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Zydus Lifesciences Ltd
Earnings Call Analysis
Q2-2025 Analysis
Zydus Lifesciences Ltd
During the quarter ending September 30, 2024, the company's consolidated revenues reached INR 52.4 billion, reflecting a robust 20% increase year-on-year. This growth was particularly significant in the U.S. Formulations business, which saw a remarkable 30% year-on-year increase, accounting for 47% of total revenues. The India Branded Formulations segment also showed resilience with a consistent 10% year-on-year growth. A healthy product pipeline, including 12 new launches, has bolstered this performance.
The EBITDA improved to INR 14.6 billion, marking a 28% rise from the previous year, consequently lifting the EBITDA margin to 27.9%. This increase of 170 basis points year-on-year demonstrates the company's ability to enhance operational efficiency, despite a notable rise in R&D expenditure, which increased by 185 basis points year-on-year. The net profit for this quarter stood at INR 9.1 billion, up 14% year-on-year.
The company emphasizes its commitment to innovation, reflected in an R&D spend projected to be about 8% of revenues going forward. Innovations not only support the introduction of new products but also enhance existing offerings. The successful introduction of products such as saroglitazar and ongoing clinical trials further positions the company for future growth, aligning with long-term strategic objectives.
The company has engaged in strategic acquisitions, most notably acquiring Naturell (India) Pvt. Ltd., which diversifies its health and wellness portfolio. Additionally, its joint venture with Perfect Day Inc. to produce fermentation-based proteins signifies its pivot towards sustainable and ethically sourced nutritional products, potentially tapping into a rapidly expanding market segment.
Management has reiterated its optimistic outlook for FY '26, expecting growth over FY '25 in the U.S. market despite anticipated competition for key products like Asacol. The company is confident in sustaining an EBITDA margin above 27% moving forward and indicates that FY '27 and FY '28 will unveil significant product launches, further driving its revenue growth.
Despite overall market performance, ongoing competition poses challenges, especially with the impending genericization of products such as REVLIMID. Management is optimistic that the company's strategic positioning and robust pipeline will mitigate potential impacts and sustain growth momentum in a competitive landscape.
The company’s strategy hinges on innovation, operational efficiency, smart acquisitions, and sustained market penetration efforts across diverse segments. With a strong financial performance in the current quarter and promising growth projections laid out by management, this company presents a compelling case for potential investment.
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Good afternoon, ladies and gentlemen. Welcome to our post results teleconference for the quarter ended September 30, 2024. For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Arvind Bothra, Head of Investor Relations; and Mr. Alok Garg from the Managing Directors office.
Let me now give you a broad overview of the developments during the quarter. I'm happy to inform you that we delivered strong double-digit growth during the quarter on the back of sustained growth across all our key businesses. Our India Branded Formulations business continued to outgrow the market with 10% year-on-year growth driven by healthy volumes and contribution from new products. The Consumer Wellness business continued to see robust demand in all categories. The U.S. Formulations business continued its upward journey with a robust year-on-year growth, driven by volume expansion and new products launched over the last 12 months. The International Formulations business comprising of the emerging markets and Europe also delivered strong growth on the back of resilient demand across markets during the quarter.
With that, let me take you through the financial numbers for the quarter gone by. We registered consolidated revenues of INR 52.4 billion, up 20% on a year-on-year basis. EBITDA for the quarter was INR 14.6 billion with a growth of 28% on a year-on-year basis. Our operational profitability continued to improve as the EBITDA margin for the quarter stood at 27.9%, which is an improvement of 170 basis points on a year-on-year basis. Improvement in EBITDA margin was despite 185 basis points year-on-year increase in our R&D spend. Net profit for the quarter has gone up by 14% on a year-on-year basis despite increase in tax expenses due to certain one-offs and stood at INR 9.1 billion. We had a net cash position of INR 25.9 billion as at 30th September 2024, as against the net cash of INR 8.6 billion as at 31st March 2024.
Now let me take you through the operating highlights for the second quarter of FY '25 for our key business segments. Our India geography, which comprises our Formulations and Consumer Wellness businesses accounted, for 38% of the total revenues during the quarter and grew 10% year-on-year. As mentioned earlier, our Branded Formulations business in India grew faster than the market during the quarter with 10% year-on-year growth. The business outpaced the market growth both in the chronic and acute segments. Portfolio of key pillar brands and innovation products registered strong volume growth, driving the overall performance during the quarter. We launched 12 new products including line extensions with 4 first-in-India launches.
The business grew faster than the market in key therapies of cardiology, gastrointestinal, respiratory, anti-infectives and super-specialty therapy of oncology. On the super-specialty front, we continue to hold leadership position in the nephrology and oncology therapy. Contribution of chronic portfolio has increased consistently over the last several years and stood at 41.8% as per IQVIA MAT September '24, an improvement of 400 basis points over the last 3 years.
