Aurobindo Pharma Limited (AUROPHARMA) Earnings Call Transcript & Summary

Welcome to Aurobindo Pharma Q3 FY '24 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management for opening remarks. Thank you, and over to you, sir.

Thank you, Vandit. Good morning, and a warm welcome to our third quarter FY '24 earnings call. I'm Shriniwas Dange from the Investor Relations team. We hope you have received Q3 FY '24 financials and the press release that was sent out on Saturday. These are also available on our website. I would now like to introduce my senior management team on the call with us today represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptide businesses and Director, Aurobindo Pharma Limited; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialties Limited; Mr. Swami Iyer, CEO, Aurobindo Pharma USA; Mr. V. Muralidharan, President, Europe Formulations business; and Mr. S. Subramanian, CFO. We will begin the call with the summary highlights from the management followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other affirmations on our future business, business development and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual developments and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, sir.

Thank you, Shriniwas, and good morning and a warm welcome to our Q3 FY '24 earnings call. It has been yet another quarter with the highest ever sales. The sales growth was seen across multiple markets and businesses. This is further augmented by the highest ever EBITDA. Now let me take you through the details of the results for the third quarter of FY '24 declared by the company. For Q3, the company registered a revenue of INR 7,352 crores with an increase of 14.7% year-on-year. [Technical Difficulty] EBITDA margin for the fourth quarter stood at 21.8% against 19.4% for the last quarter. The net profit increased by 90.6% year-on-year and by 23.7% quarter-on-quarter to INR 936 crores. The revenue of INR 7,352 crores was impacted by clawback tax of INR 121 crores Europe. Otherwise, the revenue would have been [ INR 7,473 crores ] and EBITDA would have been [ INR 1,722 crores ], i.e., 23% margin. In terms of revenue breakdown... [Technical Difficulty]

Subbu, sir, your voice is not audible.

[Technical Difficulty] On a constant currency basis, U.S. revenue increased by 27.1% year-on-year to USD 451 million. The growth was mainly driven by volume gains, stable demand and new product launches. Our wide range approved basket has helped us optimally manage the price erosion, which remained neutral. We have received final approval for 16 ANDAs and launched 21 products in Q3 FY '24. We have filed 7 ANDAs during the quarter. Revenues from oral generic products in USA has increased by 22.4% year-on-year to USD 287 million in Q3 FY '24. Revenue from injectable and specialty business increased by 58% year-on-year to $112 million. The year-on-year growth was driven by new product launches. The total injectable and specialty sales globally increased by 46.8% and stood at USD 150 million. We have a total 216 injectable and specialty ANDA filings as on 31st of December '23, out of which 164 have received final approval and the remaining 52 are under review or have tentative approval. The company on 31st December '23 has 820 ANDAs filed with the U.S. FDA on a cumulative basis, out of which 641 have final approval and 31 has tentative approval, including 6 ANDAs which are tentatively approved under PEPFAR and the remaining 148 ANDAs are under review. For the quarter, U.S. (sic) [ Europe ] formulation clocked revenue of INR 1,728 crores, an increase of 1.6% year-on-year growth. In constant currency terms, the Europe revenue was EUR 193 million against EUR 203 million of last year. The revenue was impacted by clawback tax. For the quarter, growth market revenue was 25.6% year-on-year to INR 627 crores. In U.S. dollar terms, the revenue grew by $75 million in Q3 FY '24 from USD 61 million in previous year Q3. For the quarter, ARV business revenue declined by 28.6% year-on-year to INR 179 crores or USD 22 million. The drop in the revenue in this quarter is mainly due to sales deferment to Q4 in compliance with the Ind AS 115. During the quarter, the revenue costs have improved, further aiding our gross contribution which stood at INR 4,201 crores. Gross margin for the quarter was higher at 57.1% against 55.2% of last quarter, mainly due to low material -- lower raw material cost and favorable business product mix. R&D expenditure stood at INR 398 crores during the quarter, which is 5.4% of the revenue. During the current quarter, R&D expenditure was higher on account of the clinical trial expenses for multiple projects. Capital utilization has gone up well in this quarter during the -- driving the operating leverage. Consequently, EBITDA improved INR 1,601 crores, reflecting a margin of 21.8%. Net CapEx for the quarter was $103 million, which mainly includes approximately $37 million towards PLI project. The cumulative CapEx for the PenG project till December amounts to approximately $230 million. The average USD-INR exchange rate is INR 83.24 against INR 82.68. The business had a net cash outflow of $7 million during the quarter before the PLI investments and investments in new markets. As a result, the net cash position, including investments at the end of December '23, was USD 49 million. The gross debt is USD 815 million. Subsequent events, U.S. FDA inspections. Further to our intimation regarding the U.S. FDA inspection of Eugia Unit III dated February 2, we would like to provide the following updates. On February 2, FDA completed an on-site inspection of Unit III and issued a Form 483 with 9 observations. We will submit a comprehensive written response by FDA's deadline of February 26. By way of abundant caution, the company temporarily paused manufacturing and distribution activities at the Unit III site. We have taken these aggressive measures because we believe it is the most responsible and appropriate course of action until we conduct investigation and assessment to give FDA assurance that we are addressing its observations. We are continuing to distribute terminally sterilized and ophthalmic products manufactured at Unit III that we have already shipped to the U.S. We are working closely with the FDA's drug shortage staff, and we have retained third-party experts to assist us in conducting investigation, assessments and restart activities. With the progress we have achieved to date, we anticipate resuming production on our non-antiseptic (sic) [ non-aseptic ] lines around the end of the month with a phased return to service on aseptic lines. Also, available stocks are being retested, and progressive lease of tested stock start from the second fortnight of February '24. We will continuously work with the U.S. FDA, and we will work tirelessly to achieve and sustain compliance with the FDA requirements and expectations. My colleague will give further details on this in the Q&A. Outlook. Our financial performance in Q3 was driven by operational cost efficiency, with continued focus on developing strong pipeline and driving commercialization of key projects combined with positive business, we are confident of growing the growth trajectory across the top line and bottom line. Some of the key highlights for the forthcoming quarters are summarized below. In Q3 at an overall level, U.S. continued to have neutral price erosion. Also, raw material costs continue to show reducing trend in Q3. We remain optimistic in Q4 in terms of the margins, while the growth in oral solids is expected to be strong, and we see positive signals in our OTC portfolio and steady continuity in branded oncology injectable business. My colleague, Swami, will discuss about it when addressing the Q&A. We are confident of achieving 20% EBITDA margin target set internally for the year, as mentioned in the previous quarter. Our new pipeline of approvals will include high-margin new-generation product categories, biosimilars and peptides, et cetera. We have the following under commissioning. The China plant is fully installed, and we have received EU GMP approval. It is expected to start revenue generation from Q1, Q2 FY '24. The Lyfius plant for PenG and the 6-APA plant are under installation. The trials are underway. Operations are expected to start from Q1 FY '25. The Vizag injectable plant is expected to be commercial in Q1, Q2 FY '25 growth markets. It is expected to start generating revenues for U.S. and Europe by FY '26. Further, we are conducting clinical trial studies for our biosimilar products, and the plant is expected to be commissioned by FY '25 or early FY '26. Considering the current market condition, EBITDA margins are expected to improve with PenG plant commercialization and stabilization of the manufacturing process. The expected margin improvement will be without considering the margin from biosimilar. Apart from that, we will be incurring CapEx for the CMO business in biosimilar. My colleague, Mr. Satakarni, will provide more insights on the entire biosimilar and the other complex generic portfolio on this. This is all from my end. I take this opportunity to introduce Mr. V. Muralidharan, President, European Operations. He has been taking charge of Europe for the last 22 years and was instrumental in many M&A transactions in Europe. Welcome, Murali, for the earnings call. Now my colleagues will give more clarity on any specific aspects in our Q&A session. We are happy to take your questions. Thank you.

