Sun Pharmaceutical Industries Ltd

NSE:SUNPHARMA

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of Sun Pharmaceutical Industries Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nimish Desai, Head of Investor Relations team. Thank you, and over to you, sir.

[Nimish Desai, Head of Investor Relations]

Thank you. Good evening, and a warm welcome to our fourth quarter FY '21 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. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. C. S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO of North America; and Mr. Kirti Ganorkar, CEO of India business. Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at the consolidated financials. Just as a reminder, the call is being recorded and the replay will be available in the -- for the next few weeks. Call transcript will also be put up on the website shortly. A 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.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Thank you, Nimish. 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 '21. I hope you and your family are safe and healthy. Let me discuss some of the key highlights. Consolidated sales for the quarter were at INR 84,314 million, recording a growth of about 4.4% year-on-year and a decline of 4% quarter-on-quarter. Most of our businesses have done well over Q4 last year with India, Emerging Markets and Rest of the World businesses as the key growth drivers. We continue to focus on growth, operational efficiencies and business continuity. For the full year FY '21, sales were INR 331,392 million, recording a growth of about 2.5%. All of you will remember that last year sales included a one-time special business in the U.S., which is not reflected this year. All our businesses have recorded growth for the full year despite the challenges related to global COVID-19 pandemic. The major impact of the pandemic was felt in the first half of the year as many countries imposed their lockdown to counter the spread of COVID-19. Second half witnessed a gradual recovery as most countries gradually lifted the lockdown restrictions in a phased manner. For Sun Pharma, the sales in the second half were higher by 8% compared to the first half. EBITDA was up by almost 13% and adjusted net profit was up by approximately 17%. Let me now update you on our global specialty business. For fourth quarter, our global specialty revenue was approximately USD 139 million across all markets. Specialty R&D accounted for approximately 23% of our total R&D spend for the quarter. For the full year FY '21, global Ilumya sales were at USD 143 million, up by about 51% over last year. We've recorded a good growth despite the closure of doctors' clinics in the U.S. in the first half of the year but supported by gradual recovery in the second half. Abhay will give you more details on the specialty business later. I will now hand over the call to Murali for a discussion of the fourth quarter financial performance.

[C. S. Muralidharan, Chief Financial Officer]

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. Q4 sales are at INR 84,314 million, up by 4.4% over Q4 last year. Material costs as a percentage of sales was 26.6%, lower than Q4 last year due to product mix and other efficiencies. Other expenditure was at 30.2% of sales, lower than Q4 last year, mainly due to lower selling and promotional expenses in the U.S. As indicated in our past earnings call, these expenses will see an increase in trends in future once the market situation reaches full normalization. ForEx loss for the quarter was INR 107.8 million compared to a loss of INR 1,420.7 million for Q4 last year. As a result of the above, EBITDA for Q4 was at INR 19,568 million, up by 55.8% year-on-year, with resulting EBITDA margin at 23.2% compared to 15.5% for Q4 last year. Let me now briefly discuss the exceptional items for Q4. Taro has made the USD 80 million additional provision related to its ongoing multi-jurisdiction civil antitrust matters. Further in Q4, the Court of Justice to the European Union issued a final judgment and upheld the European Commission's decision dated June 19, 2013, the settlement agreement between Ranbaxy (UK) Ltd Limited and Ranbaxy Laboratories Ltd with Lundbeck relating to citalopram was anticompetitive. Ranbaxy had made a provisional payment to the tune of EUR 10.3 million on 20th September 2013. Since there are no further rights of appeal, this amount of INR 895.6 million has been debited to the consolidated profit and loss account in Q4. There is no cash outflow related to this as the amount was already paid. Exceptional tax for the quarter is on account of recognition of deferred tax assets amounting to INR 1,212.3 million arising out of the Taro settlement. Excluding the impact of exceptional items and deferred tax, the adjusted net profit for the quarter was at INR 13,430.7 million, up 103% over adjusted net profit of Q4 last year. Reported net profit for Q4 was at INR 8,941.5 million, up 124% year-on-year, while reported EPS for the quarter was INR 3.70. Let me now discuss the key movements versus Q3 FY '21. Our consolidated sales were lower by 4% quarter-on-quarter at INR 84,314 million. Material cost and staff cost at 26.6% and 19.9% of sales, respectively, are flat over Q3 FY '21. Other expenses, at 30.2% of sales, are higher than Q3 mainly due to increase in SG&A across markets. We had a ForEx loss of about INR 107.8 million for Q4 as against ForEx gain of about INR 716.3 million in Q3. As a result of the above, EBITDA for Q4 at INR 19,568 million was lower by 16.8% compared to Q3. EBITDA margin for Q4 was at 23.2% compared to 26.8% for Q3. Adjusted net profit for Q4 stands at INR 13,430 million was lower than the net profit of Q3 by about 27.5%. Now we will discuss the full year performance. The full year FY '21 sales were at INR 331,392 million, a growth of 2.5% over FY '20. Despite the nearly 10% sales de-growth recorded in Q1 due to the global pandemic, we have been able to recover sales growth in subsequent quarters and have achieved an overall positive growth for the full year. Also, as indicated in the past, the full year of last year included contribution from a nonrecurring special business in the U.S. and hence, the year-on-year sales numbers are not strictly comparable. Excluding this onetime sales contribution during the last year, the year-on-year sales growth would have been higher. Material cost as a percentage of sales was 26.2%, which was lower than the same period last year, mainly due to product mix and efficiency initiatives. Staff cost at 20.7% of sales were higher than last year, mainly due to annual merit increase, additional field force in India, impact from other regions and include some currency impact. Other expenses were at 28.6% of sales, lower than the same period last year, mainly driven by reduced marketing, selling and distribution and traveling expenses across markets. As a result of the above, the EBITDA for the full year was at INR 81,324 million, a growth of 25.5% over the same period last year, with resulting EBITDA margins of 24.5% versus 20% of last year. Excluding the exceptional items for both FY '21 and FY '20 and the nonrecurring tax credit for FY '21, the adjusted net profit for FY '21 was at INR 59,317.8 million, up 47.4% year-on-year, with resulting net profit margin at 17.9%. Reported net profit for FY '21 was at INR 29,038.2 million, with reported EPS at INR 12.1. The company has repaid debt of about USD 580 million in FY '21, the benefit of which is visible in the reduction in finance cost. As at 31st March '21, the ex Taro net debt stands approximately USD 179 million. Let me now briefly discuss Taro's performance. Taro posted Q4 FY '21 sales of USD 148 million and adjusted net profit of USD 31 million. On a year-on-year basis, sales for Q4 FY '21 were lower by 15.3%, while the adjusted net profit was lower by 42.6%. For the full year FY '21, sales were at USD 549 million and the adjusted net profit was at USD 141 million. I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.

