Lupin Limited (500257) Earnings Call Transcript & Summary

Hello, friends. This is Kamal Sharma. It's my pleasure to welcome you to this earnings Call for quarter 1 of financial year '21. I have with me Vinita, Nilesh, Ramesh Swaminathan, Rajiv Pillai and Arvind Bothra. As you would have already seen that this has been a rather subdued quarter for us. You would get to hear reasons and our programs going forward. But primary driver for this performance has been adverse product mix and some of the COVID-related impact in terms of costs which may be onetime and also impact on sales in many of our geographies. But certainly, we have our homework cut out for ourselves. Just to walk you through the details of the financial numbers. I will request Ramesh to do that for me. And then the floor will be open for Q&A. Thank you, and over to Ramesh.

Thank you, Dr. Sharma. And dear friends, welcome to our Q1 FY '21 results webinar. It is the first time we're conducting the results discussion through an online digital platform. And I believe if we find this suitable, we'll continue with this format in the subsequent quarters as well. Now let me take you through the key aspects of our Q1 performance. We've already guided for a tough quarter because we have felt the tremors of the same, the impact of COVID in May itself. We felt that the impact of market disruption could be across the entire -- all the regions, including the 2 of our largest markets, India and the U.S. However, our API business has outperformed this quarter. At INR 3,468 crores, we were lower than the previous quarter by 8.5% and lower than previous year by 9.1%. The U.S. business has performed steadily always, as you would know, at $180 million to $190 million, the whole of last year. We actually saw this reaching $212 million the last quarter. However, the U.S. sales declined by 26% sequentially to $157 million and declined by 28% as compared to the previous year. This was because of demand contraction by 12% versus the previous quarter and over 6% vis-à-vis the previous year. The seasonality factor also played in and therefore, we saw a loss of sales on sales on My Way, Azithromycin and the cephalosporin business. And there's, of course, the impact of Metformin as well. India, one region where we have consistently performed over several quarters, there was, of course, a COVID impact and the India region branded formulations saw a de-growth of 6% year-on-year, especially for acute products. As per IQVIA, Lupin's growth in Q1 was a negative 1.4%, whilst for the IPM, it was 4.9%. In June, there was some revival of demand, but there was disruption again in July. But we do expect Q2 to be much better than Q1 as demand picks up again from August onwards. As I said before, API sales showed significant growth of 24.5% sequentially with strong positive momentum on demand as well as pricing. We expect a strong double-digit growth year-on-year to continue. On the gross margins front, we did well to actually sustain it at 62.9% and this, despite the fact there was a sharp decline in U.S. business, as I had stated before, is also the impact of higher freight costs. But all the same, we've been able to maintain the margins underlying improvements in our overall business. On the manpower front, you saw them actually increasing, but that actually is an aberration. Manpower costs increased this quarter on account of onetime spends in terms of specialty restructuring in the U.S. and COVID-related incentives. However, we do believe from Q2 onwards, we would expect the recurring benefits due to specialty restructuring to be caught up. And we expect the overall absolute number to be lower than Q4. Overall on the manufacturing and other expenses, including the freight, so the freight element, of course, is captured in terms of the gross margins itself, the expenses were higher, but they were significant by close to about INR 100 crores -- but there was significant fall in manufacturing expenses in terms of travel -- manufacturing and other expenses in terms of travel, legal and consulting fees, sales promotion expenses and the like. As you'd recognize, this is obviously because it is not possible to call on doctors. So there was considerable savings on that. And of course, promotions didn't take place and so on. It's not necessarily something that's wholly sustainable. But having said that, it would be an endeavor and to take the digital means and try to sustain it at levels, which are lower than ever in the past. As we normalize operations, we do expect some increase in the SG&A expenses, but the savings to some extent would certainly continue. On the EBITDA front, we are happy to report an operating EBITDA improvement of 1% over the last quarter, but as you would recognize, this is without including ForEx and other income. And we are confident that this EBITDA trajectory will continue to improve in Q2 and beyond. I've guided for close to about 19% to 20%, but I'd also add in caveat to recall that business before taking into account the situation on account of COVID, we reevaluated the entire thing, and we do believe that we should be able to close by -- at about 17% without -- without, of course, the impact of ForEx or other income as we go forward. In terms of the outlook, we expect operating margins to improve, as I just said. It is also because the fact that you would expect market share expansion of levothyroxine. Return of Glumetza much before the end of quarter 2, customer starts start their winter buys, and they should help the products like Azithromycin, cephalosporins and [ Aceltimaway ]. And of course, there's this much awaited launch of albuterol in September. In addition, we've also partnered for a few products and that we will be launching in the next couple of months. Aided by tight control on manpower costs, SG&A expenses and rationalization of costs on the specialty front, we believe that we'll be in a position to kind of boost the margins. In terms of the APR, it has always been a sore point. It remains high this quarter, but we expect it to improve in H2 because of the ramp-up in sales and, of course, the specialty restructuring. For the full year, we believe that the APR would be between 35% to 40%. With this, I would like to open the floor for discussions.

