lower drug prices for consumers in the U.S. We are currently studying the proposals and will be able to comment on it going ahead.Let me now update you on developments in the speciality business. During the quarter, we announced the U.S. FDA approval of our BLA for Ilumya. We have commenced launch preparations, and we hope to be launching this product in Q2 FY '19. This marks a significant step forward for our speciality dermatologic portfolio. Another recent development was the U.S. FDA approval for Yonsa, a product for treating metastatic castration-resistant prostate cancer in combination with methylprednisolone. We have initiated launch preparations and will be commercializing the product in the current quarter. We are pleased to add Yonsa to our growing speciality oncology portfolio. As all of you are aware, the U.S. FDA accepted our NDA for OTX-101 in December '17. We expect to commercialize this product in FY '19. We will be incurring significant costs for commercializing these specialty products. I will now hand over the call to Mr. Shanghvi.
Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D and speciality initiatives. Formulation sales in rest of world market, excluding the U.S. and emerging markets, were USD 116 million in Q4, a growth of 5.7% over last year. ROW markets accounted for approximately 11% of Q4 revenues. We continue to focus on developing and utilizing APIs for captive consumption for benefits of vertical integration. For Q4, the external sales of our API business were at INR 332 crore, down by 16% over Q4 last year. We continue to invest in R&D for enhancing our pipeline. Consolidated R&D investments for Q4 was INR 743 crore, accounting for 11% of sales. This R&D spending enables development of future product pipelines, including speciality and differentiated products. Our current generic pipeline for the U.S. market includes 139 ANDAs and 3 NDAs awaiting approval for the U.S. -- from the U.S. FDA.And finally, for the FY '19 guidance. We expect a low double-digit growth in our consolidated top line. This is despite our assumption that the U.S. generic market will continue to be competitive. R&D expenses will increase due to clinical trial expenses for new indications for Ilumya and the other speciality product development. Overall, R&D investments likely to be in the range of 8% to 9% of FY '19 sales with higher proportion being spent on speciality R&D.FY '19 will mark crossing of some important milestones in our speciality journey. As indicated by Abhay, we plan to commercialize Ilumya, Yonsa and OTX-101 in the U.S. market in FY '19, and hence, we'll have to incur significant expenses for this important launches.With this, I would like to leave the floor open for questions. Thank you.
[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.
I have 2 questions. First on the U.S. sales. There has been a sharp increase quarter-on-quarter despite the sales of Absorica coming off. I understand part of that would be Taro. But is there any other reason for the improvement in the U.S. sales in the quarter?
Abhay?
Yes. So on specific products, we are seeing an improvement. And as you rightly also said that Taro is also responsible for the increase quarter-on-quarter. But yes, on specific products, we have seen some improvement and gains in share.
So sir, if I understand this correctly, as Absorica comes back, this should -- this base should only improve in the next quarter, excluding what happens to Taro?
Yes, Abhay?
Mr. Abhay Gandhi?
Am I audible?
Yes, you are audible now, sir.
So I will say that Absorica is not the greatest product when you look at the overall context of the business, but yes, we hope to see improvement in Absorica and if that is what -- that's how we would like to look at. And I think improvement in business is what we are claiming for any way.
Fair enough. And sir, second on the speciality strategy. Now that we have 2 launches planned for this year, particularly when it comes to Ilumya, what's our launch strategy there, given we have fairly large products already in the market? How do we go about -- is there a target market share that we've looked at or peak sales that you would like to give any color on?
No, I don't think I would like to go into strategy and the kind of share we are looking at. We feel confident that even in this market we can get our fair share, and I think I would do whatever we need to do and the strategies we need to have, we are working on that and, hopefully, do well in this market.
The next question is from the line of Chirag Dagli from HDFC Asset Management.
So the first one is on Odomzo. Is the scale-up in line with your expectation, Mr. Shanghi, up until now?
I mean, I think asking this question to me and Abhay, I think, you will get different answer. But Abhay, it's better you answer.
So I will give my answer.
Yes.
