Sun Pharmaceutical Industries Ltd
NSE:SUNPHARMA
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 247.5
1 948.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Sun Pharmaceutical Industries Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Sun Pharma Q4 FY '19 Financial Results 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 FY '19 earnings call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you've received the Q4 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. Sudhir Valia, Whole-Time Director; Mr. Kal Sundaram, Whole-Time Director and CEO, India, Emerging Markets and Consumer Healthcare; and Mr. Abhay Gandhi, CEO of North America.Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at 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 our website shortly. The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risks that our business faces. You are requested to ask 2 questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.I will now hand over the call to Mr. Shanghvi.
Thank you, Nimish. Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter of FY '19.Let me discuss some of the key highlights. Consolidated sales for the quarter were INR 7,044 crores, a growth of 5% year-on-year. As announced in January '19, Sun Pharma has terminated its distribution agreement with Aditya Medisales with effect from 1st April 2019 and going forward, Sun Pharma's wholly owned subsidiary will be doing the distribution in India. For Q4 sales, include a onetime impact of approximately INR 1,085 crores for this change. Excluding this impact, our consolidated sales for Q4 were at INR 8,129 crores, a growth of 21% over Q4 last year.We continue to focus on strengthening our core operations and managing our overall cost structure, which is necessary to ensure competitiveness in the market. There is no further update to share on the whistleblower complaint.I would also like to take this opportunity to discuss the U.S. generic price collusion allegations. On May 10, 2019, a new complaint was filed by various U.S. states, and the suit names our subsidiary Taro U.S. -- U.S.A. and one of its former employees. Taro continues to believe that these suits are without merit, and we'll continue to defend against them rigorously.I will now hand over the call to Mr. Valia for discussions of 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 the key consolidated financials.Overall, Q4 reported sales were at INR 7,044 crores, while adjusted sales were at INR 8,129 crores. Given the onetime impact on the Indian sales explained before, analyzing the expense item as a percentage of the sales will not be relevant. In absolute terms, the employee costs was higher year-on-year, mainly due to increase of staff cost for the specialty business as well as an incremental increase due to consolidation of Pola Pharma.The Q4 increase in other expenditure over Q4 last year is driven by ForEx losses of INR 52 crores in Q4 '19 versus gain of INR 174 crores Q4 last year. Increased branded and promotional expenses for the specialty business in U.S. this includes spend on the recently launched direct-to-consumer initiative for the Ilumya and consolidation of Pola Pharma financials. Reported EBITDA for Q4 was INR 897 crores with reported EBITDA margin of 12.7%, but for the onetime adjustment for the Indian distribution transition, the EBITDA margin would have been higher. Reported net profit Q4 was INR 636 crores, while the reported EPS for the quarter is INR 2.65.Let me now discuss the movement versus Q3 of this year. The increase in the staff costs for Q4 over the Q3 is driven mainly by the incremental staffing for the specialty business and consolidation of Pola Pharma business. Other expenses were higher in Q4 as compared to Q3 of FY '19, mainly due to ForEx losses of INR 52 crores in Q4 versus gain of INR 227 crores in Q3. Increased branding and promotional spend for the specialty business in U.S., this includes spend on recently launched direct-to-consumer initiative for Ilumya, increase in R&D spend of about INR 100 crores and consolidation of Pola Pharma financials.Now we will discuss the full year financial year '19 performance. For the full year financial year '19 period, the net sales were at INR 28,686 crores, a growth of 10% over last year. Adjusted growth for the full year was 14%. Staff cost and other expenses are higher year-on-year mainly due to buildup of the specialty business in U.S. and increase in branding and promotional spend, and specialty business in U.S., this includes the spend of recently launched Ilumya.As a result of the above, EBITDA for the full year was INR 5,928 crores with resulting EBITDA of 20.7%. Reported net profit for the full year is INR 2,665 crores, up 27% for the resulting net margin of 9.3%.Let me now briefly discuss Taro's performance. Taro posted Q4 '19 sale of $180 million, up by 2.7% over Q4 last year. For the full year, sales of Taro is $670 million, marginally up for the full year last year. Taro's net profit of Q4 is $58 million, while the full year period, it is reported net profit of $282 million. I will now hand over to Kal Sundaram, who will share the performance of our India 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 formulation in India were INR 1,101 crores. Q4 sales include a onetime impact of approximately INR 1,085 crores for change in distribution from Aditya Medisales to our wholly owned subsidiary. This is a result of unsold inventory of INR 716 crores and the rest being lower invoicing to Aditya Medisales. Excluding this impact, India Q4 sales would have grown by 11% over Q4 last year, mainly driven by performance of our chronic care portfolio.Sun Pharma is the largest pharmaceutical company in India and approximately holds 8.2% market