Our Consumer Wellness business recorded revenues of INR 4.9 billion, up 12% on a year-on-year basis, primarily led by strong volume growth of 8.4%. Both the Personal Care segment and the Food & Nutrition segment performed well, driving the overall performance of the business.
Our U.S. business accounted for 47% of the consolidated revenues during the quarter with revenues of INR 24.2 billion, up 30% year-on-year. We launched 4 new products during the quarter. We filed 8 additional ANDAs and received approval for 9 ANDAs, including 3 tentative approvals during the quarter.
On the International markets front, all key markets delivered robust growth during the quarter despite ongoing political and economic challenges in some countries. Overall, the business posted revenues of INR 5.4 billion, up 20% year-on-year.
On the operations front, the U.S. FDA issued an Establishment Inspection Report, the EIR, with the VAI status to our transdermal formulations facility located in the Ahmedabad SEZ against an inspection conducted in the month of July 2024. During the quarter, the U.S. FDA issued a warning letter to our injectable facility located at Jarod near Baroda (sic) [ Vadodara ]. We are working closely with the agency to implement necessary corrective action and preventive actions for early remediation of the facility.
Now this concludes the business review, and I would now request Dr. Sharvil Patel to take you through the key drivers across businesses as well as initiatives in our innovation program. Thank you.
Thank you, Mr. Nayak, and good afternoon, ladies and gentlemen. It's a pleasure to have you all today on the call. .
We are pleased with our performance during the quarter and the first half of this fiscal year. All our business continued their momentum from their previous fiscal and delivered healthy growth numbers. We are on track to achieve an aspirational growth and profitability for the fiscal year of 2025. We remain committed to augment our innovation efforts to drive long-term growth across all our businesses and generate improved outcomes for all our stakeholders.
On the India Formulations front, our branded business delivered double-digit growth on back of strong execution. Our sustained thrust on innovation led by our patient-centric approach has enabled us to build a healthy pipeline of novel and differentiated products and solutions aimed at fulfilling varied unmet health care needs of our patients.
Consumer Wellness business continued to witness healthy demand across categories, indicating sustained consumer preference for our brands. Our R&D capabilities continue to be at the forefront, helping us to launch new products and extensions to capitalize on emerging consumer trends. The recent acquisition of Naturell (India) Pvt. Ltd, a leading player in the health snacking category, which is a fast-growing segment, will enable us to offer more product choices to the health and wellness conscious customers.
In the U.S., we have built significant capabilities to enhance patient care and treatment options in the form of comprehensive generics products portfolio, specialty play through LiqMeds acquisition and investment in rare diseases space. This, coupled with strong customer relationships, a pool of manufacturing facilities with capabilities to produce diverse dosage forms and an agile supply chain will ensure sustained growth trajectory for the U.S. business going forward.
On the International markets front, the focus remains on growing the business in chosen therapy areas across key geographies by leveraging our global R&D portfolio of differentiated and complex generics as well as specialty products. During the quarter, we forayed into the animal-free fermentation-based protein business by forming a JV with Perfect Day, Inc through the acquisition of a 50% stake in Sterling Biotech Limited. The JV will establish a state-of-the-art manufacturing facility that will cater to the global markets. It will accelerate the production of high-quality and ecofriendly protein products, reduce environmental impact and cater to the growing consumer demand for fermentation-based and ethically sourced nutrition. Post the formation of the JV with Perfect Day, we entered into a business transfer agreement with the JV to acquire its API business. This business has a fermentation-based product portfolio with the capacity to produce 1,600 kiloliters of API, hence, a very good strategic fit for us.
Our innovation pipeline across different areas continues to make progress and achieve desired milestones. With this, let me share some material developments on the innovation effort during the quarter. On the NCE front, our data monitoring and follow-up is ongoing on post the completion of patient recruitment for the Phase IIb/Phase III clinical trial of saroglitazar magnesium for PBC indication and also the Phase IIb clinical trial of saroglitazar magnesium for the Metabolic Dysfunction-Associated Steatohepatitis, known as MASH, indication for the U.S. market.
We completed Phase IIa clinical trials of Usnoflast in India for r Amyotrophic Lateral Sclerosis, ALS, indication during the quarter. The molecule was well tolerated in a short 12-week Phase IIa trial with target levels achieved in both plasma and cerebrospinal fluid of ALS patients. It showed favorable trends towards reduction in neurofilament light chain, an established biomarker of neurodegeneration, in the CSF of ALS patients. Improvement in ALS Function Rate Scale, ALSFSR, and slow vital capacity were also observed.
We initiated a Phase II proof-of-concept trial of desidustat in partnership with the ICMR in patients with sickle cell disease. The partnership marks a pivotal step towards developing new therapies for combating sickle cell disease.
