Lotus Pharmaceutical Co Ltd

TWSE:1795

Earnings Call Analysis

Strong Q3 Performance with Robust Asian Growth

In the third quarter, we saw robust Asian market growth, particularly in Vietnam, Taiwan, and Korea, boosting our revenue to TWD 4.5 billion. This quarter represented our second highest in company history, with year-on-year growth of 18%, a gross profit margin of 59%, and an extraordinary increase in EPS to TWD 14.9. Our export business, while down from the previous year due to high launch stock in Q3 2022, still showed a strong year-to-date increase of 14%. Key product approvals, like Nintedanib in Canada and lenalidomide in Japan, along with strategic licensing deals for ADLARITY and VAZKEPA, poised us for future growth. Our diverse portfolio spans across brand acquisitions, new chemical entities, and biosimilars, with over 20 projects in development and a market reach exceeding $10 billion, signaling a steadfast commitment to delivering profitable growth.

Robust Performance and Revenue Growth

The company showcased a robust financial performance aligning with expectations, with a 3% increase in single-quarter revenue totaling TWD 4.57 billion. Year-to-date revenue demonstrated a substantial 18% growth, signifying a strong upward momentum from the previous year.

Navigating Market Dynamics

Despite a 15% drop in quarterly revenue from the previous year due to strategic lenalidomide sales in the U.S. market, the company showed resilience with a 24% growth in the U.S. for the first nine months. Notably, key products like lenalidomide and buprenorphine drove this growth despite increased competition.

Strategic Litigation Settlement

The company reached a strategic settlement of USD 15 million, a decision that was based on the time, cost, and risk considerations of ongoing litigation, indicating a tactical move to minimize future uncertainties.

Diverse Geographic Revenue Streams

While U.S. revenues grew, export markets outside the U.S., notably the EU, saw a decline due to competitive pricing and lack of new launches when compared to previous years. However, robust growth in Latin America and the submission of new dossiers to Mexico suggest room for expansion. Revenue from Asian markets saw a significant 24% growth, particularly in Taiwan with over 70% year-on-year growth, which reflects the effectiveness of the company's business model.

Financial Stewardship

The company maintained stable gross margins around 58% and a solid operating margin at 32.4%. Impressively, the average interest rate increased only marginally despite significant rate hikes by the U.S. Federal Reserve, which indicates strong financial management, liquidity, and the potential for future business expansion.

Consistent Profitability and Outlook

Lotus has continued to demonstrate a consistent net margin of 27%, with earnings per share of 4.76 for the quarter. It has also shown an impressive increase in net profit margins annually, from 2% in 2018 to over 27% in the present. This pattern of profitability and growth suggests a positive trajectory for the company's financial health.

Earnings Call Transcript 2023-Q3

[Petar Vazharov, executive]

[Audio Gap]

Have reached TWD 4.5 billion, which represents the second highest quarter in our history. So it has been in the outstanding performance. The key driver for the performance has been Asian business in quarter 3. Our Asian business achieved 24% year-on-year growth contributed mainly by our three key markets: Korea, Taiwan and Vietnam. Vietnam, in particular, reached more than double the revenue compared to previous year. The key driver here was the launch of -- the performance of Buprenorphine, which is internally developed and manufactured product.

Taiwan has been also delivering very strong growth in third quarter, 45% compared to 2022. Key contributors for the growth in Taiwan have been the brand acquisition products, which were completed in the last 5 years. I refer here to across the Alimita as well as Evista. In addition to that, we have seen also very strong performance in growth for our generic business in Taiwan.

Korea has also significantly outperformed previous year, achieving 11% growth driven by a very strong performance across different product therapeutic areas and especially our lead product, Qsymia.

Overall, in the third quarter, we have launched 17 SKUs in across Pacific markets. When it comes to export business, which, as you know, the key drivers here are Buprenorphine, Naloxone and The third quarter compared to third quarter of 2022 was lower, which is easily explained by the fact that we launched in Q3 2022 11 to 19. So Q2 2022, Q3 has been basically the stock build for the launch in the U.S. So it's really not representative to compare Q3 '23 versus Q3 '22. So what is more relevant in this case is to look at the year-to-date. So basically, year-to-date, export business has achieved growth of 14%, which is a very strong result, of course, driven by weather in the U.S. So we have seen volume uptake compared to 2022.