share in the over INR 131,000 crores pharmaceutical market as per March 2019 AIOCD-AWACS report. Cardiovascular diabetes has become the dominant therapeutic category both for the industry and Sun Pharma. As the category continues to increase its share in the total pharma market, Sun Pharma continues to enjoy the market leadership in this important category.Sun Pharma leads prescription share in 11 specialties, including psychiatry, neurology, cardiovascular and diabetes. For the past 4 years, we have embarked on a strategy to in-license the latest-generation patent protected products from various innovators. We have now 8 in-licensed assets, which are patent protected, which are well growing, well above our average sales growth as -- and we'll continue to invest in these brands to maintain the growth momentum.Sun Pharma's strong brand equity with the doctors and our distribution reach will make us a partner of choice for any company desirous of having a local marketing partner.Our consistent focus on field force productivity has delivered good result with steady increase over the past 3 years. Continued efforts are being made to train, develop our field force to bring -- to build a strong brand led by our strong scientific communication and helping the health care providers to improve the patient disease outcomes.Let me know discuss our performance in Emerging Markets. Our sales in Emerging Markets were USD 173 million for Q4, down 13% year-on-year accounting for 17% of our total sales. On a constant currency basis, there is some marginal degrowth in sales. This degrowth was partly driven by lower sales in South Africa, coupled with few other markets where sales have declined. Given the favorable macroeconomic conditions in Brazil's emerging market, we remain positive about the long-term prospects for this business.Now I'll hand over the call to Abhay.
Thank you, Mr. Kal. I will briefly discuss the performance highlights of our U.S. businesses. For Q4, our overall sales in the U.S. were up by 20% at $443 million accounting for approximately 44% of overall sales. This growth was mainly driven by a significant business of generic supply to a customer to be serviced over 6 months starting from Q4. For the overall generic business, we have not seen any broad-based improvement, but at the same time, the pace of overall price erosion has reduced. We continue to expect the market to be competitive in the near term.Let me now update you on developments in our specialty business. Ilumya is gradually gaining traction in the U.S. Approximately 1,200 doctors have prescribed the product till date. These prescriptions are yet to reflect in revenues as many patients are on the early access program. In Q4, we commenced a direct-to-consumer promotion campaign for the product, which will continue for some months in FY '20 as well. These DTC promotions are fairly expensive with a portion of the cost reflected in Q4, while the remaining will be incurred in FY '20.We expect to launch CEQUA in U.S. in Q2 of current fiscal. As indicated in our last call, we had faced some technical issues, which have now been resolved. The sales force required for CEQUA's promotion is now on board. We continue to invest in branding and promotion of these specialty products. Although we have built the front-end infrastructure for the specialty business in the U.S., there would be specific marketing and other costs for these products. We expect to continue to be in the investment phase for building our specialty business.I will now hand over the call to Mr. Shanghvi.
Thanks, Abhay. I will briefly discuss the performance highlights of our other business as well as give you an update on our R&D initiatives.Formulation sales in the rest of the world markets, excluding U.S. Emerging Markets, were USD 153 million in Q4, a growth of 32% over last year accounting for approximately 15% of Q4 revenues. This growth was partly driven by consolidation of Pola Pharma with effect from 1st January 2019. We launched Ilumya in Australia some months back, and I am happy to report that we've received a good initial response.Our European partner, Almirall, has received encouraging response to Ilumetri in Germany. Almirall also has recently received a favorable response from National Institute of Health and Care Excellence in U.K. We continue to focus on developing and utilizing APIs for captive consumption for benefits of vertical integration. For Q4, the external sales for our API business were INR 484 crores, up by 46% over Q4 last year. We continue to invest in R&D for enhancing our pipeline. Consolidated R&D investments for Q4 is INR 567 crores, accounting for 8% of sales.Our current generic pipeline for the U.S. market includes 118 ANDAs and 8 NDAs awaiting approval with the U.S. FDA. This R&D spending enables development of future product pipeline, including specialty and differentiated products. We also continue to critically evaluate generic R&D spend, given the competitive nature of the U.S. generic market. Our overall R&D spend for the full year of FY '19 was INR 1,985 crore at nearly 7% of revenues. The Board has announced a dividend of INR 2.75 per share for the year.And finally for FY '20 guidance. We expect our consolidated sales to grow by low- to mid-double-digit teens on the reported basis. We will continue to invest for building our global specialty business and also on clinical trials for some of our specialty products. While these investments are necessary for long-term benefits, they are likely to keep our profitability in check in near term. Consolidated R&D investments are estimated at between 8% to 9% of sales. CapEx for FY '20 is estimated at approximately USD 200 million.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.