Aditya, please announce the Q&A queue to be gathered.

[Operator Instructions] The first question is from the line of dash from dash and you will say it.

The first question is from Neha Manpuria.

My first question is on levothyroxine. We have seen competition come into the product, some of your peers also indicated price erosion. So what sort of opportunity do we see? Are we still confident of a market share ramp-up in level?

Yes, Neha. We are. We are well on our way to ramp up share with Levo. There certainly have been a couple of new competitors. Some just switching, like Lannett for Sandoz. And recent one, we just learned about Strides. But if you look at the Levo market over the last 5 years, and look at the new entrants, especially the small entrants into market, it is not an easy product at all to ramp up. It really takes a combination of strong delivery from a supply chain standpoint, position from a manufacturing standpoint that is different from a typical oral solid product. So while we see some additional competition, we still see a significant opportunity in Levo. And as I mentioned, we are well on our way to ramp it up.

Vinita, what would be your market share in labor currently? And what would be, let's say, contracted share against where we are?

So right now, contracted is 12%.

Okay. And this can get to higher levels, let's say, high-teens?

Yes. Yes, we hope to get it to a high teens.

Okay. My second question is on Metformin. Sorry, I missed it in the opening remarks. But is the recall included in the first quarter number? And did I hear correctly that this should come back by the end of second quarter?

That's right. The recall was improved in the first quarter number, the best we could in terms of reserving. And in the second quarter -- end of the quarter, we expect to get it back into the market.

And the recall -- sure. And the record related costs and any potential failure to supply penalties, would that also be reflected in the first quarter, you could see some more of that in the September quarter.

So we have tried our best to create a reserve for it and the impact of that we have taken in the first quarter. And hope that there will not be any incremental impact of the recall in the second quarter. But getting the product back into the market will help us get some upside from the product. Quarter over quarter.

[Operator Instructions] The next question is from Shyam Srinivasan.

This is Shyam Srinivasan from Goldman Sachs. So the first one is on the India business. If you look at -- you've called out some qualitative color, but if you could help us understand the commentary around July being slower than June. And what are you seeing? I know we're just the first week of August. But what gives you the confidence that we will start to ramp this business back again?

Sure, Shyam. So obviously, we saw some of the cohort related stocking in March, which continued into the first couple of weeks of April as well. And then the rest of April, May, is where we saw a major reduction in footfalls into doctors. And therefore, a subsequent reduction in demand as well. If you look at IQ, we are, you see that curve, would especially the acute being deeply impacted, especially in April, May. And you see -- you see the improvement in June. It wasn't that impacted on the chronic side. Very similarly for us as well. Obviously, May was bad. June, we saw the increase. So we saw that we could open up. I think we went all the way up to close to 90% of our reps being back on detailing. We went to a call average of north of 6 as well. And then as you know, in July, there were a series of lockdowns across states, which again, brought it down to probably 70-odd percent of reps moving and detailing. Obviously, July got impacted again because of that. August has started off much better, and we see increase. Typically, you would see that Q1 is actually a strong quarter for the India business, and Q2 is actually weaker than Q1 usually. We actually are currently forecasting growth in Q2 over Q1 and August certainly seems to be shaping in the right direction.

Nilesh, thank you for that. Just any -- would you like to give some guidance for the India business for the full year?

So I think we -- obviously, we've always grown at double digits, and that's based on the market growing at 8% to 10%. I think you've seen the trends. I think the market is possibly forecasted to grow anywhere from 0.2% to 3% to 5% is what we see. My personal feeling is we'll probably end up at 5% to 8% as a company.

Got it. Got it. And my second question is just on the freight cost. I think Ramesh, you called it out. Is that INR 100 crores? And across which line item would we see that number, Ramesh?

