Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Alembic Pharmaceuticals Limited to discuss the company's Q1 FY '22 financial results. We have with us today from the management, Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director, Mr. R.K. Baheti, Director Finance and CFO; Mr. Mitanshu Shah, Head Finance; Mr. Jesal Shah, Head Strategy; and Mr. Ajay Kumar Desai, Senior VP, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti, Director Finance and CFO, from Alembic Pharmaceuticals Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Thank you for joining the first quarter results conference call. I'm sure you would have got the results by now. However, let me briefly take you through the numbers for the quarter ended 30th June 2021. During the quarter, our total revenue was flat at INR 1,326 crores -- INR 1,326 crores; EBITDA was 19% of sales, stood at INR 254 crores. Pre-R&D EBITDA is 31% of sales. Profit before tax de-grew 46% to INR 199 crores, while after tax profit de-grew 45% to INR 165 crores. EPS for the quarter is INR 8.37 per share for the quarter. This is versus INR 15.99 in the corresponding quarter of the previous year. We are withdrawing our EPS guidance for the year '21/'22 on account of softness in U.S. business due to additional competition, which has led to price erosion, as well as delay in FDA inspections of our facilities. CapEx. CapEx for the quarter is INR 124 crores. Cumulative CapEx for ongoing projects under the CWIP, including the pre-operating is INR 1,892 crores. Financial assistance to Aleor JV for the quarter is INR 55 crores. Borrowings. The gross borrowing at consolidated level is INR 500 crores, essentially these are long-term debentures. And the company has INR 273 crores as cash on hand. So the net borrowing is INR 227 crores. Net debt to equity is negligible at -- net debt-equity is negligible at 0.04. I will now handover the discussion to Pranav for his presentation on the international business.

Thank you, Mr. Baheti. As you're all aware, U.S. business has, over the last 5 years, had an exceptional growth. We had a massive, very impressive CAGR [ take ]. A lot of this growth was on the back of the sartan opportunity. We're very lucky that it lasted much longer than we had anticipated as well as other market-based disruptions. The early part of last year also threw up additional opportunities due to COVID-related disruptions. Since it was a challenging quarter, this was a challenging quarter on account of intense competition in the market. A long-term view of the U.S. business still remains bullish. We do minor strategy tweaks in the meantime because of the additional competition that we're seeing in the U.S. market. The ex U.S. ROW business continues to do well and grew at 13% during the quarter. Just to refresh your memory, this is the business that had impressive growth last year because of the year before that when we had serialization. The API business also continues to do really well and grew at 6% during the quarter. This was pretty good considering that last year's Q1 was a lot of growth in azithromycin and some of these other APIs, whether with all the disruptions from China due to COVID. Our R&D expense was INR 167 crores in the quarter, which is approximately 13 percentage -- 13% of sales. We received 7 approvals, launched 2 products. We have cumulatively 146 ANDA approvals, this includes 18 tentative and we plan to launch around 5 products in the second quarter. The International Formulation business de-grew by 27% to INR 566 crores for the quarter. And the US Generics grew by 38% to INR 369 crores for the quarter. Ex-US generics grew 13% and API grew 6%. I will now hand over the business to Shaunak to discussing -- to Shaunak for India business.

Good afternoon, everyone. For the quarter, we saw nice ramp-up in our India business despite challenges in -- related to COVID. The overall business grew by about 57% between the 3 key segments, which Specialty grew by 29%, Acute grew by 122% and Veterinary continue to outperform, grew by 45% in Q1. There was some amount of COVID-related challenges in the market and for the non-Acute portfolio. And definitely, there was some amount of pick-up which was due to a sharp uptick in cases. I think the net effect both put together at EBIT is pretty [ dull ] keeping those things in mind. Our Specialty business grew despite all the lockdowns which affects the business from a long-term point of view. So I think we managed -- to control the business and making sure in this quarter. Like I say, I think at this point in time, India business, we see enough pockets of growth across the portfolio both in the Acute, Specialty as well as Veterinary side of it. We continue to perform, we're very confident of the business. There, we still foresee some COVID related ---COVID related disturbances to happen in the market maybe this quarter, hopefully, it should be much less. But I think we've come to probably just how to manage it, these ups and downs in the businesses and as well as how to balance the business in the period of lockdowns. What is helping the business is the higher vaccination rate, the doctors have -- is definitely giving a positive impact to the business despite the lockdowns. We are quite bullish on the business, and we continue to look at, tap these opportunities for growth. We look to scale up parts of our business, but we are pretty mindful of the pandemic related challenges at this point in time. We're keeping the two -- we are committed to growing the business, and I think we see good opportunities to invest and [indiscernible] the business and make it grow. So now I'd like to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Sriraam Rathi from ICICI Securities.