Sir, first on Ilumya. Could you give us some color on how the formulary coverage is panning out for the drug?
Yes, Abhay maybe.
Yes, yes. This is Abhay. So formulary coverage is not a limiting factor for how we will perform with Ilumya in market. We are pretty satisfied with the coverage we have. And like I have said on the previous calls, the fact that the product is a medical benefit product has been useful for us to get the kind of formulary coverage that we desired.
Sir, given that we've seen more launches in IL-23, doesn't formulary coverage become important? I understand the medical benefit, but wouldn't that, therefore, become more important with the launch of more IL-23s?
It does, but what I am trying to say, Neha, is that the current formulary coverage that we have would not put us in a noncompeting position with any of the other products in market. Also as I said in my readout, we have an early access program. So patients who had initially a difficulty in getting formulary coverage, we quickly put them in the early access program while we work towards getting coverage for the product and this has also helped us.
Understood. And sir, my second question is the direct-to-consumer program that we've launched. Has that significantly helped the prescriptions after we have launched that program? I am just trying to understand, let's assume we discontinue that program, is there a risk that the prescriptions fall off? Have we seen a very sharp improvement after this program or that will be gradual, we'll get to know after a couple of months?
You are right actually because in any kind of DTC, there'll always be a lag between when you are first on air and when you expect to see results. Now we have been on air, like, for about 2.5 months now. But I have not received too many metrics where I can conclusively state one way or the other. Having said that, you don't do DTC for 3 months and then go off. So that's why we also said in the readout that for most of the coming fiscal, we will be definitely investing in DTC. And then looking at results, like you say, we will evaluate our strategy going forward.
The next question is from the line of Chirag Dagli from HDFC Asset.
Sir, this DTC campaign, who is this targeted to? Is this to doctors, patients? Because I would imagine that the payer is a very critical component of what the patient gets prescribed, right?
True. I mean, the DTC campaign is essentially focused on the patient, of course. And as far as the payers are concerned, and we have a strong team in our market access group, which directly meets all the relevant stakeholders amongst all the payers and PBMs and the whole group that is involved in a decision-making. So DTC -- I mean, they would also get an opportunity to see our DTC campaign, but that's not the primary way of communicating with the payer group.
I'm just trying to evaluate the merit of a DTC, sir, because if the patient is not the decision-maker, then why would you go ahead? Because you were anyway detailing the doctor and getting...
You're right. I mean, I think the U.S. market in that sense is very different from many other markets that I have worked in. Almost every brand that is there in the psoriasis segment does DTC campaign and very significant one. And there is data, which I have seen, which basically says that patients do look at these ads. Their search, therefore, for very targeted information on the Internet goes up significantly. That initial data I have also seen for Ilumya. And then they also strike up conversations with their caregiver and doctors for what should be the best mode of treatment. So I think the market is completely different from most markets that we have operated in so far. And not doing DTC would have been a competitive disadvantage for us as compared to the IL-17s and IL-23s.
So it's not a given that CEQUA may also -- you may also have to do some DTC for CEQUA, it's not a given?
It's not a given. It will be something that we will evaluate for each product and looking at what works in a given segment or a particular therapy, we will make our decision, but it's not a given, you are right.
Okay, sir. And the second question was on the Halol pipeline. Mr. Shanghvi, it has been a while that Halol has been resolved. Are you now happy with the products that are getting approved out of that? Or do you still think that this is not a full blown approval cycle, there are still products, which are overdue? How should we think about this Halol pipeline?
You know I think we have -- as I shared in my readout, we have 118 products awaiting approval. So some of them will potentially be products, which are interesting and from Halol. So if a product is not approved, it is because there are certain deficiencies that we haven't been able to respond to or we are in the process of responding. So last year if we see, we've received quite a few of approval, some of them are interesting, some of them are not so exciting. So -- and some of them we may never launch. So I believe that once we are current with all our approvals, we should get some meaningful additional business from new approvals.
The next question is from the line of Kunal Dhamesha from SBICAP Securities.
So my first question is, could you quantify the impact of onetime charge you have taken for domestic business on profitability? So on revenue, we all know the impact, but in terms of profitability, how it impacted? Adjusted for that, how the EBITDA margin would have looked?
So Kunal, we are not disclosing the impact on profitability. The sales impact is already disclosed. Maybe you can make some assumptions and work out a calculation of impact on EBITDA.
Okay. And any further charge do you think you would be taking in FY '20 related to that? Because you -- AML will still be acting as an agent till the time [ SPDIL ] doesn't get all the necessary license agents?
This agent is only for the sales. Whatever reversal has to be taken has been done already in March.
Okay, okay. So no further charges? Okay. I got it.
The next question is from the line of Manish Jain from Gormal One.