[Kirti Wardhaman Ganorkar]

Thank you, Murali. Let me take you through the performance of our India business. For Q4, sales of branded formulation in India were INR 26,709 million, recording a growth of 12.9% over Q4 last year. India business accounted for about 32% of consolidated sales for Q4. For Q4, while the chronic segment continued to show steady growth, the sub-chronic segment witnessed a recovery. The acute segment is still facing some challenges due to lower incidence of infection and less patient flow to the doctors' clinic. For most part of Q4, we saw a normalizing trend and pharmaceutical companies had started spending on traveling, branding and promotion. Travel costs for MRs increased in Q4. However, there is some uncertainty now given the significant increase in COVID cases on account of second wave and the lockdown in many parts of the country. For Q4, we launched 31 new products in the Indian market. Let me now discuss our response to the COVID-19 pandemic. [indiscernible] to be able to fight the pandemic. The spill that we took include ensuring continuous supply of medicine to the patients, supply of multiple therapeutics used in the treatment of COVID-19 like remdesivir, favipiravir, Itolizumab, ivermectin, methylprednisolone. We also ramped up production of liposomal amphotericin B, which is used in the treatment of black fungus, a post-COVID complication of blood in patients. Sun Pharma was the first company to develop generic liposomal products in India. We have donated cold medicines and many other items like BP kit, masks, sanitizers, gloves, et cetera. At the same time, we have entered into 2 different licensing agreements, one with Eli Lilly for baricitinib and another with MSD for a drug called molnupiravir to help alleviate the burden of COVID-19 in India. Sun Pharma is the largest pharmaceutical company in India, holds approximately 8.2% market share in the domestic market as per March 2021 AIOCD-AWACS MAT report. For Q4, our market share was at 8.3% as per AIOCD-AWACS. We also continue to remain the partner of choice for in-licensing of products. We work a lot on #1 position in many therapy areas, including therapies for the treatment of COVID infection coupled with our large distribution network. I will now hand over the call to Abhay.

[Abhay Gandhi]

Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q4, our overall sales in the U.S. de-grew by 1.3% over Q4 last year to USD 370 million, mainly due to decline in Taro sales as the market was not yet fully normalized. U.S. accounted for about 32% of consolidated sales for the quarter. Our specialty revenues in U.S. have grown over Q4 last year, mainly driven by Ilumya, CEQUA and ABSORICA LD. For the full year FY '21, the specialty business has grown over previous year despite the sharp reduction of sales in Q1 on account of the global pandemic. Growth drivers include Ilumya, CEQUA, ABSORICA LD and YONSA. As you may be aware, the generic of the ABSORICA has entered the market in April. And simultaneously, we have also launched our authorized generic. Doctors' clinic have been opened during the quarter, although the situation is yet to fully normalize. However, compared to the first 9 months of the year, the travel and branding and promotional costs increased in Q4. Let me now update you on our U.S. generics business. As you have all seen, the U.S. generics business continues to be competitive. The Sun ex Taro generics business has recorded year-on-year growth driven by a combination of new launches, better supply chain management and incremental upside from shortages. I will now hand over the call to Mr. Shanghvi.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our sales in Emerging Markets were USD 192 million for Q4, up by about 2.7% year-on-year. The underlying growth in constant currency terms was higher at 5.2%. Emerging Markets accounted for about 17% of total sales for Q4. Formulation sales in Rest of the World markets, excluding U.S., Emerging Markets, were USD 163 million in Q4, up by about 5.5% over Q4 last year. Rest of the World markets accounted for approximately 14% of consolidated Q4 revenues. API sales for Q4 were at 4,357 million, down by about 9.9% over Q4 last year. Our R&D efforts spans across both specialty and generic businesses and we continue to invest in building the pipeline for various markets, including the U.S., emerging markets, rest of the world markets and for India. Consolidated R&D investment for Q4 was at INR 5,571 million, accounting for 6.6% of sales. For the full year, R&D investment was INR 21,499 million, accounting for about 6.5% of sales. Our current generic pipeline for the U.S. markets includes 94 ANDAs and 9 NDAs awaiting approval with the U.S. FDA. In addition, we are evaluating development for some biosimilars, which can be classified amongst the third wave of biosimilars. The Board has proposed a final dividend of INR 2 per share for the year FY '21 in addition to the interim dividend of INR 5.5 per equity share declared on January 29, 2021. And lastly, on the guidance for FY '22, given the uncertainties of the pandemic in the near term, we are refraining from giving a guidance for FY '22. However, all our businesses are well positioned, and our endeavor will be to grow all of these businesses, notwithstanding the near-term uncertainties related to COVID 19. With this, I would like to leave floor open for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.