Firstly, on U.S. market, I mean, like las quarter we were expecting that 55 to 60 [ generally ] will be normal runway, and now we are around 50. Is it purely because of higher competition? And at the same time, I mean, is the impact of competition in theophylline is also in this number?

Yes. So Sriraam but this pretty much only due to additional competition in the U.S., nothing else. We were seeing this trend moving forward. Theophylline happened, we have seen the full effect of theophylline because that happened towards the end of Q1. So that will happen as well going forward to Q2. Yes, I think we were expecting a higher run rate and I still hope we will get to this 55 kind of run rate moving forward. We're doing some fine tweaks. But yes, bulk of it is due to cost -- due to pricing pressures in the market.

Okay. Okay. So in that case, I mean, theophylline can have additional impact in Q2 and the number can still be more or less around this number or be lower?

So yes. So what happened is, 2 things. One is where on the volume side, we haven't seen too much change on the volume side. Maybe Q1 a little bit of an impact on volume, but we're picking up new awards, we're getting more business. We're working on some cost rationalization in-house. So hopefully, with those things, we'll be able to pick up more business moving forward in Q2-Q3 to counter for what we will see additional competition in theophylline and some of the other ones.

Okay. Got it. On the gross margin side, like this quarter, we are around 71%. So now, will we see -- that if -- this is more of a normalized number now that should be there going forward.

Yes. So we've been saying that when we had the margins of 78% -- 79% I was always -- I mean making a cautious statement that, yes they will come down. These were part of those high prices we could get during those disruptions. I don't know, I mean this is a direct number, depending on the -- so India prices are static. India cost also remain more or less static, some increase in API prices, but not significant. So it depends on, at what prices do we get to sell in U.S. that will determine the gross margin numbers.

Okay, got it. Is there any update on the Karkhadi Unit after [ vigil ] for the observations and any progress on that?

No, I think nothing since the last quarter when we spoke, same, we've just been back and forth with the FDA. We're just waiting to hear from them. So let's see, hopefully, in the next couple of months what stand they take.

The next question is from the line of Damayanti Kerai. Damayanti Kerai, may I request you to please unmute yourself. It's muted from your handset.

You can take the next question and come back to Damayanti once she's back.

Yes, sir. We'll move to the next question, which is the line of Prakash Agarwal from Axis Capital.

Some technical issue in the conference.

I think it's an issue from your side. Maybe people are not able to speak or.

Let me just check, sir, please give me a moment.

Please.

Mr. Prakash Agarwal, please go ahead.

Yes, am I audible?

Yes, sir.

Yes.

My first question is on the INR 50 EPS guidance that we had given. Is there any thought there? Do we maintain it? Or how to think about it, given the first quarter has been little weak?

Yes. So maybe, Prakash, you might have missed the opening statement. Mr. Baheti, said that they were temporarily -- were withdrawing this guidance due to a lot of uncertainty that we're seeing and some softness in the U.S. market. So he said that in the opening statement. So we're not...

But is there any revised guidance for the same?

No, I think right now, due to the dynamic situation, we rather refrain from giving any guidance.

Okay, understood. And on the gross margin, somebody asked, but I mean, if I see my sales mix has gone favorable, right? So Indian piece is higher versus last quarter Q4 numbers. And U.S. in the last quarter only, we said that, that sartan opportunity is going or fading away. And despite that, we have seen another $15 million decline. So a, what has really happened Q-on-Q in the U.S. from Q4 to Q1? And b, despite India business not moving up our gross margin, so is that everything shipping in that $15 million, which was at a very high profitability, would that we correct or what how should we think about it?

Yes, I think the right way of looking at it is, as I'm saying that like the volumes haven't moved as much for the U.S. market. So pretty much what we've seen is on account of pricing.

Okay. So these are now the realistic, or do we expect one more round on this? Or this is on the base level portfolio? There is no special timing on these products?

So I just -- as I mentioned, it's very difficult, it's too dynamic. That's why we're not giving a guidance. And I don't know because it's [indiscernible] it really depends how the competition is in the market. So I'll refrain from giving any guidance on that.

Okay. No, because your last quarter, we heard you saying that you have visibility of 10-plus products both in overall, Derm, et cetera, and we also expect that in the second half with the U.S. FDA inspection obviously happening. Second half onwards maybe there is an injectables business coming back on stream.

So I'll tell you what, so basically near term, we will see some challenges. I think, I don't know how much and to what extent, whether this is the new normal or what is going to happen. Long term, our view of the U.S. business is still intact. Long term, we think it should be okay, and we're still -- I'm still quite bullish on the U.S. market.

And that 10 -plus launches remain?

Yes, that will remain. I think more, they're more. Probably closer to 15.