[Operator Instructions] The first question is from Kunal Dhamesha.

Am I audible?

Yes, Kunal.

Sure, sure. So the first one on the plant inspection, the Eugia III plant inspection. I think I missed some of the comments. So as of now, we have a shutdown, the majority of production is the way to understand it. And then within that, the non-aseptic lines are expected to come back in Feb and then aseptic lines by the -- I didn't get the deadline there. But if you could provide some color as to how many lines are aseptic lines and how many are non-aseptic lines and also qualitatively if you can direct the contribution to revenue, et cetera, would be helpful.

Yes, your understanding is right. In fact, the non-aseptic lines will start off sometime in the next few weeks. And aseptic lines will take a month or 2. And we expect the entire production to get streamlined by end of this financial year. We expect that because of the stoppage, it can have an impact of around $20 million in Q4 of this financial year.

Okay. And when you say streamlined by the end of the financial year, is it FY '24 or FY '25 you are talking about?

I'm talking about FY '24.

FY '24. Okay. Sure. And then the second question on the EBITDA margin, which you guided for 20% for this year, and then we have also said that PenG plant at current prices, et cetera, could help us improve that. Beyond that, what other levers do you see for the next year for the EBITDA margin improvement on a year-on-year basis?

See, at this stage, Kunal, we are talking about achieving 20% for the year. Already, we are 19.4%. And by end of this quarter, we will touch upon 20% that we are confident. Apart from PenG, at this stage, we are not saying anything at this stage. Probably next quarter, we will be able to talk about it.

Sure. And just last one, again, on the Eugia III. Let's say we'll have some -- do we have a lot of earnings concentration coming out of this plant? Like a few of the products making up for a lot of our revenue? If yes, can you guide us to top 5 products from the plant? What could be the revenue contribution?

See, in general, this particular plant is important to us. And obviously, now we are a bit more distributed in terms of plant concentration with Eugia I also contributing significantly. But for Eugia business, this plant contributes around 40% of revenue. And in fact, there are multiple products where we are market leaders in the U.S. And that's where like we are focusing in terms of how fast we can resolve and restart manufacturing.

The next question is from Neha Manpuria.

Just an extension on Eugia Unit III. Yugandhar, if I remember a few years back when we shut down the bag line, it took us a very long time. I'm not even sure if they are back to the impact that we had seen at that point due to the shutdown. Now when we shut down the facility for an extended period of time for the next 2, 3 months and the revenue loss that you're mentioning, what is the confidence of recovering the $20-odd million numbers, particularly since we are not going to see new approvals till the time we clear this facility also?