[Neha Manpuria, Analyst]

On the specialty revenue in the quarter, there seems to be a moderation on a quarter-on-quarter basis even though data showed good prescription capture actually causing improvement. So some color on what broke the migration, please?

[Dilip Shantilal Shanghvi, MD & Executive Director]

I think it's a combination of 3 factors, like I said on my last call. December is in the end of the financial year in the U.S. context, there is a higher buy-in. Also in Jan, a lot of insurance sets in and -- or resets rather, patients change either the provider or the kind of insurance they have and then the verification process takes a little more time, and it goes into print before really sales normalize. And the third, I think, which is also important for us to remember is that during the period of [indiscernible], the pandemic situation in the U.S. were -- seem to what we see today is really new cases, over 300,000 or more so that's in a single year. Definition of [indiscernible] And I'm quite excited to say that we are well-poised to deliver on our objectives.

[Neha Manpuria, Analyst]

Okay. Understood. And one other question on specialty. If I look at the traction in CEQUA, there seems to be some differences, the market share seems to have stabilized over the last few recent months. Is there any specific -- anything specific that you are seeing there now that the U.S. is opening? Are we not seeing enough traction on CEQUA?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Well, I think CEQUA will continue to grow. And my personal sense is that doctors have accepted the product. The team is also now able to make a lot more face-to-face calls and participating in live conferences, which for a new company, I think is important to be able to be seen by your customers. So I think that will help us. So the initial phase for a newer product to be able to do this all in a virtual environment was challenged. That is gradually improving in the U.S. So I feel pretty good about CEQUA, Neha.

[Neha Manpuria, Analyst]

Okay. So you expect continued momentum on the market share front?

[Dilip Shantilal Shanghvi, MD & Executive Director]

We certainly hope so.

[Operator]

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

[Nithya Balasubramanian, Research Analyst]

So my question is also on the U.S. portfolio. So the first one is on Taro. So we have seen that for the last several quarters, it's continued to contract both at the top line and the bottom line level. So just want to understand what is your outlook for the business. How do you see this shaping over, let's say, the short-term, midterm period?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So today in this call, Sun Taro has actually been speaking to this. The only thing which I did not comment -- so on Taro, I did not get into. But I can see that overall is the dermatology portfolio and market, there is definitely lesser patient flow even up to the end of the year. Taro, of course, has a lot of product which are either #1 or #2 with a positive high market share. And therefore, the pressure on Taro to hold on to its market share is higher. So I think it's a combination of all this. But we recognize your point. And I think the task for us as a company is to try and find ways to grow the Taro business as well.

[Nithya Balasubramanian, Research Analyst]

So I think all of us are hoping that things will head back to normal at some point of time. And I think you also commented that clinics have started operating. So if COVID is not a factor anymore, do you continue to see this as a business that continue to shrink because prices will keep eroding? Because the commentary we heard from Taro as well was that the environment is not great. Do you see this resolving at some point of time?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I will speak to the terms of this segment. And even today, if you have 8 different reports and different reports obviously report different numbers. But I think the maximum number that I see of patient footfalls have increased with regard to clinic in derm is around 70%. So that is the addressable market now in terms of patient visits to doctors in the derm space. So that's a challenge that the businesses which are in derm will continue to face. And we hope, going ahead, the situation will improve because of the higher rate of vaccination in the U.S. and a certain loosening up of social distancing norms, which are now taking place. But that's ahead of us.

[Nithya Balasubramanian, Research Analyst]

Got it. Can we also assume that as the -- I think the EBITDA was a bit of a drag in FY '21 for you for the same reason. So now that, again, volumes are picking up and patients are further increasing, is it likely to become a meaningful contributor again?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So clearly, some are a little bit of an uptick in the fourth quarter as compared to the previous quarters. And going ahead, of course, if the situation normalizes in terms of elective surgeries and procedures, then I think level then should pick up. But will it happen I think is anybody's guess. I mean the situation is fluid, not just in the U.S. but I think globally.

[Nithya Balasubramanian, Research Analyst]

Got it. I have one last one on biosimilars. It was briefly mentioned in the opening remarks. If you can throw some color on what you meant by third wave. Are you looking at it more as a portfolio which would support your specialty portfolio? Or is this a stand-alone business area that you're trying to develop?