And also, we have seen much better performance than we expected with Buprenorphine and Naloxone. Overall, in export markets, we launched 17 SKUs. Continuing with the numbers on the year-to-date basis, accumulated revenue reached TWD 13.5 billion, which represents 18% growth year-on-year. Our gross profit margin reached 59%, which represents 3% year-on-year growth. And accumulated EPS achieved TWD 14.9, which beats the historical records of the company.

So going through the data portfolio and pipeline. The key highlights in terms of regulatory lenalidomide was approved in Japan. So this is a significant achievement for Lotus. This is our approval in Japan since -- I believe since 2011 as a company. And of course, they will a significant market opportunity. The good news here is that we are actually amount 2 generics approvals in Japan and with opportunity to launch on day one.

Another important milestone is the approval of Nintedanib in Canada. So this is a very important product for us. So we are quite confident based on the market size, the market growth of the brand as well as our progress with licensing out Nintedanib globally. That Nintedanib will become one of our leading products in the next 3 to 5 years. And obviously, the grow in Canada is important milestone. In addition to that, we received approval for Sitagliptin/Dapagliflozin, which is a fixed dose combination developed internally and the product has been also launched Korea market. So overall, we received 19 market authorizations in Q3, including, of course, export and Asia.

On the business development side, the highlights are that we finalized 2 large deals for in-licensing of 545 (b)(2) products from U.S. companies. I refer here to, first of all, deal for ADLARITY which covers Korea, Taiwan as well as Southeast Asia. So this is the only weekly Donepezil patch approved in the U.S. And we have secured exclusive price for already mentioned market. So overall market size of Donepezil in these countries is succeeding [ $180 ] million. So this is a lucrative opportunity because Donepezil is indicated, as you may know, for treatment of Alzheimer's disease, which is a disease with significant burden and significant also growth potential.

The second big product to 545 (b) (2) product, which we licensed in Q3 is VAZKEPA. Similar to ADLARITY, we have secure Asian rights, Korea as well as Southeast Asia. We are currently also negotiating to Taiwan to the scope of the territory. So this is the only pure EPA or regulatory prescription product approved by U.S. FDA as well as European authorities and the product is currently under registration in our targeted markets in Asia. The indication is hyperlipidemia. So this is obviously a market with significant opportunity more than 10 billion is worth the market of hyperlipidemia products in Asia. So we are very excited on the fact that we will bring this product to the patients here in Asia.

On the licensing out part, we have finalized pomalidomide. Actually, it was long also in South Africa. We have finalized 7 licensing out deals and also we are quite happy to see that there's a very strong demand for lenalidomide in our biggest market in Latin America, Brazil.

In terms of regulatory R&D and regulatory, we have submitted pomalidomide dossiers in major markets across the globe, excluding U.S. We have also pomalidomide in Mexico, and we initiated to new R&D projects.

Next slide. On this slide, give you an update on in-house developed products roll out globally. So in quarter 3, we have 9 approvals overall for the internally developed products, which are already finalized. The key highlights I already mentioned, I would like to again highlight the importance of Nintedanib. So the market is exceeding $3.5 billion. We have a secure partnership with leading global multinational companies, which are covering U.S., Europe, Latin America. Of course, we will launch the product in Asia. So again, this product will become our flagship internally developed product in the next 3 to 5 years. So overall, the products that we are rolling out currently, which are, again, finalized as developments are addressing more than $10 billion market size.

On the business development side, again, we have finalized 3 three I already mentioned the two 545(b)(2) products. So in summary, we have currently 6 brand acquisitions, which are 5 of them commercial. One is under registration. This is a circa which is in license from Eli Lily. New chemical entities, we have two products which are already secured with rights, I refer here to Zepzelca and Alyssa. On the 505(b)(2) currently, we have finalized use for more than 20 products, 10 under registration already commercial. And for the biosimilars, currently, we have two products already commercial bevacizumab and teriparatide and three under registration, which are basically darbepoetin, adalimumab as well as the generic of So there's a significant activity undergoing in terms of negotiations.

On the brand side, new chemicals despite for (b) (2) as well as biosims, you can see we have more than 20 projects ongoing. And this demonstrates our commitment to continue to build hybrid portfolio pipeline, which will deliver profitable growth to go forward.