In fact, this -- Neha, thanks for asking this question because see, the bag line issues might be different from the current observations. What we feel is the current observations are more to do with aseptic processing practices, some documentation gaps. And so we are confident that we are working with the most reputed consultants to ensure that we put the strongest response possible and also resolve the issues. That's where like we feel that non-aseptic and aseptic, we are separating it out and ensuring that we start in a phased way, both the things. And our assessment at this point of time is this is going to take 1, 2 months, and we will be back in full flow from April. And that is our current assessment, Neha. And -- yes, go ahead.

Sorry, I understand that. But my point is that the $20 million impact that you've mentioned, right, so there is obviously a risk of market share loss in some of the larger products from this facility. What gives you the confidence of us being able to get back market share if we lose that in the next -- is that a scenario that we're penciling in at this point?

At this point of time, what we are -- we do have stocks to cover up for the next 60 to 90 days. And we feel in some of the big products, we have enough coverage to take care of the market share. But if we lose, we will also gain because these markets always give opportunities. In terms of when you have 100 products, you lose in 1 and you gain in 1. So in general, once we are back onto the full flow of production, we are expected to continue the similar run rate. There might be a $5 million to $10 million gap on a quarterly level, but we are confident.

Understood. And based on the data that you've given on the pipeline, it seems like bulk of our injectable pipeline is from this unit. But just want to understand the approval pipeline in the next 2 years. How much of that pending 35, 40 ANDAs is from -- is likely that we were building in for, let's say, '25-'26?

See, in '25-'26, anyway, we were not expecting any major approvals from this plant. And as you know, we are putting most of our new products into the Vizag plant because as a part of our derisking strategy, we were always transferring and filing new products from a new plant because we also felt that we have put too many eggs in one plant. So we are just redistributing, and that's been going on for the last 1, 1.5 years. And from a '25-'26 perspective, we were not expecting any major approval from this plant.

Okay. And sorry to harp up on this, Yugandhar. So where is our FY '25-'26 growth going to come from for the Eugia business other than Revlimid, of course? From an injectable pipeline, where would that growth come from?

No. What we feel is that, yes, you said it right. It's mainly going to come from the Revlimid, but we were expecting around $30 million to $40 million of new products revenue coming from balance of the plants because as you know, we have total 5 plants, 4 commercial and 1 Vizag new plant. So we were expecting 50% of the new product revenue coming from the balance plant and 50% new products revenue coming from this plant, which is out of the $40 million of that.

The next question is from Shyam Srinivasan.

Just on the disclosures of the U.S. business, right? I think last quarter, specialty and injectable were around $90 million, $91 million, and now it's showing $112 million. I presume -- is the majority of this coming from the Revlimid launch in the quarter?

Shyam, frankly, like I'm not at liberty to disclose as per settlement terms with the innovator in terms of lenalidomide sales separately. But in general, yes, what you're saying is most of it is coming from Revlimid.

Got it. And the $20 million, Yugandhar, that you're calling out. So we should assume that on the injectable part of the business, that's where the $20 million goes away in quarter 4, correct, right?

That's right.

Got it. Understood. The second question for me is on the cash flow generation. So we had about INR 1,600 crores of EBITDA. But when I look at the Slide 14, cash flow from business after working capital and others, it's about $45 million. So is there an adverse conversion cycle this quarter? Maybe 9-month numbers could be different. So if you could help us there.

Yes, Shyam. This quarter, we have made some of the creditor payments that have been due across the group, and we have nearly -- paid nearly around $75 million in terms of increased creditor over and above the gross current assets.

Subbu, sir, your voice is low. Can you -- sorry, can you please repeat?

In terms of the creditors, right, during the quarter, our creditor payment is more than by the gross current asset generated, right, to the extent of $75 million. That is the reason why the drop in the cash flow vis-a-vis the cash PAT.

Understood. Okay. So this is just a quarterly phenomenon you're saying. So maybe...

It's a quarterly phenomenon and the next quarter onwards -- because now the creditors have come down less, and next quarter, we will -- if we sustain that, additional $75 million will get generated as part of the normal process.

Got it. My last question is just -- I think there's a slide on the biosimilars. So Dr. Satakarni, if you could kind of walk us through the update for that on the biosimilar side.