Novartis, when they were marketing this product, had a 3% kind of a share. I think in a relatively short time, we beat that. We touched 10%. We hope to do better as we -- while [indiscernible] song says we are never, ever completely happy, but I think you should stay with my answer on this one. Thank you.
And there is significant potential to grow from the 10% level as well?
Yes, and that's where you are going into Mr. Shanghvi's answer, so...
Fair point, sir. And sir, when you say that there are significant investments to be made in FY '19 as well, the hurt on profitability on an absolute dollar million basis, will it be significantly higher in FY '19 versus FY '18, sir?
It will be because it's now the phase when we are actually going to market. So a lot of expenses that you source which weren't completely captured in last year will now be completed in fact this year. And after -- and also your in-market expenses. So...
But you'd also have sales, right, sir?
Yes. But the question is that will we have expenses.
Right. Okay. Fair point. And just one third one, a quick clarification. In your opening comments, Mr. Shanghvi, you mentioned that some of your generic products in the pipeline are becoming unviable. In the past, you've talked about a 5-year payback, 20% kind of return. Some of your products are not even meeting that kind of benchmark. Is that what you're alluding to?
Yes. That's what I was alluding to. So if it doesn't meet that benchmark, then we will seriously relook at whether we want to continue that product or not.
And historically, you've focused only on the complex, limited competition niche kind of products. So fair to say that, that doesn't change, right, in terms of products you have?
Sure. I mean, whichever product we think we will make money long-term will continue to be focused.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Okay. One clarity on Absorica from the last conference call. Abhay, you made a comment that with the change in program now, the profitability of the product will be higher. I just wanted to understand, what do you mean by that? Are you trying to say that total absolute profitability of the product will be higher or per unit profitability will be higher? Can you clarify that?
Both, per unit and total we will do better.
Can you help us? How does it happen because your volumes have become half. Unless with the co-pay, your EBITDA per unit has become less than half when you introduced a co-pay and you're getting a lower ASP on the product. How would your absolute profitability will be higher here?
[indiscernible] co-pay which was actually not profitable at all and we were losing money on both [indiscernible]
Abhay, I think you're breaking. Abhay, you're breaking up. So I think maybe I will give the answer from here. It's easier. So I think -- or, maybe you can reconnect. But -- so I think the way Abhay is trying to explain is that our previous co-pay and also coupon program meant a relatively low value capture and realization. With -- post these changes, our overall realization will improve, but that will also lead to reduction in the total prescription. So this -- the question that you're asking is, whether the reduction in the value realization is higher than the offset that we may receive as a result of reduced prescription, and answer is yes.
So I'm just trying to understand. You -- this program you ran for almost more than 6 months, right? So what took company to realize that we are losing money by introducing this higher co-pay over a 6 to 7 months period?
Abhay, you're still on the call or...
Sir, we are getting him reconnected.
Okay.
Should we move to the next question, sir, in the meanwhile?
Yes, please.
I have -- Dilip bhai, I have one question on Halol facility...
I think so many questions. There are many other people.
Sir, I just asked one question on Absorica. Anyways, I can rejoin.
The next question is from the line of Surya Patra from PhillipCapital.
Sir, just one quick clarification first, sir. About the Novartis, the branded generic product what we had acquired in Japan. So the -- whether the rights market we currently just distributing, whether the product has been transferred to our name fully as of now?
Yes, yes. I think we also gave a press release to that effect. So now these products are being marketed in Japan with Sun label.
Okay, fine. And second, sir, on the speciality side. Sir, may I know what is the kind of spend that we have made through current financial year FY '18, throughout FY '18? And on the R&D spend, particularly, how much that we would have allocated towards that?
So both of this, I think, we don't give business by business spend and cost. So I'm not able to share that.
Okay. Then my question would be, sir, on the margin front. So basically, on the R&D side, we are talking about relatively higher R&D spend considering our speciality initiatives as well as the kind of generic business focus, whatever, that has been continuing. So -- and the challenges anyway we are maintaining that okay that will be continuing. So the margin expansion what we -- or rather, what all would be the margin levers for us for the current financial year?