The next question is from the line of Anmol Ganjoo, from JM Financial.

A slight reiteration of what got asked by an earlier participant. So if you look at the U.S., there are 2-3 vectors. One is the product launches, on which we obviously seem to be holding what we had articulated earlier 10-plus product launches. Second is that if you look at last quarter commentary with respect to sartan pricing, and we all know these things tend to undershoot once competition sets in. So that obviously has happened. So I don't think this is a real surprise. So why therefore review that despite formulation is doing well. And the suspension of guidance, what's the real directional surprise during the quarter. That's what I wanted to understand for -- because everything else obviously seems not very different from what we understood last quarter. And is there anything which kind of has incrementally worsened with respect to landscape?

Yes. So I'll just give a brief and I'll let Mr. Baheti add whatever else. So why the withdrawal is, I know because a few things have happened. One is, as I said, from the last quarter also to now, we've seen incremental -- lot of erosion in prices in the U.S. market, number one. Number two, we're seeing that they're not seeing any guidance from the FDA in terms of when they're going to come, what they're going to do. And the third is, as you all know, there has been the incremental competition in theophylline, timolol, some of these other products, which are higher -- big products. So there's a lot of unknown or uncertainties in the market. So hence we were not comfortable with the guidance. So that's the reason why we've removed it. As I mentioned earlier, long term, we are still quite intact. Just I'm just going to wear off for a second before I get to -- back to Mr. Baheti, on the guidance. I guess, I sense that there will be a lot of questions on the U.S. business in today's call. Let me just give a flavor on what kind of things we are doing or what we are in the midst of doing. As you know, Alembic has actually captured a lot of high price opportunities due to disruptions in the market. The market has changed now, where everyone is back on supplies and there's not really any disruptions. So we're doing a lot of cost cutting, cost reduction, supply chain volume growth, picking up business, bidding for new businesses. And I think we will see the effects of that, Q4 definitely by -- sorry, Q3 definitely, but maybe Q2 also as we're picking up some volumes and picking up some business, by rationalizing some updates some R&D spend. We're rationalizing our other expenses as well. So that's what the strategy is moving forward because those high price opportunities are not there. So there's a lot of fluff in the system that we're trying to correct. Mr. Baheti, on the guidance. If you want…

No, I think you have covered.

Yes. Anmol, anything else?

Yes. Briefly 2 more quick questions from my side. So now obviously, this quarter, we were under -- the competition has overshot expectations and we seem to be stabilizing at around $200 million annualized run rate on the base. Sartans ideally should have worn off. So incrementally, I don't think that the portfolio is vulnerable to sartan pricing, at least. Theophylline, again, if what has happened this quarter is anything to go by -- so the risk should be on margins, not as much on volume. So I think with a lot of these things happening, which were expected, as you highlighted, then $200 million plus the launch rate of new products. That is how we should be budgeting for the U.S. growth on a full year basis. Is that correct in terms of assessment?

No, I mean if you extrapolate from this quarter, yes, that could. But again, there's too many unknowns. That's why I don't want to give a guidance on the number.

Okay. And second question is on the domestic formulations. A good show that there's, guys, obviously that's very impressive. But if you look at the drivers, is this the new normal? Or you think that it will be a lot of work required to stabilize it to this number? And again, as one of the earlier participants highlighted, I mean, the way domestic growth at this rate should obviously be able to buffer for the lower margin dilutive developments in the U.S. market, although it's still off a very high base. But with the domestic coming back both from a cash flow perspective as well as a mix perspective, how should we be extrapolating it going forward in terms of drivers?

So I would request Shaunak to respond to the business environment part and then I'll take the financial numbers.

Yes, Anmol, so we know that -- I think. Honestly, like the market is so dynamic -- dynamic, I think with the lockdowns play a large part in what could happen to the business. Like I said, ex-Acute or rather ex-azithromycin, the portfolio performed fairly well, value which gives me a level of confidence that a part of this is sustainable, there might be quarters where there's a little bit up and down, but only we feel the momentum is sustainable. Obviously, not that key part of the portfolio ex-Azithral has performed exceptionally well. We are fairly confident that we can maintain, obviously, a lot of the growth is linked to market growth. A lot of the market growth, at a very macro level is linked to GDP, is linked to the disposable income, good monsoons we've seen. So there are a lot of factors that play into it as long as the market does perform, I think we're fairly confident about performing the market on a sustainable basis. Is this number at 57% growth sustainable for every quarter? like I said. It's all -- a lot of this is determined by things which are out of my control, which is the market movement. So as long as the market stays positive, there's a major slowdown in the market at an overall level, I think we are, like I said, we will be processing, I think we are fairly confident about performing the market in all of our key therapeutic segments as well as all our key products. And yes, so I think we're very -- and that's our outlook at this point.

Shaunak, if I may just kind of scratch that a bit more. So if you look at the growth that we've had, obviously, the market has done well, but there must clearly be -- if the ex-azithromycin portfolio has done as well -- has done well, then there have to be market share gains elsewhere, given the big lead we'll have this quarter or the rest of the market. So just trying to understand, are there any drivers of market share gains in this quarter which we should focus on?

Yes. There are market share gains -- there are market share gains in I guess, I think 1 quarter is too small a period to start tracking market share gains. I mean, I don't want to get into quarterly market share gain because the market is -- as we know, IMS, even in this period, I think the IMS, data collection was affected, or gets affected when there are pandemics and lockdowns. So yes, there will be market share gains, but I don't want to -- like I said, we need to see at least 2 quarters of market share gains for us to really come out and say, yes, there has been large market share gains. But we grown faster than the market, if that's -- I think we've substantially outgrown the market in all the segments. So I think that is kind of there -- and which I said in my opening statements.

The next question is from the line of Shivan Sarvaiya from JHP Securities Pvt. Ltd.

Three questions from my side. So broadly, sir, you said that the long term is pretty intact. So from that perspective, considering that we've completed most of our CapEx and once it starts getting commercialized, where do we see the U.S. business -- the potential of that CapEx to kind of drive our U.S. business? Like what would be the top line that one can expect? Is it in the $500 million to $600 million range? And based on history and your experience, when does a particular plant reach its maximum capacity utilization once the approvals are -- add with us. So that's my first question. The second one is regarding our gross profit margin. Mr. Baheti did mention about the gross margin. But just reconfirming that if I go back to my notes, he has said that a broad range of 70% to 72% is what we normally would be confident of doing. So does that still hold? And the last one was on the modified opinion that we've got in terms of accounting for the debentures. So if you could just give a color in the layman's language that why have we not gone through the -- not followed the accounting standard guidance and taken a differentiated stance? So that's it from me.

Let Pranav respond to the first question, I will respond to the next 2 questions.

Yes, sure. So our long-term view, as I mentioned, still stays intact in terms of our -- what we see in the market, where it's going, yes, maybe couple of quarters, a year, here or there, it may change due to the delay in FDA inspection and approvals. But by and large it stays there. We haven't given a long-term guidance, I've mentioned in the past, that companies of similar size and what [ event ] we should look at about $400-odd million sales revenue in moving forward by FY '24, '25. So that still stays intact. In terms of -- I think the other part was on the capacities and when do we expert, can you take that Jesal?

Yes. So basically, the whole approval process does take some time. We have made filings from these facilities. Now depending on when the FDA really comes for inspection and all of that, it could take some time before we get approvals from the initial product. And these assets have been built keeping long term in mind. So there's a whole bunch of products that will keep getting filed over the next few years. And as we file these products, more and more turnover can come through from the same facilities. So from a long-term point of view, I mean, you asked a question when do we see peak sales. So I think it will take about 5, 7 years, before we see some peak sales coming from these plants. Just based on filings and the approval timeline and stuff like that.

Okay. And if I may just add, when we talk about peak sales, so what -- my question was what could that be -- based on your experience on a similar asset in other company or what your internal assessment would have been when you all would have expended this CapEx, what is the peak sales that this particular asset can give? So the current block?

So basically, generic business, we've been saying that there is a lot of uncertainty. But having said that, overall, if you look across the sector, general things to fixed asset ratio, if you look at. It's in the ballpark of about 1.5 to 2x. And we should be aiming to achieve similar numbers over the long term period. But again, these are very broad numbers. So please don't make so many quantitative determinations from here, we are just giving kind of a direction.

Sure, sure. I get that.

Coming back on that modified opinion, I think this is a policy which we have been following consistently, this is in respect of Aleor. Aleor doesn't make provision for interest, nor do Alembic Pharma makes income -- nor does Alembic Pharma recognize the income. Because as per the JV agreement, the interest will be payable by Aleor only when it starts -- I mean there are some conditions which are to be met. So as of date, those conditions are still some time away. And that's how we have not made -- actually on a consolidated basis, it doesn't make much difference except that partner's share of loss will go up a bit. But as far as cash flow is concerned and any other operations are concerned, it doesn't impact us, the way the accounts gets consolidated. And around your margin question, yes, I mean, I've been saying this -- margin is a -- again as I said, factor of how sales prices are -- realizations are -- how they behave, it would depend on that.

The next question is from the line of Abdulkader Puranwala from Anand Rathi. Please go ahead.

Just one question from my end. So if I just look from a stand-alone to consol business, the profit number looks quite lower understand, this could be partially because of the U.S. business, but at $50 million or $55 million on a quarterly run rate, would the U.S. business still be profitable for?

Yes, this should profitable -- owing -- as we have been mentioning that ROC has come down, but otherwise, it's still profitable, obviously.

The next question is from the line of Bharat Celly from Equirus Securities.

Sir, just wanted to understand on the gross margin side, given that during this quarter we had some benefit because of domestic business being higher as well as theophylline complete impact [ helping there ]. So do you see that the gross margin can further correct on the current levels of [ 70% -- 71% ]?

Very difficult to predict but -- what we are doing -- I mean what [indiscernible] and what we are doing, we are looking at more efficiencies in procurement. See, last couple of years, our focus has been on making the goods available. So the pricing was secondary because that's how the U.S. was getting operated. Now we are looking at all ground efficiency improvement. So we think we have reached to a number which is sustainable.

Right. And from the perspective of other expenses, we have seen a sharp increase sequentially, despite being a case where overall commercial activities have been subdued. So what was the key reason for that?

So the other expenses, I mean, I think a large portion of other expenses are not related to the U.S. business. The large portion of other expenses relates to domestic market. Last year, domestic market expenses were very muted because of very strict lockdown throughout. This year, markets have opened up. So we have spent on more on grow, we have spent more on field travels and all the field-related activities. So it's again, it's closer to the normal reality.

Sir, is it a number we can move ahead with that this number will continue? Will it be more like a base for us?

In domestic market, the expenses are never uniform in all quarters. There'll be some quarters where there'll be high expenses on promo and then there will be some quarters where those investments will be swayed. So it depends on marketing strategy. But I think broadly INR 20 crores, INR 30 crores here or there, these numbers should see.

Sure, sir. And sir, last one, on the U.S. business side. So we are saying that we are going to see around 15 launches a year, so -- sorry, 15 launches a year. So does it mean that by fiscal end, we will be returning back to the guidance of $55 million, which we have guided for as adjusted update for U.S. market?

No. Actually, I have not guided. I have not given a guidance on the $55 million sales. I think, I just mentioned in the last call that what we were seeing typically, about $65 million to $70 million that is coming down because we were seeing a trend of lower -- more price erosion, that's all. That where -- that's how the number came over here.

Right. But Pranav, in your assessment, can we go back to around $55 million update by the fiscal end as an update on this.

No, he responded...

So I responded this to the earlier question as well. If you want to extrapolate from this quarter, you can add -- look at the $50 million odd. But it's very tough to say and that's one of the reasons we have withdrawn the guidances. I'm seeing a lot of -- it's a dynamic market. I'm seeing more competition. I'm seeing what's happening. So I really don't know. I think I'll have to wait for a couple of quarters to see where it settles down in order to give a formal opinion of where I feel the market will be.

The next question is from the line of [ Naveen ] from Falcon Investment.

My question is around the U.S. business model itself. Looking at our history, it seems you've generally made profits when there is some sort of a structural issue or your first day filing or something of that strong. So in a normal way, the U.S. market doesn't allow you to make much profits at all simply. And the fact that this competition has come up is no surprise. It's going to keep happening, right, because that's the way the FDA wants it. It wants all the suppliers to kill themselves literally and get the medicines at the lowest cost. So what are your -- what makes this business model good in your view? And why this mode is...

So first of all, I think the U.S. market for us, I don't know about the others that are in the market, but for us, it has always remained profitable and still is profitable. I think since inception, it's always been profitable. So I don't see any issue there per se. In terms of the FDA, I really can't comment on that what they want. But what makes this market unattractive and why are we still attracted to it or why do we keep making investments in it is because of a few reasons. One, the addressable market size is very good. There are opportunities to make money in the U.S. market, and they continue to close that up. If you look at us over the last 5 years, we've grown at a CAGR of over 25% and every quarter has been profitable on that -- in that. So I think it's a good market. The addressable market size is big. Compared to the other international markets, I think it's a bit better market because it's easier to do your own front end in the market. So that's where -- what we feel about the U.S. market.

No, I agree you have made profits. But if you look behind the profit, there has been a reason behind it, right? The sartan was completely because of the supply constraints, right? It was not run-of-the-mill business. It's not business as usual. I mean it's like a commodity, right? When there's supply constraint...

See, Naveen, what you have to understand is that is how the U.S. market is. There are continuing disruptions. But even if you take the disruptions out, it's still a profitable business. You look at us. You look at some of our peers in the industry. There is still a lot of profit to be made.

Well, could you -- I mean, could you explain more of your conviction why you think that way because it hasn't happened that way because the price erosion immediately sets in...

No, why I'm saying is, it's not -- it has happened that way. So if you see our history, what we've been providing, our U.S. business has always been profitable for us. And I still think it's a great market. There are lot of opportunities for making money if you do the business right, you get the right prices. And I think the industry has seen that and we've seen across the board with every and pharmaceutical industry as well.

We're making all these investments and you don't know what the pricing is going to be. You don't know how many competitors are going to enter. So isn't that a big risk?

No, I don't think so. I think that's just the way the industry is. You'll find the opportunities. You have to ensure the variables that you take care of, be it the supply chain, be it the sourcing, be it marketing front end. That said, there is no business with 100% certainty. If there was, let me know and I'll get in on it.

Next question is from the line of Abhishek Jain from Arihant Capital.

Just 2 questions. First question, how India business is doing out right now? Post COVID, things are opening up right now. If you can throw some color on this thing, especially on the Acute Therapy portfolio, how the things are shaping up? And ex azithromycin, if you can throw some light, what is the growth number for India business, if you can throw some light on feelings there? And third question, what is the CapEx guidance? Are you maintaining your INR 1,000 crores CapEx guidance for next 2 years? And if you can...

Shaunak, you take India business first.

Yes. Just to get clarity, you are asking for Q2 guidance number?

No, no. I'm not -- how the things are shaping up? I don't need numbers and all the things. I just -- how the trends are there right now in last 1 month, if you can throw some light?

So you want Q2 numbers basically. Yes, yes. So market is still opening up. So I think we are in a state of seeing the markets just open up gently. I think it's too premature to make any large statements. I don't want to get into giving absolute numbers for Q2 when we are in the middle of the quarter. But yes, as you are aware, the cases have come down. So I think with cases coming down, and I think some amount of markets opening up, I think there's some amount of normalcy coming back into the market. So I think that's what we are seeing at this point.

And to your other part of the question, yes, ex azithromycin also, the entire -- the other non-Azithral portfolio as well as cough and cold portfolio have done exceedingly well in the first quarter. Please, tell the next question.

There is no response from the line of Nitin Agarwal. We'll move to the next question, that's from the line of [indiscernible].

Sir, I just have 1 question. So you sound very cautious on the U.S. business. And we all know that the competition typically leads to price erosion. But apart from that, in molecules, which have not incremental competition, has that been also affected by the price erosion? Or if pricing has remained stable on those? And does the one who has incremental competition, there we have seen price erosion?

So generally, there has been competition across product profile. The most intense competition, of course, is in sartans as the prices have come down, but we have seen that in other products also.

Which have not seen any incremental competition in this quarter?

I mean, nothing which I can find that there is no incremental competition.

Selectively, we've taken price increases also where we it was notable. But in general, yes, I mean, it is sartans, which had an impact on current quarter.

Okay. Sure. Because I think these cautiousness that you have shown seems to be like there is some structural change. Even the products which are not seeing competition might also be facing price competition so that price erosion. So that's why...

I think...

I think the competition is across the board -- across everywhere in the U.S.

So that is there. But within the portfolio also, there will be some products which would not have the incremental competition and their pricing has remained stable or there also, because sometimes when the wholesaler consolidation happens, without incremental competition also price erosion happens.

Yes, in some products, thee was no erosion. In some, there was.

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

So with this sartan spike easing, I just want to understand top 3 products would be contributing how much for U.S. sales now?

I don't think we give a breakup.

I don't have that breakup.

I don't think we give product breakup.

I say, let's see...

It keeps changing every quarter.

I said it keeps changing every quarter. It's tough to say. Typically, industry is, I think, with the way the industry is 20% -- top 20% of -- is something about like 80% of sales as far as the industry figures are, but we don't give because it's too dynamic.

Okay. And R&D spend with INR 167 crores for the quarter, how much to look for FY '22 full year?

So we have not given a guidance, but I'm assuming it'll get close to INR 650 crores, INR 700 crores kind of level annually.

The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.

My question pertains to the API business. So I wanted to understand whether the current run rate can sustain for rest of the year?

So as I mentioned in the last few quarters, the API business had a phenomenal growth last year. And a lot of growth last year was due to the COVID-related disruptions. So having said that, this quarter, they have done well. I expect them to be close to this 5%, 7% -- up to 10% growth is where we look at for this year for the API business.

Okay. And the second is, in the U.S., we have also seen volume share loss in case of famotidine. So is it on account of some manufacturing disruption? Or is it on account of competition? So that -- as I understand, there are significant market share loss in that product as well.

Yes, I think it could be probably just pricing pressure or we may have backed out, but there's nothing related to manufacturing.

Okay. And would you kind of -- can you give a sense on the AND approvals that you expect this year? Some sense on per ANDA revenue number? Is that possible for you to estimate?

No, it's very tough to give that. And I wouldn't be comfortable with that kind of a guidance because it's too dynamic, who's going to launch, how many people launch, what the competitive intensity will be, it's tough to predict.

It's not that, maybe the -- what value of the market -- what market opportunity do these ANDAs represents in terms of the brand sales or the market -- overall market including generics?

We can take this offline. I'll just ask Baheti to get in touch with you. I don't have that figure with me right now.

The next question is from the line of Randy from Ranvir Singh from Sunidhi Securities.

Sir, my question pertains to India business. We see from low base last year in Q1, now we have seen a very good growth here. But I see that the quarterly run rate has come up better than now pre-COVID levels. So my question is whether that kind of growth -- I mean, that kind of a run rate is sustainable going forward? Or internally, what should I take growth, especially in Acute segment? So what kind of growth you see from here onward?

So like I said, I think, operationally, we are -- we feel we are definitely pre-COVID levels. We think we need to be at that. As long as the market doesn't shut down, I mean, if you go into one more 6-month lockdown, then I think I can't tell you what's going to happen to the business because lockdown impact the business. Keeping in mind that things don't go haywire and market stays stable, I think the basic issues with good monsoon and GDP growth and rural income, things like that stay in line, I think -- as long as the market behaves correctly, I think we're fairly confident of showing strong growth in all our businesses going forward. And this growth will be -- should be in excess of represented market growth, both for Acute as well as Specialty as well as Vet.

Okay. And secondly, on API side, whether we have seen price erosion in sartan API also.

So there is -- the erosion in sartans has been across the board. It's not a big API component for us. So it's tough to say, I think. More so, the pricing that we saw on the formulation side in the U.S., not as much on the API side. API was a supply availability, which caused the formulation prices to go up. And also, we're not a large player on the API side.

Okay. And where we are -- what's your status of oncology injectable facility? Have we started filing from this facility?

Yes. We've started filing from this facility. We're doing batches, and we'll be filing. And then we will await FDA inspection for the injectable.

So for U.S., we maybe...

Ranvir, so can we take your question again. I mean can you come in with the follow-up.

Yes, sir. Just related question that in oncology injectable, just I wanted to understand, if you are awaiting for U.S. FDA inspection or U.S. FDA clearance. So meanwhile, are we selling anything to non-U.S. market from this new facility?

No.

The next question is from the line of [Ravi Kumar], an individual investor.

I'll pass on. I think, all my questions are answered.

Thank you.

Thank you.

The next question is from the line of Nimish Mehta from Research Delta Advisors.

Just one more understanding on the domestic business. The overall market, if I understand, has grown by about 50, 5-0, percentage in the month of April and May, and it came down to almost 14, that is 1-4, percentage in the month of June. So are we, as a company, also seeing a similar proportionate decline in June? Or is it still much better than the market?

Nimish, whatever you are quoting from us, we are also covered. You can look at our numbers also from there. So if you are comparing [ analyst’s ] numbers with our primary numbers or whatever source you are quoting, our numbers are also available.

Okay. But I don't have that granular of say, if you can tell me...

[ You are very smart ].

Okay.

But I think we are, as Shaunak said, we have been outperforming market but then the trend continues.

I'll just add to that. I think, yes, what you're saying IMS reflection in April, May versus June, definitely, there was a IMS slowdown, which we also saw. But like I said, we outperformed the market. I think the slowdown is more to do with like lockdowns. I think peak of lockdowns always slows the business down. And I think we're see that the lockdowns happened, I think 3, 4, 5 weeks into the lockdown, everything starts to slow down because basic movement slows down, or people moving in and out. I think practices slowed down, footfall slowed down. So we see lag of the lockdowns coming in. So that is it. I think -- but going forward, I think -- like I said, I think markets have opened up largely now. So we're seeing a more normalization level of movement. So -- and I think the monsoons have been good also this year. So that gives a boost to our cough and cold and acute business.

The other thing I wanted to know, have we expensed out -- sorry, have we capitalized any expenses with regard to the R&D of Aleor and operational expenses of facilities not commercialized? And if yes, how much is that?

Yes, we have capitalized R&D of Aleor. And when we put the products and once we get the approval and we put to use, then we amortize those expenses actually. You can get the numbers in the March '21 balance sheet, which is around INR 200-odd crores.

I'm talking about this quarter, what would that number be? That plus the operational expenses that we capitalize. What could that number be for this quarter?

Yes. So for Alembic Pharma, it is around INR 70-odd crores, which is free of expenses, and Aleor would be a small portion, around INR 10-odd crores.

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

Shaunak, on the U.S., I see we've been spending almost INR 600 crores on R&D for the last 3 years now -- 2, 3 years now. When do you see some of these higher R&D spends sort of culminating into any relevant meaningful launches versus a few which can move the needle from a revenue contribution?

Sorry, so your question is the R&D expenditures that we have been incurring, where do we see meaningful launches from these, is that the question?

[indiscernible] by what time frame do we see -- which time frame onwards would we see monetization of that beginning to come?

Sorry, I'm not -- so you're asking for amortization of R&D expenditures or monetization?

Monetization of R&D. In terms of results of the R&D spend that you've done for the last 3, 4 years, what time period do we see? Are the results really showing up from filing up to launches on those -- on the R&D from the spend?

Sure. Yes. So actually, as you know, the approval time frame for, after we file, is close about 2 to 3 years. So as and when these products keep on getting approvals, we will be able to commercialize. And as we commercialize, we will see revenues coming in, and therefore, the resultant gross profit. So I think this is a continuous kind of an effort. So we keep sending money. And as and when the approvals comes through, we will keep on monetizing. So the amount that we have spent in the next -- last 3, 4 years, you will see monetization for the next 5 to 7 years in the minimum.

Right. And have you been just -- given the way the market dynamics have really changed over the last 2, 3 years, have there been a significant number of projects where probably -- where the dynamics for your -- I mean, your own estimates have changed meaningfully versus what you are -- what you thought of and you are probably investing in those projects? Or are they like very few, something like that?

Yes. So obviously, dynamics keep on changing and we keep on monitoring the market dynamics on -- almost on a monthly basis. So we look at where the products are, how much investments have been made, how much yet to be made, what is the complexity of the product, and how many new players are emerging. So many factors we keep on looking on a real-time basis. And wherever we feel that the competition has changed in a dramatic way, when we are in early stages of development, we can take a call and can cull those products. So basically, we took -- we actually monitor this on a very active basis and maintain the discipline of ensuring that the products which are in the grid are expected to generate the required rate of return.

Lastly on that, your experience of R&D assessment over the 3 or 4 years, opportunities like these where you can make, probably higher than average revenue per product, has this opportunities become difficult to come by? Or there's still nothing more opportunity like around...

So traditionally, the generic business, as you know, and you can also see the number of filings that industry is making, that data is available in public domain. You can see a number of ANDAs have been filed over the last, maybe 7, 8 years. And -- so that's very clear situation for -- not just for us, but for the entire industry that you have a number of products getting filed. Having said that....

I think it's better we take this call offline, Jesal. Because I think you're talking of basic nuts and bolts of our business which I think is...

R&D strategy.

Okay, sure.

Jesal and Mitanshu will be in touch with you offline.

Sure.

We can take one last question because we are just running out of time.

This will be the last question, which is from the line of Vineet Gala from Monarch Network.

So on the derma part of the business, that is Aleor JV, we've seen decent number of approvals. Can you throw some light in terms of the profitable and pricing part? Also given the investments we have made in this asset, when do we expect it to start contributing meaningfully?

So -- no, you're right that we have got a lot of approvals. But unfortunately, it's not great common opportunity at this moment because of intense competition. We have started supplying -- we have launched the products. We are talking to customers for getting better market share. We are also looking at optimizing the capacity utilization. So all the efforts we are doing, but I think for the size of operations we have, it will take a while to really make that venture profitable.

Fair enough. So is there any kind of payback period in our mind because significant investments have gone in this asset?

So the payback period what we had in our mind when we invested has really got extended and -- but again, when you are in pharma, particularly in generic pharma, you have to be a little patient and wait for the right opportunity, because 2 opportunities in a year and you can have the entire calculation back on track. So we are waiting patiently at this moment.

Fair enough, sir. Sir, last question from my side. So qualitatively, most of the approvals that we've been getting are relatively smaller opportunities and seem to be very well contested, like the recent approvals I am talking about. And given the R&D spends...

Sorry, go ahead.

Yes, given the R&D spends we have seen, so these are relatively less attractive kind of approvals in OSD. So can you please articulate your thought process?

You are talking of derma or other approvals?

OSDs, OSDs.

Okay. Yes, Jesal?

Yes, so actually -- so we have a portfolio of products. So some of these products, like I said that when we keep on looking at competition and some of these products competition may have increased by the time we got approval. So you have seen that. But it's going to be a mix of products. So -- I mean, we've had opportunities in the past and we continue to believe that we will have opportunities in the future.

So I think we have completely run out of time. And I would take this opportunity to thank all of you to have been actively associated with us, participated in our calls, asking relevant questions, keeping us on our toes. And we look forward to continuing interaction with you. Anyone still have some questions, can always get back to us off-line. Mitanshu, Ajay are always available. Me, Pranav, also on request. So I will close my comments. Big thank you to all of you. Thanks. Good evening.

Thank you. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.