On the R&D pipeline execution update for Q3. So we -- as I said already, we have added two new products to the internal pipeline and without pomalidomide and tofacitinib in major markets. So this is -- these are the highlights. So overall, for the U.S. market, we have five products under development. One is in development, two are in clinical phase and two products are effectively approved and still approved to an Internet For Japan, we have lenalidomide already approved, and we have one product and the clinical development. Rest of the market's overall pipeline of 26 products. Overall addressable market size over $27 billion.

So to give you a short update on the export business in Q3. Again, the highlight is obviously the lenalidomide approval in Japan, which is opening similar market size opportunity overall EU. so we have -- I'm really happy that we managed to successfully bring this product to an end in terms of regulatory phase with our partner And again, we are on time to launch the product. So again, we have the second generic approved in Japan. And currently, there is no generic launch in Japan. So we expect that in addition to the two generics, including Lotus also the brand will launch upon generic launch based on authorized generic.

Year-to-date since we initiated licensing out activity, which is the backbone of our export business. So we have signed 2060 news, which are covering 160 markets and covering 30-plus products, both products which are already finalized as developments as well as pipeline of course. And we are very happy to work with key companies as our customers, such as: Stada, Zentiva, Arco, Sandoz, globally also Canada, Eurofarm, Latin America as well as in the U.S.

I'll hand over now to Bjartur to go through financials.

[Unknown Executive]

Thank you very much, Petar. So first of all, I will go through the sales. So the financial performance of our company and the third quarter of this year remain very robust and in line with the expectations. The single quarter revenue reached TWD 4.57 billion, reflecting a 3% increase from the previous quarter, and that is also aligned with the analyst consensus of approximately TWD 4.6 billion. So year-to-date, for the first 9 months of the year, our net revenue reached approximately TWD 13.5 billion, indicating a 18% growth comparing to the same period last year.

It's important to note that this quarter's revenue for Lotus appear 15% lower than the same quarter last year, which may raised some concerns for those who are unfamiliar with the own company's history. However, this decline has contributed to the circumstances surrounding the launch of lenalidomide in the U.S. in September 2022. So due to the settlement agreement limitations with the brand, Lotus and as U.S. partner had a limited time frame in 2022 to sell the allocated volume of the product, resulting in majority of the 2022 lenalidomide revenue in the U.S. being concentrated in the third quarter.

So as we adopted a quarterly replenishment strategy in 2023, '24 might in the U.S., our year-to-date comparison of the revenue in Q3 will be more meaningful, especially for the U.S. business. So therefore, firstly, in the U.S., our business experienced a quite remarkable 24% growth in the first 9 months of the year, driven by strong performance of the key products such as lenalidomide and buprenorphine, especially in the case of buprenorphine and naloxone despite the emergence of a foster competitor, which was expected. In Genius Pharmaceutical, that's the fourth generic competitor, their impact on our market share and net selling price was much less significant than anticipated.

So as the last week of October for the prescription data, Ingenius had about 1% of the overall prescriptions. So also, we saw some potential opportunities related to Buprenorphine and naloxone, for example, from Indivior's Q3 earnings for material saying that both accelerated share erosion in Q4 2023, reflecting underlying share loss due to anticipated formulary decisions together with assumed impact from fourth to generic having entered the U.S. market.

We anticipate the formulary decisions could mean changes in the market access that so far has enabled to maintain and study 31% of the prescriptions in the U.S. market. So this could mean some opportunities in the future for Lotus.

So additionally, there are positive developments in the litigation against [indiscernible] against Lotus. An agreement was reached for USD 15 million settlement. We have been, obviously, in this series of lawsuits for a very long time, Lotus and against though we are very confident that we eventually prevail in all lawsuits. But considering the time, the cost and the risk of losing, we find -- we found accepting the offer that made at this point in time is in our best interest. So we choose to settle.

So now turning our attention to the export market outside the U.S. Overall revenue from these markets contracted by about 36% in the first 9 months. This was mainly due to in 2022, we had a launch of lenalidomide in the EU markets and we didn't have that in 2023. And also in 2023, the pricing in the EU markets became very competitive in the lenalidomide, though Latin America markets such as Brazil, remain very robust.