Multiple levers. I think control on costs that we can control. What you call rationalizing R&D investment for products that we believe are profitable long term. Also I think selling more of high-margin products.
Okay. So that means whether the rationalization of the products will continue for sometime, sir, in the U.S. particularly?
It will, it will. But Abhay may be better able to answer, so if he has joined.
I think it's a continuous process. We keep looking at products we -- and continue to sell, continue to sell high-margin products, more of it if we can, and every quarter look at which products are completely unviable that we should not be marketing. So it's like a moving target, and it's something we keep looking at continuously.
Okay. So whether it is of -- even the focus is for the base business products along with the pipeline...
I didn't get the question. I think you're on your 10th question, but what was the question anyway?
So it is, whether it is like -- even for the rationalization, focus will remain even for the base business portfolio?
So what's a base business portfolio, I didn't understand that part of your question.
Okay. So we're talking about the...
I mean, everything that we were selling last year is base business, as that's the way I understand. And on that -- on those products, we keep evaluating which one makes sense today and going ahead. So I hope that answers your question.
The next question is from line of Anmol Ganjoo from JM Financial. As there is no response from the line of current participant, we move to the next question. That's from the line of Nimish Mehta from ResearchDelta Advisors.
Sir, first on the guidance that you mentioned about low double-digit growth in sales. Are we, I mean, basically assuming Halol clearance somewhere, I mean, when basically is the question? And is that being baked into the guidance?
Yes, of course. I mean, all the businesses, including Halol, including Ilumya, also, let's say, OTX-101 for whatever period that we would still invest, all of that's, I think, factored in the guidance.
I see. Okay. And the second is on Yonsa that we just launched. Can you -- sir, can you just explain what is the basic difference between Yonsa and Zytiga now that Zytiga is going to be off patent very soon. So what is the unmet need or what is the differentiated part that we are looking at Yonsa?
Actually, that will be a long answer to give to you. Maybe if you can take it offline, we'll be able to explain it to you better. But it's a valid question. I think, we'll give you the answer offline and explain to you.
But I think it's an important product, Abhay, and we believe that it can be an interesting product for us in the short term, but also in the long term.
Yes, sir. And a slight correction, I mean, we haven't launched it as yet, but we hope to in this quarter.
Yes, sure, sure. No, I -- I mean, I just looked at the labels of the 2, and I couldn't see much of the difference and which is why this question. But yes, I will take it offline. I'm done with my questions.
The next question is from the line Srihari from P.C.S Securities.
Two questions basically. The low double-digit top line growth that you've guided for, would it be right to presume that a major chunk of the growth would come from the 3 assets -- specialty assets that you plan to commercialize in this fiscal? And secondly, was there a head-to-head between Yonsa and Zytiga? If so, what were the results?
So I think the growth reflects our plan to grow in each of our business. So India, emerging markets, our consumer product business, U.S., Europe, so all of that's included, including speciality products. Abhay, I'm not very sure, but I think there was a comparative study between Zytiga and Yonsa, based on which product approval was received, correct?
Right, sir, but I am a little wary of what and what not to say on this call because there are patent issues, there is a label which finally came, which I haven't completely studied. And that's the reason why I said that once we study, maybe we can answer some of these questions offline. So I am a little wary of what I can and cannot say on the call.
I agree, and I think that's the right way, too. But we can -- I mean, it's part of the label, that comparative clinical trial is part of the label.
Yes, so I need to study finally. And once we do all of that, I think, to whoever has a specific question on the product and how we can differentiate with the competitor product, I think we'll be able to give an answer. Just request patience for a couple of days until all the legal matters and patent matters are clear to us and how we can address it.
Yes. Just to crystallize the double-digit growth value that you've given, I mean, will the share of the 3 specialty products be significant? Or how do we classify that? Ilumya, OTX and Yonsa, their share, would it be significant in the growth guidance that you've given?
