Jubilant Pharmova Limited (530019) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jubilant Pharmova Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vineet Mayer, Head, Investor Relations. Thank you, and over to you, Mr. Mayer.

Hi, Thanvi, let's wait for a minute or so.

Ladies and gentlemen, we will begin the call shortly. Please stay connected. Thank you. Ladies and gentlemen, I now hand the conference over to Mr. Vineet Mayer. Thank you, and over to you, sir.

Thank you, Thanvi. Good evening, everyone. Thank you for being with us on our Q1 FY '23 earnings conference call. I would like to remind you that some of the statements made on the call today could be forward-looking in nature and a detailed disclaimer in this regard has been included in the press release that has been shared on our website. On the call today, we have Mr. Shyam Bhartia, Chairman; Mr. Hari Bhartia, Co-Chairman and Managing Director; Mr. Arvind Chokhany, Group CFO; Mr. Pramod Yadav, CEO of Jubilant Pharma; Mr. Giuliano Perfetti, CEO of Jubilant Biosys; Mr. Syed Kazmi, CEO of Jubilant Therapeutics; and Mr. Arun Sharma, CFO, Jubilant Pharmova. I now invite Mr. Shyam Bhartia to share his comments.

Thank you, Vineet. Good evening, everyone. I hope you and your family are safe and healthy. During the quarter, the company reported Y-o-Y improvement in sales in Specialty Pharmaceuticals and CRDMO, which was offset by CDMO and Sterile Injectable and Generics segment. In Specialty Pharmaceuticals, the Radiopharmaceuticals segment reported higher sales and profitability on account of recovery from COVID-19 impact, while Radiopharmacies business witnessed higher sales on account of recovery from pandemic and launch of new products. Our Allergy business continues to perform strongly and witnessed healthy growth year-on-year. In the CDMO sterile injectables segment, revenue stood lower year-on-year as in Q1 FY '22 the business realized higher revenue from COVID-19-related products as compared to this quarter. Generic segment's performance was impacted by rising pressure in U.S. market and Import Alert related challenges, which resulted in lower performance as compared with FY '22. In CRDMO, our Drug Discovery Services segment continued to report robust growth led by higher volumes and stable pricing. The CDMO-API segment reported lower revenue as the Nanjangud plant is undergoing asset replacement and plant upgradation, which contributed to lower revenues. In proprietary drug -- proprietary novel drug business, Phase I and II trial is underway for our lead program dual LSD1/HDAC6 inhibitor. Second program, brain-penetrant PRMT5 inhibitor, IND was done in Q2 FY '23, and we have now received FDA clearance for IND. I'm glad to share that the API demerger has become effective with April 1, 2022, as appointed date. This demerger will enable us to create synergies between CRO and CRDMO businesses and help in supporting our customers for their needs for early stage of research to commercialization of active ingredients and will provide competitive edge to this business. I would like to inform that for better understanding our performance and outlook of our various businesses, the company has reorganized the reporting segments from Q1 FY '23 onwards, and the details will be covered by Pramod and Giuliano in their parts on this call. With this, I hand over to Pramod to discuss the Pharma business.

