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Zydus Lifesciences Ltd
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Welcome to Zydus Lifesciences Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ganesh Nayak, Executive Director of Zydus Lifesciences. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. Welcome to our post results teleconference for the quarter ended 30th June 2023. On this call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Arvind Bothra, Senior Vice President, Investor Relations; and Mr. Alok Garg, Senior Vice President from the Managing Director's Office.
Let me now give you a broad overview of the developments during the quarter. We had a strong start to the financial year as we capitalized on the momentum built over the last several quarters and delivered robust growth across businesses. This, coupled with sustained improvement in profitability, helped us achieve the highest-ever operating profit and margins during this quarter.
Our formulations business in India performed well as the branded business registered double-digit growth on a year-on-year basis for yet another quarter. In the Consumer Wellness space, we continued to hold leadership positions in 5 out of 6 brands in their respective categories. Nycil, Sugar Free and EverYuth brands gained market share during the quarter. Our U.S. formulation business registered growth on a sequential basis, driven by new launches and volume expansion in the base portfolio.
We achieved important milestones in our innovation journey in a quest to offer innovative solutions to the patients across the globe to meet their diverse health care needs.
With that, let me take you through the financial numbers for the year gone by. I'm happy to inform you that our quarterly revenues surpassed the INR 50 billion mark for the second consecutive quarter, driven by robust performance across segments. During the quarter, we recorded consolidated revenues of INR 51.4 billion, a growth of 30% on a year-on-year basis.
Reported EBITDA for the quarter was INR 15.1 billion, up 81% year-on-year and 20% quarter-on-quarter. EBITDA margin for the quarter was 29.3%, which is an improvement of 830 basis points on a year-on-year and 420 basis points on a quarter-on-quarter basis.
Net profit for the quarter stood at INR 10.9 billion, up 110% year-on-year.
Our balance sheet further strengthened with a net cash position of INR 8.8 billion as at 30th June 2023 as against the net cash of INR 5.5 billion as at 31st March 2023.
Now let me take you through the operating highlights for the first quarter of '24, FY '24, for our key business segments. Our Indian geography, which comprises of formulations and the Consumer Wellness businesses, accounted for 38% of the total revenues during the quarter and grew 6% year-on-year. Our branded formulations business in India delivered double-digit growth as it grew by 10% year-on-year during the quarter. Excluding the impact of NLEM-led price reduction, the branded business grew 12% year-on-year. Our innovative brands, namely Lipaglyn, Bilypsa, Ujvira and Oxemia, witnessed strong volume traction during the quarter.
We continued to work towards strengthening our presence in our focused therapy areas. On the super specialty front, we retained the leadership position in the Nephrology segment, while in the Oncology space, we were the fastest growing company. Our first new chemical entity, Lipaglyn, was ranked as the 47th largest brand in the Indian pharmaceutical market during the quarter, which is an improvement of 19 positions over the previous year. Our Bilypsa brand, too, continues to strengthen its volume share through various patient support programs and activities. The Ujvira brand, which is the first biosimilar of an antibody drug conjugate, continued to expand in volume since its launch on the back of patient-centric approach adopted by us to make it affordable to patients.
Our consumer products -- our Consumer Wellness business recorded revenues of INR 6.9 billion with a flat year-on-year growth. Unseasonal rains across key states during the first half of the quarter impacted the offtake of our key summer-oriented brand, Glucon-D. However, the remaining portfolio posted near double-digit growth during the quarter.
Commodity prices moderated during the quarter on a sequential basis, which eased the pressure on gross margins.
Now let me take you through the performance of our U.S. formulations business. The business accounted for 48% of the consolidated revenues during the quarter with revenues of INR 24.5 billion. The business continued to display strong traction with a robust 57% growth on a year-on-year basis, driven by new launches and improvement in the base business.
On a sequential basis, the business grew by 9%, on a high, based off the previous quarter.
We launched 4 new products during the quarter. During the quarter, we filed 4 additional ANDAs and received 20 new product approvals.
Our Emerging Markets and Europe formulations businesses continued to deliver healthy growth with all major markets contributing to the growth during the quarter. The business posted revenues of INR 4.9 billion, up 30% year-on-year.