If I'm looking at it as an overall company, Dilip bhai, I do not know how much is the factoring you've kept, but in the larger part of the business. And if you look at it from an overall company perspective, I would say it will be like...
I think that what the way we look at business is very different from the way in which analysts look at business. I think for us it's a new engine of growth. While we will continue to grow out all our existing businesses, we want to find a new engine of growth. And that is why we are investing on this at this point of time, so that in future it can become as meaningful as some of our larger businesses. But there is a significant cost associated with that and also it's a gradual process.
The next question is from the line of [ Ronak Lodha ] from BNP Paribas.
Just one simple question. Where do we stand on the Halol plant clearance and you may still can give some insight on that?
So I think, as we've explained, that we continue to update FDA about the progress with our remediation activities, and then we await their response. That's where it is right now.
The next question is from the line of the [ Vikas Maheshwari ] from [ Maheshwari Financials ].
My first and the last question is what are the preventive measures taken to solve the problem of Halol, as we have seen since 2014 the problem has been regular, and in reinspections also, the company has been unable to resolve the problem and because of that the investors are losing money. And one more thing that I would like to say that even we know that the Halol give 15% of the revenue and as the U.S. pricing pressure is there, we can save revenue guidance from here, then why the management is not taking serious steps?
No, I think -- yes, Abhay, you want to say something?
No, I think the question was more on Halol, so...
Yes. No, I agree with some of your unhappiness. As a large investor, I am also unhappy. So -- and we are trying to find a way to get the plant recertified at the earliest. It's taking much longer than what we would have liked it to. But what I think is important for us and analysts and investors also to keep in mind is that, last year, 18 of our sites were audited or we have faced 18 U.S. FDA audit. And we came out of each of those inspections with either no 483 or a very limited 483. Halol clearly has taken much longer than what we would have liked it to, but that's where we happen to but going to find a way to fix.
Mr. Maheshwari, before I unmute your line, I would request to please use the handset mode and not the speaker please, because it's creating an echo on the call. I'm unmuting your line.
Sure.
Are your questions answered, sir?
No.
We seemed to have lost the line for Mr. Maheshwari. We'll move to the next question. That's from the line of Anubhav Aggarwal from Credit Suisse.
Yes, sir. Just in continuation, one question on the Halol facility. As per the corrective action plan that you would have given FDA after the observation or the 483 Form in February, when do you expect a last response from your side to the FDA. You just mentioned you continued to update FDA. Just a clarity will be helpful, their last response from us is 2 months down the line? It's just around the corner? Just some clarity would be helpful.
So my understanding is that the last remediation action that is part of the response is second quarter.
I'm sorry, I missed that. When is that actually?
Second quarter of this year is the last date for the remediation response.
Okay. So would that imply that, at best, Halol, you would have baked in for, let's say, 1 or 2 quarters, right, in the guidance?
Yes. That's what is our -- I mean, your understanding is correct.
And just one more clarification. In this sales -- in the U.S. sales this quarter, ex Taro I'm talking about, would you say -- is there any one-off. By one-off, I'm like -- I'm taking that -- [indiscernible] exclusivity, I'm not taking as a one-off. We know that it is a one-off in this quarter, but other than, is there any very high stopping of any product, which is leading to very high sales in the U.S. in this quarter?
No, there is no one-off.
The next question is from the line of Vikas Manchanda (sic) [ Vishal Manchanda ] from Nirmal Bang.
Just one on the psoriasis market. Could you like share some color on, if there a change in either the reimbursement dynamics or pricing of products in the psoriasis market in the U.S.?
So what exactly are you trying to get at? Pricing changes by whom?
So like what we heard is -- so what I heard is some companies -- am I audible?
You are.
Yes. What I heard is some companies are now -- have started now cutting prices in the U.S. to kind of entrench the first line -- so kind of get into the first-line patients. And other thing I'm hearing is there are legislations being passed on -- against insurance companies to cut down on step edits. So has that translated into, like, easier reimbursement norms? And also if pricing reduction has become a norm in psoriasis?