I said the total expenditure has increased by close to INR 100 crores. There is, of course, the freight component that's captured in the gross margin line, but there are other line items which come below that, which is included the manufacturing and other expenses. And there's a small component that's gone into manpower also.

Got it. And just want to clarify, just a point on manpower cost. You said it will be lower than Q4. So if I say a INR 720 -- sorry, INR 760 odd crores was Q4. Is that the right number I should be looking at?

Yes. So we expect it to be actually lower than INR 760 crores, which is Q4 number from Q2 onwards. Yes, that's true. I'm not accounting for any onetime expenditure that we might undertake for whatever reasons, but the base figure would, of course, not increase.

Next question is from the line of Nithya Balasubramanian.

Nithya, I'm from Bernstein Research. So one quick question on approval. If you can update us on when you're expecting an approval in the U.S.?

Sure, Nithya. So we expect to get approval any time now within August. And plan to launch the product in September.

And in terms of capacities, do you have adequate capacities, what sort of market share are you targeting?

So we have adequate capacities for our fair share of the market. We do 20% plus in all our important products. But we'll be very strategic about the ramp-up with albuterol. This is a very important, very valuable product for us as well as the industry. So we're very prudent about the build.

Got it. How are you seeing pricing shaping up in the market? We do have 2 generics already and 3 AGs in the market. So how has the pricing been?

It's been fairly stable, partly because of the fact that until the last couple of months, actually, there has been a huge demand/supply gap, right, because of COVID-related surge in demand. So the pricing has been fairly [ same ].

Got it. The other question I had was on India marketing expenses. I think you got a bit of commentary that these are likely to be lesser than what it was earlier. If you can throw a bit more color on what kind of savings are likely to outlast the COVID crisis.

I can start and maybe Ramesh can add. The -- so obviously, basically, on the AVAPRO...

Yes, I was going to say something about the revenues.

Sorry, Ramesh. Yes. On the AVAPRO, obviously, there's a significant reduction at this point in time in terms of promotion to doctors and the like. So I think some of the savings which we'll not replicate are the ones which are related to the field staff. So when they're working from home, obviously, there's allowances and the like that you save as well which becomes a significant number. But obviously, for the rest of the year, there's a lot of stuff, conferences. There's a lot of that stuff which would not happen in all likelihood. Certainly, international travel to conferences and the like would not happen either. So there would be savings, which would all happen in the course of the year. But if you go beyond COVID, I think this has really been a great opportunity for us to truly embrace digital. There is -- I think we've done 3,200 CMEs to date. We have and done 200 training sessions for our representatives. The numbers are huge. We've done 30,000 teleconsultant calls every day. So there's a very large number of -- there's a very large wholesome embracement of all things digital at this point of time. I don't think it changes the market completely. Like I said, the footfall, the more than 90% of representatives have been back on the job. Our call average is between 6 to 7 per day. So there's a fair bit of the old, which is coming back as well. That is a great opportunity to go beyond as well.

Next question is from Sameer Baisiwala.

Yes. Can you hear me now? Sorry.

Yes.

So Vinita, can you update us on SOLOSEC? How is it doing in the market? And what's the way forward?

Yes, sure. As you know that on the promotion and as opposed to on -- actually...

Sorry to interject. Sameer, could you mute your line? And then you can unmute again. [Technical Difficulty] So I was saying, Sameer, that we restructured our commercial infrastructure on the SOLOSEC front this past quarter. And as Ramesh mentioned, had a onetime impact based on that. As we were talking even in May, that the doctor visits in the OBGYN offices, pretty much dropped off completely, were down 80%. And we saw scripts bottom out in April. Since April into May and June, we have seen a ramp-up in scripts, 10% in May, 20% in June and are continuing to see that, for the most part, in July as well. So we are seeing demand come back slowly, but it is coming back. And leveraging also the recent wins with Express Scripts. Just in the last week, we had another major win, Cigna put SOLOSEC in a preferred position. We're trying to drive prescription growth as much as we can. The team is just very focused on trying to be as nimble as possible. As doctors' offices open, get in front of the physicians as much as we can. I mean, as of now, it's just 10% of our targets, physician targets, doctor offices that are really open to face-to-face visits. So majority of the interaction is still virtual. But what is very heartening to see is that the virtual engagement is having an impact in script growth. And we continue to work to drive that in the months to come. I hope that answers your question, Sameer.