In the biotech R&D space, we completed patient recruitment for a Phase III clinical trial for one of our biosimilars, and the follow-up has also been completed. We also completed preclinical tox studies for one of the biosimilars and applied for clinical trial permission to the Review Committee on Genetic Manipulation.
On the Vaccines front, we completed Phase II clinical trials for hepatitis E vaccine during the quarter. Recently, in the month of October, typhoid conjugate vaccine, which is known as ZyVac TCV, received in-principle acceptance from the WHO. With this acceptance, ZyVac TCV is now eligible for purchases by the UN agency.
Thank you, and now we can start with the Q&A session. Over to the coordinator for the Q&A.
[Operator Instructions] The first question is from Kunal Dhamesha.
The first question is on the tax expense. I think Nitin sir mentioned that there are some one-offs. So can you highlight the -- quantify the one-offs? And how should we expect the ETR to pan out for the rest of the FY '25?
So effective tax rate for the year will be 24%, 25%. One-off refers to one provision in terms of onetime net credit taken last year which reduced effective tax rate. And also in this year, the R&D spend in different entities across globe, where the tax rates are different, that has pushed rate a little bit. But this is only quarter. For the year as a whole, it will get equalized to 25%.
Sure, sir. And just continuing on the R&D expense, which was obviously meaningfully above the range that we have suggested. So how should we think about R&D? Is it some onetime trial cost which is factored in, in this quarter? And should we expect normalization from here? Or -- and what's the outlook beyond FY '25?
So as I said, R&D spend on a quarter basis is difficult always to estimate, but guideline for the full of FY '25 is around 8% of revenue is what we believe will be our R&D. And going forward also, I think it's -- we -- currently, at least for the near future, we are looking at the same percentage.
Sure, sir. And one last, with your permission. On the guidance, we had adjusted something like high teens top line growth guidance and year-on-year improvement in EBITDA margin for FY '25. So are we still sticking to that? Is there an update there?
Yes, yes, we are ahead of our estimates.
So is there a new estimate or new guidance that you would like to give? Or we should...
No, we -- comfortably, we should be able to achieve the estimates.
The next question is from Neha Manpuria.
Just on the two acquisitions that we announced, the first one as a part of the Wellness business. How big is this business that we have acquired and any other details you can give? And the second one on the Perfect Day JV. Is this for the CDMO piece that we are setting up this facility? By when can we expect commissioning of this facility as a part of the JV? That would help, please.
Yes. So on the consumer health front, we -- the business that we acquired of the Ritebite Max Protein and its range of products is about INR 130 crores in annual revenue. And obviously, it allows us to play in the healthy snacking. And we have always indicated that we would like to play in the protein malnutrition/nutrition space. So this gives us a good area to enter. The brand is obviously a market leader in its category with strong growth and continues to be a leader also in all segments of whether it's general trade, e-commerce, modern trade also. So we are quite excited with the opportunity.
With respect to our joint venture related to Perfect Day, it is going to be -- I mean, in a way, it is -- you can call it as a CDMO because it is going to do development also. So it's not only manufacturing, but develop and manufacture large-scale fermentation of the protein isolate of milk, which is the whey. And we do believe that this will be a large global opportunity with global -- large global consumers who have already tested and have looked at making this as part of their resilient supply chain. So we see it as a tremendously large opportunity to have and animal-free derived milk -- protein product, which can also have a significant ESG benefit.
And by when can we expect the commissioning of this facility? And any CapEx that you would want to highlight on the manufacturing facility?
Yes. So I think more details we can give over a period of next couple of quarters. But we do hope to start the construction of the facility in the next 2 months.
Okay. And my second question is on the gross margins. Obviously, we have seen the benefit of our U.S. pipeline reflect on the gross margins. But if I -- if you were to look at gross margins of the base business, is there anything that has materially changed between -- from last year to drive the significant improvement besides the high-value launches that we have in the U.S. in the gross margin? And what's the sustainable level of gross margin that I should look at beyond this year?
So on the U.S., as I said, it's all because of the portfolio. So one is the base business, which continues to still grow despite the different challenges that we hear about in the U.S. But one thing which is good is our base business continues to grow. We are quite disciplined when it comes to how do we do business in terms of financially are we making sure we're doing the right product at the right price and right margin. So that continues and is quite healthy. And we still continue to have a lot of near-term opportunities over the next 1 to 2 to 3 years where we are going to have major big launches. So we are looking to obviously continue to build our portfolio in the U.S. and continue to make sure that we not only continue our base business, but also have products where we will see exceptionally good returns also.
Understood. And these opportunities would be as large as Mirabegron was for us in the next 1 or 2 years?
So Mirabegron will still continue for the coming financial year. And post that, as we have always said, that in FY '27, we have 2 large major launches. So we would continue to see an uptick in the business until FY '28, '29.
And sir, last one. Mirabegron, any comment on the turn-in events when it comes to the litigation? And what should be the time lines, or if not the time lines, the events that we should look for, your view on what's going on, on that litigation front?