Thank you, Mr. Bhartia. A very good evening to all of you. I would like to mention that as part of our segment reorganization done in this quarter, our pharmaceutical operations are split into specialty pharmaceuticals comprising radiopharma and allergy immunotherapy segments into CDMO sterile injectable segment that was previously named CMO and into generics segment. Along with the resegmentation from this quarter onwards, we have started providing revenue and EBITDA details of various business lines to provide more insight to investors on performance of our various businesses. I would like to highlight that due to seasonality and other factors, the performance of business can vary quarter-on-quarter. And hence, we believe annual performance tracking can be a better indicator of performance of a particular business. With this, I'll say our performance of our various businesses in the first quarter of financial year '23. Q1 FY '23 revenue from specialty pharmaceuticals was at INR 722 crores versus INR 632 crores in Q1 FY '22 and EBITDA was at INR 117 crores versus INR 75 crore in Q1 FY '22, with a margin of 16.2% versus 11.9% in Q1 FY '22. Radiopharmaceutical business witnessed improvement in sales driven by recovery from easing of COVID-19 pandemic. Sequentially, sales were lower due to some customer order scheduling in the previous quarter. The Ruby-Fill installations shows encouraging trend, sales increased both on a year-on-year and a sequential basis in Q1 FY '23. The radiopharmacies business witnessed grows year-on-year and sequentially due to higher volumes led by continued increase in market share of existing products as well as launches of new products. The turnaround plan is working well, which is reflected by higher volumes and better operational efficiencies. Allergy immunotherapy reported healthy revenue growth year-on-year and business continues to operate at volumes higher than pre-COVID levels. CDMO Sterile Injectables revenue at INR 263 crores versus INR 373 crores in Q1 FY '22 and EBITDA at INR 132 crores versus INR 216 crores in Q1 FY '22. The revenue and profitability lower versus Q1 FY '22 as business witnessed higher COVID-related business during the previous quarter. In Q1 FY '23, we witnessed COVID-related deals of INR 70 crores versus INR 220 crores in Q1 FY '22. Sequentially, the revenue lowered due to shut down in Q4 FY '22 and some stabilization issue post shutdown in Q1 FY '23 that led to a lower volumes during the quarter. Generic revenue at INR 178 crores versus INR 432 crores in Q1 FY '22, and the revenue and profitability was lower in Q1 FY '22 due to pricing pressure in the U.S. market. During the quarter, the business witnessed sharp fall in sartan prices and that impacted performance. Lower volume due to import alert at the Roorkee plant and lower Remdesivir sales due to fewer hospitalization also impacted performance of this business. In Q1 FY '23, we witnessed net sales of Remdesivir versus INR 133 crores in Q1 FY '22 and INR 4 crores in Q4 FY '22. In July '22, U.S. FDA announced the removal of Olanzapine, Spironolactone and Valsartan from the list of accepted products with respect to Roorkee Import Alert post its review of the product supply situation and company's compliance status. U.S. FDA has recently completed audit of the Roorkee facility and helped issue 6 observations. The company will submit action plan on same and will engage with the U.S. FDA. And I am happy to inform you that Health Canada also inspected our Roorkee site in early June and awarded compliance rating. With this, I hand over to Giuliano to provide insight into contract research, development and manufacturing organization business.

Thank you, Pramod. I would like to mention that post the completion of the demerger of the API business, we have clubbed our drug discovery services earlier called as contract research and development services and CDMO-API business, which was really called as API into a single segment called contract research development and manufacturing organization, CRDMO. The CRDMO platform will enable us to provide end-to-end services to pharmaceutical customers from drug discovery to clinical research to development and manufacturing of innovative and generic APIs. We will do some CapEx in this platform to increase our development capabilities. This merger will enable us to grow both our CRO and API manufacturing operations at a faster pace in the medium term. The CRDMO segment reported sales of INR 280 crores versus INR 193 crores during Q1 FY '22. EBITDA of the segment was at INR 46 crores versus INR 53 crores in Q1 last year. Drug discovery services revenue at INR 118 crores versus INR 88 crores in Q1 FY '22 as robust volume growth drove year-on-year revenue increase. Higher demand from biotech companies for integrated services, functional chemistry, DMPK, discovery biology and clinical trial data management supported trust of Canada. Volumes increased supported by the Greater Noida facility that was commissioned in September 2021, sequentially lower revenue in line with historical trends of Q4 being the stronger quarter. Strong CapEx plan underway in view of the robust demand conditions in this business. CDMO-API business revenue was at INR 162 crores versus INR 105 crores in Q1 FY '22 due to higher volumes. Sequentially revenue lower as there was a shutdown in one of our plants at the facility as part of the ongoing asset replacement programs for plant upgradation and capacity expansions. With this, I now hand over to Syed to discuss the proprietary novel drugs pipeline.

Thank you, Giuliano. Good evening, everyone. In our proprietary novel drug business, we are focused on developing potential first-in-class and best-in-class precision therapies in oncology and autoimmune space. The company uses Jubilant's proven discovery engine with a structure-based drug discovery expertise and a track record of partnerships. Phase I/II trial is ongoing for our first program, JBI-802, a dual LSD1/HDAC6 inhibitor for patients in advanced solid tumors with the plan B objective to identify the recommended Phase II dose and to evaluate the safety and antitumor activity of JBI-802. Target indications include subsets of a small cell lung cancer and neuroendocrine prostate cancer with specific genetic signatures. We expect initial clinical data from first 3 to 4 cohorts by end of the year and the completion of the dose escalation part of the trial early next year. I would also like to mention that Jubilant Therapeutics has received FDA clearance of IND for JBI-778, an oral brain penetrant and selective PRMT5 inhibitor for treatment of solid tumors with brain metastases and plan B brain tumors. Covered under our out-licensing agreement, Blueprint Medicines has initiated the Phase I/II trial of BLU-451 in patients with EGFR-driven non-small cell lung cancer harboring exon 20 insertion mutations. This led to a milestone payment from Blueprint to Jubilant Therapeutics with potential for additional milestone trades as the program progresses through clinical development. We presented emerging preclinical data at 2 major international oncology conferences this quarter, American Association of Cancer Research in New Orleans in April and American Society of Clinical Oncology in Chicago in May. Jubilant Therapeutics was also selected by BIO International Convention in San Diego to care and moderate a scientific panel discussion on epigenetic therapies and cancer with subject matter experts from Pfizer, Dana-Farber Cancer Center and [indiscernible]. Jubilant Therapeutics is now a clinical stage biotech with higher value creation opportunities driven by emerging data from hosting human studies and additional IND filings. With this, I hand over to Arun to discuss the financials. Thank you.

Thank you, Syed. A very good evening, and thanks, everyone, for taking out time and joining us on our quarterly earnings conference call. I would like to highlight the company's financial performance for Q1 FY '23. Jubilant Pharmova's revenue stood at INR 1,452 crores versus INR 1,635 crores in Q1 FY '22 and INR 1,528 crores in Q4 FY '22. Specialty pharmaceuticals revenue was at INR 722 crores as compared to INR 632 crores in Q1 FY '22. CDMO sterile injectable revenue was at INR 263 crores versus INR 373 crores, and generic segment reported revenue of INR 178 crores versus INR 432 crores. The CRDMO segment witnessed strong growth with revenue at INR 280 crores as against INR 193 crores in Q1 FY '22. Reported EBITDA during the quarter was at INR 204 crores as compared to INR 379 crores in Q1 FY '22 and INR 244 crores in Q4 FY '22. This margin being at 14% versus 23.2% in Q1 FY '22 and 16% in Q4 FY '22. Depreciation and amortization expenses during the quarter was at INR 95 crores versus INR 88 crores in Q1 FY '22. Finance cost is at INR 40 crores versus INR 35 crores in Q1 FY '22. PAT was at INR 47 crore as compared to INR 160 crores in Q1 FY '22 and INR 59 crores in Q4 FY '22. EPS was at INR 2.96 versus INR 10.1 in Q1 FY '22 and INR 3.74 in Q4 FY '22. Net debt on a constant currency basis on June 30, '22 was at INR 1,951 crores versus INR 1,954 crores as at June 30, 2021. Average blended interest rate for Q1 FY '23 is at 4.84% increased from 4.56% in Q1 FY '22. Capital expenditure, excluding R&D capitalization, was at INR 98 crores for the quarter. We expect to incur CapEx of around INR 700 crores to INR 750 crores in FY '23, primarily towards expansion in CMO business and announcement of drug discovery services capabilities and capacities. In addition, we expect product development expenditure of INR 250 crores to INR 300 crores. With this, I would like to conclude our opening remarks. We will now be happy to address any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Amit Goela from Rare Enterprises.

So firstly, thank you for breaking out the business in so many different manners. It makes it so much easier to keep track of it. So that is a really nice presentation that really appreciate it. So a couple of questions I have. And if you feel I'm running out this thing, please me and I'll come back in the queue. Regarding radiopharmaceuticals, good to see the radiopharmacy number and the EBITDA over there. One is when do you expect breakeven over there? And number two, why would the numbers decline sequentially in terms of top line for radiopharma business? And is the margin decline only because of volume decline? Or would there be some pricing pressure also there? Or a change in product mix?

Yes. Amit, Pramod here. On the first question about the pharmacies, we have been indicating that we expect breakeven in FY '24. And if you look at the numbers and the trend, you will see that we are on track. So we are confident that in FY '24, the business will be breaking even. With regards to sequentially lower volume in radiopharmaceuticals, lower revenue. If you recall in the last quarter also we indicated that in Q1, the performance or the volumes were higher because of some customer scheduling, which will get corrected in Q1 of this year. And as we had predicted, so that has happened. So this is more of a scheduling and really nothing much to read into that. And that's what I mentioned in my opening remarks also that in such business are quarter-to-quarter variations will be there. It would be good to see overall the annual and the yearly numbers.

Okay. And do you expect our margins to go back to historical margins in this business as the COVID effect goes away and the business settles down?

You are talking about radiopharma or radiopharmaceuticals?

Radiopharma.

Yes. In the Radiopharma, as our losses of the radiopharmacies keep on coming down, we expect the margins to continue to improve. Then we also have launches of new products in the pipeline. And we are also ramping up the Ruby-Fill. So as these 3 action plans keeps on getting implemented, the margins will definitely continue to improve from the current levels.

Fair enough. So that's great. And regarding the sterile injectables, when do you expect the new capacity to come online? And when do you think that the entire COVID business will be nullified and will be back to normal case?

So entire COVID business has almost nullified in this quarter, the very little revenue left which we have to recognize in the rest of the 3 quarters of this financial year. Yes, but at the same time, let me assure you that when we look at the business non-COVID and that some of the business is very stable with healthy margins. And in FY '23, we expect it to be -- so they're doing better than what it used to do during the pre-COVID levels, then we exclude the positives.

Okay. So do you think this business will be better than '19, '20?

Yes, from FY '20 levels, I'm talking because '21 onwards, we had the COVID impact.

COVID business. Fair enough. And the new capacities, when do you expect them to come in place?

Yes. So we had made announcements in 3 phases. One is the additional line for is Spokane, which was our first announcement that will be coming up by end of calendar year '24. And after the last call, we made the announcement on next day for another line, which takes the Spokane capacity to 100% from the current level. That line is expected in FY '27. And thereafter, we also made announcement for multiyear expansion. There also the first line will be up and running in FY '27.

Okay. So in terms of FY '24 and in terms of vials, if you could break out the capacity -- what would be the capacity in terms of like the number of vials or whatever, I'm not asking for the price or volume value. But in terms of vials, what would be our capacity?

It's very difficult to calculate it. It will also depend upon the vial size. There are the various vials from the 2.5 ml going right up to 50 ml. So it will depend upon which vial size are you using. And then whether you are filling the liquid or the lyo. And even in the lyo, the different models have different the best times. So anyone who talks about the capacity in terms of the vials is a little -- because it will depend upon the various factors.

Fair enough, point accepted. And then coming down to this drug discovery business, is it reasonable, I think it would be a very stable business. So why would that be quarterly volatility like INR 142 crores, INR 118 crores and that kind of stuff?

This is Giuliano. Thank you for your question. The CRDMO business has shown a robust growth versus last year. And the subsequent quarter, quarter 1 quarter 4 is slightly below, but this is due to the secrecy of the business. So every quarter 1 is typically less robust than quarter 4, and that's the only reason. We foresee still a robust growth for the rest of the year.

Okay. Given your expansion, which is going on, by the fourth quarter of FY '24, what would you be thinking -- what would your exit rate be in this business? What would you be looking at? So you can guide on that.

Yes. So basically, we are running a very large and robust CapEx plan. And we announced that in addition to the Greater Noida site, which was commissioned in September 2021, we are also expanding Greater Noida site. And this will be completed in the Q2 FY '24. So overall, we are trying to position ourselves in a better way to support the growth, and we keep the same -- almost the same pace of the growth we registered in these last quarters. Overall, I would say that in the range of 20%, 25%, it would be the kind of capacity we want to add.

Okay. So annually, we can look at 25% growth?

That would be the range we do expect.

Okay. And 2 more questions -- last 2 questions. In your CapEx of INR 750 crores, you said you'll be doing product development of INR 250-odd crores. So is this a normal R&D? And will this be written off or like this will be capitalized?

It depends most probably because if we do in dosage, it is capitalized. And in API, if we do, that is written off.

Okay. And lastly, whenever you get an opportunity, maybe today or maybe in the next call, if you could give us a little bit more color on your generic strategy, that would be very helpful because that is one of the weaker businesses. Whenever you feel like maybe what you are ready, maybe next call or today or whenever. If you could just give a little bit more color on how you plan to make -- grow that business and make it more profitable, that will be very helpful.

Yes. So I can give a little bit insight right now if we have time.

Yes, I have all the time.

Yes, as I mentioned that the U.S. FDA has completed the audit, and they have issued 6 observations. But if you ask me, I will say that the audit outcome is very good because in 6 of the observations, there is no observation, which is related to data fraud. There is no repeat observations. And most of the observations are related to the process improvements and such type of a thing. So we will be engaging with the FDA, and we are hopeful, but we will get to know the outcome after about 3.5 months. Saying that you are already aware that we are spending money into the R&D because we have focused more and more into development of the complex generics, which are difficult to enter into the market. So that as and when the sites are out of the compliance, we are able to launch the products with the higher margins. In the meantime, to derisk our business for our existing products, we are already moving them to the CMO sites, where we start to -- where we expect to start generating revenues in this financial year itself. And at the same time, we are also focusing on the non-U.S. markets where we do not have any compliance issue, and we will be increasing the volume. So we are the strategy -- we are implementing all those strategies properly. And yes, as of now, the generic business financials are a kind of a drag, but we think that is for the short term.

Okay. So you think you will be able to see a turnaround there by the end of the year? Or it will take longer?

I'd say that there's a very high probability or quite a good chance that by end of this year, it should be baking even because we are hopeful for the U.S. FDA outcome. But as it's a regulatory agency, so we should keep the fingers crossed.

[Operator Instructions] The next question is from the line of Rahul Veera from Abakkus Asset Management, LLP.

I would like to really appreciate the team because of the detailed presentation. A couple of questions on the generic side again. In Q1 FY '22, if you see, we've done INR 400 crores of -- INR 430 crores of top line with EBITDA at INR 53 crores. So wanted to understand like what would be the contribution of Remdesivir out there? Was there any contribution of Remdesivir out there?

I think on my call, I mentioned that Remdesivir in Q1 were INR 133 crores versus 0 this year. So that had an impact. And then there was the impact of import alert and impact of sartan prices and impact of overall the pricing pressure in the U.S. market.

Sure. Just want to understand before the sartan price rise happened since 2018, 2019, when the ratio started moving up and the prices started moving up, were we making money in this business on the generic side? Or we were at EBITDA loss?

You are asking when the sartan prices were higher?

Yes, before that. Before the sartan prices are moving up.

Yes. Of course, we have been making good money into the generic business. It's only after the import alert and the pricing pressure into the U.S. market, the impact came in. But as I just explained to Mr. Goela that we feel that we should be out of the compliance soon, and we are also working on the various other strategies. So this should be a short term. And the business will be breaking even sometime by the end of this year. And as soon as our site is out of the compliance, we have a lot of pending ANDAs for which we will start getting the approvals, and we have the launch plans in place to keep on launching the products.

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

So first question is that I have on the Radiopharmacy business. I have not checked today's presentation, but in a couple of recent presentations that has been mentioned that the company has presence via 48 pharmacies in the U.S. Can you give some sense out of these 48 pharmacies? What percentage of these pharmacies would be breakeven or would be generating positive EBITDA at this moment?

Yes. See, so far, we have not been discussing business-wise, the revenue and EBITDA. Now we have started giving business-wise revenue and EBITDA. So that itself is quite a lot of disclosure from our side. Going pharmacy-wise, EBITDA or gross margin or the product-wise contribution, et cetera, then we are also ending up giving too much information to the competition. So less over that.

I'm not looking for exact numbers here. I mean what I'm trying to softly understand is that if there is a certain proportion of pharmacies, which are kind of profitable today, there might be some commonalities between those pharmacies, and that can give some understanding on the ones which are not generating positive EBITDA today, what might -- it might take to bring them up and running in terms of generating positive EBITDA. So that was the only indication understanding or what I'm trying to understand. Is there a decent proportion of pharmacy, which are today EBITDA positive? I'm not looking for any specifics.

Definitely, some of the pharmacies are more profitable or pharmacies are less profitable in terms of pharmacies are incurring losses. That is why the whole system is incurring losses. Now our -- what we are trying to do to improve profitability in the pharmacy, which are incurring losses, either we convert them to be profitable or if they are not possible to be profitable, we review their operations differently. And -- but those who are less profitable, we want to make it more profitable. And there are 2 ways to make it profitable. One is the increase in sale of existing products and add new products. So by both these methods, we are trying to make it profitable because if every pharmacy is profitable, then we would not have incurred losses.

Okay. So a question attached to this. Let's say, do you have a hard time line in your mind that the pharmacies which are today not generating cash flow, you would take a hard start and actually rightsize or downsize your pharmacy network. If the turnaround doesn't happen what we're envisaging over the next 10, 12, 15 months? Any time line that you have in mind?

Yes, you see we have a complete program that is how we will become breakeven, complete program of converting these pharmacies, some of the pharmacies who are less profitable, make it more profitable, some pharmacies we are making losses, make it profitable. And rates we will review every month and every quarter what is going forward. So our strategy is always very flexible, and we'll keep on reviewing it. And that is how we have promised that by next year, it will be breakeven.

Sure. Second question is on the...

You see quarter-on-quarter a better results in this.

Understood. That's fair enough. On the generic side, if I look at this quarter numbers, INR 178 crores of revenue and INR 70 crores of EBITDA -- negative EBITDA that we have generated. If you were to breakeven in this business, I would imagine that minimum INR 160 crores, INR 170 crores of more revenue would be required to kind of be EBITDA neutral in this particular business, and that amounts to almost INR 700 crores of incremental revenues. Do you think that 8 months down the line or 9 months down the line, whatever sales for today is happening, there might be competition that is coming into the product which you're not able to sell today, you can immediately generate this INR 720 crores of sales once your import alert gets lifted and that itself, the time line can be quite extended?

So Pramod here again. This quarter, our overall revenue of the generic is low, not only because we have not been able to sell the volumes. We had reduced the volume because our site was busy in doing all those remediation activities. We had committed to FDA that we will be completing the remediation by end of July. And we have been seriously working on that. And FDA did walk in as a surprise inspection towards the mid of July. So since -- due to the remediation of our volumes were low, now the remediation work is completed, U.S. FDA inspection is over, now we need to increase the production and get back into the market, especially into the non-U.S. market, where we have been going slow.

So would it be fair to assume that there is some cost sitting in the INR 74 crore loss, which is kind of nonrecurring in nature, maybe a little remediation or exceptional closure of certain lines?

Yes, there were unabsorbed cost for the overheads since plant was not running at the capacity, it was running at a much, much lower capacity. There was unabsorbed costs.

Okay. And one final question on the radiopharmaceutical manufacturing business. The press -- you have also talked about certain launches that have taken place in this business. Can you give some sense annually in '22 '23, '24, '25, how many launches are you planning in this particular business and some update on the market potential for MIBG and then when is the data due for that particular initiative?

So as of now, we have planned to launch at least 4 products. Probably, we are trying one in FY '23 and 3 in FY '24. But then within these 2 years, the running year and the next year, at least 3 to 4 products we will be launching, and then we will be launching 1 or 2 more later. So once these products are launched, which already have a market quite a lot, and there is very few players, we expect that we will be able to very easily get close to 30% to 50% market share from year 1 onwards at a good price and a good margins.

Can you throw some light on the existing compression in these products? Is it a 1 or 2 player market or there are 2 or 3 players, so some color here?

In nuclear medicines for most of the products, there is only 1 or 2 players. There are a few products where there are more than 2 players.

Got it. And the sales potential from these products, I'm not sure how many products you are manufacturing today. But whatever the run rate today is per product, excluding MAA and DTPA, would these products have the same potential as the rest of your products, excluding MAA and DTPA?

Sorry, I couldn't understand the question properly.

So what I'm trying to understand is that if I exclude the 2 big products, MAA and DTPA, whatever run rate you have on sales for the remainder of the portfolio on a per product basis, would that same run rate apply to these launches as well that you're planning in '23 and '24?

So other than MAA, DTPA, even in the other products what we have, there's one product where there's only one more small competition. Otherwise, we are the only one. For the other products, there are some more players. But when we launch these products, which are in the pipeline, and at least some of them have quite a good market size and very few players, these products will have a much higher run rate.

Got it. And then one final question on the Spokane CapEx that you are undertaking. Any broad sense that you can give on the return on capital employed that the Spokane initiatives can generate for the company? And what can be the risk to what the current expectation you have on the ROCE that you believe this business can generate?

So if you already looked at our CMO business, even without COVID deals, it's very healthy margins. Now this CapEx, what we are incurring, generally, in any sterile business, the ROCE remains little low because the payback period is longer. So it takes time for you to create the capacity almost 4 to 4.5 years. And then you build the pipeline after getting the product approved. In our case, the story is different. Out of 285 million, which we'll be spending in Spokane, almost 150 million is kind of the grant, which we don't have to pay back. So our -- the investment in terms of the CapEx is much lower. And hence, these expansions will have very healthy ROCE and also very healthy EBITDA because a lot of existing cost of the existing infrastructure and of the existing talent pool will be utilized. So the incremental cost will be much lower than the current operations. So it will have higher EBITDA as well as a higher return on capital.

The next question is from the line of Vinay Jain from Karma Capital Advisors Private Limited.

Just wanted to understand, when was this Roorkee inspection conducted by U.S. FDA?

So it concluded yesterday and it was for 10 days.

Understood. So -- and the other thing was what happens to the import alert status? So this continues till -- year again from U.S. FDA, like you said, it would take around 3 months?

Yes. So how FDA works is that once their inspector gives the observations, those observations company has to give their response in 15 working days. So that will be somewhere 24, 25th of August. Then FDA generally takes around 3 months to take the decision basis inspector observations and the company response, that's what should be the compliance status of the site. So with that time frame in the mind, it will be sometime in the month of November.

Okay. So even if -- as you said in your opening remarks that there are no repeat observation and there are no observation related to data integrity. So even if it is an OAI, the import alert could be removed, right, on the site?

Yes. So FDA has 2 options. If they are satisfied with our -- all the GMP standards, they can downgrade from import alert to OAI. And in that case, our exports to U.S. market will start, but the new approvals will still remain on hold. And FDA can also directly go to the VAI, where they can remove the import alert as well as OAI in one go. So it will depend upon the type of observations, our response to the FDA and review by CDER in FDA, how do they view overall compliance status of the cycle.

And any incremental costs, which would be incurred towards remediation in the coming quarters?

No. For the observations which have, they are -- most of the observations are leading to the minor improvements into our practices. They are not going to incur any remediation costs.

Understood. And lastly, any update on the Nanjangud inspection by U.S. FDA by when can we expect that?

So Giuliano here. Thank you. You know that probably you may remind that we got the last inspection a few years ago precisely was more than 3 years. So we basically, after that inspection, we did all the applied to FDA and based on a strong and, I would say, dedicated plan for witness the next inspection, we were expecting the FDA to come in any time from now on. Of course, we don't know when the FDA would come for another inspection. But we basically issue a letter to can be asked to inspect us. And that was the result of this preparation work, where we introduced specific consultants for any kind of capability, which will be subject to the inspection.

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

The first on sartan, what has led the price fall in sartan? Is it to do with the inventory channel or some new competition that has come on that?

In the sartans, there was earlier some impurity issues because of which the number of players had gone down. And the company had to invest money in cleaning up the processes. But now since most of the companies have done that and some other companies who saw the opportunity because of the higher prices have also jumped into the game. So now they are the more number of players who are able to provide the product without impurity and hence, there's a pricing issue.

Approximately like how much price reduction would have happened because of this situation, which over the past 2, 3 months or more?

It is a little difficult to quantify because the prices depends from customer to customer and market to market, then there are the different sartans like double sartan and the low sartan or sartan effect. But yes, each product has faced the pricing pressure in almost all the markets.

Okay. Considering the 1Q overall EBITDA of roughly INR 200 crores and at the end of FY '22, we had commented about at least maintaining the overall performance for FY '23 -- FY '22 had EBITDA of roughly INR 1,100 crores, INR 1,150 crores. Considering the 1Q performance, considering the insufficient situation continuing for 3 months or -- I mean at least remain still the regulatory outcome comes through and certain operational issues in the CDMO segment, so how are you teasing on the overall FY '23 EBITDA now?

I think on EBITDA front, we had mentioned earlier that FY '23 will be slightly muted than FY '22. But in terms of the quarterly trend, I'd say, in generally, in our business, the second half is better than the first half. So in the Q2, you will see performance more or less closer to the Q1. And then you will see improved performance in Q3 and Q4. Yes, that is for Jubilant Pharma, sorry, and then for other businesses. Giuliano can comment for CRDMO.

Yes. I think on CRDMO, particularly on drug discovery services, I already mentioned that typically, quarter 4 is more robust than quarter 1. So substantially, I mean, sequential quarter 1 is typically lower than quarter 4. Then along the years, I think the majority of the growth opening in Q3, Q4. I think on the API business, quarter analysis is too tight. So this should be analyzed in the perspective of a longer term, consistently with the production cycle and the typical, I would say, dynamic of the business. So you should be seen on a yearly basis or at least half year basis. And the specific for the API, we do expect the second half, which is higher than previous half for FY '23. And that is consistent with the actions we are taking, which are set for achieving higher volume, which is driving the growth.

Got it. And just on the Roorkee inspection of what triggered the inspection? I mean it's really appreciating on the import alert that U.S. FDA inspectors have come quite fast at the site. So what triggered the inspection?

The U.S. FDA now has just started doing a surprise inspections in India also. Earlier, they used to do the inspection with the prior information. In some other countries that we globally like, especially into the North America, anyway they do the surprise inspection. So from the last 2, 3 months, if you recall, the U.S. FDA, the Congress has also passed a special bill for the funding to the U.S. FDA to start the surprise inspection. So it's part of their revised strategy. So nothing specific which according to us, which had triggered, it was just where we had come into the priority of the U.S. FDA.

Interesting. And just lastly, if you could comment on how much would have been the quarter-on-quarter increase, let's say, in the number of installations of Ruby-Fill?

So in Q1, our Ruby-Fill installs were, I will say one of the highest in any of the quarters we have done. They were higher than year-on-year. They were higher -- they were also higher sequentially, and as such, also one of the highest in the quarter.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments.

Thank you, everyone, for joining the call. Have a good day.

Thank you very much. On behalf of Jubilant Pharmova Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.