Yes, it does. And so Nilesh, just on your comment -- picking on your comment in the press release, you talked about it being a pivotal year for complex generic launch this year or your asset, key assets. So outside of Amaryl, Fostair and albuterol, is there anything else that you want to want to talk about? And also, it said that pivotal year for momentum in compliance, so if you can update us on the 4 sides.

I think you captured the particulars. Obviously, those are the big ones. So we've been investing in innovation for I think the last 6 or 7 years. This is the year that we start delivering, obviously, albuterol approval and launch, Tiotropium approval. So there are multiple milestones that we will hit on inhalation. There are other assets that are under development filings as well. So it's a critical year from the inhalation perspective. On biosimilars, at this point of time, it is Etanercept from a launch perspective, which we intend to launch this quarter in Europe. Obviously, by the end of the year, we expect to file our PEmg as well. So again, multiple milestones that will be there. And then switching to the compliance, I think we've had a very solid first half. The inspections that we had in the first quarter were all positive in terms of outcome. And we have slated this out to be the year of completely earning back our rightful space on the compliance front. Obviously, with COVID and with the restrictions with FDA, not really being in a position to do audits. I think there's a bit of a limbo at this point on our OAI facilities. But I think the momentum is to continue. And I think I think we are aligned with FDA in that everybody wants supply continuity. Everybody wants for facilities that are compliant to be up and running. And I think we're obviously working with the FDA. We've made a lot of progress in sites. Obviously, Somerset, which we've already put up for reinspection, but we made a lot of progress at Goa Pithampur to -- both of these are possibly in the next month, going to be ready for reinspection. And we're going to really work with FDA to see what would be the best way. I don't think there's a stated remote virtual audit process. There is certainly a document review process. There is a mutual recognition process as well. We'll have to push the envelope and see what will be the best way to do it. But again, from our own internal development, there's a lot of strength, which is being built on the compliance front, and we certainly expect to take this to the finish line.

Next question is from Anubhav Aggarwal.

This is Anubhav from Crédit Suisse. One question on albuterol market. I just wanted to understand how is the market now? Where is the demand supply gap now? Is it still acute or this is normalized now?

It has normalized to pre-COVID levels.

Okay. So should we now expect that when you launch, it will be a normal launch where you launched at a discount to existing prices, you don't launch it -- let's say my understanding right now, when you say the price has been stable. So is largely generics when they come, they come at a 20%, 30% discount, the pricing for 2 generics and 3 AGs is largely around the branded level right now, even now?

Yes, the pricing has been fairly stable for the players in the market. And we obviously will have to earn our way into the market. But as I mentioned, we're going to be very strategic about it. It's a large product, material product. So the typical 20%, 25% is not for larger products, one has to be more thoughtful about the benefit that what you need to do to earn the business.

Sure. Okay. And just on understanding this quarter, U.S. sales, just a couple of things I want to check. One, APRISO launch, did it reflect in this quarter? Would it reflect in the next quarter?

It's reflected to a certain extent in this quarter, and will continue to obviously reflect in Q2 and beyond.

So was there any product, let's say, outside the Metformin loss that we had and the seasonality impact? And where I'm including the strains in lower sales also. Was there any other impact to the U.S. sales, which are there in this quarter, any particular product that we see significantly lower sales which are nonseasonal because 157, I was shocked with the number actually.

Yes. 157 we will be very disappointed as well. But a part of it was a demand contraction also exacerbated by the fact that the market -- these topped up inventories in March, right, ahead of COVID or in anticipation of COVID. So we saw an impact across the line just overall demand even for the market, if you look at overall market. And then for our specific products, we saw contraction quarter-over-quarter because of the buys in March. So that, in addition to -- the biggest part of the drop was still -- if you look quarter-over-quarter, the biggest part of the drop was the flu season products. Those Proveras, azithromycins, sporins, as Ramesh mentioned earlier. And then Metformin and the demand contraction due to the [ pre-buys ] in March.

So at the product level other than Metformin and the seasonal impacts, there was no change in our, let's say, any product level impact in our portfolio.

Not of any material change. I mean, the material ones, like I said, were the flu season product and Metformin.

Next question is from Nikhil Mathur.

Yes. Am I audible?

Yes.