So to the first part of the question, if I look at price of a product as the WACC, then I have not seen any changes in the WACC of any of the products in psoriasis. However, to be able to hold onto or improve their positions in the formulary, if there is extra rebating or discounting that any competitor is doing, I would not be able to see that through any publicly available information. On the second part of the question that you asked about insurance companies and actions being taken to remove step edits, again, I haven't seen that. I think, as far as overall the government policy is concerned, we are still studying, but it's not as crystal clear as what you said.
Okay. And just one more. Are there guidelines that are being promoted to treat psoriasis that would demand more aggressive treatment and hence more aggressive use of biologics?
I think IL-23 as a class, I think we will continue to gain share, all products. And so I do not know the aggressive treatment part of it, but I mean, every patient would like to have -- would like to be clear of psoriasis and sustainably at that. So -- and doctors are accepting the use of IL-23 as part of the treatment modality. So I think that class will continue to grow. And when we also start promoting the product, that will help both our product as well as the class of portfolio to grow.
The next question is from the line of Prakash Agarwal from Axis Capital.
Sir, first question on Halol. Just trying to understand, would it be fair to say that the sales which was impacted in the past, that has started to improve from that slightly, sir, given the fact that all the remediation and the lines we were working on to improve the process and systems is completed. So quarter-on-quarter, we would be seeing sales improvement, is that fair to understand?
You mean to say, additional products coming out of Halol going to market?
Additional or the volume increase which would have been impacted in the past because of the top 2 lines getting some remediation being done. So would the volume improve from Halol in the last 2 quarters?
It will.
Sir, I'm asking in the past it has increased, sir, in the last 1 quarter or 2 quarter?
Yes, it would have. Abhay, you have any view?
Specifically, I think on sumatriptan injection, we have seen an improvement in the sales.
Okay. So injectable lines also which were impacted now is coming full stream?
No, I think...
I don't want to qualify.
When we come back if [indiscernible] long-term agreement, then even if we are available, doesn't mean we will get business. So it's a process, it takes time.
Yes, yes. So I mean -- and you are saying, it will obviously improve. What I was trying to understand in the last 2 quarters, it has started to improve or not is what I was trying to understand?
Yes, it has started to improve.
Okay. Perfect. And sir, secondly on the India business, I missed the opening remarks, sorry about that. But full year 4%, this quarter 2%, I understand there is an excise, this GST impact. How would the growth been? And anything we are doing to, even if we add back, it would be single-digit and Sun Pharma being the leader, is the industry like -- you expect how -- how you expect the industry growth for fiscal '19 and yourself, sir, on the India business?
The 9% growth that I referred to is on ongoing portfolio. Number of the products which were not profitable in the past, we have discontinued. So I'll say, if you sort of take those effects, the sales growth will be in excess of 10%. Going into this financial year, there won't be any disruption like what we saw for GST. Therefore, if you ask me, my personal belief is we should grow at a rate faster than we did last year.
And the objective is obvious, to grow faster than the market.
Okay. Understood. And lastly, your Glumetza, so is there any update on the product, sir?
So the product has just been received in the U.S., trying to take it into the warehouse after all the QA, SC clearance. Then, we'll start going after the orders and business from a week or 2 from now.
Okay. From supply side, we have done everything and we have full supplies now, is what I'm trying to ask?
We have enough supplies.
The next question is from the line of Alok Dalal from CLSA.
Question is on the consumer health market in India. Dilip bhai, secondary market data is showing flat to declining sales for Volini and Revital for FY '18. Does that tally with your primary numbers as well?
So Kal, maybe you would like to respond?
Some amount of, what you say, sales disciple we have brought into the consumer business, that in turn has affected the primary sales. And we are putting enough efforts on promoting the product through -- more through commercial demand. And what you say, the business model will be more patient or customer pull than being over-reliant on trade channel push. So what you're seeing is, hopefully, was a temporary phase.
Also I think if you see this in front there has been an increase in the pickup. If you look at monthly data, then there is a pickup, is enforcing what you've seen, is that whatever that you're working for seems to be working.
