Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Alembic Pharmaceuticals Limited discussion on Company's Q2 H1 FY '23 financial results. We have with us today, Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head of 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. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and thank you for joining Alembic Pharma's second quarter results conference call. I know it has been a hectic day for you, a couple of pharma companies announced their results today. So I will be short today. Let me briefly take you through the numbers for quarter ended and half year ended 30th of September, though most of you might have received it by now. During the quarter, our total revenue was up by 14% to INR 1,475 crores. EBITDA was INR 231 crores. Net profit was INR 233 crores. EBITDA margin for the quarter was INR 16 crores. For H1 FY '23 the numbers are EBITDA INR 240 crores, net profit INR 67 crores. You are aware that in Q1, we wrote off a significant amount of amortized R&D expense of Aleor, the company which has been now merged with Alembic Pharmaceuticals. So we continue to do that. And in this quarter, that is Q2, we have expensed out INR 16 crores out of previously amortized R&D cost. And so that makes it INR 131 crores of charge-off for the half year. If we would not have done that, our profit before tax would have been higher by INR 131 crores, and profit after tax would have been higher by INR 108 crores. That is for the half year. Residual intangible assets and books pertaining to earlier operations are still INR 24 crores. We hope in the next couple of quarters we will clean it up. Our consolidated profit before tax -- yes, I said that. EBITA on a likewise basis would have been INR 338 crores on -- without charging off these onetime expense, that would have been 12% of sales. This is for H1. EPS for the quarter before non-recurring items is at 7.09 per share versus 8.34 of previous year and for H1 it is 8.93 versus 16.39 of previous year. Turning to borrowings. Our gross volumes are INR 693 crores versus INR 630 crores in March 2022. And we have INR 65 crores of cash in hand. March 22 was almost identical amount of INR 61 crores. So net debt equity stands still very comfortable level, 0.13. I will request Shaunak to take you through India business, India branded business. Shaunak, over to you.

Yes. So good evening, everybody. This quarter for the India business, the top line was 8%, which reflects us to be in line with the industry. As for last year, we did have a large sale of Amphotericin-B, primarily to deal with COVID related fungal infections, as a service. So we did launch that. If I were to take that out, our growth jumps to 11%. Within this growth, both specialty as well acute care, a good double-digit growth with 10% in specialty, largely driven by gynecology, anti-diabetic and ophthalmology. Ophthalmology is outperforming specialty areas and the balance of the growth is driven by the acute, which is growing at 11%. Along with that, animal health care business continues to show a strong better performance locking in 15% growth for this quarter. The growth for this quarter as our organization was in line with the industry and with the IMS numbers. And if I were take up primary number versus the IMS number, will be to continue a degree of outperformance, total [indiscernible] is a lot smaller. That being said, I think going forward, we continue to maintain and extremely confident of outperforming the market [indiscernible] numbers on a consistent basis with over time we wish to reach significant outperformance versus market numbers for -- on a moving trend so that we maintain [indiscernible]. Hand it over to Pranav now for his presentation on the international side.

Thanks, Shaunak. It was an interesting quarter for the international business, especially the ex-U.S. and API business both had a decent quarter, especially considering that they're coming off a high base of last year. The U.S. business continues to remain challenging and a lot of oversupply in the market and a lot of price erosion due to that. In spite of that, we managed to grow the business by 20% in the quarter. This was due to some onetime buy opportunities -- onetime opportunities that we had in the market. The sales for the current quarter in the U.S. was $52 million. We continue to remain focused on this on the long term of the U.S. business. We do have, as you must -- we announced in the market that we've got first of our 2 injectable sites approved. We've got 3 approvals from the site, so site approval is pending, but product approvals have started flowing in. So that is promising. Our R&D expense is INR 168 crores. If you see ex of the onetime Aleor products R&D charge-off, it is INR 151 crores, which is 10% of sales in the quarter. We've been guiding for low R&D in the future, and this is a trend that we will see going forward as well. We filed 5 ANDAs during the quarter and cumulative ANDA filings are 242. We also see 3 approvals during the quarter. We launched 5 products in the U.S. during the quarter and hopefully we'll launch another 10 at least in the rest of the year. The USFDA, as I mentioned, had conducted inspection at our injectable facility at F3 where we had 2 observations and F2, our oncology facility, which had 4 observations. But as I said earlier, we've started receiving product approvals from these facilities. So that is promising. The U.S. generics grew by 20%. And the ex-U.S. generics grew by 9%, whereas the API business had a very good performance and grew at 23%. I'll open the floor open for questions. Thank you.