Abhay, just wanted to know on our launch plan for XELPROS, which we had received approval in September 2018. So first question was on the launch plan.
So we have already launched the product. It's been, like, roughly 3 months that we have launched the product and we are in market.
And -- because there was no comment on the readout or the press release, what has been the performance and your experience on the same?
So in the overall context of our total specialty business in the current payer environment, this won't be a very huge product. We have gone to market with a sort of a cash-pay model. Quite a few doctors have taken it up, and we continue to grow weekly. But it will not be like a very huge product in the overall context of the specialty business.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Abhay, just one question on Ilumya. And this 1,200 doctors that you mentioned that are prescribing it, just can you put this in context. I mean, 1,200 as a number, like, what is superset or addressable set of doctors that you are looking at? So I'm just not able to understand 1,200 as an absolute number. Can you put that into context for me?
Sorry, what exactly do you want to know?
Actually, 1,200 represents 5% of your targetable -- or let's say, at certain internal estimates, we expect Ilumya to reach, background reading will be, let's say, X number of doctors should be prescribing that product at that time, so...
Yes. Okay, okay. Anubhav, we cover about 8,000 doctors totally. These are all doctors who use biologics. Amongst them, of course, if you look at the top prescribers of biologics, they will hardly number about 1,800 to 2,000. So that should give you some idea about the context. So I think when we are talking about, say, 1,200, of course, this is the mix of every decile, but we are lucky that a lot of these doctors are the good users. So you can either look at it as 1,200 out of an 8,000 possible doctors or you can look at it as 1,200 out of 2,000. But as I said, it will be a mix of every decile here.
Okay. That's helpful. And Dilip bhai , just one question also on the U.S. sales this quarter. When you mentioned about this one-off sales, which you've started for 6 months, is this for one product, basket of products? Can you just talk about is this low-margin business, high-margin business? And after 6 months, does this go to 0 or does this remain some part over there?
My understanding is that there is a chance that we may continue and overall margins are, I think, quite attractive. Beyond that, I don't think I have any additional information that I want to share.
No, is this one product or basket of products?
Yes, that's what I'm saying. So I'm not sharing additional information at this time.
Okay. But it's very confusing Dilip bhai because it's a very large business that you have and this completely...
I understand. So I think you are not the only one on the call no? My competitors are also listening to what I am saying.
The next question is from the line of Surya Patra from PhillipCapital.
Just wanted to have a sense, see, I think with the distribution change happening, so whether any advantage which we earlier used to have it, that will not be continued, hence there would be some impact? Anything of that sort that you are looking at it?
Going forward, what is our own subsidiary will be directly selling to the wholesalers and that's actually, say -- beyond this, I can't see any other impact.
Okay. But otherwise, any tax-related benefit or anything, which earlier that was there, it may not come now? Anything of that -- any financial benefit that -- which was earlier there may not be coming, anything of that sort is there, sir?
Surya, after introduction of GST, this benefits anyway have come down very significantly. So there won't be anything material impact for us.
Okay, fine. And just on the Japanese side -- business front. So like with the acquisition of the Pola Pharma and the existing portfolio for Novartis, what -- branded portfolio Novartis that we have been having, so I think it is a kind of decent set or basket of products that we have already created there. And knowing the kind of pricing pressure there -- that is there in the Japanese market, so how should one really look at in terms of growth as well as in terms of the profitability or pressure on the prices rather?
So for us, the Japan business to become attractive and profitable, it will need to become bigger than what it is today. The way we look at it is that, I think, because of Pola Pharma and field force covering a large number of dermatologists, it will allow us to launch Ilumya ourselves. At the same point of time, we can also look at launching other dermatology products that we have in development also in Japan.
Okay. So for a outside developed product, is it -- now is it relatively okay to get a registration there in Japan? Or it is still tough than it is used to be earlier?
So generally, there is a requirement for doing a Japanese study. And we are factoring all of that in our future product development plan. Fortunately, for us, I think Ilumya, Japan was already included as a country in which there was a clinical trial done.
Okay. And if you just can say sir, on the specialty front, any -- is it possible to say that, okay, what is the kind of revenue that you are -- for all the launch products that you are currently generating, for the full year, let's say?
I mean, we are not giving out specialty generic revenue at this point of time. When we decide to give some additional information from next quarter, then that is one of the issue that we will look at.
The next question is from the line of Nimish Mehta from Research Delta Advisors.
Sir, once again on Ilumya, I'm trying to understand the modest sales that we generate vis-à-vis our peers even in the initial stage. Sir, is it that the DTC launch was the only thing that...
Nimish, your voice is cracking. So I am not able to hear your question. I heard Ilumya, but...
Just one second. Is this any better? Is this any better?
Much better. Thank you.
My question is a related to Ilumya. Just wanted to know what is the basic reason why the sales have not picked up? Is this the DTC campaign only, which was kind of putting us behind? Or what -- how should we look at? Because we had initial excitement, and does this dilute the excitement that we had earlier?
See, DTC campaign was not delayed. I mean, as per regulation, you can launch a DTC campaign 6 months post the launch of the product. And exactly at that point in time, we went into the DTC campaign. So for first 6 months, I mean, you are only communicating to the doctors and the payers and the patient group was not in the frame. For 6 months, this has started and this has also helped. As I said, the keenness among doctors to use our product, we are clearly seeing and even in my personal interaction with the doctors, I have yet to hear a single doctor saying that the product did not work, received only good feedback.One of the reason for the slow revenue uptick that you see is, as I mentioned, while we negotiate the payer environment, the patients are put on an early access program, which delays revenue, but then you are better off holding onto the patient to your drug and working through the access scenario rather than giving up on the patient. So it delays revenue to a certain extent, but in the long run you are better off keeping the patient with you, especially since it is a chronic long-term treatment.
But that scenario would also be applicable to other competing products, right? We, otherwise, have witnessed pretty high ramp up in the sales, so...
It does. But then you also need to understand that we are a new entrant into the field, competing with some of the stronger giants. So we have to fight our way through, that's the bottom line. And that's what the team and I are doing here.
Does this change your internal estimates in any which way for FY '20, let's say?
Our internal estimates, I mean, Mr. Shanghvi always gives me a number, which keeps looking up. So I have no relief there.
I see. Okay. That's great. And one -- second question, a simple one is, on the domestic front, we have seen the disruption because of the change in distributor, let's say. Are we likely to see one-off positive impact in FY '20 or we will now have very regularized sales from here on?
We will have regularized sales reflected in the financials going forward.
There will not be any bunching up effect?
No.
The next question is from the line of Ashi Anand from Allegro Capital Advisors.
The question was with relation to the D2C spend that we're doing. The spends that we've seen this quarter would be expected similar quantum spends going forward on a quarterly basis in FY '20? And is there any particular seasonality with relation to these spends?
So the spend on DTC for the next fiscal is going to be a material number, that is for sure. Seasonality in a way, yes. Typically, for this indication in the U.S., you have 2 quarters, where the spend is significant and then 2 quarters where we sort of pulse it a little down based on what we think is the seasonality factor of patients reaching out to doctors during particular season for psoriasis. And that is something we will factor into our DTC. But on a whole year basis, it will be a material number.
Okay. And would it be possible for you to share which quarters bunching up is likely to be in?
How does it help you? It will come in next year's expense.
So we would broadly be prepared to see a margin impact in subsequent quarters...
How does it -- it doesn't change, no? I mean, it is also not the effect because of one major cost, other cost will not be sustained. So I think there are costs, which will continue and there are costs, which will be campaign related, which maybe, as Abhay says, episodic, but it will come during the whole of the next year.
Okay, sir. Excellent. And can I ask one -- could I ask one other question. The previous participant has asked about the bunching up and whether we see some kind of a positive benefit of the disruption change -- the distribution changes that we've seen. I just wanted to understand if you've rundown inventory because of changing distribution, shouldn't we have some kind of benefit of inventory refills that happens that should benefit FY '20?
No.
So what he is asking is that...
We are not going to rebuild inventory.
No, with the stockist, the main inventory is going to remain stable?
Correct. See, what happened was, let's say, Aditya Medisales would have had little over INR 1,000 crores of inventory in December. That was basically run down during the quarter of quarter 4. As far as Aditya sales -- Medisales sales to the wholesalers, it was uninterrupted. Coming into this year, whatever our subsidiary will invoice to wholesalers will be reflected as our sales in our financials. I don't see any further upside or downside going forward.
Next question is from the line of Sameer Baisiwala from Morgan Stanley.
Abhay, on Ilumya, during this early access program, who funds the patient? And what's the time lead or lag between this finally catching up with the revenue recognition?
So Sameer, I mean, early access program basically is that you start the patient with a free product, so the doctor can initiate treatment. So it's on the company, this is one. And depending on the kind of plan that the patient is on, the time line varies. We have seen patients as soon as on the second dose moving away from the EAP on to being a paid patient. And there are some patients where if we have reached the second or the third dose, and we are still navigating the access environment. So it varies depending on the plan that a particular patient is on.
Okay, okay. Got it. So once you -- okay, got it. So once you get into fiscal '20, then you would have some of the older ones moving on to paid and then -- but you will be recruiting getting more and more new patients, which may still remain on early access program?
Yes. So it will be something that we'll continue because it is part of your marketing strategy, and we are -- I mean, most competitors in the segment also do that. So -- but what you are seeing is there is some who will move from being early access patients into a paid patient and then more will keep coming into the EAP.
Okay. And sir, just related to this, so how long would you be running this EAP program? And B, are any of the current IL competitors concurrently running EAP program or they are all on paid basis?
No. As I said, every competitor is running an EAP program. The total duration on by -- on which a patient will remain is different from company to company. Usually, companies stop at 2 years, I mean, and the maximum I have seen in this segment goes up to 5 years also.
So is it 2-year and 5-year is, I think, time of the launch?
Yes, from the time the patient goes on the EAP. So the program is more or less continuous. But from the time a patient gets their first EAP dose, it can go up to 2 years or 5 years depending on each company.
No. Abhay, I think you are putting a lot of fear in people. The percentage of people who actually go into this 2-year and 5-year is a very small percentage. It's most of the people who are -- no. I mean, in the sense that unconditional communication, they will form a judgment based on what they understand. So I think, Sameer, over lot of experience, people would have formed this process. And also many states, actually a large number of states in the U.S. have laws which make it compulsory for plans to reimburse a product even if it is not in the formulary if the doctor is satisfied that the patient is responding to the product. So there are methods by which you can force the system to reimburse your product.
Texas is an example for such...
No. There are many, many such states.
But Texas is one of the largest markets for this product, and there you have to have compulsory access. So you're right, I mean, Mr. Shanghvi. The idea is, I don't want the investor group to feel that EAP means an expense of 2 years to 5 years. I was just explaining the broad contours.
Yes, yes. True, true.
But what Sameer you need to also understand and to complete this conversation, why companies keep that kind of a time frame is that if a doctor doesn't get the confidence that if you start the patient, you will have some sort of visibility or sustenance, they would never start. But that doesn't mean companies will not work on access and start moving patients from EAP to being a paid patient.
And also I think since we have a fairly good coverage from our point of view, the time by which the patient will get covered is not going to be very large. There is a plan in which we don't have a coverage is where we have a higher challenge. But since that is not a very large number, we are not looking at a very large number of patients being denied coverage.
Okay, great. You know this is very helpful, sir. And sir, how does the DTC budget compare across the competition, all other IL products? I mean, is everyone spending the same dollar amount or different?
I mean, in the ballpark range, Sameer. So I would have no access to information of how much a particular competitor spends. I can only estimate that. And our spend will be keeping us competitive in the market is what we feel.
Okay, great. Sir, just one...
Actually, Abhay, I think I just came back from the U.S. and say, typically, if you are on a channel, then within, say, an hour or so, you see at least 1 or 2 spots of our advertising. So what I was surprised this time because I specifically watched is that psoriasis ads are one of the largest number.
Sure.
Not only our product, but all competing products.
Yes. No, when my wife is here and she watches TV, she gets educated on my job.
True, true, true.
Sir, with your permission, one more question. And that is for the U.S. onetime sales that you talked about. So you mentioned it's going to be for 6 months starting Q4. So was it for the entire 3 months of Q4?
Yes, more or less.
Okay. And sir, for your guidance, the top line guidance that you have given, have you taken for one quarter for fiscal '20 or you've taken longer than that?
No. I think we factor both existing business as well as potential approval -- potential business with some probability of success. So that we -- even if something doesn't work out, we by and large meet our guidance.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Sir, on Ilumya, on the additional indication clinical trials, what is the thought process in terms of going forward on that?
Abhay, do you want to respond?
Sorry. I couldn't get the question, sorry.
On the Ilumya -- for Ilumya, the additional -- clinical trials for the additional indications, is there -- I mean, just wanted to understand the thought process in terms of how we are looking to approach it now?
So it's basically based on our own assessment and the customer feedback on where we think the mechanism of action is likely to yield good results. And of course, internally, we also keep in mind that are -- will we be in time to capitalize on the opportunity or are we late to market. And of course, the overall cost involved because these are sizable numbers. So any decision that we make has to be well thought of.
But I mean, most of the lead -- the existing guys have multiple indications. Is that a handicap when we sort of go out and market the product?
The coverage that we have is for the derms. And in derms, psoriasis is one of the major indications. And I don't think that is a disadvantage really. We are not covering the rheumatologist, for example. And what you are not covering is the market you have decided at the present moment to stay out of.
That's helpful. And secondly, on Odomzo, how has -- any sort of updates on how the program -- the molecule -- the product has progressed for the year?
So I think I don't have the number in front of me, but I think, we are a little above 10.5% in terms of market share for the product. And in the last couple of months and clearly going forward from April, not only are we covering the oncologists, but also started meeting some of the key derms who treat the indication. We hope this will help us to move the market share upwards.
Next question is from the line of Purvi Shah from Sharekhan Limited.
Sir, could you just help us with the guidance on the tax rate?
Ms. Shah, I request you to be a bit loud, please.
Yes. Is this audible?
Yes.
Sir, if you could just help us with the tax rate guidance going forward since we have lot of volatility in the tax rate as well?
Give us a moment.
Sure.
Yes, I think like what we've shared with you in the past it will progressively go up.
Sir, that's right. I mean, if I go back to past numbers, like, in '18, we had around 18%, 19% and this year, it's considerably down, I understand the reasons. But is it fair enough to take into consideration around 18% to 20%?
Difficult to say depending on which geography we have in the process. It's a function of geographical mixes.
The next question is from the line of Aditya Khemka from DSP Mutual Fund.
Abhay, did I hear you right, you have 10.5% market share now in the derm space for IL-23s? Or is it for psoriasis treatment by biologics? What is the space that 10.5% market share addresses?
You got it. I mean, I wish I had 10.5% in psoriasis, but we were talking about Odomzo.
Sorry, you were talking about?
Odomzo.
Odomzo, okay. Okay, cool. Sorry, if I missed that comment. So -- okay. My next question was on the CapEx. So Mr. Shanghvi alluded to some $200 million budget for the CapEx. Can you throw some more light on the split of this CapEx in maintenance and expansionary? And where is the expansionary CapEx in that?
No, generally, there will be little maintenance CapEx. Maintenance is treated in repairs and maintenance and that number we don't share, it's part of the operating cost. This is for creating additional manufacturing, so either a brownfield or a greenfield project-related investment most of the time leading to increased capacity. In some cases, it may be for the purpose of strengthening the compliance or safety or such issue.
Right, sir, but my question came from the perspective that you have been closing a few manufacturing plants in the past year, which sort of told me that you had enough capacity to rationalize the few plants and reduce the manufacturing footprint and on the other hand, as we announced again spending on brownfield or greenfield expansion sort of a mixed signal, isn't it?
Nice, I think if it was that simple. See, you have plus -- many reasons to rationalize your manufacturing footprint. Capacity is not the only thing, plus sometimes you are getting approval for new products in a plant in which you don't have matching capacity. Sometimes, you need to set up lines that you require to file a new product. So there are specific reasons why we need to invest.
All right. Sir, the last question I had was Halol. In terms of last month call about the state of approvals you have gotten since the warning data was lifted and yet we have more than 100 ANDAs pending. Could you also guide me to as to how many products -- generic products would you expect to launch in FY '20 out of the 120 or whatever number that is number of ANDAs pending approval?
I think difficult to give a specific response. But whatever that we've guided for the overall growth includes potential growth of existing products as well as expected sales of new products.
Sure. And sir, one more with your permission. We had put out a press release regarding settlement of an insider trading case with Sun Pharma employees. Any more such cases currently ongoing with SEBI on the insider trading side specifically? I understand your comment on [ division's ] lower aspect.
No. I mean, nothing that we are aware of.
The next question is from the line of [ Hari Bilavath ] from [ Texen Consultant ].
This is regarding the recall of certain medicines. It had been -- certain cases had been there in the month of January, some anesthesia injections were recalled. First thing sir, it dents the image of the company, one. Second thing is, what is the legal and financial implications of such recall?
Which specific product are you -- because I don't think we have an anesthetic injection approval.
This is -- in January '19, some 14,000 cartons of anesthesia injections had been recalled because a particulate matter was found in that. This is what we have been reading from...
Abhay, most probably this would be vecuronium, no?
I'm not sure of the name given. But sir, what is implication of this? I mean, legal implication and also the financial implication of such recall?
There is a financial implication if the material is sent back and we have to destroy it. But whatever that you see is not -- if it's going to be significant or material, then we share information. But in this case since we haven't shared information, it will not be material. But this recall, I don't think there was any potential risk of hurting or damaging the patients.
The next question is from the line of Saion Mukherjee from Nomura.
Sir, my question is on the India formulation business. If I look at since the Ranbaxy acquisition, the growth has been in the single-digit; FY '16, it's 7.5%, then 8.5%, 3.5% and this time adjusted business is 5%. I mean, it seems that the growth is definitely lower than the broader market. Can you explain why the growth for such a long time has been low in single digits for India business?
Saion, how did you get the 5% adjusted growth for this year?
It's our number.
That's what I think you mentioned.
Yes, yes, that's our number.
Saion, if you remember, in quarter 2 also, we reduced the inventory levels at AML. So I'll say the numbers are -- for purchase are not directly comparable. What I can tell you will be in-market sales with which we use for management measurement, adjusted for the GST impact last year on price grew by about approximately 12%.