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, I think we are looking at products which have significant future patent expiry dates so that we can be amongst the first approvals. That's the focus and priority. And that's not the only, there are multiple priorities and also finding a way by which we can leverage our presence in market so that we can successfully build a biosimilars portfolio.

[Nithya Balasubramanian, Research Analyst]

Understood. Can we take that to mean it's beyond 2028 to 2030 time frame? That's the kind of launch date you're looking at?

[Dilip Shantilal Shanghvi, MD & Executive Director]

That's correct.

[Operator]

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

[Prakash Agarwal, Executive Director of Pharmaceuticals]

I just wanted to understand the scale-up in R&D from here given that we have started additional trials. So how do we think the R&D and other expenses going forward for the year '22 and '23?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So they will gradually go up. So 2 things will happen. One is total R&D expenses will go up. And within that, the percentage of the money spent on innovative R&D also is likely to go up. So I think we've not -- because since we are not giving any specific guidance, but generally, we've tried to keep our R&D spend between -- or, let's say, 8% to 9% of our turnover. This year because of the significant disruption in the clinical studies, the clinical trial spend this year was much more subdued than what we would have liked it to be.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Some color on other expenses in terms of the scale-up is largely done in terms of specialty or when we will see the impact of lockdown and pandemic going down, it will again come up?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So general guidance is that what you see as a significant reduction in the marketing spend in all markets is likely to go up. We will try and see that we don't go back to the previous percentage spend. But in some markets, that may not be possible. For the U.S., maybe a break in this point.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And second question. On ABSORICA, so how you are seeing in terms of, as you said, April, we have started to see competition. I mean is it -- since it's a single-player entry, are you seeing a bigger impact or several marginal impact?

[Kirti Wardhaman Ganorkar]

So we don't have clarity because this was launched only in -- towards the end of April. May has not closed for me, so difficult to assess impact. Fingers crossed and I'm watchful for what is likely to happen. However, having said that, we also launched our own authorized generic, and we have locked up a few customers who we had targeted for our share of the market.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. Perfect. Because I asked and you told me which -- gave the comment on guidance that we are well positioned to grow across business segments so we include the specialty as well. That's it.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, Abhay, would you like to respond?

[Abhay Gandhi]

No, I'm not clear what the question was at the end so I will give no further comment.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Despite the competition -- sorry, despite the competition in ABSORICA and AG coming in, which I assume would be in your base business, U.S.-based business, the question was since we made a comment on guidance, well positioned to grow across the business segments.

[Abhay Gandhi]

Lost you again. Sorry. I lost you again. The question was, can you repeat, please?

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Am I audible now, sir?

[Abhay Gandhi]

Yes, much better. Thank you.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Sir, question is on the growth guidance, well positioned to grow across business segments on the backdrop of the ABSORICA generic competition coming in.

[Abhay Gandhi]

Right. So I mean if you are talking about, if I understand you correctly, you think that will be -- our specialty business grow despite the competition we have in ABSORICA. Is that the question?

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Yes, sir.

[Abhay Gandhi]

Yes, I think we will be -- that's the idea. That's the plan, and that's how we are approaching the whole issue. ABSORICA is one of the products that we have in the specialty businesses. There are avenues and opportunities for us to find ways growth in other products. And of course, as an organization, we also have to be always looking at another BD opportunity. So that we will continuously evaluate and keep our eye on it and then we can go after opportunity that comes our way.

[Operator]

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

[Sameer Baisiwala, Executive Director]

Sir, first question is on Ilumya. Can you share some color on the repeat prescribers and repeat patients in this? How is the underlying dynamics?

[Dilip Shantilal Shanghvi, MD & Executive Director]

It's a great question, Sameer, to be honest. But I really do not have that kind of granular details because it is not as simple to get that data. And even if we get, we -- it's quite expensive. So in the recent past, internally, we have tried to do our own kind of modeling and made assumptions and trying to come to a certain picture. Even now, to be honest, some area is quite sketchy as far as I'm concerned. And a lot of assumptions go into it. So for me to give you an answer would never really be correct. So I'm not trying to sidestep your question, Sameer, but I really do not have -- I wish I had, that would have made my life much easier. But I don't, that's a fact.

[Sameer Baisiwala, Executive Director]

No worries on that, sir. Sir, what will get you to next $100 million -- incremental $100 million on this product in the U.S.? I'm thinking that, is it the mining of the current prescribers? Or do you think you still need to go out and get more and more doctors in the fold?

[Dilip Shantilal Shanghvi, MD & Executive Director]

As far as I am concerned, it will be a combination of 3 things. And I think one of the most important things is not mining of customers but mining of data that we have on the product and be able to continuously communicating something new to the customers, which keeps the interest alive as far as they are concerned in our conversations with them. So I think that's the first and most important thing as far as I'm concerned. The second is continuous involvement of key opinion leaders to give us podium time and speak favorably on the product. And third, of course, is a combination of both mining of existing customers as well as expanding the prescriber base. So I think it's all of these put together and therefore, I think execution by the team on all these fronts becomes so much important.