Okay. So Dilip bhai, is it lack of advertising effort that has led to this, the decline that we've seen because these brands had a very strong connect. And meeting some of the, let's say, mom and pop pharmacy, they are saying that substitution is happening.
Okay. If you're looking at Volini, a number of generics as well as that of competitive brands that have entered the market on the back of the success of the, particularly, the Volini spray. There are probably, what you say, a dozen brands today available. So in such a scenario, number of these sort of, what you say, competitor business model is more state-driven. So some amount of, sort of, loss of share is to be expected. But what we are doing is, number one, we are also renovating the portfolio, bringing more, what you say, differentiated innovative products to stay ahead and on the back of it, support the product with strong consumer promotion.
Okay. And Dilip bhai, second question was on the Ranbaxy acquisition. So it's been 3 years now and hopefully the $300 million synergy would have got realized. So if you reflect on that acquisition over the last 3 years, what are the things that worked for you, what are the things that did not work for you? And how do you think Ranbaxy will contribute over the next 2 to 3 years?
I think it's not an answer which is possible to be given on a conference call with kind of limited time. Because when you do something as large as acquiring a business with 15,000 people, I think it's a very, very complex answer. But overall, I think we believe that it will make the company stronger going forward. And we've learned a lot from this acquisition. Some of the things have worked, some of the things have not worked, but..
Those -- Dilip bhai, those things that -- sorry, go ahead, please.
No, I think what happens is that we've limited time. So...
The next question is from the line of Srijan Sinha from Future Generali.
Sir, just wanted to check if there is any plan to do any buyback or promoters increasing their stake in the company given the depressed valuation?
I didn't hear the second part of the question.
Either promoter is increasing their stake in the company or the company doing a buyback? Any plans for this?
I mean, it's -- if it is something that -- we haven't discussed this in today's board meeting.
Okay. But I mean, given that the valuations are depressed, you would like to do this in the...
I mean, it's a worth-looking-at option.
The next question is from the line of Kartik Mehta from Deutsche Bank.
In the case of Ilumya for the additional lead, could you indicate a number that we would spend? For the lead, when we acquired from -- or we had indicated some number for the R&D. So for this one, is there a number you could share for R&D?
We don't have a specific number that we can share. Currently, Ilumya is being -- we have a Phase II ongoing study for ankylosing spondylitis and psoriatic arthritis. So top line result for that should be available in a few months, post which then we will start Phase III studies and both of these will be independent of the previous guidance that we would have given for the total investment required for Ilumya.
So is it fair to assume that the Phase III cost, if at all, would come somewhere in mid-FY '20 or somewhere at the end of FY '20 for this?
I mean, since I don't have the numbers in front of me and we are working with the CROs, because you have to find a way to do the study faster. Because it's always a trade-off. Faster study will mean higher cost per patient as we have more centers. So we will find an optimum cost and speed balance. But difficult because I don't have the numbers with me. And then we are also looking at whether we want to -- I mean, we plan to do at least some study in gastroenterology indication this year.
The next question is from the line of Ashish [indiscernible] from Motilal Oswal Asset Management.
Abhay sir, one question for you. What would be your assessment of the U.S. generic market given that most of the companies are now talking about product rationalization. So we have seen that coming from Teva as well. So how do you read the pricing scenario in the U.S. market going ahead?
I think nothing will change much. I think we'll still expect the competitor pressure to be high. However, having said that, if there are products where somebody goes out of market and we are able to supply, there could be an upside. So there are a lot of moving pieces. So to give a very, very clear answer of where we are likely to go is always difficult, but I think the direction is not going to change for the better in the near term. That is the clear sense that I have.
Okay, okay. This is helpful. My second question is on derisking the injectable business now since Halol is under remediation, yet to get a clearance. So we have a facility in the Pharmalucence we have. So any plans to derisk the injectable portfolio?