So as Peter mentioned, this quarter, we submitted dossier to Mexico, which is another large Latin American market to the to be expected. So vinorelbine, other than the grew 50% year-on-year and become currently second largest molecule in the export business followed by enzalutamide, which is our molecule used for the treatment of prostate cancer and sunitinib, a product used for the treatment of gastrointestinal tumor and both grew very significantly year-on-year.

Additionally, as many aware, lenalidomide was approved in Japan and will be launched on schedule in Q4. Pomalidomide, the second-line treatment to lenalidomide had approved in Canada, now in this quarter in South Africa, is being rolled out globally. Pomalidomide, the junior brother of lenalidomide, is also a USD 1 billion market. And this is the third largest in our generic portfolio following the lenalidomide and nintedanib.

Now moving to Asia. Our markets exhibited a very strong 24% growth for the first 9 months and maintained a similar growth rate in Q3. And notably, the Taiwanese domestic business experienced exceptionally strong growth. Today, Taiwan domestic revenue ranked the third place, trailing closely to CPC and TT in Taiwan, up from the seventh place 1 year ago. For the 9 months and in September, Taiwan business grew for more than 70% year-on-year. Our successful model of combining brand -- a big pharma brand, generics, innovative and complex products have proven to be very effective, and we are to deploy this strategy increasingly in other Asian markets such as Korea and Southeast Asia.

The Korean business also grew by 11% in Q3 and for 9 months, approximately 8% year-on-year growth and our other Asian businesses have also grown significantly between years. Notably, the Vietnamese revenue for the first 9 months have grown from TWD 95 million to TWD 217 million, 130% growth of backlog for various new launches in Vietnam, especially Our Thai business, Thailand business, also grew by 15%. And overall, the Asian businesses, including export to Mainland China showed a very robust growth of 48% this year versus the same period last year during the first 9 months.

So now moving to the financials. Actually, sorry, I have forgot one slide here. So the revenue contribution by different geographies remain very much in balance as of the Q3 of this year, approximately half of the revenue come from the export business. And this quarter is slightly more from Asian business, about 40 -- 54% and 46% coming from exports and the U.S. remains the largest export market and Korea remains the largest Asian market.

And across the five largest therapeutic areas that we focus on oncology and immunology occupies approximately 38% of our revenue and followed by central nervous system, which accounts for about 30% and then followed by primary care and lifestyle.

And now we can move to the financials. So go straight to the gross margin. Gross profit for the quarter was TWD 2.65 billion, with a gross margin of approximately 58%. And the gross margin was comparable with those of previous quarters and though more delivery of Buprenorphine and naloxone this quarter lowered the margin slightly. And operating expenses were higher this quarter versus the prior quarter, mainly due to the increased R&D expenses, and this is largely due to the impairment of a discontinued generic project of nintedanib. Despite of higher operating expenses our operating profit was TWD 1.8 billion with an operating margin of 32.4%. So for the first 9 months ending in September, the operating profit was TWD 4.76 billion with a margin of 35.2%.

Now moving to the nonoperating side of the financials. The net finance cost this quarter was 125.5 million, which is consistent with prior quarters. It is worthwhile to point out that during the last 12 months, the weighted average interest rate for Lotus only increased very marginally from 4.08% during the Q3 of 2022 to 4.15% now during Q3 of 2023, which is only a 7 basis point increase. And during the same period, the U.S. Federal Reserve in contrast increased its policy rate by 225 basis points. Lotus, therefore, have done exceptionally well, maintain a low cost of borrowing as well as a good amount of liquidity to pure further business expansion. Additionally, we have also successfully finalized refinancing in Taiwan and Korea this quarter to greatly enhance our capability for large acquisitions while reducing overall financial cost.

Now moving to the -- sorry, moving to the nonoperating gains. So this quarter, we recorded 199 million of nonoperating gain which was mainly driven by the appreciation of U.S. dollars in Q3. As the group owns a significant amount of assets denominated in U.S. dollars, such as cash, AR and loan investments, a more valuable U.S. dollars is honestly beneficial to the company. We believe that U.S. dollars will maintain its strength in Q4. However, there will be various hedging tools at our disposal to moderate as much as possible FX impact should the time start to turn the other way.

So in summary, Lotus continued its impressive financial performance during the third quarter, and the net margin remained at 27%, consistent with the prior quarters of the year and 4.76 or single quarter EPS was delivered during the quarter and 14.19 bps for the first 9 months, which is more than the business earned during the whole year of 2022. And so we are very proud to say that since 2018, this company had consistently added to close to TWD 2 billion of every year over 5 years to the top line, while the net profit margin has consistently increased every year as well from 2% in 2018 to over 20% last year in 2022 and now over 27%. So this is quite remarkable growth of profitability.

So moving now to the cash and capital structure. The cash inflow from the operating activities this quarter amount to -- amounted to TWD 1.5 billion, which was approximately TWD 630 million more than the prior quarter, net of interest and taxes paid and net inflow of cash on operating -- operations amounted to approximately TWD 1.36 billion this quarter. And cash on hand amounted to approximately TWD 2 billion at the end of the quarter, net debt stood at approximately TWD 9.9 billion, which is very similar to the end of previous quarter, which is TWD 9.39 billion.

So comparing to the Q3 of last year, the net debt was approximately TWD 2.9 billion higher, and the additional debt was mostly deployed to acquire the brands such as Alinta and Qsymia, which contributed largely to the company's business growth this year.

And as of end of Q3 2023, the last 12 months EBITDA, LTM EBITDA stood at approximately TWD 6.4 billion. which is 21% higher than that of Q3 2022. And therefore, the net gearing ratio of the group only changed marginally from 1.33 to 1.48 types. So additionally, the net debt-to-equity ratio has been steadily decreasing since Q1 of this year from 64% in Q1 to 57% now in Q3.

In summary, we can say that the company remains very conservative in leverage. And as discussed earlier, it has maintained a relatively low cost of borrowing, which in this day and age is a very strong advantage to expand the business when the opportunity arises.

Okay. Now, we're going to move back to Petar for the business outlook.

[Petar Vazharov, executive]

Thank you. Building hybrid pipeline portfolio has been one of our key pillar and actually reasons for company's success during the last 5 years. So while we have been building up different pillars, including 505(b)(2) brand acquisitions and in licensing complex as well as new chemical entities, biosimilars and 545 (2) (b). So from the bottom to the top here, you can see the building blocks that help us to achieve double-digit growth momentum in four consecutive years.

You can see here that in the left blue bars, Lotos R&D has been dedicated mainly to generics and 505(b)(2) pipeline development. While our business development has been focused on clearly on new chemical entities, biosimilars as well as brand acquisitions and partially 505(b)(2). So the key strategy for us is that business development as well as RMB, they complement each other in delivering our pipeline products and the end go again, is to build a hybrid portfolio, which is requisite for achieving profitable growth of the business.

In terms of therapeutic areas, we have, let's say, five key therapeutic areas. I'll start, of course, with oncology, including immunology. So this is our largest therapeutic area, which is accounting for more than 40% of the revenue on a year-to-date basis. Here, of course, the flagship product is lenalidomide, which is generic internally developed and manufactured by our facility in I would like to highlight here that we have internal capability to develop manufacture also softgel products. So we have already two products commercial vinorelbine and two products, which are in the pipeline, approved in some markets like nintedanib, so softgel is considered as a complex generics. So there are only a handful of companies which has this technology. And we have more products actually now in the pipeline more in an early stage. So for sure, this is an area which will be continuously subject of development and the infusion of new products.

In terms of new chemical entities, so far, we have Zepzelca. It's an innovative oncology product for lung cancer, which is one of our key subcategory in the oncology. So this product has been already approved and launched in Taiwan, but we are also looking after several other opportunities to mainly, again, in lung cancer as well as prostate cancer, which are the key two categories of oncology for us. We have, so far, three products in the category of biosimilars for oncology immunology. Bevacizumab, which is already a commercial product in Korea, Taiwan, denosumab, this is a biosimilar of product, this is -- as you know, this product comes with two indications: one is osteoporosis, one in oncology. So we have recently secured the Asian rights for this product and for both indications. So this is going to be one of our key biosimilar launches in the next 5 years in Asia.

In addition to that, we have also rights from Auto 4 adalimumab, which is about to be launched in Korea and markets in Southeast Asia. Obviously, the brand acquisitions are a significant focus area for us. So we have finalized successful as a deal with Ely Lily on Alimta. We have also strategic partnership with AstraZeneca in Korea, which is covering the prostate case franchise, Casodex, Arimidex and Zoladex and also we have rights for main -- for pain management. this is morphine proprietary product, which is mainly used for oncology patients.

At the beginning of the year, also, we in-licensed 505(b)(2) product in oncology and in hematology category of oncology, which will be launched in the next 3 to 5 years in some of the key markets in Asia.

The second biggest therapeutic area for us is CNS. And obviously, the key driver here for the performance in year-to-date is Buprenorphine and naloxone in the U.S. market. Also, we have seen a very strong performance with trazodone in China and Taiwan, also partnership with as well as So these are proprietary products. We have, as you know, secure rights for Grades and already launched the product in Korea. This is a product which we licensed from out the U.S. And I already mentioned that we in-licensed ADLARITY. It's a weekly patch, which will be launched in the next 3 to 5 years in all markets in Asia, which we are operating.

Obviously, the most interesting product in terms of potential is So this is a deal which we already announced. So this is a product which is something undergoing Phase II studies in U.S., and we are looking forward to talking about this study during second quarter of next year.

In terms of categories in CNS, our key focus areas are depression, bipolar disorder, also Alzheimer's disease as well as neuropathic pain and, of course, and the addition for Buprenorphine and naloxone. The third biggest therapeutic area, which contributes around 24% on a year-to-date basis, the revenue is -- it's a bit large as a scope of products, so it's -- we call it primary care and lifestyle. Primary care includes a few categories, which is cardiovascular, which is quite big, also diabetes, also quite large. And on the lifestyle, we are including here in our definition, mainly anti-best products, which is our key therapeutic area in Korea as well as products like Cialis, which is indicated for erectile dysfunction.

So here, we have quite large pipeline products, mainly in the 545 (b) (2) and also in the generics. So I would like to highlight Qsymia, VAZKEPA, the fixed dose combinations in Korea were sourced base, also Sarpogrelate, which have been one of the most successful launches for us in Korea. And of course, the plan generics in our base, which are our key product line in Korea.

So in terms of future launches, the biggest drivers will be at circa, which is again 545 -- sorry which is seen license product Eliy Lily; VEZKEPA, which is 505(b)(2) between license during Q3 as well as semaglutide injection. The four biggest therapeutic area for us is women health care. So here, we are improving in the definition, oral contraception, also products for menopause as well as osteoporosis. We have a significant number of existing products, which are contributing a big part of the revenue as well as profitability. I refer here to acquirents like Mercilon, Aclasta and Evista. Also, we have two biosimilar products, one already commercial, teriparatide and denosumab, which is recently secured. One new chemical entity on the market, which is innovative oral contraceptive Alyssa launch at the end of 2022. And of course, we have also a number of discussions both on the brands 544 (b) (2) as well as generic and licensing.

Nephrology is a very interesting therapeutic area. It's not as big as oncology, CNS or primary care, but it's a very interesting because of the fact that it's a relatively niche also with quite less competition. So here, we have our flagship product, which is branded product Kalimate in Korea based on partnership with We have Erythopetine of already commercial in Korea and we have secured rights also for Southeast Asia for darbepoetin, alpha biosimilar. This is a low acting erythopetine, so we believe that it will be the only basin, which we can launch in the next 2, 3 years in Southeast Asia. And earlier this year, we have also in licensed Renazorb. It's an interesting pipe of 545 (b) (2) product from a U.S. only. We are expecting to launch a product in Korea by 2025.

Next slide. In the last 3 years, Lotus top line showed double-digit growth year-on-year, and this was mainly coming from geographical expansion and also rolling out our oncology and CNS pipeline, of course drivers being lenalidomide and Buprenorphine U.S. Meanwhile, we have also strategically diversified our portfolio from a pure-play generic-focused company to a hybrid platform, including branded products, new chemical entities, biosimilars as well as 505 (b) (2).

From the growth of the portfolio, we have seen a steady growth in -- especially in the complex product line. You can see in the first 3 quarters of the year, 20% growth year-on-year in Asia mainly has been delivered by innovative products, which is including works like an Alimta, Qsymia, as well as some of the 545 (b) (2) products and products. So this, again, underlines the importance of focus of the company to secure more complex products because, again, we believe that our success so far and our success in the future will be determined by ability of the company to secure and successfully complex products in Asia as well as in the export market. So this remains a popularity both for the business development, which is the key contributor here, but also for our R&D.

So on 2024 business output, we would like to take the opportunity to inform investors about the key focus areas, what to expect in '24. We are quite optimistic that we will have very strong growth in the export markets because of the fact that lenalidomide is quite successful so far, and we are quite confident that we can achieve based on our setup in the U.S. year-on-year growth, which will result in substantial growth of the revenue in export markets.

Buprenorphine, regardless of the competition, we believe that we'll continue to be a major product for our business. It's a product which is extremely complex as development, also some manufacturing. And as you can see, some of the companies which managed to receive approval and to break through the litigation couldn't launch or couldn't supply the market with adequate because of the complexity associated with the supply chain.

So in addition to that, we have also diversified our supply chain by adding new manufacturing sites and new API suppliers, which will also improve our profitability. So again, we are quite optimistic that Buprenorphine also will play significant part of our business in '24. In addition to these two products, obviously, we'll continue to roll out our internal pipeline products globally. And the key focus will be on Nintedanib, as well as Tofacitinib. I mean we also believe that there will be significant growth momentum coming from lenalidomide in -- particularly in new markets, launches like Japan, like potentially Mexico as well as other markets in Latin America, same applies for

In Asia, we are also quite optimistic that we'll be able to continue with organic growth in our key markets like Korea and Taiwan based on the existing products as well as some of the launches in 2023 second half as well as 2024. We are really in a very well positioned both in Korea and Taiwan to achieve this.

Southeast Asia, obviously, is a cluster of markets which is under transformation. So we have been putting a lot of efforts in securing products, rolling out registering products and also scouting for opportunities. So we are optimistic that in addition to organic growth -- significant organic growth, we will also be successful in some of the external growth opportunities in Southeast Asia markets like Thailand, Philippines or Vietnam, which will give us significant growth there and we'll be able to secure adequate critical mass.

And last but not least, we are, of course, looking forward to see the Phase II results of in the U.S. So the progress with the study with rolling the patients is quite good. And so we will have the results and -- or by meeting with U.S. FDA in second quarter of 2024. So again, this could be a game changer. And I would like to highlight that for time being, until we see the results of Phase II meeting with the U.S. FDA for Lotus, this is a risk-free deal, right, which is very important.

So I would like to note again with the fact that we have exceptionally strong Q3 2023. And if you look at the year-to-date result, our net profit not only surpasses our full year net profit from 2022, but also sets a new historical high. And I would like to use the opportunity to thank our employees for the great achievements and commitments during -- not only in Q3 but also year-to-date. So looking forward to a successful end of the year and, of course, major success in 2024.

[Unknown Executive]

Thank you. Thank you, CEO, Mr. Petar; and also Vice President, Mr. Chan for the very comprehensive presentation on results and outlook. And now we are moving to a Q&A session. We will have our operator plan to introduce how to raise questions on our platform. And we'll have Susan the IR to host the Q&A session. Thank you. Thank you, Brian.

[Operator]

[Operator Instructions] And now over to you, Susan.

[Susan Liao, executive]

Okay. So also any investors have the question, please break your hand and also for text in the Q&A section, so that we can answer your question. Okay.

So the one investor would like to understand the management team regarding to the since -- in 2023, Lotus has seen a very strong growth from the lenalidomide. And so how about the momentum for the Japanese and also the U.S. progress in 2024? And how is business confidence on that for the management team?

[Petar Vazharov, executive]

So for the U.S., we are quite confident again that it will be actually a very solid performance with significant year-on-year growth based on volume growth, while maintaining the price. For Japan, obviously, this is a new market for us, and Japan as market size is far away from U.S. as an opportunity. So Japan is similar to EU. As a market size, the brand has sales of close to USD 400 million. So we are in a pretty good position here because we are, again, in the first wave. Of course, there will be competition both from generic as well as authorized generic from BMS. But I mean, we are quite excited, again, from the fact that this is our first launch in Japan since long time, and we will do our utmost to make it success.

[Susan Liao, executive]

Thank you, Petar. So there's another question coming from the investor regarding to everyone knows that Lotus has a solid position in the Korean market at Q3 for the rate management products However, in the market relatively we have been seeing that there is a competitor providing the new type of products, GLP-1, or there are some other players providing the new type of the medicines for the management. So how is the competition situation will rise afterwards? And how is the view about the management team?

[Petar Vazharov, executive]

I mean, our view is that, first of all, these are not new products as a mechanism of action, right, effectively the is GLP-1 inhibitors in order to exactly like Saxenda, which is already existing competitor, right, for Qsymia since a couple of years in Korea. So we think that -- I mean, Qsymia has a significant value position, and we'll be able to continue with the growth because of a number of reasons. First of all, I mean the product has already very well established brand awareness among physicians, among users. Also, pricing-wise, the product is much more economical compared to the new competitors. Based on our information, I mean, this is a very important factor here because obesity drugs in Korea as in many other markets are not reimbursed. So it's 100% out-of-pocket costs, and this is a chronic treatment. So the cost here is significant. So that's why I'm saying that our price advantage is quite significant.

The third thing is we don't expect we will reach the market in Korea until second half of 2024 because of the supply issues that Nordisk has been facing across different geographies. And our intel also is that they have been -- they are looking to acquire actually manufacturing sites in Asia to enable them to manufacture the product here. So this is something that they are currently working on.

With regards to Eli Lily product on Garo, so this product is unlikely to be approved or launch in Korea prior to 2025. So -- and the last factor, which is very important here is also the side effect profile. I mean GLP inhibitors, they have also quite significant side effects like associated with chronic use like nausea and vomiting. And typically, their users are -- which are not able to sustain these side effects, they prefer to go to Qsymia. Also, Qsymia is oral product versus injectable. So I think in general, Asian patients, they prefer to take oral products over the injectables. So overall, I mean, we believe that -- I mean, we have a great product, which is obvious, and we are quite confident that we will perform better than previous year, regardless of potential where we will launch in Korea due to the reasons which I already explained.

[Susan Liao, executive]

Thank you, Petar. So there's another question regarding to the financial guidance regarding to the fourth quarter. As investors know that Lotus has an investment in the U.S. partners, and there is some expecting to see the interest income to be booked. So how much will be the amount will be booked in the fourth quarter? And how investors can view on this investment?

[Petar Vazharov, executive]

Will take this.

[Unknown Executive]

Okay. Okay. SP-12 Okay. So -- we expect the investment income to be similar or higher than the prior year. So as a reference, in 2022, we recorded approximately TWD 286 million of investment gain last year. And so a simple rule of thumb is to calculate 20% per annum of the amount invested, which was approximately USD 55 million. Of course, the exact valuation exercise annually is a lot more complex when considering that this investment is not just a bond, but more like a convertible bond. So our preferred shares can be compared to approximately 13.14% of common shares in over U.S., for example. Let's say, in 2025, that can be publicly listed or floated in U.S., let's say, for $1 billion of valuation and our share would be worth about USD 131 million, just as a kind of a reference. So the convertible instrument valuation is more complex to value and has more factors to consider and a simple bond yield. But what I kind of said was true as a simple rule of thumb and 20% will be good enough for the time being.

[Susan Liao, executive]

Thank you, Petar. So due to the time constraints and there will be the final question just that if the management team has the numerical guidance regarding to the 2024?

[Unknown Executive]

Do you want me to take it? Yes. So basically, as in the past years, we normally give the details of our outlook of the new year during our earnings call in March, which we basically gave the performance of the past year full year results, and we also provide our outlook for the new year and explain to the investors why we look at the year in that fashion. So Petar did mention what are the main things to look out for in 2024 in the last part of the presentation. We will give, however, more detailed the numbers associated to those factors in March.

[Susan Liao, executive]

Okay. Thank you So we are closing this meeting, and we appreciate all the participants to join the meeting with us. And special thanks to UBS to ones remain for us and thank the speakers, Petar and also to present for the investors who know us well. So we would like to take this opportunity to thank everyone, and thank you for the meeting. Thanks.

[Petar Vazharov, executive]

Thank you. Thank you, Bye-bye. Bye-bye.

[Unknown Executive]

Bye.

[Operator]

Thank you all. Let's conclude Lotus Pharmaceutics First Quarter English Results Conference Call. Thank you.