Yes, Shyam. So on the biosimilars, we have approval for trastuzumab, which is our anti-HER2 breast cancer drug in India. We have SEC recommendation for marketing authorization. So we are closing down on the final nitty-gritties before we receive marketing authorization to market in India. So that's the first approval from CuraTeQ Biologics in the biosimilars business. With respect to the other programs, we have 3 filings done with European Medicines Agency, including trastuzumab. A spate of other filings with trastuzumab will also likely to follow in emerging markets, including that of the U.S. in the next quarter. So that's an important update. Likely, we have a couple of other filings made with MHRA and Health Canada. So I expect the programs that are filed with these regulatory agencies to go through the review process and materialize in the next financial year. With respect to the ongoing clinical trials, we have 2 programs, one in ophthalmology and one in oncology, 2 clinical trials happening globally. Both of them are progressing reasonably well. As updated in the last quarter, we also have initiated a Phase III clinical trial of omalizumab biosimilar in Europe across multiple countries and sites there. As you know, omalizumab references Xolair, which is an injectable drug that targets and blocks immunoglobulin E. The product is approved for the treatment of adults and children with moderate-to-severe asthma and chronic spontaneous urticaria. The drug had a worldwide sales, I believe, of around $4.3 billion in 2023. So our biosimilar version of this product is already in Phase III clinical trials, and we hope to complete the recruitment by October 2024 and submit it to both Europe and U.S. in the Q2 or Q3 of the next financial year. It's an important drug for us. So hopefully, we will be able to complete the clinical trials on time. Our second immunology biosimilar also has received a green light from the European agency for conducting a Phase III clinical study in osteoporosis patients. The study has actually begun this month. The study is being conducted across the European region in multiple sites. And the first patient was dosed in January, not this month, in January. We hope to complete the recruitment of all 450-plus subjects in the osteoporosis trial inside Q2 of this year and hope to advance the product to filings in the second half of next year. So the reason why I bring this up is you can see from the wave 1 of products which was essentially having an oncology focus to a gradual and a nuanced shift into the immunology segment with these 2 key products with a current market opportunity of around USD 12.5 billion, making a shift into the immunology segment in what we aspire to achieve. Especially with the Xolair, the competition is very limited. And we also expect that there will be additional indications with Xolair in treating accidental food allergies. And hopefully, we believe this will have a longer product cycle. And even after biosimilars introduction, I expect the product to have a longer product cycle with newer indications of accidental food allergies being approved. And hence, we are reasonably excited and are aspirational about this product. So that's about the guidance on the 7 biosimilars, 3 of them which concluded the trials and are in the filing phases or already being filed with certain agencies and 4 of them in global Phase III trials. There is another immunology product that we are only developing for emerging markets and India, which we will complete the clinical trial in May this year. And I expect it to be filed with DCGI first and the other emerging markets by June, July this year. So Shyam, does that answer your question?

Yes, yes, that's helpful, Dr. Satakarni. Just one follow-up is on the opening remarks from Subbu, sir, on the CMO with MSD. So if you could give an update on that as well.

Yes. I think in the last quarter, I mentioned that we have entered into a limited letter of intent with MSD Singapore entity, enabling us to become a contract manufacturing provider to MSD for one of their products. Under the terms of the agreement, Theranym Biologics, which is a wholly owned subsidiary of Aurobindo Pharma, will deliver cGMP batches of drug substance as well as drug product for supplies to MSD entity. We hope to start supplying from '27-'28. To this effect, we are continuing to deliberate and engage with MSD entity on the terms of the definitive agreement, which I have stated in the last earnings call that we endeavor to close by the 31st of March 2024. So far, we are progressing in the right direction, and I believe we will be able to close the definitive agreement during this period. If there are any changes or extensions that I would take in terms of negotiating and closing and winding down this definitive agreement, I will provide an update in the next earnings call. But in a nutshell, it's progressing well, and we hope to close the definitive agreement pretty soon.

The next question is from Damayanti Kerai.

Am I audible?

Yes.

My first question is, again, coming back to Eugia III. So as we discussed, like you have been putting a lot of effort to bring the plant back to full production. But just want to understand in case it takes longer. So do you have any backup plans for shifting some of the key products to other facilities? And if yes, then which will be facilities where you will be transferring your products, apart from the new ones which you said are filed from the Vizag unit?

Damayanti, in fact, the Vizag is built as a backup to Eugia III. So in case if that situation arises, we will try and tech transfer some of the key products to Vizag plant.

And I just want to understand, are these injectable plants fungible in nature? Or like you have to have different lines dedicated for some particular products?

No, we do have enough lines in Vizag. We have a footprint of 7 lines. And as I've been saying in the past, Vizag will act as a backup to Eugia III, also filing new products from there. To some extent, it is fungible because most of the lines, what we planned was based on the direction only.

Okay. But just want to understand. You said this Vizag plant will be ready for developed market some quarters down the line. So I just want to understand from immediate perspective, say, in next 3 to 6 months, if you want to transfer some products. Can you do that to Vizag? Or it's like not possible?

Damayanti, it is -- at Vizag plant, we already filed 2 products to U.S. from that plant. And we do expect inspection to happen anytime in the next few quarters. And obviously, like normally, every tech transfer takes time and takes time to get approvals from the new plants. But at this point of time, I think we are speculating too much. I would prefer to -- I think you need to give us time to respond to Eugia III observations. Then we will see how it goes.

Sure, sir. That's helpful. My second question is on Revlimid. Obviously, you won't be commenting on the numbers, et cetera. But just want to understand from sales contribution perspective, will it be distributed across quarter? Or you have some like -- some phase where you'll be supplying most in a year, and then in some quarters, we won't be seeing much contribution coming in?

Our endeavor is just to definitely like make it a quarterly run rate. But sometimes what happens is depending on the pricing and customer requests, we might end up billing a bit more in that particular quarter. But in general, it will be a distributed revenue across quarters. In case in 1 quarter, it is more, that will get knocked down in the next quarter. But our endeavor is just to space out every quarter. That is what we are planning to do. See, in general, Eugia, we were doing around $100 million per quarter last year, this year. First 2 quarters, we were doing around $120 million, $130 million. And then like now we are reaching a run rate of $150-odd million plus. So our endeavor is just that in next few quarters, we continue to maintain the run rate of $150 million plus.

