Lotus Pharmaceutical Co Ltd

TWSE:1795

Earnings Call Analysis

Revenue Decline and Strategic Growth Focus

In Q1 2024, the company saw a 7% decline in consolidated revenue to TWD 4.2 billion, primarily due to lower U.S. sales from timing issues and increased competition. Gross margin remained steady at 55%, but net profits were TWD 1.04 billion. Key growth markets were Korea and Taiwan, with significant gains in specific brands like Qsymia and Cialis. The company continues to focus on expanding its product portfolio and strategic M&A opportunities in Southeast Asia, aiming for double-digit growth. Full-year revenue from lenalidomide is expected to peak in Q2 and Q3 with potential replenishments in Q4.

First Quarter Highlights

In Q1 2024, the company experienced a decline in consolidated revenue of approximately 7% year-over-year, totaling TWD 4.2 billion. This decrease was largely attributed to the U.S. market, where exports fell 18%, and U.S. revenue decreased by around $600 million, primarily due to lower earnings from lenalidomide and increased generic competition from Suboxone.

Gross Margins and Expenses

The gross margin for Q1 stood at 55%, slightly below the previous year's quarter. Operating expenses remained consistent year-over-year, although selling, general, and administrative expenses rose due to increased equity-based compensation. Meanwhile, research and development costs fell, primarily due to the absence of extraordinary regulatory fees from the prior year.

Net Profit and Revenue Distribution

The net profit for the quarter amounted to approximately TWD 1.04 billion, maintaining a net margin of around 25%. Despite a 13% drop in earnings per share, the overall strategy indicates conservative optimism for future performance as shipments are expected to increase in Q2 and Q3, contingent on operational dynamics and market receptivity.

Market Dynamics and Opportunities

The management highlighted a shift in market dynamics, explaining that lenalidomide sales are projected to peak in the upcoming quarters, driven by replenishment patterns. Moreover, competition in the Suboxone market has intensified, with Ingenus beginning to capture significant market share, affecting Lotus's recent revenues.

International Growth and Product Performance

The international markets displayed resilience, with approximately TWD 190 million increase in revenue outside the U.S. Driven by replenishments in Europe and Brazil for lenalidomide and enzalutamide in Latin America, the Asian markets, particularly Korea, saw a revenue growth of about 10%. Product performance in Taiwan also remained strong, with Qsymia growing 15% and Cialis achieving a 10% increase year-on-year.

Future Guidance and Targets

Looking ahead, the company expects to stabilize U.S. performance and regain growth momentum, particularly from the lenalidomide product line. The overall aspiration is to hit significant growth, targeting around 40% of the company's revenue to stem from U.S. operations consistently throughout 2024. Additionally, the company is confident about launching several new products, including nintedanib, which is anticipated to be a major revenue driver in the next five years.

Financial Flexibility and Strategic Plans

The company’s net interest-bearing debt decreased to around TWD 8.2 billion, providing the firm with ample financial flexibility for potential acquisitions, estimated at around $300 million. With significant investments into R&D and business development, coupled with previous successful integrations, Lotus aims to secure high-quality products in the Southeast Asia market while also exploring strategic mergers and acquisitions.

Closing Remarks

In conclusion, despite facing challenges in the U.S. market, Lotus Pharma retains a positive outlook forged through strategic plans, promising product launches, and a robust pipeline. Stakeholders are encouraged to monitor upcoming quarters closely for signs of stabilization and growth, especially in the company's core therapeutic areas.

Earnings Call Transcript 2024-Q1

[Operator]

[Audio Gap]

Before the meeting starts, all lines are placed on mute. Today's conference agenda is as follows. First of all, CEO, Petar, will go over first quarter business highlights.

[Petar Vazharov, executive]

Key milestones in the first quarter. We have received approval of enzalutamide softgel capsule in the U.K. But actually, this gives us opportunity to launch the product with a partner. We have as a partner actually of the largest pharmaceutical companies in the world. The launch is basically conditional to and validation of particular patents, which is very likely, but it's not 100% certain. So we are preparing as we speak for this launch. So we are building stock. And again, hopefully, this launch will materialize later this year.

We launched also pomalidomide in Taiwan as a first generic, also vinorelbine as a first generic in Malaysia as well as Philippines. And the same applies for enzalutamide, we launched the product through our partner, this product in arthritis Vietnam also as a first generic.

In terms of R&D deliverables, 3 pilot studies have been successfully completed, so 3 projects, and we initiated one new project, which is first to file. I would like to highlight here the fact that we have gained very good progress with 1 505(b)(2) program. It's our oncology -- our first oral oncology 505(b)(2) program for the U.S. So we have passed successfully pilot bio study. And we are continuing with this project, which was quite promising, and we are very excited. So overall, we have 27 ongoing projects now in R&D in different stages.

Business development, we have highlighted the contract in licensing agreement for Asia for generic of leuprolide. It's a highly complex injectable product, long-acting injectable based on microscale technology. So this is extremely hard to develop, to manufacture products and obviously, only handful of companies having technology and facility to make these products. So we believe that we have a contract with probably the best possible partner here. And we are quite excited about it.

We have a lot of projects going on now on the business development. And there are 4 projects, which are quite advanced. I'll talk more about them not in concrete, but just give you a high level during the Southeast Asia section.

On the licensing-out part, the highlight is the licensing-out deal with leading company in Japan pomalidomide. So this is an extension of our existing development program, which was successfully finalized for rest of the word and we think we are in a good position to launch the product in Japan through our partner on the patent expiry.

Here on this slide, we are illustrating the progress with the rollout of our existing pipeline, which is internally developed by Lotus team. So these are, again, products which are already completed as development.

As you know, lenalidomide is our flagship product. So we have completed the launch phase in 88% of the targeted markets. There are a few more markets where we want to launch the product. Obviously, U.S. market is the flagship market. We already launched in many markets in Asia, Europe, also Latin America. There are a couple of markets now in Middle East. Also, we are seeing very good progress with lenalidomide launch in Japan, which was in December last year.

Vinorelbine, we -- similar to lenalidomide, we have almost completed the launches in all the targeted markets. I would like to highlight here the fact that Lotus remains as the only supplier of generic formulation, which demonstrates that this is really highly complex product in terms of formulation as well as clinical development and manufacturing.

Enzalutamide softgel, we are -- we were one of the first companies, as you remember, to launch the product in [ patent-free ] markets in Latin America. And enzalutamide was a big driver for first quarter sales, the export outside the U.S. But the key now is, of course, to execute the launch in U.K., which again we are very well positioned and to roll out the product in other markets based on patent expiry.

Obviously, we'll see much more launches coming in the outer years from recently completed programs like pomalidomide, nintedanib as well as midostaurin and tofacitinib. Again, these are completed as developments already in the regulatory stage, and we have also partnership in the key geographies for all these products.

On this side, we are illustrating our approach on the pipeline. We are focused on -- we have been focused on building hybrid pipeline, which is a combination of generic pharmaceutical products, particularly oral oncology, which is more complex among other generics as well as complex products like 505(b)(2), new chemical entities as well as brand acquisitions, which is driven by business development team.

We believe that this combination, this hybrid model is actually the reason and of course prerequisite for sustainable and double-digit growth, both on the top line and also the bottom line. And we have seen this historically, the company has grown fifth consecutive year, double digit, and we believe that based on what we have been doing so far and what we have now on hand as projects on both R&D and pipeline, we will continue in the same path.

The strategy, of course, is focusing on infusing products in the key therapeutic areas as they are now, which are oncology, CNS, primary care plus lifestyle and some small niche therapeutic areas, which we have already presence, women healthcare and nephrology. However, we are not excluding entering in a new therapeutic area based on opportunity. Most likely, this will be driven by business development.

So on this slide, we would like to basically demonstrate the transformation and what has been built so far since 2014 as a business, and this gives us a lot of confidence, again, that we will continue with a sustainable growth for the future. So currently, the company has more than 250 products commercial on the market, which is a huge number. We are supplying currently products to more than 70 countries based on B2B as well as business customer, although, as you know, in Asia, we are a business customer mainly whereas export is 100% B2B.

We have invested in our manufacturing sites for the last 5 years, more than $75 million, and obviously, majority in Taiwan, which is our pivotal manufacturing site. Currently, we have 50 products in the pipeline, R&D 30, 20 business development. And when I say pipeline and business development, these are projects ongoing, which we are working, negotiating or performing due diligence. Last year, we have invested $100 million in pipeline development, 1/3 invested in R&D and 2/3 was invested in business development, mainly these were licensing fees for in-licensing products, 505(b)(2) as well as new chenical entities and of course, majority contributed to payments due to the brand acquisitions, which we completed previously.

Currently, we have more than 100 global partnerships. We are very proud with the fact that we are partnering with companies like Eli Lilly, Novartis, Takeda, AstraZeneca. On the business development side, we are working with Sandoz, Stada, Zentiva, Stein, Delpharm licensing out, which is also a demonstration for our strong network and position to execute on our plan going forward.

So this is -- again, this incredible transformation compared to 10 years ago, I just want to remind, in 2014, the company had sales of only $20 million and focus only on Taiwan market.

Talking about Southeast Asia, obviously, Southeast Asia is our strategic [ view ] in our strategy for growth in Asia overall. If you look at the Southeast Asia cluster of markets in the last 5 years, they have achieved 6.2% average growth rate, which is significantly higher than the other markets in Southeast Asia

[Audio Gap]

To Korean and Taiwan, as well as Japan and China. And also, these markets are forecasted to grow double digits in the next 5 years, average growth rate. Also, it's interesting that these markets are very fragmented in terms of competition. And they have more than 500 local companies in -- specifically in the target -- our target markets like Thailand, Vietnam and Philippines.

We think definitely there is a lack of strong capability of the local companies to develop high quality and manufacture high-quality product, specifically oral oncology and some challenging combinations like softgel oncology, but also long-acting injectables, biosimilars, et cetera.

Also, there are more and more news coming that big pharma companies, large multinational companies are considering and already in process of downsizing their activities in Southeast Asia due to prioritization reason and also this implies with possible divestment and changing business model.

What is our advantage to benefit here in the overall opportunity? I think, like I said already, very important is that we have already built a very strong name as a preferred and reliable partner among big multinational companies among possible companies which are -- have interesting products to license out like biosimilars like 505(b)(2), like new chemical entities. So this is, again, proven by our track record.

Also, we have completed already several deals throughout the years with very good success, not only signing agreement, but also successfully integrating the assets in our portfolio, taking over the commercial activity and taking over manufacturing and overachieving the business plan. So this is very important.

Also, we have quite a broad portfolio, which is mainly focused on chronic disease. And what we have seen in the last 5 years, there's a shift in these markets in Southeast Asia, markets like Indonesia, Vietnam, Philippines, Thailand, there's a from -- towards chronic disease treatment. Previously, it was more about emergency, antibiotics now with increasing of the GDP and spend in healthcare and extended -- actually aging, we see more shift towards chronic disease treatment, which obviously matches our key therapeutic area of focus.

And last but not least, we have PTT as our largest shareholder, which is the biggest state-owned enterprise in Thailand, which give us a lot of leverage in tapping into especially local opportunities in Southeast Asia.

In terms of strategy, obviously, it's a combination of organic growth as well as external. Currently, we have more than 50 approvals in Southeast Asia. I'm talking about molecules products, not SKUs, which is quite decent size of portfolio. We have more than 20 products under preparation for filing a similar number during now ongoing registration. And like I mentioned earlier, we have 15 products planned to be launched in 2024 in Southeast Asia. We are continuing, obviously, in-licensed products and of course, to roll out our existing internal pipeline, mainly for oncology in Southeast Asia.

With regards to the external growth opportunities, the focus will be on M&A and individual brands or portfolio acquisitions. So we have now 2 projects which are very advanced. By advance, what I mean is that we have completed the due diligence satisfactory, and we have agreed on the terms with the partners. And basically, now we are working on respective agreements. And the next step will be to basically go to Lotus Board when we are ready with the agreements to hopefully get the approval and sign and announce the deals.

So these are near-term opportunities, which are basically impact 2024 and beyond. We have 2 additional opportunities, projects, again, in Southeast Asia, which are in the phase of due diligence. It's quite interesting opportunity. So these are basically 2 portfolio acquisitions.

I just missed to mention the ones that are advanced -- in the advanced stage, one is brand acquisition, the other one is actually a company acquisition. In addition to the M&A brand portfolio acquisitions, we are also working on a strategic partnership with local manufacturing sites in some of the countries that we are targeting, obviously, Thailand, Vietnam and Indonesia because we think there is an advantage having access to the local manufacturing site. So this is a work in progress, which we will be giving you update when we have milestones.

So now I would like to just mark the near-term business highlights that you have to basically follow until we expect, of course, to hear from us to the end of 2024. On NRX, so far, we haven't received from NRX fully analyzed data. And what we have received is raw data from the Phase II study and [ we engage ] pro forma, which is independent statistical consultancy U.S. based to conduct an analysis on topline data in order to verify the data and can put on the study findings.

So our expectation is that the conclusion of the study results will be by the end of June latest. It might come earlier in June. So of course, as soon as we have this, we will inform you. And based on the conclusion of the study results, we will basically take a decision on the next steps.

Southeast, already explained. So we have 2 advanced projects. So we are quite excited and we think this -- we can finalize them basically by the end of second quarter this year.

With regards to our product opportunities from the existing portfolio, so we expect good development with pomalidomide, which is on the recently launched products. I already mentioned about enzalutamide U.K. launch. This is the product with sales of more than EUR 350 million in the U.K. Although maturities related with the enzalutamide tablets, the [indiscernible] customers, which is again one of the top -- one of the largest pharmaceutical companies in the world is that there's a very good opportunity, although we are with different formulations.

We are also targeting to launch nintedanib by the end of this year. This is also a softgel product. So we are preparing this launch as we speak. And the nintedanib will be our largest product by revenue on the internal pipeline in the next 5 years. So this is a global program similar to lenalidomide. So we are targeting U.S. You know we have already tent pole there, Canada, Asia, Latin America, EU, Japan and the Middle East.

With regards to the well-established products and key brands, I mean, like lenalidomide U.S. -- like I mentioned, we are -- we remain confident that we will have a very strong year and significant growth compared to 2023. And also, we have seen first quarter and there's also very good forecast for Brazil, which is the largest market in Latin America, and our partner is one of the top players there. Also, we have seen a good uptake in Japan with Fuji.

Qsymia is performing exceptionally well. In the first quarter, we have seen a 15% growth year-on-year on the in-market sales, which is demand despite of Novo Nordisk semaglutide product. So our product remains on a double-digit growth pathway, which is great to see. Alimta, also we expect that we have a very strong year in Taiwan with the product. The good news here is that the price cuts in Taiwan for Alimta is actually below what we expected. So we will have favorable impact on the gross margin.

Cialis in Taiwan, I mentioned already in the first quarter, we have seen 10% year-on-year growth, and we are also ready to switch now the supply chain from Eli Lilly to Lotus manufactured product with generic KPI from Q3 onwards, and this will translate into significant improvement of the gross margin.

I mean obviously, we will continue with focusing on what we currently have with some projects, both in the R&D as well as the business development. And the ultimate objective is to fuel the growth of the company in the outer years, and I mean, hopefully, through some new BD opportunities even 2024.

So with that, I would like to hand over the presentation to the Bjartur.

[Bjartur Shen, executive]

Thank you very much, Petar. So I will start my part with reviewing our key financial metrics for the first quarter of 2024, followed by an analysis of the factors driving these numbers.

So in Q1 of 2024, our consolidated revenue was TWD 4.2 billion, marking a decline of approximately 7% compared to the same period last year. The majority of this variance stemmed from our U.S. operations, primarily influenced by the timing factor. We will delve into -- deeper into that dynamics shortly.

So our gross margin for this quarter stood at 55%, consistent with the average margin of 2023, but slightly lower than that of Q1 of 2023. So this decrease was primarily contributable to reduced revenue from our high-margin product in lenalidomide U.S.

Operating expenses remained consistent with the prior year, with SG&A costs experiencing an increase mainly due to the elevated equity-based compensation expenses linked with the higher Lotus shares in recent years. And conversely, the R&D costs were lower this year due to the absence of one-off European regulatory fees accrued in 2023.

So in terms of nonoperating factors, our financing costs remained stable while the other gains saw a significant decrease driven by a stronger U.S. dollar currency benefiting from our U.S. denominated assets.

So the company's effective tax rate remained steady at 21%. Consequently, our net profit for the quarter was approximately TWD 1.04 billion with a net margin of approximately 25% mirroring last year's performance, average gross margin -- sorry, net margin, despite a decrease in earnings per share by 13% compared to last year. We attribute this decline mainly due to the timing factors.

So let's talk about a little bit more detail on the next slide here. So in Q1 of 2024, the consolidated net revenue amounted to TWD 4.2 billion, which represented, as Petar mentioned, 7% decline compared to the same period last year. And most of that variance this quarter came from the U.S. business, and a lot of that was timing as expected. So you can see the export sales outside of Asia was about 18% lower comparing to the same quarter last year, and the U.S. revenue was approximately $600 million lower compared to the same period. But the rest of the global markets revenue increased about 190 million. And the U.S. revenue was lower in Q1 this year mainly due to lenalidomide and Suboxone revenue decrease.

The lenalidomide revenue was lower is mainly due to the absence of the replenishment after the launch of 2.5 and 20 milligram last year. And we said also at several occasions previously that an annual allocated volume in the U.S. market for this product is fixed and also is increased year-on-year. And at present, we still see shipments are projected to peak in Q3 -- Q2 and Q3 this year, with replenishment in Q4 contingent upon the shipment status in the preceding quarters.

And so we still have the same view. Nonetheless shipment volumes will also be adjusted based on the market demands and the manufacturing status of our plants. We'll provide regular updates on the conditions, right?

So the other reason why the U.S. revenue was low this quarter was due to the generic Suboxone competition. In Q1, we had approximately NTD 230 million less revenue from generic Suboxone when compared with the same period last year. During the quarter, we had lost prescription shares to Ingenus, the fourth generic player coming to the market. Ingenus seems -- have taken shares not only from us but also from Dr. Reddy's as well, now to sit currently neck to neck with Viatris in terms of prescription.

So as Dr. Petar mentioned, the one market seems to have stabilized into 2 groups: the brand Alvogen, Lotus and Dr. Reddy's still have the largest pieces of the pie, occupying approximately 80% of the prescriptions and then Viatris and Ingenus shares approximately the remaining 20%.

And the good news is also that the market seems to have stabilized so far. And interestingly, the data also showed that the brand was starting to lose some prescription shares after more than 3 years steadily holding their shares over 30%. Now we also hope that could be a source of additional business that we can look to acquire in the later months of this year and the coming years.

And then of course there is the overall growing opiate substance abuse market itself, which is growing. As probably you have heard previously, we will continue to monitor this market, the dynamics of the market and this product. It seems to continue to be a substantial business for Lotus.

Now outside of the U.S. market, the revenue from other global markets grew approximately TWD 190 million. And those were mainly driven by replenishment of lenalidomide delivered to Europe and Brazil and enzalutamide replenishment in Latin America.

Now moving to the Asian side of the business. The Korean revenue grew by approximately 10%. Our weight management brand, Qsymia, contraceptive brand, Mercilon, and osteoporosis brand, Evista, as well as the generic business, all saw a very healthy year-on-year growth this quarter.

Taiwan domestic business grew by about 5% overall, but some of the brands grew exceptionally well. For example, the ED brand, Cialis, grew remarkably 10% year-on-year for the first quarter. And then the first NCE, new chemical entity, in Taiwan, our current business, Zepzelca, for lung cancer grew 445% this quarter compared to last year. So quite remarkable growth.

So the SEA, the Southeast Asia, cluster revenue came lower than the previous year, largely due to the timing in the Vietnam market. So last year, Lotus launched the 20 and 80 milligram of vinorelbine softgel in Vietnam in Q1 and shipped launch stock of the product in February last year. And this year, the replenishment of the product is now planned in May. So other than Vietnam, other SEA markets all grew double digit year-on-year.

Now moving on to the next slide, you can see the overall of -- the therapeutic balance of the portfolio remains unchanged largely with approximately 45% of the total revenue came from oncology and 19% from CNS, about 25% from primary care and lifestyle and the remaining from women healthcare and nephrology.

So this quarter, about 56% of the consolidated revenue came from Asia and about 44% from export markets outside of Asia. So the U.S. market remains as the largest export market, accounting for 35% of the total revenue. And other more global markets, about 10%. And Korea was still the largest Asian market, representing about 38% of the revenue of the company and followed by our Taiwanese domestic market accounting for approximately 15%.

Now moving to the next slide. Finally, let's take a look at cash and capital structure of the company. As of the end of the last quarter, Lotus had the cash and equivalents totaling approximately TWD 3.1 billion, which is about TWD 1.35 billion higher comparing with the beginning of the year. Interest-bearing debt of the company amounted to approximately TWD 11.3 billion, which was essentially the same as the beginning of the year. Therefore, the net interest-bearing debt of the company totaled to approximately TWD 8.2 billion. This was about TWD 800 million lower than that of TWD 9 billion at the same period last year.

Now the last 12 months EBITDA ending this quarter, Q1 204, was TWD 6.075 billion, which was a bit lower than that of TWD 6.35 billion last year. However, due to the lower net interest-bearing debt on the net gearing of the company actually reduced from 1.41x last year to approximately 1.35x this year. So we are currently quite comfortable with this low level of leverage, which gives us a great amount of flexibility to finance business expansions when any suitable target presents itself.

So that ends our presentation. So thank you.

[Operator]

Thank you, Petar and Bjartur. So let's now kick off to the Q&A sessions. [Operator Instructions] Thank you.

[Unknown Analyst]

Hello. Can you hear me?

[Bjartur Shen, executive]

Yes, we can.

[Unknown Analyst]

Okay. So this is [ KJ from QIC ]. So first question is regarding the Southeast Asia M&A strategy, okay? I have a few questions here. So, in the presentation, you stated that the MNCs, they are downsizing their activities or capacity or whatever that is in Southeast Asia. So the first question is, is there a specific reason for that?

The second one is you also stated that high-quality products is the major unmet need in the Southeast Asia region. Is it because of the lack of capability to consume those products?

And the third one is you also stated that you are acquiring the sales platform and also the products. So is there any interesting products locally that you see worth acquiring?

So basically -- and the last is, is our proposed target or the target of our preference is a national local platform or a cross-border across Southeast Asia platform?

[Petar Vazharov, executive]

Yes. Okay. I'll take this question. So, on the first question, I mean, why [ MNCs ] are basically considering the strategy, I mean they're obviously reprioritizing portfolio, reprioritizing markets. And I just can refer to Sanofi example. So they divested recently, not this year, but in their business in Indonesia, which was acquired by Kalbe. That was a huge transaction, big deal. And I think there will be more coming in.

So I mean, I cannot comment on their behalf, but what we see in the public domain is that they want to optimize resources, right, and which comes with the optimization on the R&D, on the commercial. And one of the options is obviously outsourcing to distributors by exuding the adoption is divestments.

So the second question was on the -- basically the quality. I think this is an evolution, right? So this has been seen in other countries also, in the countries which were -- I mean when you have these Southeast Asian countries, Vietnam, Thailand, Philippines, the industry -- the local industry has been basically gaining experience throughout years. I think out of these 3 markets, in my opinion, Vietnam is probably the more advanced towards improving the quality standards. And I think authorities in the countries as well as, obviously, I mean, the nation, they are raising the awareness about necessity of quality products, and this is driving regulations, incentives and all kind of efforts to improve the quality of the products.

And I think this is a long way to go. And there's definitely opportunity for high-quality products for sure. But I think in many of these countries, there are many companies which are still far behind the curve, which again opens opportunity. And some of these countries, if I look at specific therapeutic areas, for example, there are no oral oncology facilities in countries like Thailand, like Philippines. So this is -- basically, we see this as an opportunity, similar to manufacturing quality is the development capabilities, right?

So formulation and analytical development, especially for specific products, are challenging as even generics is lacking there. So this is -- this takes time to build this capability, these resources, right? I mean, to be frankly -- I mean, honest, less Taiwan has been also struggling with resources on R&D, particularly analytical formulation development. This is the reason a majority of our key leadership team in R&Ds are experts from India, because India is obviously one of the best countries when it comes to resources.

Third is what we prefer as a target, right, is, I mean, obviously, the product -- what we like is when it comes to brand acquisitions are obviously products which are well established, right? This is the definition [indiscernible] brand acquisition. So this has to be well established. Whether it is local -- owned by a local company or by multinational company is irrelevant as long as it has a good scale and, of course, a promising outlook and product life cycle.

So we -- our experience is very, very hard to find opportunities from local companies. They are typically -- I mean, we have looked into some products. They are divesting mainly low-value products with some challenging -- challenges on supply chain and quality. So we look into opportunities that we pass on this. So our preference is to deal with big multinational companies because I think also there's much easier going in terms of negotiations, due diligence and then transition period, so -- and integration.

[Unknown Analyst]

So can I ask another question regarding NRX101?

[Petar Vazharov, executive]

Yes.

[Unknown Analyst]

Yes. So on your -- I think it's not a pipeline chart, but there is a chart with all the lines and the NRX101 is included. So I would like to confirm one thing. So once we decide not to go for NRX101, which means we will exempt from paying for the Phase III and also the milestone and et cetera, right?

[Petar Vazharov, executive]

Yes, if we decide so. Yes, that's right. We are not under obligation to continue. And if we decide not to continue, we are -- of course, we don't have obligation to be pay milestones, et cetera, et cetera. Yes.

So the -- basically, the ramp-up is if in the best possible scenario, if the study outcome is successful, then we will verify the success meeting with FDA. And basically, what we would expect as an outcome from this meeting is guidance from FDA on the Phase III as a scope. And based on the scope, we can determine the clinical costs for the Phase III as well as the time line, right?

And if these are in line with the business case, then we proceed. This is basically the plan. And because if the FDA comes and say, I mean, you have to do something, which is cost you -- it will cost extra money, like double the cost or it will take another 2, 3 years, I mean, this becomes no longer feasible because it's not only about the cost, it's also about -- you have to hit the launch within the patent period, right, because they sell patent for the product.

So I mean, obviously, if you don't have enough commercial years within the patent period, you cannot return the investment. So this is the whole concept. And I'm not so sure you -- that I was clear enough.

[Operator]

So we have an incoming question from the chat box from Kevin, KTB. Kevin is asking how much of the revenue in April 2024 came from lenalidomide? And how to evaluate the contribution of lenalidomide for the whole year?

[Bjartur Shen, executive]

All right. Thank you. I guess I will take this -- I would take this question. I think there's a party going on outside. If you can hear me, okay? So maybe the investors who are familiar with the earning calls in the past quarters since we launched the product is familiar with how I'm going to answer the question.

We have been particularly cautious when we answer exactly how much revenue is related to lenalidomide for 2 reasons. The number one is volume because we are under obligation of the settlement agreement not to disclose what is the volume allocated to us each year, past or future. That's number one. So otherwise, we will constitute a breach of the agreement that we signed with BMS. That's number one.

Number two is price. And as you probably know, there are other generic companies, including companies like Teva, Reddy's and many others who are competing against us in the U.S. and there are different channels the product is sold. Our channel is different from many others. And so if you pay attention to their earnings calls, and I don't believe any of them would actually mention very specifically what proportion of their revenue come from the lenalidomide and what is the volume or anything that can is -- need be the investors who or competitors insinuate the price, right? So this is dangerous for us.

But what I can tell you on a full year basis, the U.S. business according to the plan, it contributes approximately 40% of our revenue. And this is more or less consistent every quarter. And so this -- the U.S. business currently really contains 2 large products, lenalidomide and buprenorphine/naloxone, right? So by logic, lenalidomide on a full year basis must be less than 20% of our revenue, right? So I think that's as much as I can go regrettably in detail, right?

[Unknown Analyst]

I would like to follow up with the previous question. I think there was a chart portraying the first quarter of 2023 and the first quarter of 2024 revenue and the -- with different countries and the contribution of different countries. So I believe that CFO just stated that the U.S. -- the decline of revenue in the first quarter of 2024 in the U.S., that has been stabilized. And also, CFO stated that the full year target will be reached.

[Bjartur Shen, executive]

Yes.

[Unknown Analyst]

Am I understanding it correctly? Yes, right?

[Bjartur Shen, executive]

That's right.

[Unknown Analyst]

So, which means very likely in the following quarters, we will not see the U.S. -- the bar of the U.S. turn negative. It's rather be more positive or more stabilized. Is that correct?

[Bjartur Shen, executive]

That's -- your understanding is correct. Yes. And so the U.S., the negative bar largely is due to the timing of lenalidomide, like I said, right? So basically, what we are expecting from Q2 and Q3 onwards, since U.S. lenalidomide on a full year basis is a net increase. So from Q2 and Q3 onwards, it should be a year-on-year increase. That is correct understanding.

[Unknown Analyst]

So I have one more question because I believe this -- the CFO stated that because of the low leverage rate right now. So in the future, we want to expand that we have abundant room for us to do more leverage. So I would like to -- because it's a more strategic question. So for our expansion, we would like to use bank loans, more than equity.

[Bjartur Shen, executive]

That's a very good question, actually. So let me answer you in 2 stages. So number one is with our cash on hand and committed facilities -- credit facilities, right, we have the capacity to finance up to USD 300 million approximately in terms of acquisition, right? So that's pretty sizable in terms of acquisition deal size. And typically, the companies and business -- companies or business or portfolios that we acquire, those are companies with existing profit and existing EBITDA, right? So these are, so to speak, EBITDA adding to the company and the EPS adding to the platform, right?

So what we believe, when we actually -- let's say if we really spend that $300 million to make one or multiple acquisitions, with those profit acquired, this potentially would have a significant impact on the share price upwards, hopefully, right? So this gives us 2 possibilities.

One is with additional profitability. This gives us possibility to increase leverage, like you mentioned earlier, or this decreases the potential dilution to the existing shareholders, which increases their willingness to consider equity if that's needed, right, so basically, because of higher share price. So this actually opens up 2 different possibilities. I don't know exactly at that point of time, which route we will choose, but those remains possible. I don't know whether that answers your question.

[Operator]

So we have one more question from Kevin from KTB asking from the chat box. Can you give us more color on the lenalidomide business out of U.S.? For example, the shipment ratio between the U.S. versus out of U.S.

[Bjartur Shen, executive]

Lenalidomide business [indiscernible].

[Petar Vazharov, executive]

Yes. Yes, the key market now outside U.S. for, like I mentioned, is Brazil. So we launched the product last year as a generic through Eurofarma. Eurofarma is one of the leading companies there, and it is going very well. So they're gaining market share. I mean we see also a good opportunity in Asia overall with launches in Southeast Asia, also Japan.

Europe, although last year was a bit challenging because of the competition, it's coming back. Actually, we have more demand. Price went down, but significant volume. We are also targeting to participate in a very big tender in Mexico next year. So we are -- basically, we are under registration there through a partner. And yes, so we are also expecting some launches in, hopefully, in Middle East.

So of course, compared to U.S., the opportunity is more, but it's still quite decent for us as a volume and also revenue and gross profit.

[Operator]

So due to the time constraint, I think we should wrap up the call here. So thank you, Petar and Bjartur and Lotus Pharma team for having this call today to share the business update, and thanks for everyone joining this call.

If you have any questions, feel free to reach out to Lotus team or your sales representative at Cathay Securities. And thank you, everyone, and have a good day. Thank you.

[Petar Vazharov, executive]

Thank you. Thank you. Bye-bye.

[Operator]

Thank you. Bye-bye.