On the operations front, the U.S. FDA inspected our 3 manufacturing facilities during the quarter. Oral Solid Dosage facility II, located in the Ahmedabad SEZ, completed the U.S. FDA pre-approval inspection without any observations. Our Biologics fill-finish facility located at the Zydus Biotech Park in Changodar and our Animal Health formulations manufacturing facility located in the Ahmedabad SEZ also completed the U.S. FDA inspections without any observations. This reinforces our commitment to upholding high quality standards and continual improvement in the same.
We continued to improve our business processes with a focus on improving productivity, which helps us stay competitive. Adoption of digitalization across the organization continues to gather pace as various analytical tools are deployed to unlock the efficiencies in our operations and aid data-backed decision-making process.
This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses and initiatives in our innovation program. Thank you.
Thank you, Dr. Nayak. Good evening, ladies and gentlemen. It's a pleasure to have you all today on the call.
We are pleased with our performance during the quarter. The performance was driven by our comprehensive product portfolio, our depth of innovation pipeline and our focus on execution.
On the India formulations front, consistent execution across focused therapies helped us achieve double-digit growth in the branded segment. We expect this trend to continue going forward.
Portfolio of our innovation brands registered strong volume traction during the quarter, and in turn, aided the patients to satisfy their unmet health care needs.
A comprehensive product portfolio, strong customer relationships and an agility in operations helped us to deliver consistent growth in our U.S. business. We expect our U.S. business to grow on a formidable base of FY '23 going forward on the back of a robust pipeline of complex generics developed in-house as well as the strategic BD&L efforts.
Our diversified manufacturing network catering to the U.S. market, backed by the responsive supply chain augurs well for us to capitalize on onetime buy opportunities that keep on emerging in the U.S. generics market.
Our initiatives in R&D have continued to progress favorably in order to meet patients' demands across geographies. The investments made by us over the years across different areas have started delivering results, and we expect this to scale up further going ahead. This is evident from the expansion of patient coverage of different molecules since their launch.
We shall continue to roll out our various patient support programs and work towards creating the awareness about our brands in an effort to make a difference to patients' lives. Our R&D teams keep working towards offering solutions to patients across therapies to meet their unmet needs.
On the regulatory front, we expect -- we extend our robust compliance record as we completed 3 U.S. FDA inspections during the quarter. We also remain committed to maintaining the highest quality standards across all our manufacturing facilities to offer safe and effective health care solutions to patients globally.
We strengthened our backward integration capabilities post the recent completion of acquisition of Teva's U.S. FDA- accredited API manufacturing facility located at Ambernath in Maharashtra.
With this, let me talk to you about some material developments on the innovation front. On the NCE front, our lead molecule, saroglitazar magnesium, is currently undergoing Phase IIb/III clinical trials for PBC indication and a Phase IIb clinical trial for NASH indication for the U.S. market. So far, we have recruited over 80% of the patients required for the PBC trial. For the NASH indication, we have been progressing in line with our plans on the patient recruitment front. The molecule is also undergoing trials in the U.S. for 2 indications of PCOS and NAFLD.
During the quarter, in order to generate real-world evidence, we initiated a large Phase IV clinical trial of saroglitazar magnesium in India in NAFLD patients with co-morbidities. The trial will enroll approximately 1,500 patients, and the primary endpoint is to measure the change in liver stiffness from the baseline to 52 weeks. This study duration is approximately 56 weeks.
In the biotech R&D space, clinical trials for 2 of our monoclonal antibodies are ongoing at present, and we have completed recruitment of patients for one of these molecules during the quarter.
Coming to our vaccines pipeline, we have commissioned a newly-constructed measles, rubella drug substance manufacturing facility and we have initiated a Phase II clinical trial of our Hepatitis E vaccine during the quarter.
We thank you, and now we start the Q&A session. Over to the coordinator for Q&A.
Thank you, sir. Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Neha Manpuria.