This is Nikhil from AMBIT Capital. So just one question on albuterol first. So what gives you the confidence that finally, the approval would be attained in this particular month and eventual launch would be in September. Is there a threat of a negative surprise on this front, that approval might be a bit delayed again?

Well we certainly hope not, Nikhil, because we had expected to receive the approval by now, but there was a last-minute amendment that our API supplier made, which took it out of July, otherwise we would have got it in July. We understand the best we can from the indications that we're getting from the agency that all the review is complete. And that we should get approved pretty soon. We would launch, like I said, only in September. So -- and the added level of confidence we have is our player to be able to prepare for launch has been accepted by the FDA. So it gives us the ability to get inventories across the border.

Okay. And can you help us a bit more understand that when you say that for certain larger products and albuterol being one of them, you will be a bit strategic in how to go about ramping up the sales of this particular product. So what do you intend to mean by being a big strategy? So does it mean that it would be more of a staggered launch you would be gauging prices initially and then eventually go for a full rollout?

Yes. So we will obviously want to be able to gain our share with -- while ensuring profitability. And we'll weigh our options as we gain share to determine how best to do that, right? This is a good product in a long-term in the next few years for us. And we'll want to use the next couple of quarters to ensure that we ramp up successfully -- with not cause any material from a pricing standpoint in the marketplace.

Okay. And one final question. So there's been -- it's been talked about that EBITDA margin reversal should start happening from 2Q. I'm sorry, I missed the guidance. If you can please repeat the guidance that what kind of exit EBITDA margin are we looking at in 4Q? So just one question tied to this would be, are there any explicit cost savings that are being budgeted for you to move up to, say, 17%, 18% gross EBITDA margins, excluding other income?

Our EBITDA margins are always a function of 3 things. So essentially, the kind of products that we bring to the market, the kind of cost realizes -- how do you much of cost you incur in terms of conversion and the like? And of course, the various expenses in terms of SG&A and so on. On the products front, there are quite a few products lined up, as you just spoke about, there were products in a ramp-up, we are speaking about albuterol and the like. And of course, the U.S. business would bounce back in terms of the kind of volumes that you would see out there, the kind of value that you would see there. We are also -- we have been indulging in cost initiatives for quite some time now. We've been working with impact consultants for in terms of alternate vendor programs and the like. And the impact of it will certainly be felt much more in -- on the gross margin line as we go by. Apart from that, we are also working on several initiatives to bring down the cost on the -- below the gross margin line as well. And of course, on the R&D front, we do what it takes to kind of sustain the expenditure at the same levels or even lower as we go by. With all of this, we're fairly confident, at the beginning of the year, we said we would guide to anything between 19% to 20% and perhaps a little more than that. But then we also took a step back, given the fact that there was a issue of the COVID. And after having looked at that, we believe that we should be in a position to look at least about 17% by the end of the year. The average for the year will be about 17%.

And this excludes, other income, right?

It excludes other income and ForEx.

Next question is from Girish Bakhru.

This is Girish from Bank of America. Just first question, Nilesh, on biosimilar Enbrel, would it be possible to share? I mean, as you're preparing the launch, will launch be across multiple countries or there are a few select countries? And I mean, based on current capacity, if you could share what sort of market share can we expect?

I can request Vinita to talk about this better.

No. So we are -- the launch is going to be in Europe in the next few months, starting with Germany, which is the largest opportunity that will happen this month. And in the next quarter, we expect Mylan to enter France, Sweden and a couple of other countries that France will be the next major market and then follow into the other countries. So it's going to be a buildup in share. Since this is a hybrid model. It's a branded hybrid play from a commercial perspective. And as we look at what Mylan has done with other products, we certainly expect over time for them to get to a double digit share.

And Vinita, where would, let's say, U.K. fit? I know probably we'll have to secure a separate approval for that? Where would U.K. fit in this?

U.K. is third wave. Whether we have -- Mylan has determined the launch sequence based on size of opportunity as well as pricing.

Right. And second question actually was on the API front. I mean, given you had a great quarter on the API growth perspective, knowing Lupin is pretty strong in ceph and penicillin intermediates as well, are you looking for capitalizing on the potential opportunity that may come from the PLI scheme?