Yes. So I think it's -- always litigation is unpredictable. So I think it is not something imminent. It is at least a few quarters, 1 or 2 quarters out. So I don't think we will have anything more credible in the short term from our best estimate.
The next question is from Bino.
Just a follow-up on Mirabegron. Sharvil bhai, can we get some idea, quarterly Mirabegron run rate? Is it pretty much the same Q-o-Q, Q1, Q2? And will it continue similar going forward?
Sorry, can you repeat the last part? I didn't hear you well. Mirabegron...
Yes, Mirabegron. My question was, is the quarterly run rate similar for Q1 and Q2? And is it likely to be the same going forward for the next few quarters?
I think it's -- the run rate is going up. The conversion is also going up. So we would start to see better numbers.
Okay. Coming to Asacol HD. The competitor has launched the product, I believe. What are you seeing on the ground? Any price erosion, market share loss, et cetera?
Yes. So we are seeing competition in the market. And currently, we are -- what we are seeing is we are -- I mean, as per our assumption we are, I would say, in a good place in terms of what we assume would be market share loss and also price loss. So that is our -- as per our estimates, and you will get to see that impact in quarter 3 this year. Also, yes, the speed of it has been a little slower, so that has been good for us. Speed of conversion has been slower.
Understood. One last question on REVLIMID, generic REVLIMID. So you have this revenue bulked up in Q1 and Q4. So I assume Q4 of this year, we will see a gain and possibly Q1 of next year. So -- but coming into FY '26, the exclusivity is lost before the Q4 FY '26. So should we assume that the generic REVLIMID run rate would be roughly half plus some volume increase as per your agreement in FY '26 versus FY '25? How do we think about it?
No, we get more share in FY '26. So we are still hoping to achieve -- I mean, I don't think there'll be any drop in revenue.
And all that will be booked in Q1? Or...
Q4, Q1 is always our expectation.
Yes. But in FY '26, before Q4...
Yes. FY '26 will most only be Q1.
Only be Q1. Still there won't be a Y-o-Y drop?
No.
The next question is from Surya Patra.
Congrats for the good set of numbers. My first question is on the gross margin again. See, this quarter, obviously, we have not seen the benefit of the REVLIMID, but -- and REVLIMID is a kind of a sizable opportunity, what we have witnessed in the previous quarter. And although that is not there, though there is some benefit of Mirabegron is visible. But the gross margin is remaining as it is like REVLIMID contributing gross margins. So what is driving this or this quarter? Because you are also indicating Mirabegron Q-o-Q would not be significantly large enough. So what is driving this, sir?
So obviously, REVLIMID is down versus the last quarter, but the uptick on Mirabegron continues. So I think I did say Q-o-Q, there is an uptick, not stable. So we are seeing improvement. And -- but in quarter 3, we will see obviously, the impact on Asacol, which was less in the last -- in this quarter. So yes, that is the current state. And again, as I said, quarter 4 will again become very large because of generic REVLIMID.
Yes. And whether you have indicated about Mirabegron FY '26 remaining a kind of strong year as well, sir?
I mean, it's always based on litigation and what happens. But as with our best estimate today, if it continues, it will remain important.
Okay. Sir, with regards to the U.S. business, since long that we have been talking about a series of kind of a complex product opportunity, including the in-licensed ones. And just in your opening remarks also, you mentioned about key complex product opportunities in the near future. Could you give some sense about the kind of pipeline opportunity that we are talking about?
Yes. So I think some -- obviously, we have already spoken off, like the palbociclib generic version or the [ riociguat ] also, which is also settled. So those are more sure and finite in terms of launches. Beyond that, in terms of our partnerships, we have also spoken about the large franchise that we're trying to create on the 505(b)(2) and generic injectable side. And we announced recently, if you had read also, we announced the [indiscernible] product. Similarly, we are seeing a few more 505(b)(2) that we are looking to file and launch immediately. So I think we have a healthy pipeline of in-licensing products, which we will get to see.
On Cabozantinib, obviously, the judgment was not completely in -- is partly good, partly not in favor. So that appeal will continue and we'll see how that goes. But despite that, I think on the BD&L efforts, we are seeing a significant traction in being able to license high-value or limited competition or even 505(b)(2) with patent life kind of products and that is only getting better. So I would say over the next 3 years, we would see a significant value from the BD&L opportunity beyond what we are obviously filing ourselves in terms of first to file and day 1 launches.
Is it possible to share some more color about the Vivid Pharmaceutical in-licensing arrangement about this gadolinium and MRI injectable?
So as I say, it's right now for 2 of the products. And upon approval, we will commercialize these products. And we have created a capability of a sales team in the U.S. to be able to do some of these things also.
How big this opportunity could be sir? It is a generic opportunity? It is a kind of NDA opportunity?