Sir, one on the U.S. business. While you mentioned in your opening remarks that there was volume growth in the base portfolio, how much would you say the quarter-on-quarter traction was because of incremental REVLIMID? And how much of it was the core underlying business, the pricing improvement? Then some color if you could give on the U.S. generic pricing?
So in the first quarter, the growth was driven by the higher volume offtake in our key products, which also included REVLIMID, and also the pricing has been stable during this quarter. And also some new introductions, which were launched during the last quarter 4 also scaled up, so all of that led to the expansion, but obviously driven also by REVLIMID.
Understood. And given what we have done in the quarter and the launch pipeline that we have had, including some products that we have not yet launched, doesn't the high single-digit growth for U.S. seems fairly conservative? Or are we still sticking to it? Or are there any risks that we are not aware of that is keeping that guidance at that level?
So as far as you said, it's right. Despite an elevated base and factoring also competition from Asacol probably in the later part of the year, we still expect the U.S. business now to grow on back of volume expansion in double digits.
Okay. Got it. And how should we think about margins in that case? Because I think margins also we were fairly conservative. If I look at our R&D, we are much below what we had guided for the full year. So one, how should we look at the R&D trajectory? And therefore, the U.S. growth, given the double-digit U.S. growth, the margins?
So we do expect now the EBITDA margins to increase by 150 to 200 basis on an annualized basis in this year compared to our earlier guidelines of -- guidance of 50 to 100 basis points. So we are seeing an uptick to our guidance that we had earlier stated. This is also factoring in also an increase in R&D. So despite that, we will see margin improvement and also building in for some competition on our lead -- one of our lead compounds also.
And R&D still maintained at 8% of sales?
Yes.
The next question is from [indiscernible].
[ I shall buy ] a couple of questions on U.S. products. On linagliptin, is that a product you expect in next couple of years? Or is it very far off?
Not in the next 1 to 2 years, no.
Okay. And how about tofacitinib, XELJANZ?
So I think product-wise, we are not talking because, again, a lot of things are driven by IP and comp legal and settlement. But I think it's -- we can definitely say that looking at our pipeline that we have, we do see good launches or important launches every year partly driven by our own developments and partly through our licensing efforts. So we do see a limited competition kind of launches every year, at least over the next 3 years.
Okay. And any update on the time lines of potential saroglitazar filing in PBC? Do we still look forward to a late FY '25 filing?
Yes, we do still expect a calendar year-end '25 filing so...
And one last one. Earlier, you had guided to 2 to 3 interesting product launches this year. We have seen possibly 1 or 2, but I don't know if you were originally intending them. So do we still have 1 or 2 interesting product launches this year coming?
Yes. We did launch 2 pyramid -- 2 brands on that molecule. We recently launched the indomethacin suppository with exclusivity, and we do see some more differentiated launches during the year.
Okay. And then Trokendi XR, have you already seen competition entry?
Yes. Yes, we've already seen last quarter.
The next question is from Surya.
Yes. Congratulations on a great set of numbers. Sir, on the margin front first. It looks like even if we hypothetically adjust the REVLIMID revenue and see the base business margin, it looks like both on the gross margin front as well as EBITDA margin front, exclude of REVLIMID, it looks like a very strong performance. So more than kind of a 300 basis point kind of positive surprise.
So what is driving this? Is it purely coming from, let's say, the improved performance in the domestic side, improved product mix in the domestic side? Or it is contributed by the pricing scenario improving in the U.S. market -- U.S.-based business?
So I would say it was many of the factors. I don't think there's a single factor because both India with the better product mix that we have done; scaling up of the emerging markets, which are improving in their profitability; and also U.S. with the kind of opportunities to do one-off business, grow the base as well as obviously the launches, I think all of them have aided to the margin expansion.
So then is it sustainable one, sir? Let's say, sir, is it a quarter-specific performance? Or let's say, it is likely to even continue in the subsequent quarter?
I did say that when you talk about sustainability, we have to look at the full year, and we do expect an improvement from our last guidance on EBITDA, bhai. So we have earlier guided for 50 to 100 basis points improvement. Now we are talking about 150 to 200 basis point improvement, assuming that we still have 8% of our spend on R&D. So we are talking about an improved profitability for this financial year.