[Sameer Baisiwala, Executive Director]

Okay. Great. With your permission, one last question from my side. And can you just update us on Halol? Any tentative time lines over there? And how should we think about new launches until Halol opens up?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I think as we have shared with you in the past, I think we are waiting for the agency to inspect -- we've requested for an inspection. Now I think it's up to them to run and inspect the facility. And hopefully, this time, we should be able to clear it successfully. That's the focus. I think we are, as I said in the beginning, the -- that we expect all our businesses to do well and grow. So we are also expecting the generic business in the U.S. also to grow. And that's based on the visibility that we have with approvals that we can expect. So in case if -- when Halol gets approved during the year, then -- and if we get new approvals, that will potentially add to our plans for growth.

[Operator]

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

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

My question is on Ilumya tried for another indication for arthritis. So we understand COVID has disrupted the progress. But can you provide how -- where we are in that indication studies and when we are expecting to complete the Phase III IND filing?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I think it really got affected at 2 levels. One is because the patient footfall in the clinics, which we had already started as a clinical trial site, has come down. So their ability to recruit patients has come down. And the second was how the CRO's ability to start multiple new sites. And that also has got affected. Hopefully, we have seen some pickup in starting new sites in last few weeks. And hopefully, that should help us during the year. But in this uncertainty related to the recruitment, difficult to give you any kind of specific time line for the completion of the enrollment because I think you have to first enroll the subjects and then the subjects, we have to monitor for a year.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Okay. Okay. Got it. My second question is on specialty spend. So some clarification there. So in earlier communication, you have indicated that we have broadly optimized DTC and other marketing costs for key specialty brands. And you also commented with the U.S. market opening up, we expect these costs to go up. So how should we look at the specialty spend over next few quarters?

[Dilip Shantilal Shanghvi, MD & Executive Director]

My answer would be, I think, sort of similar to what I said actually a while ago. If I look at current trends, I think with more and more doctors allowing in-clinic visits, and some of these virtual conferences going back to being face-to-face and live, the costs will increase. However, we'll make every attempt to see that we don't go back to the original level. But in a fluid and pandemic situation, I think as a company and as a team, we need to be constantly agile and nimble to be able to make change in decisions very rapidly if we have to.

[Operator]

The next question is from the line of Surya Patra from PhillipCapital.

[Surya Narayan Patra, VP & Pharma Analyst]

Yes. My first question is on the U.S. Is it fair to believe the U.S. portfolio should be seeing a kind of profitable growth in FY '22 driven by at least 2 factors? One is that kind of a steady progress what we are witnessing on the speciality front. And the second part would be possibly bottoming out of the operating underperformance -- or bottoming out of the Taro's operating performance, what we have already seen in the recent past. Because what you mentioned, of course, it is correct was that the prescription trend seems like almost down 29%, 30% in last entire 1-year period due to COVID in the derma side in the U.S. But it seems that Taro has significantly outperformed that with a rapid kind of a subscription trend. So is my understanding is correct that we could see, driven by these 2 large components of the U.S. sales, Taro as well as speciality, we can -- we see a kind of profitable growth rate on the U.S. business front?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So Taro stand-alone, when you see the results, they are already a profitable business. And as far as Sun is concerned, we haven't given business-line-wise profitability numbers. So difficult to answer your question. But broadly, of course, yes. I mean you are in business, at the end of the day, to be running a profitable business, and that's the objective for any given business, sir.

[Surya Narayan Patra, VP & Pharma Analyst]

And my point basically was that obviously we will see sequential volume growth with the opening of the U.S. market, but will that be along with the margin expansion in that market? So basically that understanding I wanted to ask by the word profitable growth rate.

[Dilip Shantilal Shanghvi, MD & Executive Director]

So I mean I think my answer remains the same. I mean that's the objective that you increase your margins as you go along. But specific business-wise, we don't give the breakout. So that's the most I can do on this call.

[Surya Narayan Patra, VP & Pharma Analyst]

Okay. Just a kind of additional point on this. See, generally what it was understood that the specialty spend was elevated obviously in the initial period of the launches and having seen kind of a ramp-up. So we can possibly have to curtail the DTC kind of activities for Ilumya, although there was a kind of additional decrease activity for CEQUA. But generally, it was understood that the overall specialty spend should see a gradual correction from the elevated level of, let's say, FY '20. So are we, on that front, seeing a kind of a declining trend although we will see some kind of a normalization in the overall SG&A cost front?

[Dilip Shantilal Shanghvi, MD & Executive Director]

No, I understand. So I have said this in my earlier calls as well that we have now, more or less, optimized what we need to spend for each year product group or a BU. And I think we are comfortable with where we are. And with the expansion of the increase in the top line, therefore, I think margin should definitely improve.

[Surya Narayan Patra, VP & Pharma Analyst]

Okay. Just second question, sir, on this. Please, sir, can you just respond on the COVID side, do you see COVID business and kind of opportunity by -- in any manner for Sun Pharma?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So in the sense that there is a short-term, if we can respond faster. But there is a short-term increase in the business for products which are specifically used in COVID. As on today, I think we are not in vaccine manufacturing or distribution business. And we haven't announced anything as yet. So I think, Kirti, maybe you can respond.

[Kirti Wardhaman Ganorkar]

Sure, yes. So let's see if we can say that's automatic for us. And as I said in my opening remarks, [indiscernible] and products in our portfolio.

[Abhay Gandhi]

Kirti, you're not audible to me now.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes. Yes. Kirti, you're not audible. You are breaking. Yes, you are breaking.

[Kirti Wardhaman Ganorkar]

Yes, Abhay, you can hear me? Or...

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes. Yes. Now I can hear better, little better.

[Abhay Gandhi]

Better. But yes, thank you. Okay. Okay.

[Kirti Wardhaman Ganorkar]

So what I was saying is we have launched a couple of new products for the treatment of COVID, which includes products like remdesivir, Itolizumab and favipiravir. And last year, by the time we launched the product in the first wave, almost by the month of November and December, number of cases were reduced. And then in the second wave from March and April, the number of cases has been increased. So we will get some short-term benefit in this next financial year. But at the same time, we have a good number of COVID portfolio products with us, which have been used off labels, and they are doing well in coming quarters. Also, we have, yes -- so there are products which will give us some benefit, but it would be a short term, and we don't know how long this second wave will last.

[Operator]

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

[Tushar Manudhane, Research Analyst]

Just would like to understand on the biosimilar front, what kind of investment are we envisaging over next 3 to 4 years on the product development side and subsequently on the manufacturing front?

[Dilip Shantilal Shanghvi, MD & Executive Director]

I don't think we have crystallized this in specifics to be able to respond. But as I see our overall R&D spend, for us to be able to take care of biosimilars, both in R&D as well as with our CRO, annual CapEx for upgradation, new capacity and to create additional capacity for biosimilars, it shouldn't be a big drain either on our cash flow or on our profitably.

[Tushar Manudhane, Research Analyst]

Okay, sir. So previously, we were restraining from getting into biosimilars because of the regulatory -- a lack of clarity on the regulatory front. Now that is there, but at the same time, we have seen experiences of other companies like biosimilars also having considerable price erosion despite -- I mean, in addition to spending significant amount on the development as well as on the manufacturing front. So still, do you see this as a good opportunity over the next 4 to 5 years?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, I think so. Because depending again on the product and when you enter the markets, I'm expecting that over time, with familiarity and confidence that doctors will develop on the biosimilars, we will see increasing percentage of patients being treated with biosimilars.

[Operator]

The next question is from the line of Sayantan Bhowmick from PineBridge Investments.

[Sayantan Bhowmick]

I just wanted to understand, we recently invested in this company called ABCD Technologies along with a few other companies. So if you can just like give us your thought process on this investment and what do we intend to do with, that's the first question. And secondly, if you could just elaborate our efforts on ESG and what we have done, how we -- the company has kind of supported the community during the second wave.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Sure. So Kirti, maybe you can start.

[Kirti Wardhaman Ganorkar]

Yes, yes. I'll go first. Yes, yes. So as indicated in our announcement regarding the development, some of the large pharma companies have come together to form ABCD Technologies, which will further invest in digitalization to make the distribution of pharma product more efficient. That is the objective. Over a period of time, it will result in a better inventory management and ensuring that the pharma products are available to patients at the right time and at the right place.

[Sayantan Bhowmick]

Will this be some sort of a competitor positioning compared to some of the online pharmacies? Is that something -- is that the intent? Or is it just purely a back-end optimization?

[Kirti Wardhaman Ganorkar]

It's more to make the supply chain more efficient.

[Sayantan Bhowmick]

Okay.

[Dilip Shantilal Shanghvi, MD & Executive Director]

On the ESG-related front, we are working on both the sustainability and the ESG which does, of course, cover the energy, the water, other related aspects of the GRI standards. And we will be coming out with the first edition of our initiatives, having the report ideally issued along with our annual report in this financial year, both on the sustainability, the detailed report will be done by us.

[Operator]

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

[Shyam Srinivasan, Equity Analyst]

Just the first one on the India business. If you can just tell us about the field force as it stands today in terms of, a, the number as well as the productivity that you are looking at. I think you put it out in the presentation. So just wanted an update on this from a fiscal '21 perspective.

[Dilip Shantilal Shanghvi, MD & Executive Director]

In terms of -- you're saying, number of field force or around...

[Shyam Srinivasan, Equity Analyst]

Yes. Yes, number of field force, maybe the PCPM that they are currently today. And where do you think this can actually trend going ahead?

[Kirti Wardhaman Ganorkar]

Sure. As we discussed in our last call, during the last Jan to March, we have expanded our field force, and we have added about 1,000 people in the field, which includes medical reps and managers. So now we are in excess of about 10,000 people, which includes everyone in the field, right from medical rep to all the managers put together. So since we have added the field force last year and then we entered into pandemic on quarter 1 and quarter 2, the performance in the first 2 quarters were not up to the mark. And the field force was also new. They were to visit to the doctors, and that could not happen. But from quarter 3 and quarter 4, this new field force could visit the doctors and develop certain relationships. So generally, we don't give our PMPM. But what I can say, our PMPM due to expansion was almost flat or slightly lower than what it was in the last financial year. But more importantly, now this field force is well settled, so in the coming financial year '21-'22, we think that we will get a benefit of our expansion and our reach to the doctors. And we'll also see the improvement in PMPM and productivity.