It's limited competition. I don't think there is a generic version today in the market. Exact size of the opportunity, I won't be able to today -- give you an estimate, but it will be niche but valuable.
Okay. Just last one question, sir, about the animal health business, what we have been aspiring for and taking some interesting strides on that front. So could you give some sense what is the kind of over the next 3-year period, let's say, how important and how sizable this could be?
So as I said, for us, U.S., we have decided that we are going to make -- we have focus on U.S. So we have 3, 4 legs of the growth that we are targeting in the U.S. and participating in a larger ecosystem. One is obviously the generics business, where we're large at; scaling up injectables, which is our second area that is scaling up; also launching competitive generics where you are late to market as well as also now as the animal health products. And we are creating a complex -- I mean products which are good, valuable where we are sort of first generic into the market, like we are on the brand side -- or on the generic side, human generics side. Also launching complex technology-driven products in the animal health space.
So that will be the other leg of growth for us. And finally, obviously, on our rare and specialty product is the final area where we are seeing a significant scale up on Sentynl coming up and becoming in the next 2 years a valuable. And also, obviously, our own pipeline of [ rONC ] molecule, which will be more future driven. So it's a basket of business that we'll do. Specific only to the animal health, it's done very well. It's ahead of our estimates on margin and have done good. So we hope to continue to invest behind it and build it. As I said, we are a serious player in this. Not only do we do R&D, we also do manufacturing and then obviously sell. So we have built an end-to-end capability because Zydus generally builds an end-to-end infrastructure to be more relevant and long-term player in the U.S. So we hope to remain a long-term committed player in the animal health space in the U.S.
The next question is from Kunal Dhamesha.
I just missed the name of the second product which would be important for us in U.S. apart from the palbociclib. Can you please share that?
Riociguat.
Riociguat. This is the brand name or...
Molecule.
Molecule.
Okay. Sure, sure. And sir, on the typhoid conjugate vaccine, which -- where we have received WHO preapproval, if you could share something on the total addressable market and how are we planning there. And what else do we have in pipeline to kind of make this business more sustainable?
Yes. So I think currently on TCV, UNICEF is obviously with the approval on prequalification. We can participate in the UNICEF tenders. UNICEF is the largest procurer of TCV vaccine. And over in this coming year, obviously we will participate in the annual tender. The annual tenders generally range from 80 million to 150 million doses. So we hope to take a small percentage of that share, and that would be very meaningful and sizable for the organization.
Beyond TCV, we are also looking forward to also getting our MR vaccine qualified very soon. So once that happens, that will be also an opportunity for the UNICEF tenders. But beyond that MR, there is also an India tender coming up very soon, and we are hopeful we will also participate in that tender. So I think, finally, I would say that in terms of meaningfully scaling up vaccines, we are going to start to see that from FY '26 and FY '27.
Sure, sir. But do we have any like aspirational target in mind that we want to scale this business to some number based on the pipeline that you have right now?
So as I said, the opportunities are very large. Because when I talk about just for TCV, it's 80 million to 150 million doses tender volumes, and is over a period of 2 to 3 years. So I think, as I said, from our revenue and what revenue we have today, it will be quite meaningful. But the scale up, I think we can only talk about once we win certain tenders. But these are not small tenders. And the competition is only between 1 or 2 or 3 players. So we believe that we can definitely take a small part of that tender meaningfully and become sizable.
Sure. And sir, this tender, you said it's for 2 to 3 years. So is it up for renewal now in this year?
Yes. I think we will see that in this coming FY '26, there will be a tender on TCV and then following year, probably MR, too.
Sure. And sir, one question on the U.S. business. In this quarter. would you have seen any negative pricing action on Asacol? The market share was -- might be more visible in Q3. But is there any shelf-stock adjustment that we would have taken in our revenue for Asacol?
I think larger impact you'll see in quarter 3, but yes, we would have taken some in quarter 2 also.
Sure, sir. And beyond, let's say, FY '25, for FY '26, any key products? Because palbociclib and maybe the other product that you talked about is slightly longer-term opportunity. But from FY '26 perspective, would you like to share any key products that we might be having in our pipeline?
Yes. So FY '27 and '28, obviously, are the 2 years where you will see the other two. In FY '26, we have our -- obviously our internal pipeline of products that will be important. We see quarter 1 REVLIMID also, which will be important. And then we are going to see a full year of the 505(b)(2) or on the whole sitagliptin franchise, which would be quite meaningful. And we can talk about it more in the fourth quarter, but we believe that will be a very important and significant value creator for the -- as an important class for 505(b)(2) success.
And then as I said, we do have some impending launches on the injectables front, also 505(b)(2) injectables if we succeed. So there are quite a few products that are lined up for FY '26. But I would say the bigger chunk of products will come in '27 and '28. But we are still seeing FY '26 also in terms of maintaining our current base of business.
The next question is from Harsh Shah.
Yes. So my first question is on the overall direction of the business. You however partially answered the question, but just...