Okay. Sir, my second question is on the lenalidomide. So the prescription trends, if I look at it, then I think we have already surpassed 5% or 5.5%. We're about 6% kind of volume sales that we have already achieved.
So whether we have garnered that kind of revenue in line with the kind of prescription ramp-up or the potential revenue booking will be seen subsequently? And generally, if we considered -- or see, generally, it is also known that every 12 months the volumes here can increase. So how should we really see it?
So I said, REVLIMID is mid- to long-term opportunity. So it has -- so I think with the improvement in market shares every year, we would see those numbers trickle through. So -- but again, all of this are still accessing us to a very limited size of the market. But you would see that every year, I would say, in those markets.
And sir, then just an extension to this REVLIMID question. So in the initial part of the [indiscernible] your order last year when you had launched the product, you had mentioned that REVLIMID is likely to be a kind of an evenly-distributed kind of a product for you. So do you think that is what you are likely to see?
For the year, yes. Quarter-on-quarter, there is change. But when I give the full year's guideline, every year REVLIMID will be well distributed. Yes.
Okay. And sir, in terms of the domestic formulation business, there is a positive surprise, obviously, in terms of growth compared to the market trend and all that. So what is driving here? It is -- are you really seeing that the brands in the specialty products? So those are really delivering better than your expectation or your guidance is covering those?
Because I think over the last 2 to 3 quarters, we have shown now at least market-led growth -- or market -- equal to market growth. In some quarters, better; this quarter also, we have done much better. I think the good thing to see for this quarter is also the volume expansion of 6% growth because the volume is, I think, very good in the industry or the market that we are in today.
And I said, it's driven by multiple factors. The focus that was put in the rationalization that happened and also the portfolio of innovative products that we have launched, which are scaling up, I think all of that is leading to that.
I think a lot of work is still left to be done, but we are hoping that we will continue to build on these important launches and scaling up our differentiated products, which will lead to this kind of better-than-market growth.
Okay. Just last one question on the balance sheet side, sir. So the cash flow position anyway is looking really robust. But now, thanks to REVLIMID also. And the balance sheet anyway is strong, given the cash flow that we had already generated last year.
So if we see that kind of a similar momentum also in REVLIMID and the kind of momentum in the other -- other than the REVLIMID also that we are talking about, then the cash flow generation is likely to remain really robust and strong for next couple of years. So given that, what would be your capital allocation strategy and if you can share something on that?
And on the CapEx front, this quarter that you have done INR 220-odd crores. So what should be your CapEx plan for the current year and in which lines?
So you are right to say, yes, we would see strong cash flows in the coming years. I think one important part is the CapEx cycle. So we are talking about INR 1,000 crores CapEx in this year. The rest of it, I think we continue to obviously expand our research capabilities, so some increase in the R&D will be there. And we are looking to expand our opportunities in getting into newer areas in the specialty space in the U.S., so we do believe that we will find opportunities to invest behind that [indiscernible] currently, we don't have any major plans beyond this.
Hello?
Yes. Could you hear me?
Sorry, sir, I missed last couple of...
I said we don't have any other significantly large other plans other than the few I talked about, which is looking into the specialty space in the U.S., our CapEx cycle of INR 1,000 crores that we will spend and some investments in research and some market expansion.
Okay. And for the domestic market...
Surya, you've also seen the way dividend payouts are also increased depending on the availability of cash flow, the buyback that we did last year and the enhanced dividend rate that we have proposed this year.
Sure, sir. So just an extension, sir. On the domestic side, what kind of investment that you are thinking about? Is it about adding a new product portfolio? Or it is creating and building our own portfolio in the speciality area, let's say, biosimilar or something like that? Or what kind of investment that you are looking at for the domestic market?
So in domestic, from an internal point of view, it's -- yes, it's investing in biosimilars, vaccines and the differentiated launches that we want to do, including launching our discovery-led products like saro, desi and now we hope in the next few years a few more. Beyond that is looking to see if we can find the right fitment in terms of acquiring brands, which we would look at.