Sure. And my last question is due to this adverse geopolitical situations, Red Sea situation, et cetera, are you seeing any notable pickup in your logistic cost, et cetera? Like in near term, should we expect operating costs will go up from current level?

Damayanti, see, the logistic cost as a percentage of the sales, total sales, is very, very low. And at this point of time, we see a decrease in the EBITDA margin to the tune of around 0.1% to 0.2% at this point, particular point of time. So it is not very significant at this point.

Okay. As of now, as you said, it's very minuscule and no impact as such.

That is correct.

The next question is from Tushar Manudhane.

Am I audible?

Yes.

Sir, first on this PLI scheme project. I just would like to understand the pricing of PenG, maybe pre-COVID. And what could be the profitability if the price goes below $20 per kg?

Tushar, as I said, no, last quarter also, let us not speculate at this particular point of time. Our first objective is to complete the trial batches, start the business in the month of -- in the first quarter. And the second challenge we will be doing is how fast we are ramping it out. We think we should be able to ramp it up between Q1, Q2. And once the full ramp-up happens only the pricing issue will come really because till that time, the pricing issue will not come. So we don't need to worry about it for the next 2 quarters, in my view. The current price will continue in my view.

Just from a sensitivity perspective, let's say, 3 quarters down the line when we start the external sales. So at that point of time, if at all, you can elaborate what happens if the price goes beyond.

Sensitive modeling is your prerogative. How can I suggest that?

Okay. Okay. Just one clarification, Revlimid is from Unit IV, right, as in Eugia Unit III?

It's Eugia I, which got audited in the month of July '23, and we received 0 observations, NAI classification for that facility.

And lastly, for FY '25, given the circumstances of the Eugia, if you could call out what could be the sales guidance to think about?

Tushar, I just mentioned that we are -- in fact, this quarter, which is the quarter 3, we achieved $150 million of revenue for the quarter. And we expect to continue the similar run rate going forward into the next quarters. But quarter 4 might have a slight impact. As I mentioned, it can have an impact of $20 million. But we will see how we can cover up that gap.

The next question is from...

Am I audible?

Yes.

Okay. All my questions mostly answered. Just one update on this product, Ryzneuta, which you in-licensed from Evive. Have you launched it in the U.S.? And what are your targets like?

Sorry, we couldn't hear. Which product?

This product, filgrastim product, Ryzneuta, which you in-licensed recently from...

Yes. So there's a product we are likely to launch in the second half of -- second quarter of this coming fiscal or second half of this calendar year.

Given that it's a BLA, would you need a sales force and all? How do you plan to sell it? And do you have any market share targets?

Yes, we have market share. We have obviously budgeted for what we are going to sell. At this point, I don't think we'll be able to share that kind of sensitive information. But we believe there is a 7-player market, but we believe that we would also be 1 player. And we -- obviously, it is going to be profitable for us. It's -- we hope to achieve a decent amount of sale. But it's too early to tell you about it.

But you're going to set up a sales force for this?

We already have sales force. And then wherever it's required, we'll augment. I don't believe we are having any major ramp-up for it.

The next question is from Surya Patra.

My first question is on the same question, on the previous question, basically, the in-licensed molecule. So you indicated that second half of the current calendar year that you would be launching, but which are the markets that you are initially talking about, sir? And do you see this as a kind of exact alternate of pegfilgrastim?

That is something I can't comment. It's -- we think that it is equivalent. It's a non-biosimilar product. So initially, we'll be launching in the U.S. We have plans to launch eventually in other markets.

Starting with the U.S. or it is other than U.S. market?

So it's -- the product is already existing in China, but we would be launching -- we are not marketing it in China, but we would be launching it first in the U.S.

Okay. Okay. And if you just add to its regulatory progress and the process there, sir, about that molecule.

We are confident of launching this product, and we have done the -- FDA had done the inspection in June '23. We already received the FDA approval for it on 16th November, I think, last year. And then our potential launch is 2024. The product is under manufacture, and we hope to CMO. We hope to launch it in July '24. We do not see any other hurdle at this point of time.

Okay. So considering the potential of the -- or size of the pegfilgrastim, this could be one of the largest product opportunity for near term. Is that...

That's something I'm not saying because there are -- like I said, there are 7 biosimilar companies in the U.S. and this product. We will have a very conservative estimate of what we are going to do. But I think that economically, it's a good product for us.

Okay. Sir, my just second clarification about the U.S. plant disposal, injectable plant. So while we have been of the view that there is larger significant demand in the injectable side, and we have a wider pipeline, and that's why we had created 2 facilities, 1 in the U.S., 1 in Vizag. So U.S. one was supposed to cater to the U.S. increasing demand while the other one for Europe and emerging markets. So now the -- just before the thing, so the disposal, what is the kind of thought process here?

I think Yugandhar is -- should be answering this question. Yugandhar, you would like to take that?

Yes, I'll take it. In fact, Surya, like it is -- sometimes what happens is, initially, we thought Vizag will cater to emerging markets in Europe. But subsequently, 2 years back itself, we changed the strategy of Vizag will also be backup to Eugia III and file new products from Vizag. So with the Vizag coming up and multiple lines being planned in Vizag, what we felt, this U.S. plant was becoming nonstrategic and the capacities available were not sufficient to take care of the market share requirements of U.S. business. So it is a strategic decision that we will take out U.S. plant and focus on all India plants. But at the same time, the U.S. plant will act as a contract manufacturer for us, if needed, with all the 4 products. In fact, 2 products we file from that facility, 2 more products we are planning to file from that facility. And in case if there is a future need, the contract manufacturing option is available.

Okay. Okay. My third question is on the European business front. In fact, see, we have been saying that the European business has obviously seen margin profile beyond 15% since last couple of quarters. So given the kind of shortage situation, improved pricing scenario for generics, even in Europe, so what is the kind of margin profile of that business currently? That is one. And second question relating to Europe is that the European Union recently has come out with a large basket of products, more than 200, which are critical for their requirement and that is -- and they are expecting to create a kind of safety inventory. And that's why the procurement is likely to start starting this January. So if I see the presence of Indian players in Europe, then obviously, Aurobindo is the largest. So what would be our scope in that? And what benefit that you anticipate there?

Yes. I would request Murali to talk about the second point so that I can talk about the margin profile after that, okay?

Okay. So Surya and all, happy to be part of this call. So coming to your question on the safety inventory advocated by EMA, yes, we are analyzing or we have analyzed that list. We are also taking care to ramp up the inventory part, APIs and components to supply sufficient quantities into Europe. And other than this also, all the regulators or several regulators in European our footprint countries do ask for certain safety net, and we are working on it.

Is it a sizable opportunity since it is a 300 -- I mean 210, 220-odd product basket?

Yes, it is almost 30% of the list or in the Aurobindo list of products. So it is a sizable opportunity.

Yes. So Surya, in terms of the margin, we've never given the margin profile of Europe, right? But having said that, we were earlier around 10% to 11%. And certainly, we moved up by 2, 3 percentage points already. And with the growth we have been targeting, with the way cost structures have been looked at it, certainly, we will make an attempt to touch upon the 15% plus.

Okay. Okay. And just lastly, any update on the pneumococcal vaccine supply opportunity, sir?

Yes, Surya, Satakarni here. On the pneumococcal vaccine, I have given an update, I think, 2 earnings calls ago that we received an SEC recommendation based on a 3 plus 0 dosing regimen trial that we concluded in about 1,100 infants. So I did not -- we did not meet the time lines of the immunization tender. So we were not -- I was not keen because we still had the manufacturing license to obtain and all. So naturally, we couldn't become part of the immunization tender that was floated, the national tender. That time has passed. Now during this period, we have conducted a 2 plus 1 dosing regimen trial, which means the infants are given 2 doses followed by a booster dose 6 to 9 months later. Now that trial was completed, and we submitted the findings of the trial to the SEC committee only last month. In the private and retail market, we don't have any presence there, which is an area that I would not like to enter at this point of time because we wanted to generate more data to take the product to the WHO markets in 2026. It is the immunization tender that probably is of interest to us, but we have passed that last year. And I will keep you posted in case there is a strategic shift in what I think for the next tender cycle. At this point of time, in the next 2 to 3 quarters, I don't see us putting this product out in the market.

The next question is from [ Smith ].

Am I audible?

Yes.

My question is on U.S. generics. How was the pricing environment in Q3 for injectable products?

It was a low single-digit price erosion.

Is it Q-on-Q or Y-o-Y?

It's Q-on-Q.

The next question is from [ Kiran Shah ]. Okay. We move on to the next question. The next question is from Tarang Agrawal.

Am I audible?

Yes, Tarang.

Right. Okay. A couple of questions starting on Europe. If I were to adjust for the tax clawback, you're at about EUR 206 million. How should we look at this business going forward? Is this EUR 200 million the new base for this business, number one? And number two, in your response to an earlier participant, you commented -- you gave a metric -- you said 30% of those 200-odd products. If you could elaborate in terms of what that 30% was?

Murali?

Yes. Yes, Tarang, no, I say 30% in the list of INNs that have been identified as potential shortage items and that the manufacturers have to potentially ramp up the inventory and also we know in terms of the number this much will come. But it's not based on value or other quantifications at this moment. But again, we have communicated to our country teams to very closely look at these products and do the needful on the demand forecasting and purchase orders. And similarly, India team are also aware of it. So I hope this answers your first question. And relating to the clawback, Subbu, do you like to comment? Or can I continue to?

No, no, he is talking about whether this is going to be the new base against 206 of adjusted revenue for the quarter, what is...

Yes. Tarang's question was also are we looking at this EUR 200 million plus -- yes. I hope I'm audible. Tarang's question was also whether are we going to clock this EUR 200 million plus Q-on-Q. And Tarang, yes, we will be doing that for sure. That is the objective. And of course, in this quarter, because of the almost close to EUR 14 million clawback, it slightly impacted our Q3 revenues.

Sure. On the ROW market, if you could elaborate -- I mean there's been a solid growth, about 25% odd in INR terms in this business. Any specific markets which are driving them? Is it one-off? Or the INR 600 crores, INR 625 crore quarterly run rate is something that we should work with moving on?

Tarang, ROW market, as it's comprised of growth market, we call it growth market, comprised of multiple countries like including Canada, Brazil, South Africa and China and many markets, right? And we have been growing in all the markets, at least $1 million, $2 million like that we have been growing, and it is expected to continue. Especially, China was not a player in the past, and now they started contributing something, which we said we'll be doing single digit. Now we are talking about moving to at least $10 million to $20 million in a year time. And once the plant is commercialized, say, in Q2, it can go up only, right? So this is where we are on the growth markets.

Got it. Got it. And my last question on the U.S. Mr. Swami, if you could give us a sense on the outlook for the oral solids business. Do things remain where they were, say, in Q2? Or are you seeing an improvement in outlook or deterioration in outlook?

Yes. We expect the strong momentum to continue, underpinned by new product launches and surging volumes. We have taken a strategic decision to adopt a volume-based plan to enhance our footprint. While the growth in oral solid is expected to be strong, we also see some positive signals in our OTC portfolio and steady continuity in the branded oncology injectable business. Overall, we are looking at decent growth going forward.

The next question is from Kunal Dhamesha.

Just one on the Eugia III since we have now added a third-party consultant, et cetera. Any view on the remediation cost we could have for the next year? And more related to Eugia III again. So we are expecting this probably $20 million impact on revenue. But will there be any nonsupply penalties since we are basically one of the biggest supplier to the U.S. market? So have you kind of factored in that as well?

Yes. We expect $2 million to $3 million in the coming few months with respect to third-party consultants working with us. And we did evaluate in terms of what can be the penalties part of it. At this point of time, the way like we think it might not be significant. But in case if anything changes, we'll -- I'll let you know.

Sure, sure. And just on this clawback tax on Europe, this EUR 13.5 million would have -- the complete amount would have impacted our EBITDA negatively is the way to think about it?

Yes, yes, you're right.

The next question is from Nitin Agarwal.

Sir, my question is 2 things. One is, a, one, on the biosimilar business. Mr. Satakarni has given us a sense on the pipeline, but if you can give us some more color on how should we see the commercialization part of the biosimilar business over the next -- say, next 3 to 3 to 4 years. And sort of big geographies, do you anticipate where the revenues, commercial, will start earlier? And what kind of salience can this business really have in the overall scheme of things, say, 3, 5 years down the line for us?

Nitin, that's a good question. So with the trastuzumab SEC recommendation this year, we would hope to commercialize trastuzumab in the Indian market in the next quarter or 2. That's the start of commercialization phase for this breast cancer drug. Now with the 3 filings in regulated markets across Europe, Canada, MHRA, we expect these 3 filings to translate into regulatory approvals also towards the end of next fiscal year, which means that they would also begin the commercialization phase of these products in the next 4 to 5 quarters' time. Now with 4 more products in clinical trials, especially the big ones, which is the Xolair biosimilar with limited competition and the second immunology asset that recently advanced to Phase III clinical trial, which is Prolia biosimilar denosumab, both of them will be filed in 2025 in Europe and other regulated markets, including the U.S., which provides us an opportunity to get into commercial phase in the following year, which is the calendar year 2026. So while I'm not a great fan of giving projections to what could be the size of the business, with 7 products, out of which 3 of them probably get to approvals in the U.S. before 2026 and at least 3 to 4 of them in Europe and the filings at emerging markets are going to happen with trastuzumab and other programs, I see 2026 as an inflection point for this business. For the hard yards that have been put in and the investment prudence that we have followed in shepherding these products through nuance to clinical trials over the last 3 to 4 years, I see 2026 should be the year from where a significant chunk of commercial opportunity or commercial revenues will start to come in. Now with Xolair, I expect by '28, we would be around USD 120 million to USD 180 million provided we will be able to get approvals both in U.S. and Europe and another $20 million from the rest of the world. So this is one product that I can give guidance about because there is limited competition. The other products, we are entering into a market which is already slightly formed. So we know where we are getting in there. We really need to test the market. But the guidance after 5 years for Xolair would be anywhere between $120 million to $180 million, $120 million in the worst case and $180 million in the best-case scenario with another $20 million coming out from the rest of the world markets. The most important thing to underscore here, Nitin, is the margin base that will increase with the introduction of biosimilars in the regulated markets. So that's something which we are excited about 4 to 5 years from now and see how these -- how our efforts in investing as a company into a differentiated portfolio of which biosimilars is significant will translate into benefits and increase margins for Aurobindo as a whole. Does that answer your question?

That's very helpful. If I can just probably push one point referring to -- taking reference from what you mentioned earlier. As you mentioned, barring Xolair, most of the other products, we are probably going to be entering late after market formation. I mean given the way dynamics in biosimilars have played out in Europe and the U.S., I mean, what is your assessment in terms of what is our capability? What is the right to win even after we enter so late in some -- most of these products going forward?

So that's an interesting perspective. Now in the first wave of products where we are already entering a formed market. A formed market is in a sense where biosimilars have already formed the market. There is a price erosion that has already happened. For example, if you look at the trastuzumab, I don't think it is going to erode further. In fact, the market started to pick up now because the outreach and availability of this biosimilar for multiple other patients -- or the patient base is increasing. So when you enter a formed market, you make educated decisions. You say, okay, you have a price erosion of around 85% or 80% already in certain markets. So do I have the cost of goods to enter and still make 80%, 85% gross margin? So only when we think we can enter a market which is already formed and if there is a further price erosion of 20%, 30%, still we can make around 80% to 85% gross margin, only then we are entering into those markets and entering into those products and developing those products. So we are sure while we are slightly late in certain products. With denosumab, we will not be very late. With denosumab, we will be in the first and second wave of launches with denosumab. With the first wave of products, it is a very strategic decision that we will enter into a low risk and already formed market, low risk both in terms of the market as well as in terms of the IP risks. And we will test ourselves. So for example, in Europe, with so much price erosion we see with these products, I can safely tell you with the cost of goods that I'm having, I will still have an 85% margin base, gross margin.

And sir, is it fair to assume that across all of these markets, we would be leveraging our existing field forces to push these products? We will not be requiring additional SG&A investments any meaningful way?

That's wishful thinking. That's wishful thinking. For example, in Europe, we already have a field force. And we will continue to engage with them, and we will utilize that workforce. In U.S., Acrotech will become the arm for biosimilars commercialization. As you know, as Swami has alluded to before, wherever there is a requirement -- we already have a certain base there, but wherever there is a requirement, we are augmenting our field force depending on the nature of the products that we are going to launch. And to answer one of your colleague's question before on the Fc fused filgrastim that we are going to launch in U.S., so there is already going to be a field force in the oncology segment there when we put out products also in that market. So we'll be using the same field force plus augment it because the nature of biosimilars marketing is slightly different and still requires some sort of marketing. So it will not be a ground-up building or constructing a field force there or nurturing a field force there. We will leverage on what we have. Let's augment it with the skills and the skills that are required to take these products to their commercial success.

Got it. That's very useful. If I can squeeze in probably one more. Sir, on the Chinese plant, which you're talking about getting commissioned by Q2, sir, what is the strategy for this plant? This is -- is this going to be largely for Chinese consumption? Are we looking at it as a base for other reg markets? I mean -- and if you can probably just highlight the thought process behind this Chinese manufacturing assets?

Yes. Nitin, what we are trying to do is this is -- originally, we are planning to do it for Europe and China. Europe, we'll be launching and we like the -- I mean, product supply for Europe immediately. I think the Chinese approval -- the approval from the Chinese regulators may take Q2 or Q3 of this next fiscal year. Then we will be supplying to China also. At this particular point of time, we are not saying U.S. U.S. will take at least 1 to 1.5 years because the inspection to be triggered and approval to come, et cetera. But as a whole, we'll be using the plant to supply all the markets.

And sir, this is orals plant? Are there other lines also beyond the orals?

This is only oral plant.

Okay. And sir, if I can take one last one. On the inhaler, sir, we had some products in the pipeline. Any color on the commercialization or schedules?

Swami?

Yes. So you're talking about the BFS products? Are you talking about the DPI/MDI kind of products?

So the DPI/MDI products. And the other one also, if you can touch upon.

So the DPI/MDI, we have a product that's under development. We have a query on it, and then our team is responding to it. That would take some time. And I think there are some legal issues, too, in launching that product. So that's definitely going to take some time. As far as the BFS is concerned, Subbu mentioned in his starting remarks saying that one of our joint ventures is going to start manufacturing. So we hope to have some news in the early part of fiscal '25 on the manufacturing and commercial sales of some of the BFS products.

The last question is from [ Jigar Walia ].

My first question is for the products approval, 7 we have received from the injectable side. How many would be from Eugia III?

Most of it is from Eugia III, except one product. Most of it is from Eugia III.

Got it. Second question, your perspective around the generic prices in the U.S. market, particularly around the current times?

We expect that -- at least on the specialties and injectable side, we expect low single digit going forward into the next quarters.

Got it. Broadly, is there any concerns, particularly from the U.S. market from -- with regards to China sourcing imports or generally China origination?

I don't see much of an impact, but that Swami can comment on it.

Yes, yes. Subbu, would you like to comment on it?

Yes, I'll do that and then Swami will supplement it. I mean we recently got -- we don't have any -- recently, there was a report released, and we have gone through the report. And first of all, we'd like to state upfront that we only buy from the U.S. approved or acceptable vendors who have been with us for a long time, right? And we are not aware of the basic source of the report because we have seen certain discrepancies actually. First of all, the first point I'd like to say is, first of all, the report talks about we have been selling valsartan. We are not selling valsartan in the last 4, 5 years. In fact, the other way -- one of the suppliers mentioned in the report is supplying that and he's having a market of around $1.5 billion actually. So we are not clear about what is the source, and we also try to find out, is there a sanction list of the suppliers? Or is there any discern, we are not able to find out. Having said that, even if you really see the procurement from the suppliers in the list -- from the list, right, given the report, it is very, very, very insignificant. It is less -- it's a low single-digit type, right? So we are not seeing any concern, et cetera, from procurement of material from the China or any other thing. And one of the product is also which is once we get into PenG also that percentage may also come down. So we want to assure all our stakeholders that we are fully committed to upholding the highest standards on what we do, including the procurement, quality, everything, okay?

As there are no further questions from the participants, I now hand the conference over to the management for closing remarks.

Thank you all for joining us on the call today. We apologize for the mic and line-related issues at the beginning of the call. If you have any of your questions unanswered, please feel free to keep in touch with the Investor Relations team. The transcript of this call will be uploaded on our website, www.aurobindo.com, in due course. Thank you, and have a great day.

On behalf of Aurobindo Pharma, that concludes this conference. Thank you for joining us, and you may now disconnect your line and exit the webinar.