Harsh, I'm sorry, but we're finding it very difficult to understand you.
Is this better?
Yes, yes.
Yes. So part of the question you might have answered, but just wanted to get a bit of more clarity in terms of the traction of the overall business. For H1, of course, we have overshot on the guidance. But now as we stand today on the higher base of revenue with the peak of REVLIMID almost behind us and then Mirabegron and Cabozantinib having its own challenges, how do you see FY '26 and FY '27 panning out in terms of growth and margin? If you can share some light on -- for bit of '26 and '27?
So our guidance is FY '26, we will -- in the U.S., we will see growth over FY '25 and which is depending on whatever portfolio, and this is despite Asacol competition. And that is our current guidance. And FY '27 and '28 are obviously meaningfully very large because we have large opportunities where we have assured launches coming up, where we are [ day 1 ] exclusive. So that trajectory from at least from this point of view and guidance is this. We -- while Asacol, of course, is the now its challenge. REVLIMID will still be a good quarter 4, quarter 1 product. And going forward, Mirabegron still remains -- is still growing quarter-on-quarter. So I don't see any slowdown in Mirabegron.
And on margin front, we will stick to 27% plus kind of a number or we might see some erosion there?
No, we hope to maintain our FY '25 margins or -- I mean, guidance of '27...
Guidance that we have given of [ 100, 200 -- 250 ] basis points over last year. That we continue.
Okay, okay. And a bit of qualitative question. With the U.S. elections behind us now and the talks about this new government coming in, do you foresee any major challenges -- any major regulatory challenges from what has been the policy of the new government that will be coming into effect?
I mean, I would not be the right person to answer that. But today, India -- in the U.S., 60% of what is consumed in the U.S. is made in India in terms of prescription volume. So I would say we are in a good place to continue to build on that.
Next question is from [indiscernible].
Just two follow-up questions. One on the tax rate. For this year, we have guided to around 24% to 25%. But that is much higher than previous last 2, 3 years' consolidated tax rate. Of course, this year, this quarter, we had some one-offs. But FY '26, will it come down back to around 20% to 21% which was earlier tax rate? Or will it stay higher at 25%?
Earlier, we got benefit of MAT credit available, but over a period of time, we have started utilizing them. So we'll not be left with more MAT credit now. Also the benefit which we have for backward area in Sikkim, that also somewhere in '26 and '27 is not going to be there. So we will be then coming into normal tax rate. Having said so, because while we look at the consol tax rate, it constitutes of different entities having different kind of tax rates. And therefore, you may find something here and there, 1% plus/minus. But on the whole, that is we're guiding for, 24% to 25% kind of effective tax rate.
Understood. Sharvil bhai, this is about riociguat, is that your own product or a partner product?
Partner.
Okay. And would you be the only -- would it be a sole exclusivity launch?
Yes.
The next question is from Rahul Jeewani.
I hope I'm audible?
Yes.
Yes, sir. Sir, on the sitagliptin 505(b)(2) opportunity which you spoke about for next year, sir, next year, the sitagliptin generic market also opens up in mid-2025. And there are already, let's say, around 8 to 10 generic companies who have tentative approval on the product. So with the generic market opening up on sitagliptin next year, so what kind of a traction do you think you would be able to garner for your 505(b)(2) product?
So two things. One is, it's not '25, it's '26, the patent. So maybe you can check. I'll also check again, but it's not for '25. So we have still 1 more year. And we have -- as I have always said that, yes, so the opportunity we are seeing is obviously launching our branded franchise of sitagliptin. So obviously, FY '26 will be the most meaningful year. But going over that, we have a long-term contract with the government -- U.S. government for supply for 3 years, which will continue even after genericization. And also because we're building part of the branded business, we hope that post genericization, some part of it, we may be able to manage share. But leaving that aside, at least the government business is going to continue for a longer period of time. And maybe the FY '26 may be the larger opportunity on the retail side, which may not be substantial in the next year, but for sure, the coming year will be quite meaningful, which we can obviously explain more in quarter 4 also.
Sure, sir. And this government channel, how big is this on sitagliptin?
It's a valuable business for the company, becomes a good molecule for us just on that business.
Sure, sir. And we would need to put up a sales force this 505(b)(2) product? Or would you market it through the team with Sentynl might have?
No, we don't need any marketing teams. As I said, we can give you more flavor by quarter 4. But we are seeing some very good opportunity on it.
Next question is from Damayanti Kerai.
I hope I'm audible?
Yes.
Okay. So my first question is, you mentioned about like good launches lined up especially in place '27 and '28. So can you update us, will that include a few transdermal products also, I think, which we have talked in the past? And if you can update us on what is the current portfolio looking like in terms of transdermal supply. How do you see scale up? And similarly, how do you see your injectable portfolio building up over the next few years in terms of sales?