So we think that the PLI scheme is a step in the right direction, but it's a step. I think there's -- the incentives are light at this point of time. In particular, there are -- I think there's 6 or 7 products where we are reviewing very closely what we'd like to do. Some of it is connected to the PLI scheme. Some of it is actually just connected to the fact that it's about time that we ramped up share in some of those fermentation, for example, right? So some of it where there is over-dependence on intermediates we're seeing an opportunity to be able to step-up. I think we're going to have to work as an industry where the government in terms of tweaking the scheme so that 5 years later, we're actually genuinely able to say this is what we did to reduce dependence. But other than that, I think it's an opportunity. I think for the API business in general for the sector, it's a great opportunity to earn back the space that we had, which we lost over the last 10 years, whether it's intermediates, whether it's fermentation, whether it's API. And we -- I don't think we're going across the board, but there are several sets of products where we feel that making the right investment will make sense now.

Right. And just on the similar thought process, Nilesh or Vinita, if you could just also comment on this, I mean, Trump order, which has, I mean, sort of, in a way, not deliberately used toward mandatory, but really preferring local manufacturing. I mean, at [ gross ] level probably it looks like initially, you will have some critical APIs. But do you think in the longer run, this is like challenge to overall Indian industry as well?

We actually think that, overall, it's going to be an opportunity for our industry, especially for the larger players that have a foot from a manufacturing standpoint in both countries. From a near-term perspective, we really see this very focused around essential medicines related to COVID, very focused around government buys. And we get a very small percentage of the government business, supplying out of India in any case because there's a preference for local manufacturing. This order, depending on how it's executed, could mandate or give significant preference to local manufacturing on the government front, which, from our perspective, we see as an incremental opportunity. So -- and based on the conversations that we are having, with the government, they are being very -- they are very cognizant of the role that India plays in the U.S. supply chain. They are very, very focused on drug pricing as we have seen in the other orders. And we as an industry have made them aware of the impact of manufacturing in the U.S. versus India, the cost impact, they understand there's incremental cost impact. So we do expect that this move towards manufacturing is going to be around areas of high natural importance, which right now is COVID-related products, anti-infectives, and a couple of categories that the government has highlighted broadly. We'll find out over the next couple of weeks and months, how this transpires into actual products. But our expectation is, again, it's going to be essential medicines, more COVID-related in the near term, which will be an upside for us. Also the government business opportunity will be an upside for us.

Next question is from Nitin Agarwal.

Vinita, on the Fostair launch in Europe as well as the Enbrel especially Fostair launch how do you see the market opportunity? And how do you see the ramp-up in the product going forward?

So it's a significant opportunity within, that we expect it to be a limited competition launch. We expect to get approved at the end of this calendar year and launch in the fiscal year. It is going to be a ramp-up because it's in a first country, U.K., is going to more of a branded play. So it is going to be the ramp-up, but a significant opportunity for our U.K. business as well as our European business. As for the launch for the U.K. this fiscal year and over the next fiscal year, that will also follow its own time line of registration and litigation. That will follow end of next fiscal year.

Nitin, if you can mute your phone -- mute your line in between questions. [Technical Difficulty]

What was your other question?

Okay, sir. Trying to ask is on Enbrel. I mean given the fact that the biosimilars in Europe have been my competitive from a pricing perspective. How should we look at an opportunity in this context? And the fact that Mylan has [indiscernible] market now.

Yes. I mean, if we see the performance of biosimilars and especially if you go market by market, the focus that Mylan has is on markets that are a bigger opportunity from a share and profitability standpoint. And we expect that they have the ability to get to double-digit share in those markets. I mean, our focus is still we're not going to look to get into every market. We're going to really look to get into markets that make the most sense from share gain and profitability standpoint.

The concluding one, my last one. Nilesh, the regulatory costs that you're undergoing, are we a meaningful quantum on our cost side and once the plant issue get resolved, should we see -- I mean, a [ likely ] material impact on cost going forward?

Yes. So there is -- while it's not increased over the last couple of years, there is significant remediation cost, especially some of the third-party consultant work that we will work, especially for example, in Mandiri, where we have a warning letter. So those costs are ongoing. They're actually lower with COVID because everything is being done only remotely. And we actually are now selectively reexamining. I think if you go deeper into our compliance issues, one of the big areas was investigations. I think we've been able to now start inspiring confidence in our actions on the investigations front. And I think that gives us the opportunity on what is the best way to structure this, so that we take more of an internal lead rather than a third-party lead in that for some sites. In other sites where we feel that we still need to have that input, we do that. So I think we're looking at the scope of third-party work. We're examining that very closely at this point of time. I would see a decline this year versus last year even. And then going forward, that should come down even more.