So there are a limited number of injectable products, which can be done at Pharmalucence. I think all the forms and formulations which Halol can do, Pharmalucence cannot. It's also a much smaller facility. Having said that, whichever product we are able to do at Pharmalucence, I mean, as part of the normal network strategy, we keep looking at and I think a couple of products we will move also.
Or is that, that incrementally we are doing everything from Pharmalucence?
Sorry, I did not understand.
Is it -- would be...
Incrementally, we are doing what?
Incrementally whatever injectable work that we are doing, it is from Pharmalucence?
I don't think I would like to go into network strategy of which product we are doing from which site.
The next question is from the line from Anubhav Aggarwal from Credit Suisse.
One question on specialty business. In FY '19, will the loss in specialty business increase versus FY '18, that's one part. Second part is, you mentioned, Dilip bhai, earlier that we can perhaps breakeven in speciality in fiscal '20. Would you still maintain that guidance?
So Abhay, would you like to answer?
So I will give part of the answer, if you want part I will leave it to you. But clearly, I would not say the loss will widen. That's not how we are looking at it. Our investment will be higher than what we invested last year. That is clearly so. But there will be some revenue also. So I haven't really looked at it that way, whether the loss is higher as compared to last year. Investment clearly will be, and there is also the R&D piece, which Dilip bhai has alluded to, that we will increase our investment for some of the existing to-be-launched products.
Yes. No, I think, Abhay, I think you've answered part of my question, because it all depends on how you look at the business. If you're spending, let's say, $200 million on clinical development of a product, which is not, let's say, generating any revenue until it comes to market, whether you would like to charge that to the existing business which -- or you only look at the existing business for its own cost of operation as well as the -- this. On a stand-alone basis, the existing business will breakeven in '20. But we have ambitions about this business that we'll continue to invest. So that investment can be either in form of buying a business or it can be in form of investing for a clinical study. So that is a separate cost center. So we should not link up both of these.
Sir, just to clarify, what you mean is that, if we don't by any more molecule or if we don't invest in anymore R&D on any future molecule, we should breakeven on the effects that we have in next year?
Yes. That's a fair statement.
The next question is from the line of Nimish Mehta from ResearchDelta Advisors.
So on Halol, just wanted your clarification. I mean, are we now almost sure that it will not require reinspection? Is that a fair assumption, I mean, at the minimum? Or you think that it's still uncertain?
I mean, based on whatever that we understand, that's what we are operating, and that's what we've shared with you.
I'm sorry, but I couldn't get. We'll not require, right, a reinspection?
Yes, that's what is our current understanding.
Okay, fine. And second actually on the IL-23. So Abhay, I get a sense from what you said in your comments that IL-23 probably has some definite advantage over IL-17. You alluded to an increased -- increasing market share of IL-23. So if you can just enumerate as to what is that, that would be very helpful? Or if my observation is wrong, please let me know?
Repeat your question, please.
So you just mentioned in one of the questions -- to one of the questions that IL-23 will increase -- will gain its market share. So I am getting a sense that there is some definite advantage of IL-23 over IL-17 or over any other therapy, that is why you probably have commented like that. So if that is the case, can you just let me know what is the exact benefit you're looking at in IL-23?
So when I speak to the KOLs, what I understand from them, where they see a clinical difference is, I think the quality of the response and with the side effects being much lower than what they see with the other class of drugs. This is a sense that they have. So different ways they phrase it, maybe also a factor of the advertising messages of company. They talk about smoother response, they talk about a gradual response, they talk about patients are comfortable with the therapy. So I think all said and done, what they are seeing is, they are happy with the quality of response they get from the IL-23 than compared to the IL-70s -- 17s, rather.
I see. Okay. And so this response is not just specific to Ilumya but actually in general for the IL-23.
Which is what I said. It's a class effect. But remember, there is only one product promoting it. When we also start promoting the product in the indication, it will help us and it will help the class even more.
Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Nimish Desai for his closing comments. Over to you, sir.
Thank you, everybody, for joining us on this call. If any of your questions have remained unanswered, do send them across, and we'll try to get them answered. Thank you, and have a good day.
Thanks very much, sir. 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.