Yes. So we have a total of 8 transdermal filings so far. We have -- out of which we have 2 pending approvals left. Although, one is certain, the other one is -- may not be certain. From our point of view, we just recently -- I mean we already have the Estradiol combo pack that is already launched in the market. Before that, we obviously had already won transdermal launch. Recently, we did launch scopolamine transdermal patch. And going forward, we hope to add other twice weekly Estradiol, which is also approved, but we need to scale that up and clonidine as the future product. Beyond that, we also have some more hormonal patches that are under development and to be filed, which will get launched. So that's where we are on the overall transdermal's business.
On the injectable side of the business, as I said, we continue to file complex drug device combination products in the U.S. And so that would be one -- beyond that, obviously, we are actively licensing injectable products, whether it is in the contrast media range for radiology or some of the niche like the dyes that we have licensed, where we launch Methylene Blue future or Indocyanine green and few more color dyes in the future. So we have a whole host of differentiated niche products also in the injectable side, which we will launch beyond, obviously, the large drug device combination products that are also being filed.
Sure. So currently, to your total U.S. sales, I assume injectable sales are very small in terms of contribution. Can you just give us like how much is currently coming from these products?
So as I said, I think for us, and I tried to also talk a little earlier. I think we are looking at the whole U.S. when we talk about -- we look at the portfolio. And we don't differentiate like injectables, orals or all of that because we are running it as a portfolio of choices of products that we do. So it will -- but I can definitely say that injectables in the next 3 years will obviously scale up from today's level and become more meaningful. But I think for us, it makes sense more to talk about the overall portfolio rather than dosage form because we don't do business like dosage form because it's very similar ways of selling.
Sure. Just want to understand one more point in transdermals. So what we understand in these markets, I guess, incumbents have largely stable market share, right, few incumbents and then have certain market share. So say, you entered that market. So is it like easier to take market share from the existing players? Or here, like it's more gradual buildup, which you generally see?
Yes. So it's always hard to take market share, whether it is in any product because we want to take market share with certain margins. So it's always a thin line in terms of how -- whom you target and how we target. But so far in the 2 products that we are selling, we have had a decent success.
The next question is from Nitin Agarwal.
[indiscernible].
Nitin, your voice is not clear.
Hello, can you hear me?
Yes.
So two questions. One is, a, on the India business. Any thoughts on the business now? I think for the last few quarters now, we've been performing well in line and above the market. So has the business now sort of turned around for good in your assessment? And where do we see the business over the next, say, couple of years? What will be the drivers for this business from here on?
Yes. So I think, as I said, our aspiration is to grow better than market. We are in many quarters now doing as -- market are even better as we have demonstrated. And we hope to continue to deliver on stronger growth. There are 2, 3 areas that is helping us. One is the portfolio reorganization and focus has helped us in terms of growth. So our innovative portfolio as well as our growth booster brands have both done extremely well. And as that pie of the business becomes larger and larger, that is contributing meaningfully.
Beyond that, there have been important new launches that have been successful. So not only have the existing products been doing well, but the new launches have seen very strong, meaningful traction, and they continue to also drive future. Also now our branded part of -- our specialty portfolio, our chronic portfolio is now more than 41% of our overall business, and that's also improving it by -- improving its share in our overall pipeline, which also is allowing us to have a more sustained growth. So I think all in all, all of these things are giving us confidence that we can continue to deliver better than market growth, which is our aspiration.
And sir, in the domestic business, what proportion of business is really coming from here on innovative products now?
It's a good question. I don't think right now we have a breakup like that, that we give out. But I think give us some time, we can -- we'll start preparing different overall innovative pipeline portfolio overall. But I think in the individual breakup, we don't give right now.
Okay. Sir, take forward, sir, on the innovation portfolio -- the innovation R&D portfolio, which is there, I mean, over the next couple of years, what are the milestones to really watch out for?
So I think the milestones will be market share, obviously, for saro, for desidustat, for also the biologics that we are launching and also some of the differentiated technology products where we are first to market. So if it's competitive, obviously it's market share. But beyond that, as I've always said, we do strongly believe that both saro and desidustat will obviously come in the top 50, but very hopefully, soon in the top 25 in terms of brands of the company and we -- of the country. And we hope to continue to build that.
So I think those kind of rank of molecule will become more and more impactful going forward. And as I said, when we are launching biologics and other products., We are now -- at least like I can talk about our Ujvira molecule. We have even higher share than the brand now, both by value and volume. And also, if you look at our overall share in the oncology space, we are now potentially the largest Indian oncology player and growing the fastest in this area. Similarly, if you see the desidustat, if you see the traction that we're getting on saro, both by ourselves and our partners, we are seeing significant traction on these molecules.
So the innovative pipeline is definitely driving a lot of meaningful growth and creating larger house brands.
And sir, on this innovation pipeline, from a -- wherever you're undertaking global trials, what are the major milestones for you on the global approval perspective for these products?