Okay. So you're talking about FY '19, is it this number?
FY '19 end of March, our growth in this year. On last year on a comparable basis, if only subject to adjusting that Q1 GST price impacted about 12%. And the growth was driven more by chronic care, which is a set of our focus.
Okay. So it means that, sir, going forward, we would expect a double-digit growth? I mean, if the market is growing at, let's say, 10%, you would expect the growth to be ahead of that?
Sure.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
My first one is on the balance sheet movement between September 2018 and March 2019. I just saw that the total asset number is moving from INR 71,000 crores to INR 65,000-odd crores. Can you just walk us through the key things? Maybe it's related to the nonrelated loan and stuff, but if you can just walk us through the key movements? I think I could see financial assets moving significantly and cash balances reducing significantly.
For comparable period.
So there are 2 factors we have. One is that we have announced the winding of the rights and obligation of Atlas, which was a substantial amount of about INR 2,200 crores, then we've also the dividend of Taro of $500 million. These were the 2 material movements, which -- between the 2 periods what you're referring.
So the Taro, it has been already paid out at March 2019.
Correct.
Okay, got it. And my second question is on the comment in the opening remarks on evaluating generic R&D, given the competitive nature of the U.S. Dilip bhai, I think in the past, I think, maybe 1 year, 1.5 years back, you said it's about 50% of your R&D was close to generic R&D. So do you think this can materially come down as we look into the future years?
I mean, I am not guiding for currently. Hopefully, from next call onwards, we will start giving percentage spent on generic and this. But even then, I don't think I expect the genetic R&D to fall below 50%.
The next question is from the line of Rahul Sharma from KARVY Stock Broking.
Just I wanted to reconfirm as -- should we take the adjusted sales for March '19 as the base for our future forecast?
So Rahul, the guidance that we have given is on a reported-to-reported basis.
Okay. I missed out that. What is the total guidance for the year?
It is low- to mid-double-digit...
Teens, double digit.
Double digit on a reported to reported basis.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Just 2 clarifications for me. One, when we terminated distribution contract with AML, was there any consideration paid? Or was it just a termination without any consideration?
No consideration paid.
Okay. Secondly, for Sun Pharma Global FZE, we shifted our generic business from there to the parent company. So the business, which is carried out in Global FZE right now is only the specialty business right now?
Yes, I mean, whatever products are still with FZE, whichever IPs residing there, that is continuing with them.
Even for the generic products?
Yes, if there is any left, I don't have the answer. I mean I don't remember specifically, but if it's there, then it will be treated there.
No. I was actually a little confused, when you put out in the notes item last quarter that the unbranded generic business have been shifted from there. So earlier IP was residing for most of the products that were being sold in Global FZE, have we shifted those products?
Yes, yes.
Okay, sure. And Dilip bhai just Ilumya, when do you expect it to breakeven on EBITDA, fiscal '22, fiscal '23, '24?
Let me see if Abhay is back. Yes, Abhay, you are back, no? So maybe you can respond.
I am back. Generally, for a branded product, it takes 4 to 5 years for us to reach peak revenues. And in that early phase, they will always be investment also going into optimize the potential. So in the near term, we will be in the investment mode.
But Abhay, my question was not on peak sales, but on EBITDA breakeven.
I know, but I really don't have an answer right now, which will be accurate, so difficult for me to disclose.
And also I think how much we will continue to invest in new indication and all of that, I think also will have an impact on breakeven, as you say, because when we will maintain product P&L, then we will look at all the investments, including new studies and other things. So we might, let's say, breakeven in psoriasis, but we may be continuing the investment for other indications.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
My question pertains to U.S. sales manufacturing for 6 months. Can you give the product names?
No. We cannot disclose the products.
Okay. And my second question pertains to the R&D investment. What is the range of investments that you see over the next 2 to 3 years?
This year, we have guided for 8% to 9%.
Okay. And next year?
We don't give guidance beyond next year.
Okay. And do you expect any rationalization of products in the U.S. and in India?
That's an operational decision. So I'm not able to -- so we will always be looking at overall viability, profitability long-term just for a product to continue. But you don't expect any significant action on this [indiscernible] a large number of product being discontinued is not the plan.
The next question is from the line of Sajan Didwania from Frontline Capital.
I just want one question. Is there any P&L impact on winding off transaction of Atlas Global trading?
Not any significant.
Not any significant. So it's just a balance sheet entry?
Yes, more or less.
Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference over to Mr. Nimish Desai for closing comments. Thank you, and over to you, sir.
Thank you, everybody, for joining 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.
Thank you very much. Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines.
Thank you.