Next question is from Harsh Beria.

This is Harsh Beria. I'm a professional investor from Switzerland. My question is over the next 5 to 7 years, like with the ramp-up of the specialty in the biosimilar divisions. How do you see the top line moving from the current 2 billion that we see in the next 5 to 7 years?

Yes. So if I may take that, Harsh, certainly, you see the potential on the back of the complex generics, biosimilars and specialty. To really get to the consistent double-digit growth year after year for -- in the next 5, 7 years. From a portfolio evolution standpoint, we have significant opportunities, starting with the rollout of a couple of generics assets this year, mainly albuterol and Fostair on the inhalation front this year plus Enbrel on the biosimilars front. On the specialty front with Namuscula. The Namuscula is ramping up very nicely as well. In Europe, we are looking at the potential of getting it into the U.S. market, and building on SOLOSEC, on the specialty front in the U.S. In the -- as we look at the next couple of years, we have a whole pipeline of these complex generic assets and these platforms playing out, mainly albuterol and Fostair this year, we expect the next year we'll have, of course, the full year impact of albuterol, plus we'll have other inhalation products, Brovana that we approved for, Perforomist that we expect to get approved for, Dulera that we have filed and then Spiriva in the following year. So the inhalation portfolio will play a material impact in the next couple of years. In the biosimilars front with Enbrel starting this year and full year impact next year, plus pegfilgrastim coming into the market in fiscal year '23. Then you start seeing impact of biosimilars in U.S. and Europe over the next 2 years. And then the injectable portfolio coming thereafter. So we really see this -- all of the investment that we have made on the complex generic front, we are right at the inflection point to benefit from it in the next couple of years, driving top line growth, hopefully, on an annualized basis, but in a 5-year time frame, double-digit growth.

A very comprehensive answer. A follow-up to that would be -- so going forward, let's say, 7 to 10 years ahead, do we think of spending more on R&D from the current 10% of sales level to maybe making it up to 15% to 17%? And also, how do you see the margin trajectory with these products kicking in?

Yes. So actually, we believe that our R&D level is at a point from an absolute standpoint that we should be able to manage within over the years to come. So we are looking very hard at R&D investment. Obviously, we want to continue to build these -- our business based on the complex generic assets, which are a big part of the R&D investment. And we hope to be able to maintain it at that 10% or hopefully with the revenue growth at below the 10% level. So definitely, it's moving hard at that line. And likewise, as Ramesh mentioned earlier, the other lines, as we look at the EBITDA trajectory with the complex assets, improving our overall gross margin. And our efforts on the operational front, operational efficiencies that we've already got some benefit from in the past year, but material benefit we're expected to get a good-sized benefit this year. A little bit delayed due to COVID. We certainly will have that benefit to fiscal year '22 onwards. Plus all our initiatives around manpower cost containment, which you will see, like Ramesh said, Q2 onwards, our manpower cost will be below the Q4 level. We're very determined to keep it under control and make sure that we are getting the right productivity from a manpower standpoint. Likewise, on the SG&A front, we see potential for improvement. I mean, we have seen some savings just as a result of COVID and COVID-related cost, travel and promotional costs. We'll see some ramp up, but we certainly see a real opportunity to bank savings on that front as well. So as we look at the impact of our portfolio and building up our revenues with the complex assets, biosimilar specialty plus the strong control on the cost lines, in particular, manpower SG&A, and maintaining R&D at under 10% of net sales. We expect to get our EBITDA margin to the right level in the 20s.

Can I squeeze in very small to a question? Yesterday, you guys released on...

[Operator Instructions] The next question is from Saion Mukherjee. Can we move on to next question from Charulata.

Hello. Yes, I am from the Dalal & Broacha. My question pertains to Metformin. Is the entire recall done with or there is some more to come? And secondly, with the MDMA in Metformin. Do you see doctors moving to some other molecules or combinations, like it happened in the sartans?

So on the first question, these are -- we have provided as best we could into Q1, the impact of the recall and hope that, that was sufficient. We shouldn't see any further impact in Q2. And as I mentioned earlier, I hope to see some upside with the relaunch of Glumetza generic in Q2. We really don't see a switch of Metformin into our products because the MDMA issue has impacted multiple players in the marketplace. It didn't impact everybody. And we ourselves have been able to work around the MDMA issue. And that's why I have the confidence of getting back into the market in so we really -- the market has been supplied in the near-term by players that did not have an MDMA issue. So we don't see the market really changing in any material manner.