Yes. So I think the nearest product of ours is saroglitazar, which has finished recruitment for a hybrid Phase II/Phase III trial. And next, in quarter 2 of next year, we will have a readout. So that will be one important milestone. There are -- Usnoflast in ALS will start a Phase IIb trial. So that is still a little while away, but that will be the next milestone of starting the next clinical development journey. And on desidustat, we are doing a trial in sickle cell anemia. And we're also looking about something in the U.S. in the defense space. So that is the other important milestone if we are able to achieve. Beyond that, I think we have large Phase IV global -- I mean, Phase IV trials going on in India to show the safety and efficacy of the medicine. And a lot of publications, that will all drive better value for the brands.
And sir, on the R&D spend increase which has happened, and you said it's going to be sustained around these levels, about -- which are the major areas where the R&D spend -- the increased R&D spends are going towards?
So yes, it's obviously in the large -- some part of -- as I said, for us, about 60%, 55% -- it's half and half almost very soon. So half of it goes for development of our whole complex generic, generic, better than generic kind of portfolio. And the remaining is for our biologics and NCEs and for U.S. development. In that, the largest cost is developing saro for U.S. followed right now because we are doing large Phase III, completed. And that will continue. So that -- the clinical development cost is one of the larger cost of the overall cost.
And sir, last one, sir. On the emerging market, I think you've had some pretty decent sequential growth in this business for the last few quarters now. I mean, a, what has really changed? And how should we look at this piece? How should we look at this business going forward?
So I think I have a very strong execution, very strong portfolio of global products that are getting leveraged in all of these markets, more focus on branded business which is allowing us both consistency and profitability growth, right selection of markets. We also entered new markets now like U.K., Australia, and we hope to add tactically more markets, including Canada and others. So I think it's been overall, I would say, a strong strategy which led to a strong execution. And also going forward, we are seeing enough momentum of product portfolio as well as markets still continuing to do very well. So in spite of obviously currency challenges, some geopolitical challenges that we do face market by market, but the portfolio markets is allowing us to continue with the strong double-digit revenue growth and, more importantly, profitability growing faster than revenue.
And if we could just finish the last one, sir, on the U.S. market. I think if I -- just to get it corrected, you said that even the Mirabegron will continue to be a major product even for F '26 for us.
Yes. I think the current litigation continuing, it will still continue in FY '26. But until how long, it's very difficult to predict right now.
The next question is from Vivek Agrawal.
You talked about palbociclib is one of the key product in '26 -- '27, '28, right. So just want to understand two things on this product. So is it going to be a capsule or tablet if you can clarify?
Tablet.
Okay. So in tablets, is it likely to be sole exclusivity? Or is it going to be like you're going to share with a few other players? Or how the things are going to be?
Our best estimate, it will be sole, but there can always be an [ AG ].
Okay. And any color on capsules?
No, I don't think I can -- I don't have any other update on it.
The next question is from Kunal Randeria.
Sharvil bhai, you mentioned time lines for saroglitazar. So what would be the realistic time lines for U.S. filing and launch? And how should we evaluate the potential considering that 2 players got approval this year and have a bit of a head start [indiscernible] in the PBC indication?
Yes. So we always -- I mean, in our estimate, we had always assumed that we'll be third or -- I mean, if lucky third or fourth, but I think we could be third to the market. The -- as I said, the major milestone is our initial readout of our data in the second quarter of next financial year. If everything goes well, then we will go ahead for the submission of the NDA by the third or fourth quarter, mostly the fourth quarter and then about a year from there launch. So maybe our estimate is quarter 4 of FY '27 -- no, quarter 4 of '27 of calendar year, calendar year '27 would be the launch, which will be first quarter of the calendar year '27.
Got it. And how do you kind of expect the market to kind of take a turn because even these two products are fairly new. So -- and I presume your product will also be like a second line treatment. So how do you evaluate this market by the time we launch this product?
Yes. So I think, obviously, many moving parts on this. Right now, [ OCA ] is under regulatory action right now. So potentially, these other products -- I mean, this class of products will become maybe even the first line of treatment from second line. And the other part is it will all depend on our data. So if our data is at par or superior, obviously depending on that situation, we will know how we will fare. So very early to comment until we get to see our data. But if you are at par or better, obviously, the commercial value is quite valuable. If we don't have a sufficiently equivalent data, then obviously we have to look at how do we commercialize it.
Right. And just one clarity on this. This will be the first indication for saroglitazar in developed markets, right? MASH and others will come later.
Yes. This, we are only targeting in U.S. PBC right now.
Thank you. And this was our last question. I would like to hand the conference over to Mr. Ganesh Nayak for the closing remarks.
Thank you very much, and have a nice evening, and look forward to -- and well, wish you a very X-Mas and very happy New year. And look forward to interacting with you in the month of February for our quarter 3 results. Thank you, and good night.
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.