And now as part of our overall life sciences strategy, we do believe in end-to-end outcomes for diseases, so companion diagnostics and those areas will also become an integral part of how do we treat for many disease -- chronic diseases.
[Operator Instructions] The next question is from Neha Manpuria.
Just one question. We received approval for generic VASCEPA last quarter, but we haven't yet launched the product. Any time lines on when we can probably enter that market? And any reason for the delay?
So I think it's a very complicated API, so we are making sure that we risk-mitigate our supply chain on API so that we have enough, so that we don't have problems in the future. So looking at that time lines and the approval that we got and the manufacturing of this complex formulation, we're looking at a quarter 3 launch.
Understood. Understood. And sir, in terms of our injectable portfolio, we've seen a fair bit approvals on the injectable portfolio as well. What sort of a run rate have we reached? Do we want to give any color, any target in terms of what we are targeting in injectables? Should we see the momentum build? And when do we start seeing the more complex injectable approvals come through?
So I think the injectable business is still in the scale-up phase, so I think it's not reached that size and scale where we talk about it as a separate segment. So it's part of our overall strategy on the portfolio. But as in -- when it becomes large, I think we will segment it in the right way.
So I think the complex portfolio, we still believe we will see some approvals in this financial year and also in the coming, too, financial year. So as I had said, the -- slowly, we will see launches of complex injectables in this -- in the next 2 to 3 years.
The next question is from Vishal Manchanda.
Hope I'm audible.
Yes.
So there have been a few approvals you received in the last few quarters, like Chantix, ivermectin cream and transdermal patches, too. So have these been launched or they are yet to be launched?
Yes, they have been. Not the transdermals, but the other products have been launched.
Okay.
And then you've been talking about launching 2 REMS products during the year. Again, have these been launched or they are yet to be?
Yet to be launched.
Any color which quarter of the year?
In the third and fourth quarter.
And would -- so this would be limited competition and represent -- what market size do these represent?
I said we don't do product-wise market size, but they are important launches.
Okay. And finally, on the India business, can you share the contribution of biosimilar business to the overall sales?
So again, I said biosimilars is part of the therapy expansion in RA, in Oncology and others. So we don't clump biosimilars like that because of branded formulations business. But I would definitely say that they are scaling up significantly and will continue to scale up in the next 2 to 3 years with the pipeline that we hope to launch.
So I think overall, it is in -- it is doing very well and scaling up, but it is part of our overall therapy focus. So it's not a technology focus on that front.
Okay. And do you have capacity to execute growth? Or you would need to invest in more capacities around biosimilars?
We are expanding our capacity on biosimilars as we speak.
Right. And what's the investment that you intend over the next 2 years in the biosimilar space?
That is part of overall CapEx, budget of INR 800 crores to INR 1,000 crores that we have given that as well.
The next question is from Harith.
I hope I'm audible.
Yes.
On transdermals, you mentioned that you haven't done any launches while the approvals we received a few quarters back. So what are the steps from approval to launch that we are undertaking now? And then any color on when we'll be launching?
Yes. So I think the most important thing in launches of transdermals is that when we come to launches, we need to significantly scale up from our earlier exhibit batches. So -- and it's a long processing cycle. And every material is imported. Most of it, 95% of everything, what we use, is imported with long lead times. So getting that supply chain in order to make sure that we are scaling up with the batches and launching.
For the first time since we're doing it, it has been longer than our experience on other products. So having said so, we expect in this financial year to have at least 2 launches.
Okay. Sir, Asacol, I see you mentioned that you're factoring competition in the product by the second half of FY '24 and then that's part of your guidance for 10% growth. So any reasons for this expectation, that anything that you're hearing from customers or from competition?
That's part of our buildup in terms of planning for it. So not -- we haven't heard anything immediate, which you can see, but it's better to be err on the side of caution and at least plan for competition in the second half of the year.
As there are no further questions from the participants, I now hand the conference over to management for closing remarks.
Thank you very much, and look forward to interacting with you again in the month of November when we declare our quarter 2 results.
Thank you, and have a nice evening.
Thank you so much. On behalf of Zydus Lifesciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar.