Aurobindo Pharma Limited (AUROPHARMA) Earnings Call Transcript & Summary

Welcome to Aurobindo Pharma's earnings conference call for the third quarter of FY '25. [Operator Instructions] Please note this conference is being recorded. I now hand over the conference to management for opening remarks. Thank you, sir, and over to you.

Thank you, Vandit, good morning, and a warm welcome to our third quarter FY '25 earnings call. I'm Shriniwas Dange from the Investor Relations team. We hope you have received the Q3 FY '25 financials and the press release that was sent out yesterday. 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 U.S.A.; Mr. V. Muralidharan, CEO, 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, Shrini. Good morning, all, and a warm welcome to our Q3 FY '25 earnings call. I'm pleased to share that we have delivered an exceptional performance in Q3 FY '25, continuing our strong growth trajectory. This quarter, we have achieved our highest ever quarterly revenues reaching INR 7,979 crores, with a remarkable growth both year-on-year and quarter-on-quarter. Our performance are fueled by robust base product sales in U.S., sustained momentum in Europe and ongoing expansion in high-growth markets. We saw impressive volume growth, successful product launches and maintained stable pricing, all contributing to a strong quarter. Gross contribution also stood at highest level at INR 4,663 crores. Gross margins remained at 58.4% increased by 130 bps year on year despite lower transient sale, but owing to high benign raw material presence. Our EBITDA stood at INR 1,628 crores with a healthy margin at 20.4% even after observing higher R&D cost of around INR 50 crores over Q3 FY '24 -- Q2 FY '24 level, given our strategic focus on development of complex products, including Specialty and Biosimilar. EBITDA before R&D stood at 25.8% or INR 2,056 crores against INR 1,975 crores in Q3 FY '24. Our net profit for the quarter stood at INR 846 crores. Our cash flows have improved significantly on the backdrop of a strong working capital management leading to a reduction in net debt of USD 84 million. Now let me take you through the business highlights for the quarter. Formulation Business. In Q3 FY '25, our Formulation business witnessed a robust year-on-year growth of 11% to INR 6,973 crores, contributing approximately 87% of the total revenues. The API business recorded a revenue of INR 1,006 crores. While pricing pressures continued, these are partly offset by the volume gains and improved asset utilization. U.S.A. During the quarter, our U.S. Formulation business recorded revenue of USD 435 million against USD 421 million in Q2 FY '25, reflecting a strong quarter-on-quarter growth. The price erosion on overall basis remained neutral, supported by our well-diversified portfolio. Revenue from overall generic products in U.S.A. increased by 4% year-on-year to USD 297 million, driven by volume gains and new product launches. The injectable and specialty business in the U.S. remained at $76 million, mainly due to low transient business scales and cutoff related issues due to the Christmas. As of December 31, 2024, we have a total of 226 specialty and injectable ANDA filing with 170 having final approvals and 56 under review. During the quarter, we have filed 4 ANDAs, received final approval for 8 and launched 7 products. Europe. Our Europe Formulations segment continues to deliver strong results, registering a revenue of INR 2,121 crores a significant growth of 23% (sic) [ 22.7% ] year-on-year. In constant currency terms, our revenue stood at EUR 236 million against EUR 229 million in Q2 FY '25. This growth was driven by robust performance across all key European geographies. Growth Market. Revenues from the growth market saw a remarkable 39% year-on-year increase reaching INR 873 crores or USD 104 million, driven by our successful geographical expansion and strong sales momentum. ARV. The ARV business [ revenue increased ] to INR 307 crores against USD 36 million. The growth in ARV business was driven by additional opportunities. Now going to the other highlights. The raw material continued to be at this level supporting our gross margin which stood at 58.4%, against 57.1% of previous year. Net CapEx for the quarter is around $106 million. The business added net cash flow of $49 million during the quarter. This is supported by improved working capital position. As a result, the net debt after investments at the end of December improved to [ USD 84 million ] from USD 133 million in September '24. We expect the net debt ratio to improve for the end of the fiscal year FY '25. The average finance cost for the quarter was 5.6%. The average USD-INR exchange is at INR 84.46 against INR 83.76 in Q2 FY '25. New initiative. [indiscernible] manufacturing capacity. We have the present formulation annual manufacturing capacity of 50 billion units plus we intend to further increase the capacity to drive further growth. We have commercialized our China plant with an annual OSD of around 2 billion units, which is expandable further over near to medium term. The plant is expected to contribute to revenues in FY '26. We expect our U.S.-based OSD plant in Dayton to be commercialized in the next fiscal year. Our other plant in U.S. Raleigh which is currently manufacturing topicals, is expected to be fully operational in the next fiscal year to include transdermal and respiratory [ products ]. Building strong portfolio with respiratory and nasal. We are working on multiple respiratory products. Recently, we have partnered with a global pharma major for development of respiratory products, highlighting our commitment towards the complex portfolio. Our backward integration, we are witnessing a good yield improvements in the capacity ramp-up process in our strategic investments, namely the PenG and [ forward direct ] is on track. We expect to break even by March '25. And strong Biosimilar product line, the recent certificates, followed by positive opinions, emphasize our commitment and capabilities in our space. Looking ahead, we are confident to continue our growth trajectory, driven by our robust and diverse product portfolio, coupled with significant capacity enhancement, multiple upcoming launches and favorable market condition. Our backward integration expected to drive enhanced operational efficiencies and deliver strong contribution to our financial performance in FY '26, which not only offset the anticipated decline in transient sale, but also strengthen and sustain our revenue and profitability growing forward. The growth momentum in Europe and other key markets is expected to sustain further accelerating our revenue stream. At the same time, our proactive efforts to optimize the working capital cycle will further enhance our balance sheet and improve cash flow, reinforcing our financial stability and long-term growth potential. We are on track to achieve our EBITDA margin of 21% to 22% for FY '25. The next quarter is expected to be stronger, driven by increased transient sale, execution of strategic initiatives and improved operational efficiency. This concludes my remarks. Now our business leaders will give more clarity on any specific aspect in our Q&A session. We are happy to take your questions. Thank you.

[Operator Instructions] The first question is from Tushar Manudhane.

Sir, just on PenG to start with, like, what kind of operational loss currently we have for the quarter?

We had around INR 60 crore operational loss, and the plant has gone for a small shutdown for -- including or modifying some of the equipments which has completed, and we started it 10 days back.

And what kind of pricing outlook are we sort of building once we breakeven out, let's say, for the external sales?

See, you have to look at it like that. We are -- the current pricing of PenG is around $26. However, having said that, we are not depending on the PenG sales alone. We have created capacities across the value chain of PenG. So we will be able to supply it as a PenG or 6-APA or [ amoxiline ] or whatever may be. So we have enough -- we are able to manage it even if the price goes down, and we'll be able to do it better.

Understood. And secondly, on the -- let's say, in terms of the raw material prices, what's the outlook whether this -- do you see the inventory in the industry itself lowering down, so that would benefit in terms of raw material prices for us going forward?

I think the current raw material prices continue to be there. And what will happen because of the inventory going down is a very futuristic question. But I think we -- at any point of time, we'll be having around 3 to 6 months stock, so it may not be a big issue in our view.

And sir, just lastly on Eugia. When do we see the production scaling up or, let's say, the sales scaling up. We've seen now that second quarter where sales been really trending downwards.

Yes. My colleague, Yugandhar will answer, but I would request you to restrict everyone to two questions because we need to give an opportunity. Last time we could not give.

So -- as you rightly said, it is basically like we are scaling up the production, mainly from Eugia 3. And we have completed all the remedial actions. And this quarter onwards, we'll be reaching to our original what we used to do, which is around 60% to 70% of capacity utilization. Right now, we're still doing at around 50% capacity utilization. So I expect this quarter onwards, we should go back to the previous levels. And I don't expect any further decline happening from here on.

The next question is from Kunal Randeria.

So my question is around your plans in China. So how should we look at this market shaping up? Because in the past, you and several of your peers have spoken of this opportunity, but I don't think there has been any material contribution yet. So just wondering if you can share some details, the kind of products you have, the time it takes to get approval, the reimbursement process, the launch pipeline you have and the revenue projection for the next 2 to 3 years?

Yes, Kunal, we started our China plant in the last week of November, and it is in the ramping-up process. The China plant will start -- it will start building sometime in the month of April, mainly to the European markets. We also have certain approvals in for China also right? And also, we are getting the -- this -- we already got the European approval, so we can supply to Europe. China, we are in the process of getting it. And after that, there may be inspection for U.S. also. So in the next year, it will ramp up fully. And probably in another 2 to 3 years, we will see good traction coming out of the China plant.

The kind of products. And just curious why would you be, I mean, not trying to supply more to the Chinese market?

No, immediately, we are having the European approval. So we'll supply to Europe. As and when we get the approval from China regulatory authorities for the China plant, we will supply to China also.

Right. And any revenue number would you like to call out now for the next 3 years?

No. This being the first year, we may not like to tell because we are also moving ahead. So we may not like to give it in the first year. But certainly, in 2 to 3 years, I see a significant revenue coming up in 2 to 3 years' time.

Sure. Just one more, if I can. For the fourth quarter, should your Revlimid sales be higher than the fourth quarter of last year? There is significant...

I think, yes, and beyond that, I don't want to say anything, but yes.

The next question is from Kunal Dhamesha.

So, sir, when I look at -- we have said that our revenue growth in this quarter on a year-on-year basis, excluding the transient product is around 12% year-on-year. So that's a good outcome. Can you help us with a similar number for 9 months FY '25?

I will work it out Kunal. I don't have it right now. I'll get it done.

Sure. Sure. And on the transient product, how do we expect it to evolve in FY '26 since there is a patent expiry also coming in for us, because there will be some buying pattern change as well. So how are you thinking about it?

Yugandhar?

Sorry, Kunal, I didn't get -- is it specific to some product or like...

It's specific to generic Revlimid, right? Because there is patent expiry in, let's say, January and everyone has given particular market share. So is there a meaningful change that you expect early on in the year, let's say, FY '26 in terms of buying pattern, price erosion, volumes? Or would it be more...

A lot of things are possible, Kunal. That's why like we are trying to do -- because we don't know exactly how the market will shape up going forward into FY '26. So we are conscious of that. And whatever volume what we have, we wanted to maximize the opportunity in Q4 and Q1. That's our thought process. Now how things will shape up? I won't be in a position to clearly tell, but yes, closer, you go towards January 2026, things are going to change dynamically. Okay? So I don't know what others will do. But I know what I will do, okay? Obviously, like we do have plans of continuing generic Revlimid post the patent expiry starting from 1st, February 2026. And it will be like any other generic, but we want to be there, okay, even the post.

Sure. And one for Dr. Satakarni on the positive CHMP opinion that we have got on filgrastim now. So what's our launch plan? I believe we need to still get the marketing authorization approved and then we can launch. So what's the time line there and then how the pipeline is looking?

So with respect to the positive opinions that we have received from CHMP for filgrastim and the long-acting filgrastim, I expect the marketing approvals in 2 months' time. That's the usual time line from receiving a positive opinion to completing the European Commission formalities for receiving a positive opinion. So considering Dyrupeg or the pegylated filgrastim gets approved in April and filgrastim slightly before that. We already have bevacizumab biosimilar approval in U.K. So I think we will be starting our commercial supplies into the EU starting the quarter of July. So in all likelihood, I expect a quarter and quarter-and-a-half of revenue bookings to begin from this year. That's part one of your question. Now what was the part about the pipeline, right? Kunal?

Yes, yes, in terms of how we have evolved, let's say, quarter 2 to quarter 3, any clinical trial updates, et cetera, that we have of the pipeline products?

So we have 4 more products in the Phase III clinical trials. As I told you, I think last quarter, the biosimilar to XGEVA and Prolia, which is a denosumab biosimilar being tested in postmenopausal osteoporosis. We are on track to conclude the clinical study by May this year, which means that we will have the clinical study report available with us by September. And I hope to -- if there are no further delays -- because this trial was completely conducted in 8 European countries and 65 sites, so if there are no further delays in gleaning the data, then I expect the European filing to be in the October quarter and the U.S. filing to be in the Q4 of the next fiscal. With respect to omalizumab, which is a biosimilar to Xolair that is being tested in chronic spontaneous urticaria across the European sites in Caucasian public. We are slightly delayed by about 4 to 5 months in closing out the recruitment. I think I talked about it last quarter, but what is important to note is we made up for a couple of months by increasing the number of sites in India. Earlier, India was not part of the recruitment plans, which means that I'll still have a delay of 3 months in closing out the study, but I'm quietly confident that by the end of this year, the omalizumab clinical study will be concluded as well. We already announced positive Phase I results with omalizumab versus the European and the U.S. innovative product, I think last year. So we are quietly confident of closing out the omalizumab clinical study by the end of the year. And Q4 filing at least in Europe still looks a possibility in the next fiscal. So that's about the omalizumab clinical study. The bevacizumab clinical study has been going on for about 3 years now. We are inching towards the closure. I think in 2 quarters' time, we will conclude the recruitment phase and probably we will have a filing in Q1, Q2 of the next fiscal which means '26, '27 for bevacizumab. But with the MHRA approval that we received for bevacizumab, we are talking to a few regulatory agencies in the emerging and the semi-regulated markets, where we can position the dossier based on the MHRA approval alone. It's still very dynamic in the way regulatory agencies look at how the product gets approved only based on Phase I and what is the process forward in approving it. So if there are any approvals that I receive in emerging markets or semi-regulated markets, I'll you know. The ophthalmic product is slow. We have an ophthalmic product in clinical trials. We are only at around 50% of the recruitment. So I don't think we'll be able to complete the recruitment in 2025 as estimated before. I think we will be well into the second half of 2026, when we conclude the Phase III clinical trial for the ophthalmic product. So in a nutshell, except for the ophthalmic product, the pipeline is advancing fairly well. And with the approvals that we have received or the positive opinions that we have received, we are quietly confident by '26 we'll be able to at least have 6 to 7 products in the European and the semi-regulated markets. I hope that answers your question.

The next question is from Anubhav Agarwal.

Two questions. One is for Yugandhar sir. First on the injectable business, when I look at IQVIA data, I do not see significant ramp-up over the last 2 or 3 quarters. The sales are just languishing. I understand that you guys have been shipping, this quarter had cut off it, et cetera. But is it just a production problem where you say that you have 50% capacity utilization or there is an unwillingness from the customer side to take product because of UJ situation?

No, it is mainly the production problem, Anubhav. I can tell you that with full confidence, it is that we are ramping up slowly, and we don't want to rush anything. And all our contracts and interest from the customers is very much very, very high. And we are not in a position to make the demand, but I don't want to rush anything just to meet the demand. That's why I said, it is mainly like I expect Q4 and Q1 of next year to much better. But in terms of customer interest and all the contracts, very much in place. Absolutely no issues.

And on the utilization, the reason utilization is lower because [ CAPA ] progress is happening. Does the facility still have a lot of consultants over there?

No. Consultants are no longer there. We just have transient consultants like just -- I think you are aware that we had a meeting with FDA and everything has been sorted out in October itself. And we have just transient consultants who are just 2 or 3 people working with us. Beyond that, we don't have any consultants no longer available and no longer required even as per FDA. And so we are just -- what we are doing is because we have put in a lot of CAPAs, we are recruiting more people to ensure that we meet up to our CAPAs and the recruitment process has taken time, because you know like injectables to getting good manpower is also not easy. So now like we have all the people in place. We have 95% of our requirement in terms of number of people. All have joined. They're under training. From February onwards everybody is on the job. So that's why from March onwards, I expect the production ramp-up to happen to the original levels.

That's very helpful. My second question is on the biosimilar front, and this is both for Subramanian sir and Dr. Satakarni sir, both. I'm just trying to understand today as a fact, when we have R&D of about INR 1,700 crores for the year, how much of that is going to Biosimilars? That's one part of the question. Secondly, how much freedom has Satakarni sir got in terms of expense that you can do on the Biosimilar front, what is the target that when does Biosimilar as a business become profitable for Aurobindo?

Anubhav, I would take the question and ask Subbu to chime in with the numbers. The part one of the question, I think we spent roughly about -- as a company, we spend roughly about 30%, 35% -- 30% to 35% of our R&D spend goes into funding the development of Biosimilars. Subbu will be able to give the exact numbers. But this is primarily driven by the Phase III clinical expenditure. So out of the overall spend that we make on Biosimilars around 70% to 75% of the expenditure is incurred towards conducting the pivotal Phase III efficacy studies. So in a nutshell around 30% to 35% of the overall Aurobindo R&D spend is spent towards Biosimilars. Now to the part 2 of the question, what was the part 2 of the question?

Yes, part 2 of the question is, one, when does Biosimilars as a division becomes profitable? Secondly, you are only using R&D part of R&D as a resource right now, but Aurobindo has a very strong balance sheet also. So do you have the liberty to buy products also as your peers are doing versus developing all yourselves?

That's a very interesting question. I'm actually dabbling with those thoughts Anubhav myself, because any company of the size of us cannot do all Biosimilars by ourselves. It requires enormity of resources allocation to conduct and develop these many products in clinical studies that we are doing. If you look at when we started out in 2018, July to now, we have conducted about, I think, 6 Phase III clinical trials, around 8 or 9 Phase I clinical trials. So that's the size of Biosimilar studies at companies like Sandoz and the Mylans too. But having said that, any in-licensing opportunity that comes our way that we believe will lend advantage to our businesses in Europe and U.S., we are open to those. We are scouting for a couple of opportunities. But we are more internally focused right now. In fact, our second wave of products or the third wave of products that you may call them post 2028, most of the product pipeline is now in a decent development stage where we may begin the Phase I and Phase III clinical studies starting end of 2025 and early 2026. So any products that we miss out from our portfolio, which we think will make a significant addition to our commercial base in regulated or semi-regulated markets, we are open to in-licensing opportunities. There is enough freedom to go out and scout for products and in-license them when and if required [ and about ]. But right now, we covered most of the important products that we think will position us both in oncology, dermatology and the immunology segments, dermatology is part of immunology. So we seem pretty confident with the broader pipeline that we already have. To answer the next part of your question, when we think as a business, we will be breaking even. As I told you, 2028 to 2030 will be the inflection point of this business. You can already see that we have 3 products, which are approved, 2 with a positive open in Europe, 1 in U.K., and we are expecting 1 more this year and -- with denosumab, omalizumab, and 1 more in the next year. We expect at least 7 products to be commercialized fully by the year 2027, and '28 to '30 will build in a good revenue base for us where I think the company takes off by itself. So we are expecting -- we are enthusiastic about the progress that we are making, and we are very sure footed in our investment. I'm very prudent about the product choices we are making in the Biosimilar segment, Anubhav.

The next question is from Yash Darak.

So can you please state around with regard to the operationalization status of PenG and at what percent of utilization are we currently working and how we see it progressing forward?

Yes, the question of talking about utilization is secondary. The first thing what we have done is -- how do we improve the yields, et cetera, which we have been working. And we have been fairly success after the modification -- slight modification, et cetera, we have been done, and we'll be -- we have been seeing very good results, really. And next 2 months, we will continue that and the full ramp-up will take place starting in April. See it is not the question of capacity utilization, you need to achieve that desired yield level. That's what we are working on.

So do we expect the sales to ramp up from April?

I think that is what we are planning. In fact, if touch wood everything goes well, March also, we may be able to do that, but let's take it as April.

Okay. And secondly, sir, there was a PLI scheme, which was introduced in the budget with regard -- amounting to INR 2,445 crores, are we expecting to benefit from that?

That's more of R&D, no, if I'm right?

Yes. With regards to APIs.

Yes, I think I have not seen in the last 4 days, any guidelines, et cetera, probably I was busy with the Board papers and other things, probably -- certainly, if there is an opportunity, we will apply to that. I think a lot of good has been done by the various business teams, starting Biosimilar injectable, peptides, everything, so certainly -- respiratory and other things. So certainly, we will look into every possible opportunity, but we are not seeing the guidelines as on date. At least I'm not seeing it.

Yes, I understood. And my final question would be regards to the EBITDA margin. When we guide for 21% to 22% of EBITDA margin, is it excluding the R&D? Or is it included in the R&D?

See we don't know R&D. See we -- everything put together only we have to know.

Because we haven't been able to achieve the guided target in these 3 quarters. So are we still confident of achieving the 21% to 22% EBITDA margin guidance?

Yes.

The next question is from Surya Patra.

My first question is on the respiratory product opportunity, what you have talked in the opening remarks also. So we know that there has been around 14-odd products that have already been there in the various stages of development. And I think the last quarter that we have also collaborated with one of the U.S. companies to develop even a basket more. So could you give some sense what is the progress on those products? What kind of products that we are talking about there? And by when that we will really start seeing revenue contribution coming from that side?

Swami?

I can take this question Subbu. So there's -- primarily, we are talking about the MDI and DPI. Yes, you are right, we had announced last month -- last quarter about tie-up with the firm -- international firm. Now apart from that, we have a good R&D setup. We are developing few products. And we are in the stage -- various stages. In some cases, the filing has been done and then at least 2 of them filing has been done and a few more are in the advanced stage. We believe that these are good products with fairly good dollar values. And we anticipate some of these products to come in late in FY '26 or maybe in the mid first half of FY '27. And then from there, we would have regular products coming in.

Okay. And this collaboration, if you can just add some color on this?

This is -- we have already announced whatever -- we had already talked about it earlier. We have tied up with the firm for the development of the product, and we will be launching it. This is a little medium term. It's not short term. Obviously, the development takes some time. We believe that this product has got a large market, and we also feel confident that we should be able to launch it without any IP constraints. We have taken care of that, we believe. So beyond that, what can I tell you. This is a large company that we have tied up with and there is another party which is helping in the development too.

Okay. Okay. My second question is on the U.S. business front, sir. I think we have seen there is a kind of uptick in the branded oncology business beyond the kind of a run rate of [ $25 million to $30 million ] what it has been indicated earlier. And similarly, even the OTC also has seen a kind of a sequential as well as Y-o-Y uptick. And on the Eugia front what, around sequentially in the last 2 quarters a $20 million kind of a sequential decline that we are witnessing. So is it entirely because of that Eugia facility issue? So if you can address these 3 segments.

Sure. So Eugia part, I would leave it to you, Yugandhar to handle. Other than Eugia, I can talk about the oral solids and Rx oral solids and the OTC. So would -- Yugandhar, would you like to take up Eugia first?

Yes. I think I already clarified that like last 2 quarters have been -- it is mainly related to supply-related issues. And it is per quarter like we were impacted by around $10 million. And I expect from this quarter onwards, we'll be back to normal run rate. It is mainly driven by the supply challenges, not related to the demand challenges, okay? So that I hope I've clarified multiple times. I hope that addresses that -- your question.

Okay. So I'll talk about the oral solids and OTC. On both sides, we had a very good quarter with all round progress. There's been steady progress. And -- we believe that this will continue going forward, and we are focused on sustainable long-term base business, and we are making more efforts to try and achieve that growth. We have a robust set of commercial products already important -- almost all therapeutic segments. And we are rapidly moving to a future with much more diversified portfolio. You had mentioned about the MDI, the inhalation product. Similarly, we have in transdermal area. And we are trying to diversify into different presentation, more value-added, value-creating product. And we have also amassed expansive pipeline with great potential to sustain. And our goal is to be the global generic powerhouse, which we are to an extent at this point, but we expect to continue being there and doing better. Okay. On the OTC, I'm sorry, I'll just briefly mention about OTC. So finally -- we have seen some traction in the OTC business in the last 2 quarters. And December quarter was fairly significant in terms of some breakthrough. We think that OTC would continue to grow. And over the next few quarters, I think you would hear more about it and we would see fairly good growth in OTC business.

With your permission, can I just ask one more question, sir. This is about oral peptide. Now can you -- sir, can you, sir, -- can you give some sense about what is our preparedness about the GLP-1s and also the kind of a competitive edge that we would be having because here most of the competing peers are indicating about integrated operation there. So if all are kind of...

With oral peptides -- can you hear me, Surya?

Yes, yes. Yes sir. Yes, yes.

Oral peptides is into the manufacturing of APIs. So with respect to GLP-1s, right now, we have 1 peptide -- 1 GLP-1 peptide with an active DMF. The other one, we are going to file the DMF this year. And we are investing in the development of another GLP-1 peptide. Anything on the finished product you should talk to Yugandhar. He will be able to answer that.

Yes. Yes, please.

Yes. Surya, we have entire GLP product range. In fact, our Vizag plant, we have a significant capacity cartridge line where we'll be filing all the GL1 products, Lira, Sema, [ Teriparatide ], okay. Everything in the GLP pipeline is covered by us, and we will be filing from our new Vizag plant.

Okay. And even the devices are captive?

Device is always outside because either it is from BD or from somebody else like the device manufacturing is always by any company for that matter, that all devices are procured from outside, but device assembly, along with the medicine happens in our plant, but device per se is always from outside companies. Nobody produces device in pharma companies.

Next question is from Bino Pathiparampil.

A couple of questions from my side. We have seen exceptionally strong growth in Europe and ROW for the quarter as well as 9 months. What is driving this?

Which Bino?

Europe, ROW.

Yes, Murali please.

This is Muralidharan. Thank you for raising this question. Yes, Europe has been contributing close to 27% of the global revenues for Aurobindo. Currently, we are doing this based on the wide portfolio of the products and efficient supply chain and increased supplies originating mainly from India and faster turnaround of the products at our quality lab mainly at Malta. Some of these factors are -- and a well-oiled front-end infrastructure and missionary commercial infrastructure. So all these are working in our favor at this moment. Also, we are availing the market opportunities in a big way, and other mechanisms, standard ones like the demand forecasting and timely supplies. All these are contributing to this robust performance. And we expect the momentum to continue in the coming year and quarters ahead. And having said that, we are looking for further launches that will happen from Eugia space as well as Biosimilar space, that will further take us to the higher levels.

Got it. But most of these things would have been a work in progress over the years, but what has really happened this year that suddenly there is a growth spurt?

No, over the -- you're right in it. But at the same time, over the last several quarters or last couple of years, we were fine-tuning. We are missing out on a couple of these aspects -- to happen in the right tandem. And definitely, things are happening in the right perspective as of now.

Just to add, there can be supply challenges from a lot of companies, and we are in a position to take -- in fact, like even Eugia has been growing at a rate of 20% in Europe. So we don't want to comment on other organizations. But yes, we have been seeing supply challenges from multiple companies, and we are in a position to fill the demand wherever the gaps are.

Understood. My second question is about India. So you have this trastuzumab approval already. How do you plan to sell it? Have you partnered with other companies? And second, when the GLP-1 opportunity opens up in India, how do you plan to sell it? Do you have partners already in place?

I'll take the trastuzumab question, Bino. So we have an approval by the CDSCO for trastuzumab. We are putting together a domestic marketing and sales team, which will kick in probably by the end of this year. But until then, the first 2 quarters, the sales will be through co-marketing partners. But going forward, in the domestic market, we are going to add a good sales team essentially to take our biosimilars to the patients and the prescribers. So that's a strategy that you would see evolving in the next 2 to 4 quarters' time.

Understood. And the sales team is only for Biosimilars. You won't have any other products?

For the Biosimilars, we are having a separate sales team because they specialize in branding it and importantly, there's a lot of network that is required to put forward Biosimilars to the prescribers convincingly. But having said that, any supportive medication or concomitant medication that goes with Biosimilars will also be marketed by the same team.

Understood. And the GLP-1 plans?

For India, GLP-1, we have our plans. We are talking to the agencies to see what sort of study requirements -- study requirements must be met. But you will see some announcement from me in the next 2 to -- 2 quarters' time about our strategy in the domestic market for GLP-1s.

And do you expect...

My suggestion is there are 10 people waiting. Let's restrict. You have been keep on asking questions. There are people waiting in the queue, only 10 minutes left out.

The next question is from Tarang Agrawal.

Am I audible?

Yes.

Okay. On Eugia, sir, you said that Eugia utilizations currently are at about 50% for Eugia 3. Does this also include the expanded capacity of Eugia 3?

No, Tarang. It's actually like expanded capacity is Line 13, Line 14 , and I'm not even considering. I'm talking about the existing capacity of -- because those lines are not approved so far. So I don't consider them as a capacity available. But up to whatever lines we have, we have been using around 70%, 75% in the past. Right now, we were using around 50%. So like we are confident that we will come back to our original levels of 65%, 70% capacity utilization of the previous capacity. As and when the new line gets approved, that will be an additional capacity.

So sir, practically, what is the utilization that the business can go through, number one. Number two, between Line 13 and Line 14 and the Vizag plant, when do you expect the approvals to come through? And if one were to consider Line 13 and Line 14 capacity to be theoretically available and Vizag to be theoretically available as on date, what would be the utilization for the injectables business?

It can be -- see, like Vizag is still in the nascent stage, because we got approvals for terminally sterilized lines. Now we will be going for the aseptic lines approval, that audit is due. And then we will be adding different varieties of things in Vizag. The cartridge lines will be all exclusive only for Vizag and there is a PFS, BFS, all those lines, what we will be adding. So between Eugia 3 and the Vizag facility, we will have significant capacity to take care of till up -- up to FY '30 in terms of the capacity available for the business and our business growth plans.

All right. And would it be fair to presume that for the normalized injectables business, $85 million and $90 million of U.S. revenue and about [ $45 million ] of Europe revenue should be a good base to go from Q4 onwards?

Yes.

Got it. And the last question on Europe, sir. Fantastic execution on the last 3 years, I would say. Euro revenues have been growing at a range of anywhere between 10% to 13%. If I look at it from a 9 monthly basis. Just wanted to get a pulse of how are the margins on this business? Because as we understand, at some point of time, the margins were low middle digits, and there was an inflection point that the business was looking for those margins to really inch up. So a comment there would be helpful. And how should we see this EUR 235 million run rate going forward on a quarterly basis?

Yes, Tarang, thank you for this. Yes, I mean, on the margin side as well as we are very constantly looking at the opportunity sales to be avail Definitely, we are clocking better margins. Of course, the specific numbers, Subbu will be able to comment at the appropriate time. And coming to the run rate of EUR 230 million plus, we are confident of standing this in the coming period as well. If I have to take January as a benchmark, definitely, we are on it. But yes, we will announce the full quarter results as we come to the end of the financial year.

[Operator Instructions] The next question is from Neha Manpuria.

Swami, sir, the 2 billion units in China that will free up capacity probably in the India manufacturing for the U.S. market. and the fact that we are also adding capacity in Raleigh, et cetera. How much additional capacity would you have for the U.S. market going into next year? And how confident are we of being able to actually capitalize on that without necessarily putting pressure on the market, given how large we have become in the U.S?

Neha. I'll take the second question first on the ability to sell the volume that's being generated. We are happy to take on more volumes. We have a good market. As you know, we have -- we are #1 in the U.S. in terms of prescription. We have a large base, but we believe that we have scope to grow. We have today 11% market share. We think that there is scope to grow, given our background, given our infrastructure in India. Now the North Carolina facility is nothing to do with the oral solids. It's a differentiated presentation. One is the topical transdermal and the inhalation. So that we don't have to count towards a normal 2 billion odd we are selling here. As far as China is concerned, China is not only for U.S., it's also for other markets. So we are looking for contribution from China in terms of volume. And even our own units, I think they are adding balancing equipment, they're able to ramp up. We could see some more volume surge in the next few quarters, and we'll be able to take it off. We don't see a situation at this point where we would have these facilities being underutilized, except for pockets. There may be a seasonal issue at that time, it may be an issue. Otherwise, we think we are good.

Understood. So we don't see a situation where the additional capacity in India does not necessarily get absorbed in the U.S. We have that much of visibility?

Not in the short to medium term, definitely.

Understood. And my last question on the CDMO capacity, I see that we've announced an expansion. In the presentation we have mentioned we are adding, I think, another 30 KL. Is this still for MSD? Or is this a new CDMO contract? Or this is in anticipation of demand?

Neha, this is in anticipation of the demand. The reason being that when we conceptualize a facility for 4 x 15 KL bioreactor capacities, building 2 lines and leaving out the other 2 in -- for Phase II addition. We do not want to leave it too late. So we just wanted to make sure that as we construct the facility now, we have the scope of adding these 2 lines so that there are no future design changes that would be required. So it's more of engineering prudence that drove the decision. And the business prudence would be that we, at some point, would expect more demand. And to meet the demand, it is better to have the capacities in place than arrange it then with some sort of a delay. So it's more of in anticipation of the demand and considering the engineering requirements now.

Keeping in mind the time, we will now take last two questions. The next question is from Shyam Srini.

Most of my questions have been asked. So just one on the macro and new administration in the U.S. So just want to understand there's a potential tariff that -- potential tariff on pharmaceuticals. So as a company, as an industry, what are some of the pushbacks that we give like a lobby back to the U.S. government, which probably may think of tariffs? Is it our footprint in the U.S. in terms of manufacturing, when we talk about new capacity additions in the U.S.? Is there more onshoring as a theme that you will probably suggest to them? And what could be some of the mitigation efforts on this one. So I know it's a hypothetical question at this point of time, but I want to understand what are some of the broad contours that the management is thinking about?

Yes. Thanks Shyam. I'll -- Subbu, I'll take this question. We -- as yet we don't know what's the final outcome. We don't know what the tariff. It's -- there's a lot of noise right now. We do know that from China, there is some input tariff. But there's nothing that we don't believe is going to be a challenge for us. We would continue to import from India and what happens even the competitors would be in the same state as we are in. That's one. You're right, not just as a mitigation strategy, but as a strategy itself, we have built up good infrastructure in the U.S.. We have a Dayton plant that's coming up, and we also have the Puerto Rico plant, which can be -- which we can commercialize very soon with short notice. So we are -- we believe that we are well geared up to meet any challenges that comes up as far as the U.S. market is concerned.

And Subbu sir, if I may squeeze in, in terms of ROCEs, are these investments -- or is there a way to make sure these ROCEs are higher than where our corporate averages are because that's the prime reason why we moved manufacturing out in the first place. So is there any other way to recoup margins or returns?

No. I mean, Shyam, the units like Penicillin or [ Cule ] or China, these are all in the ramping up and then incurring losses. Once the full ramp-up is taking place, you see it will get converted into positive, so which will help us to improve the ROCE, right? And plus the capital expenditure, which you are doing more of adding lines to the existing plants, et cetera, more of which also will help to improve the ramp -- which will also help to improve the ROCE in a significant manner. Probably, the -- you can see the big actions -- I mean, all these actions will be coming in the second half of the next fiscal clearly you'll be able to see that. That's what my belief.

[Technical Difficulty]

Vandit? Who is there?

Can we go to next question, Vandit.

It looks like there is a problem Shrini. Vandit himself is not there, knocked off from the list. Okay. So I think, Shrini, you can take it.

Yes. So the next question is from the line of Mr. Vivek Agrawal. We'll take this last question and then conclude. So, Vandit, can you please unmute Vivek Agrawal.

The question is related to gross margins. Currently, we are in the range of around 58%, 59% over the last few quarters. And again, it's a decent number. Just want to understand, will you be able to maintain this margin, let's say, around 1 to 2 years down the line? Because there are a couple of moving parts like PenG is coming, there may be like Revlimid, et cetera, might be coming down. So any broader color would be helpful for 1 to 2 years' perspective? How we should look at this number?

Vivek, so you're asking question, you have already given the answer. What else I can add beyond what you are seeing? Already all these product PenG and other things should start contributing, which will help to retain the gross margin certainly.

Understood. Just -- I'm just trying to understand, can this margin move up from year on -- from here on meaningfully or you will be able to maintain this margin?

I think let's park this question for the next call. Shrini close it.

Okay. Thank you all for joining us on call today. 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.

Thank you.

Thank you, all.