[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.

First question is on the expenses side. So quite a bit of cost control here. I wanted to understand what is the capitalized cost setting for all the [indiscernible] put together? And given that you have received approval, I'm sure you're launching soon, if not already. And how would the cost start to go up from here?

So the capitalized cost is INR 1,100 crores for all the 3 plants, F2, F3 and F4. The yearly spend is around INR 200 odd crore in the revenue, expenditures and once we capitalize that, would plan to use. For F2 and F3, this cost would be in vicinity of INR 300 crores, including depreciation.

So yearly you said INR 200 crore. I heard that, and then INR 300 crores?

Yes, with depreciation, INR 300 crores.

Put together?

Yes.

And the yearly INR 200 crores for all the 4 facilities?

That's true.

Okay. No, I was asking going forward, what is the kind of expenses we should start penning in given the approval and launches will start from the injectable plant?

So Prakash, this is exactly what I'll said. Put aside F4, let's take F2 and F3. Then the running cost is around INR 160 crores, INR 170 crores, which is like cash burn out, okay? That's overhead. And then you have to add another INR 100 crores on as depreciation.

Understood. So of the INR 200 crore, INR 160 million is for the first 2 plants, is that what I understand?

Yes.

Understood. Okay. Fair enough. And, yes, congrats on the approval that has started. Just trying to understand for the opportunities [indiscernible] still left on these products and will you plan to launch it?

So we will probably launch in Q4 of this year. In terms of Ketorolac, yes, I think while there are people in the market, but it continues to remain in shortage on and off. So there would be an opportunity to get some share. Paclitaxel is also a large volume. So that is also an interesting product on the oncology side. Right now we're seeing some shortages in a few SKUs of Paclitaxel as well. And the third is glycopyrrolate. That also is a smaller product, which would be interesting.

And we should start seeing more -- I mean the kind of filings you have done would range, I mean, in the past, you mentioned that to start with, it will be smaller and basic products, but you would have complexity going ahead. So when should we start seeing the complex product approvals or they are still in the filing stage?

Just right now and this is in the basket, soaking in the preservative, so approvals have started, Prakash. But I think a few things, yes, we do have some interesting products, hopefully, in another 6 months or 12 months, we should see some interesting ones. A lot of other filings are also going on. A lot of our filings were delayed this last 12 months due to the FDA remediation. So hopefully that pace will also pick up some.

[Operator Instructions] The next question is from the line of Sumit Gupta from Motilal Oswal.

I would like to know the outlook on the U.S. generics like what kind of price erosion that you are witnessing?

Yes. So the U.S. business is the most competitive I've seen it at least in the last 10 years or so. There's a lot of oversupply in the market. I don't know what the blended price erosion would be for the portfolio. I'm assuming it will be high teens. But product-wise, if we see, I'm seeing erosion of upwards of 30% product wise in specific products.

[Operator Instructions] The next question is from the line of Bharat Celly from Equirus Securities.

So sir, just wanted to understand, since we have already started getting approval from the new facility. So I just wanted to get a color how many ANDAs are pending approval for F2 and F3 injectable facilities largely?

So we've got like 34 filings actually between these 2 facilities. And then we've got another 17 odd filings from the CMO, which eventually we will bring it to these facilities, so 50-odd at this point in time.

And this 50 include oral as well or it is just injectable?

Yes, it does. It does cover on [indiscernible].

Okay. So if I just talk about the injectables, not oral solid. So how many products that would be?

So we have around 7, 8 filing for [indiscernible].

Okay. So a large part is injectable in that case.

Yes.

Is it correct?

Yes.

Okay. And second, on the U.S. pricing. So are you seeing that the overall pricing pressures have started cooling off from the quarterly perspective, quarter-on-quarter perspective? I believe year-on-year, it may look still high, but on quarter-on-quarter basis, are you seeing some cool down?

I mean, not really, to be honest, as I mentioned, even quarter-on-quarter basis, we are seeing price erosion compared to last year. It's just there's too much supply in the market. So even quarter-on-quarter, we are seeing price erosion.

Right. And last one from my end. So we have even settled for Revlimid. So what are the timelines for us to launch? If you could give some color, whether it is separate '24 launch or whether '25? If you can give some color.

So we are not in the first to second wave for Revlimid. So we are way behind. I think Revlimid is far off for us. We were late to the game.

[Operator Instructions] The next question is from the line of Sumit Gupta from Motilal Oswal.

I would like to know about the Brovana, which was commercialized, like what kind of [indiscernible] that you are seeing?

Yes. So this is the product we commercialize through CMO. We're gradually picking up share. It's a good market still, and we've got picked up some share. I think we must have got 10% or so market share right now.

Okay. So can you guide like what kind of market share is there? Or what is the market sales?

I don't have that figure with me on hand, I'll [indiscernible] get back to you.

The next question is from the line of Jainil Shah from JM Financial.

I just wanted to ask on the API front. We've grown really well. So what is driving this growth? And how should we look at it going forward?

Yes. So the API business, it's been a good business for us. I think we're focused on quality and timelines kind of thing. And as the world is looking at more better suppliers with compliance facilities. So we've been able to do that with our service levels. I mentioned earlier in the year or everywhere, so we expect the API business to go about 10% during the year. This was an exceptionally high quarter where we had about 23% growth. But yes, I think 10% is a fair enough growth as expected in the API business.

And on the U.S. front, you did mention that there were certain onetime opportunities. So ex of that, what would be our sustainable U.S.-based business run rate?

So as I've said in the calls earlier, about $45 million to $50 million, anywhere between that is a sustainable U.S. run rate. It really depends if you lose out an award of what we get or the pricing behaves, but $45 million to $50 million is what I'm seeing currently.

And when, in your view, it could change and we could move to a higher base of $55 million, $60 million?

Yes, it's a good question, and I hope we can go soon, but I think it's going to take some time. I think only way it will happen is as we get more products in the market and slowly, slowly get market-based opportunities once some of the injectables come in, that's the second thing. Thirdly, if there's disruptions in the market, right, as I've been saying, there's a lot of supply in the market currently, but we may see some disruptions going forward. Once that happens, there will be opportunity for some price, you can get some really better prices and some market share as well. So I'll say a couple of quarters, at least, we will be stable.

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.

Sorry, I joined late, so I'm not sure if this question has been asked. So now we are seeing some products getting approved from the onco-injectable facility. So does that mean that some part of OpEx and the acquisition will capitalize, start hitting the P&L from 3Q onwards?

And so once we start commercially -- starting in the fall commercial batch, that would be the due date on that. We won't capitalize it, and it would be part of expenses. So we can expect that to happen by Q4.

Okay. And in the last call, the numbers mentioned that's within the P&L, around INR 100 crores, INR 200 crores falls on the OpEx side. And I think INR 150 odd crores in the acquisition, INR 180 odd crores [indiscernible] are these numbers right? Am I reading the right number there? Though I think the buildup will be a bit more steady than coming -- everything coming at one go?

Yes. Nikhil, that one was for all the 3 plants, F2, F3 and F4 actually. So somebody just asked, Prakash asked this question, that was the first question. And I'll for the sake of repetition I'll still do it. It was -- for these 2 plants, the expenditure is around INR 160 crores, INR 170 crores, which is a cash burn and then the INR 100 crores of depreciation for these 2 plants.

Understood. And also do you mind commenting on -- I don't know, you might have shared it, but if you can reiterate it. What is the R&D outlook? What is the spend on a quarterly basis that we are looking at from [indiscernible]?

So the R&D outlook, this quarter, the total R&D was INR 168 crores, which includes the Aleor. As I mentioned in the start of the year, we will get through an R&D about INR 650 odd crores this year including the Aleor R&D. And then we'll -- it will be flat, but we'll try reducing it a little bit going forward as well.

Okay. Got it. And then one final question. India has done reasonably well on a pretty strong adverse base. I mean, 23% growth versus last year same quarter, this quarter is 8% growth. Are these the usual products that are being [indiscernible] or something -- some new products are picking up and that has contributed too, that has been recorded?

It's a combination of both. On the acute side, we have had some -- obviously the traditional brands have done well despite the markets being quite flat based on all the brand building efforts we put in the last one year. On the specialty side, yes, the traditional portfolio also has done well. But there have been some very good launches in the gynecology space for us, along with a couple of good launches in the anti-diabetic space. It's a combination of both drugs driving it.

Okay. And there will be usual seasonality in second half, right, wherein 3Q and 4Q would be weaker than 2Q. I mean the normal seasonality that happens in your portfolio [indiscernible]?

Yes. So historically, yes, traditionally Q2 is the highest in terms of phasing. But I think more and more with the weather patterns and the climate changing and also with delayed monsoons, I think these trends are changing where Q2 and Q3 seem to be almost blending into each other per se. So yes, there is a bias in [indiscernible] used to be.

Okay. Understood.

Also Shaunak, as the revenue percentage from specialty segments are going up, the impact on us, on Alembic Pharma, the seasonal impact is now gradually would go down.

Yes.

Sure, sir. Understood.

The next question is from the line of Cyndrella Carvalho from JM Financial.

Sir, if we look at the other expenses for this quarter, is there any kind of one-off or is there any kind of additional trend which has come only in this quarter? And do we see the opportunity to have some rationalization in this number going ahead?

Sure. The INR 16 crores which I said, we charge in this quarter, which was out of previously amortized R&D expense of [indiscernible]. And this quarter our numbers are okay. I mean I don't think there is any exceptional [indiscernible] or high number.

Any scope to improve it for this, sir?

I cannot say that, I mean, that effort to contain expenses continues. The particular area of focus at this moment is of course R&D. But it takes time because when you evaluate projects to decide what to continue, what to drop, even when you decide to downsize, it takes time. So it's a process that they will, happen overnight, but we are constantly at it.

Any quantum that we would like to specify over a year, any certain amount that we would expect due to these activities?

So on an annualized basis, I think we plan to save about INR 100 crore this year versus what we spent last year.

Okay. And sir, if we look at the domestic business, you did mention that the seasonality has been not the factor going ahead. So how is the chronic segment doing? And how should we…

Shaunak would respond, I didn't say that there is no impact. I said that impact now is getting diluted because our specialty business is showing more number as a percentage of business. And -- but of course we still have about 35% of the business from acute. So there will be some impact. But Shaunak, would you like to talk about the specialty growth?

Yes. So I think for this quarter, I think I mentioned them in the call, I think the specialty overall we will call it, I think, at 11% growth. Going forward, I expect is to significantly ramp up, especially [indiscernible] space. We've had quite a few new launches. And some of these new launches have diverted focus from our traditional drugs. So little bit of impact has happened in that process. But like I said, I always maintain, I think our specialty business could be clocking in a very strong double-digit growth more or less as we know the market doesn't turn into a very low growth kind of situation.

Any new products that you see apart from what we have discussed?

Yes. So I think we've had a couple of launches in the gynecology space, and we've had a couple of launches in the diabetology space. So -- but these were launched in this quarter, these were both -- most of these products were launched over the last 6 months.

Okay. That's helpful. And if we can get some more detail on the API segment, which products are these that are doing well?

It's not to give a difference -- it's product. There's no particular product per se, but the entire basket because we sell the basket across territories and no particular territory also. We have seen very good growth across all the territories all over the world that we're selling.

Any particular therapy that you can highlight, if not…

API, we don't go by therapy wise, we just go by what makes commercial sense and what our capabilities are.

Okay. And any benefit of raw material easing or logistic cost easing that we see which would slow in coming quarters?

No, no, not at all. Actually the logistics costs have been pretty high and we're not seeing any easing of that as of yet.

Even on the raw material side, it's a similar scenario?

Yes, and there's no easing on any of the costs.

The next question is from the line of Bhagwan Chaudhary from Sunidhi Securities.

Sir, how many filings we have done from the F4 and when do we expect this facility to get the approval from USFDA you said?

F4 is another oral solid [ OSD ] facility. We have done 2 site transfers and 1 filing from F4. So we'll wait until the FDA comes to audit and then we'll add more products over that.

And sir, in terms of F2 and F3, do we have the filings in EU and other countries than the U.S.?

No, not as yet. Our goal is to do some filings for these 2. But the priority was first to take on the U.S., which we've done, and now we'll extend it to other territories as well.

When we got the approval, this [indiscernible] franchisee. Can you please share what is the market opportunity and size for this product? And have we launched it?

No, we haven't launched it as yet. Volume-wise is not a very large product. There's a team of about 5, 6, 7 people already in the market, but it's an interesting opportunity, and we will launch it in Q4.

And sir, lastly, have we filed or have we got any approval on the Derma [indiscernible] and if not yet, by what time we can expect?

No, Derma, we've already got. We've got about good 15 odd products, which have got approved from the Derma facility. And which already commercialized, which we're already selling in the market. Even ophthalmic, we've got about 10 to 15 ophthalmic products, which are approved. These, of course, the first phase of ophthalmic were all acquired from a CMO, not from our own facility. But even from our own facility, we have some filings which hopefully in the next 2 quarters, we will see some approvals coming from there as well.

And this Derma is from the F1?

No. So Derma is a separate because Derma was a separate company earlier, Allure, which we amalgamated. So it's from that facility. So we don't call it at 1, 2, 3, we just call it Allure.

And for [indiscernible] this is from which facility?

That is from -- I'd say the CMO.

Our own language, F3.

The next question is from the line of Punit Pujara from IIFL Securities.

I have a couple of questions, starting with preoperative expenses. So how much of this INR 1,100 crores would pertain to F2 and F3, which will charge to P&L once the facilities are commercialized?

Yes. So almost INR 950 crores pertain to F2 and F3.

That's helpful. Now we saw some good growth in our anti-diabetes franchise in India. Currently we have launched Sitagliptin after the patent expiry. So how has been the traction so far? And can you speak a little bit about market formation?

Sitagliptin is it's too early. It's just been launched. I think it's hard to give you an indication at this point in time. But I think we've just -- we launched it and we're getting good traction. But I would honestly like to comment on market formation, maybe a quarter down the road because it's literally like 1 or 2 months is very hard to kind of gauge what's going on because most of the Sita and the Sita combos were launched in the last quarter early, in the last quarter, current quarter.

Sure. And gynaec therapy has also done well. So do we have any launch of [ Dydrogesterone ] product?

Yes, we have -- we already have a brand in the market. We were as the second -- part of the second phase that launched Dydro. Of the current launches or second phase launches, we were -- we already reached number fourth rank. And we're getting tremendous traction on it and are quite confident of building it because of our leadership position in gynecology as a therapy area, they get extremely strong traction, and we continue to keep building on this therapeutic space, in this product, sorry.

Sure. So given that Dydrogesterone, Sitagliptin, both the products were launched a few months down the line after the patent expiry. So do we -- in terms of launch, it's actually a little bit [indiscernible] after the patent expiry coming over the next few months?

Sorry, could you repeat the question?

Yes. So given that we have launched Dydrogesterone and Sitagliptin after the patent expiry, I understand that we are targeting on molecule [indiscernible] patent. Do we intend to file -- do we intend to launch Sacubitril/Valsartan which is high failure therapy after the patent expiry?

Yes, so Sacubitril/Valsartan combo we are planning to launch and we are quite [indiscernible] on it. The challenge with Valsartan/Sacubitril is only that there are multiple SKUs in this product. So it's not a single product launch, but we're gearing up for that. I think we'll be ready to launch in a dedicated manner, I think immediately on expiry, we're ready to launch all the SKUs.

And do you intend to expand [indiscernible] to support these launches?

Yes. So I think at this point in time, from the existing divisions, we have limited space now remaining with the amount of launches we've done. At this point in time for Valsartan/Sacubitril, we are looking at a specialized task force just to launch this product, looking at the unique specialty nature of it as well as the bias -- as well as the opportunity that it puts forward. So yes, we will be launching a fourth task. For division it should be like a task force to just to launch Valsartan/Sacubitril and more so to address the whole heart failure market.

And would you like to quantify the number?

I'll let you know next time when we meet, post launch.

Sure. And given that the POs are commenting that the cost have been moderating. So our comment suggest that it is not the case. So it is because of the mix of air freighting again [indiscernible] or is it something else going on?

I think this is only international point, right, not domestic.

Yes, like, I mean, bulk of our shipments are sea shipments. But we have seen a major cost escalation on the sea shipment for the last 5 quarters now. And if that's not taken [indiscernible] I mean it continues to be at a very, very high level.

But from the current cost side, the container cost should moderate, right? I mean some of the [indiscernible]?

We have seen very minor, mild reduction. But if you see what was there 7 quarters back and today, I mean, there is no comparison. It's still very, very high.

And the last question is on the U.S. side. So given that we got approval for [indiscernible] product. Are we in the process of developing stroke filing Asacol, HD or Pentasa, both are really limited competition product? And Pentasa.

We don't really disclose any of our filing grid, what we are or we aren't filing. So I mean if we get approval, then you now we have it.

So without putting any name, do we intend to file any other [indiscernible] Asacol, Pentasa?

[indiscernible] if it's an interesting opportunity, we will file and if it's still an interesting opportunity, we'll file. If there is no competition, we may not.

Coordinator, I think there are no new questioner, there are some follow-up question which I think Mitanshu can take up with them separately. There are no new question on the whole, we can conclude the call.

All right, sir. There are no new questions in the queue right now. I would now like to hand the conference over to Mr. R.K. Baheti, Director, Finance and CFO, for closing comments.

Yes, thanks. I can understand lesser number of questions this time because it's a Friday evening, and you guys have attended almost multiple calls. But thank you at the same time, I mean, for all of you who have joined and an interesting session, and I think look forward to seeing, interacting with all of you next quarter. Thank you.

On behalf of Alembic Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.