[Shyam Srinivasan, Equity Analyst]

Got it. Very helpful. And a second question is on capital allocation priorities. This year looks like we have used some of it towards reducing our debt level. Right, if I picked up the number, right, ex Taro debt is like USD 170 million or so. So how should we look at fiscal '22 in terms of capital allocation? And also a related question on what is the CapEx for fiscal '21 that was reported? And what are we looking at for next year?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Okay. Murali, would you respond?

[C. S. Muralidharan, Chief Financial Officer]

So in terms of the capital allocation, as we have mentioned in our previous earnings call, our endeavor will be also to become debt-free at gross level ex Taro. So the USD 179 million, what we talked about, which is standing the net debt, overall gross level, we are pursuing. Indeed, our endeavor is to, by March '22, we'll continue to wind down the debt. At the same time, with the cash what we have and the leverage we have, definitely, for the growth of the business, we will be open to investments if any opportunities are attractive for growth of the business.

[Nimish Desai, Head of Investor Relations]

Murali, please also...

[Dilip Shantilal Shanghvi, MD & Executive Director]

But also CapEx, he wants information on CapEx.

[C. S. Muralidharan, Chief Financial Officer]

CapEx for the FY '22?

[Shyam Srinivasan, Equity Analyst]

Yes, please.

[C. S. Muralidharan, Chief Financial Officer]

Average in terms of each year, overall CapEx linger around about -- we'll do about INR 200 million-plus across various geographies. So -- but this year, we have worked out almost to the number. It will not be much really high.

[Operator]

The next question is from the line of Krishnendu Saha from Quantum AMC.

[Krishnendu Saha, Vice President of Equity Research]

I just had a couple of questions. We talk about CEQUA, we talk about ABSORICA LD. But we don't talk about the sprinkles family, the Drizel (sic) [ Drizalma ] and Ellora (sic) [ Ezallor ]. Anyway, what's the name for it? I was wrong. Are they not meaningful enough? Or you don't spend much of marketing spend behind them? What is the thought there? And how do you see that in the forward commitment? When you talk, you don't talk about -- anything about the products you launched, but they are fully mentioned in other reports. So just wondering how this thing is out there, please.

[Dilip Shantilal Shanghvi, MD & Executive Director]

It's a niche segment. And the idea of having this -- or look at a very specific niche area of -- and especially within that, patients who have dysphagia. So none of the products individually will be very, very big products.

[Krishnendu Saha, Vice President of Equity Research]

Why not?

[Dilip Shantilal Shanghvi, MD & Executive Director]

It should be a decent meaningful range when everything comes to market. And we were coming in France with -- in phases so not everything at one time. So it's a small part of our business, but it's an interesting area to be in because we are generally doing something which is needed by the patients in the long-term care centers and those who cannot swallow their medication. So it's -- I personally like that segment, not for the dollar value but because of what it does for elderly patients.

[Krishnendu Saha, Vice President of Equity Research]

So it's -- but do we -- can we have a forward percentage? I just want to verify what is reiterated.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Sir, can you just repeat? You're breaking up.

[Krishnendu Saha, Vice President of Equity Research]

Do you promote it with -- do you promote the products? Or they...

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, we promote it. Yes, today, clinics and doctors who visited the centers promoted core products.

[Krishnendu Saha, Vice President of Equity Research]

Okay. And one more question. We have this GLP or we have --we filed on that. Normal scheme of the specialty product, how does this fit in? We do have a -- expect another 4-year derma via customary opportunity? So where does this fit in, in the scheme of things? If, say, the nerve trials another 2 years out, it comes out good. And the data was lock in the capital situation. So how do we see this result going ahead?

[Kirti Wardhaman Ganorkar]

So clearly, in India and emerging markets, we have presence in diabetology and cardiology, so this is interesting. For large markets like U.S., Europe as well as other regulated markets, we will look at options for licensing it to somebody because it's a product that will require a large field force in excess of 1,000 people. And that's not the plan for us today. So our objective would be to develop it up to a level and then we'll look for a licensing partner. I can only say that the early readouts that we are getting in the clinical trial in terms of everything, in terms of weight loss, in terms of triglyceride reduction as well as in terms of potential effect on [ HBRMC ], but it's very limited because these are all healthy subjects. So we are quite excited with the profile that the product has demonstrated until now.

[Krishnendu Saha, Vice President of Equity Research]

And just one last clarification. The reason I ask is because we launched Ilumya in Japan. The ROW dollar term revenue has been going down. Has it done extremely meaningfully? Or is it because of other reasons that ROW already take some more time? Because I remember last time, you did speak about it will take a couple of more months to a year to get the whole hospital business in Japan done. So then why can't you throw some light coupled with insight of the ROW revenue on dollar term revenue going down? Sort of -- and maybe just a preview on the thought process. That's my last question.

[Dilip Shantilal Shanghvi, MD & Executive Director]

You're talking of sales going down in Japan?

[Krishnendu Saha, Vice President of Equity Research]

No. I'm talking about -- the reason I ask of Japan is because the ROW market, the dollar revenue was going down from USD 178 million to USD 173 million, USD 163 million in spite of already launching in -- product in Japan. So it could take us more time? Or has the product not picked up in Japan? I'm just trying to understand a couple of the ROW numbers, if I'm thinking of correctly.

[Dilip Shantilal Shanghvi, MD & Executive Director]

No. I think the introduction of a product like Ilumya in Japan will not be a huge impact in the first initial period of launch. So you should not look at the first quarter impact of the product in terms of sales. We believe that, over time, it will become an important and meaningful part of our business in Japan, and that's the focus. The overall Rest of the World market, Japan is an important component, but there are many other geographies which are also important in terms of sales, so...

[Operator]

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

[Nitin Agarwal, Head of Research]

Sir, on the U.S. business, 2 parts. One is on the generic side. If you take 2- to 3-year view, broadly speaking, is the margin of our growth in this business largely contingent upon the approval that we get from Halol? Or there -- are other drivers in the business possible?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Abhay?

[Abhay Gandhi]

Sorry, I was on mute. Nitin, your question has more to do with new product introduction, right?

[Nitin Agarwal, Head of Research]

Yes. I was just trying to understand, in terms of when you look at generic business, is what is going to be the driver, if it's going to new product launches. Is it largely going to be the Halol-driven portfolio?

[Abhay Gandhi]

I think new -- more product launches clearly are important to be able to continue to find ways to grow the business. And if you see, despite Halol not having been inspected, in the financial year, we were able to launch around 18 products, 18 new products, and also a few relaunches. So there are different avenues by which we will be able to bring out new products from different facilities. It's not only Halol-dependent.

[Nitin Agarwal, Head of Research]

And secondly, on the U.S. specialty business, again, we'll take your same broad-brush 2- to 3-year view, is it fair to say that the current portfolio of products that we have will largely continue to drive growth for us or there are possibilities of product portfolio additions meaningfully contributing over this time line?

[Dilip Shantilal Shanghvi, MD & Executive Director]

So first of all, I think the current portfolio that we have, we can still optimize and do better. And there is clearly headroom for us to grow with the current portfolio. And in addition to that, as I said earlier to -- in response to a number of the questions, I mean it is -- any company which wants to grow in the long term will continuously look at opportunities to develop its business and look at any inorganic way of growing the business. So it's a combination of both. But clearly, the products that we have in the basket today have a lot more headroom to continue to go.

[Nitin Agarwal, Head of Research]

And lastly, your journey, you've mentioned about the vaccine not -- you not doing anything on the vaccines currently. But just from a capability perspective, do we have capabilities to do drug substance manufacturing? Or do we often finish -- I mean, given the -- our manufacture -- our very stringent manufacturing network, are there any capabilities inherent in the network to work on this?

[Dilip Shantilal Shanghvi, MD & Executive Director]

I think our preliminary assessment indicates that vaccines will require a dedicated manufacturing facility. And it cannot be produced in a facility where we are making multiple other products. In addition to the specific different design for those facilities, depending on the type of vaccine that we are producing. So that's broadly our understanding. So we currently don't have any facility which we are looking at for producing vaccine.

[Operator]

The next question is from the line of Kunal Randeria from Edelweiss.

[Kunal Randeria, Research Analyst]

On CEQUA, there could be a likelihood that there might be a restructured generic maybe later this calendar year. So I'm wondering if you could share thoughts on how this potentially could affect CEQUA uptick.

[Dilip Shantilal Shanghvi, MD & Executive Director]

So we still have no visibility on when the generic...

[Kunal Randeria, Research Analyst]

Okay.

[Dilip Shantilal Shanghvi, MD & Executive Director]

So it could have been launched over 1.5 years, 2 years ago also. But we haven't seen. So to put a time line to it and therefore, look at a preemptive situation is pointless because we don't know when it's going to get launched.

[Kunal Randeria, Research Analyst]

Right. Okay. Fair enough. Fair enough. Sir, my second question is on ABSORICA. So with this product now going generic, and obviously ABSORICA is becoming cheaper, do you see that the ABSORICA market, including generics, could show higher volumes, maybe at the cost of some brands of Teva and Mylan?

[Dilip Shantilal Shanghvi, MD & Executive Director]

Sorry, do you want me to -- so plans or what did you say?

[Kunal Randeria, Research Analyst]

So I was saying, ABSORICA going generic now, Rx is becoming cheaper. Do you see this market expanding at the cost of Teva and Mylan brands and staying or...

[Abhay Gandhi]

Personally, I don't believe so because isotretinoin between moderate to severes. First, generally, we use other options before they go into isotretinoin. The direction of ABSORICA, I don't think the market really will expand. That's my view, though.

[Dilip Shantilal Shanghvi, MD & Executive Director]

So Abhay, what I understand he's asking is that whether the overall share of ABSORICA or ABSORICA generic in the isotretinoin market itself.

[Abhay Gandhi]

My answer was in the same lane, sir, that if I look at TRx, project the value of the TRx, whether it's a brand use or a generic use, will the number of TRxs for isotretinoin increase because there are generic similar? I think I don't really believe so.

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Nimish Desai for closing comments.

[Nimish Desai, Head of Investor Relations]

Yes, thank you, everybody, for taking time out to join this call. If any of your questions have remained unanswered, please do send them across and we will have them answered. Thank you, and have a good day.

[Dilip Shantilal Shanghvi, MD & Executive Director]

Yes, thank you.

[Abhay Gandhi]

Yes, thank you.

[C. S. Muralidharan, Chief Financial Officer]

Thank you.

[Operator]

Thank you. On behalf of Sun Pharmaceutical Industries Ltd., that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.