Okay. Yes. And would you see an improvement? Don't you expect to see a major improvement in EBITDA margins after launching Enbrel in Europe?

Yes. So Enbrel is going to be a buildup. As I was mentioning earlier, it is -- it's a branded model, hybrid branded model. And it's going to be a buildup of share, not like an INN generic or a U.S. substituted generic, where you have the opportunity of taking major share day 1. So it will be a ramp-up but a material opportunity in the next 2 to 3 years.

Next question is from Prakash Agarwal.

Prakash from Axis Capital. So my first question is, in the opening remarks, I missed some comments. I just want to know if you have called out from the $200-plus million to $157 million, have you given specifics like a little bit of color on the quantum of Glumetza loss of sales, apart from the seasonality and the COVID-related you talked about, but any color on the size in Tamiflu and Glumetza? And when do we go back to 200 again, it would be Q3 onwards? Some color would help.

Yes. So we didn't provide any more in terms of actual product numbers. But roughly what we said of the $50 million drop, Prakash, more than 50% was the flu products, Tamiflu, Azithromycin, ceph. And the balance was a combination of Metformin and the demand contraction due to the pre-buying in March. So we expect in the next 2 quarters. Q2, things will certainly improve. As we are looking at demand per se and the flu season products also coming back into the market, hopefully, before the end of the quarter, the winter buys. And albuterol, some impact in Q2. But we certainly see Q3 onwards the ability to get back to that -- we were doing $180 million to $190 million pre-COVID that -- get to that level and beyond Q3 onwards.

Perfect. That is very helpful. And second question is on the U.S. FDA side. So are we giving any color as a base case since we have already submitted for reinspection for Somerset? Or when do we expect a base case resolution and same for Pithampur and Goa?

So we have informed the agency that we are ready for Somerset. They are doing face-to-face. There's on-site inspections in the U.S., but for mission-critical projects first. So we hope that they're going to be part of the mission-critical. We have an Azithromycin supplement also filed from Somerset, we are hoping that will trigger an inspection sooner rather than later. It's very hard to really predict the actual time line but for the efforts that we are making on COVID-related products, that hopefully should expedite things.

Next question is from Kunal Dhamesha.

So the first question is clarity on the albuterol. So you noted that we are expecting 20% plus market share. So is it the 20% market share of entire albuterol market? Or is it for the ProAir franchise?

It -- first of all, the 20% is going to be a buildup just to manage expectations here. And we look at the entire albuterol market, not just ProAir. We actually targeted ProAir because it is the largest brand in the marketplace and allows us full access to the market.

And second question is on the tax rate, I think the tax rate in quarter one was significantly higher. And while you've guided around 35%. So is there any change in the guidance now that we have a significant higher tax rate in Q1?

Because of what has happened in Q1, we are saying that it will actually be a little higher than what we had earlier guided, but it's certainly not going to be the same levels as the current quarter. It will come down significantly. We expect it to be anywhere between 35% to 40%.

And then for the future years, what would be the proportion of tax rate?

No, it will be back to the 32%, 33%. Over time, yes, for sure.

[Operator Instructions] Next question is from Krishnendu Saha.

Can you hear me? Can you hear me?

Yes.

Yes. Vinita, you spoke about market being approved by FDA. So just wondering, we have any contracts in place which -- have you any contracts which come out in the U.S. on the -- Nilesh? Or the revenue -- level of CapEx expanded capacity, which we have, what kind of utilization is it running at right now?

So I couldn't get -- your voice was not clear. Can you repeat the first question?

Yes. Yes. You spoke about -- there are some market activities in the U.S. for albuterol, which was approved by the U.S., I thought I heard that. So is there any contracts which you have already on the verge of signing or your with contracts with people for albuterol?

Yes, the prelaunch activities are ongoing for albuterol.

On the capacity utilization? Sorry -- on the capacity utilization for levothyroxine, we actually had a good drought there. So we've been loading inventory for in anticipation of uptake. I think we're in a good position overall.

Any number? Or it's like we are good enough. That's what I can get.

Yes. It's good.

Next question, we have a follow-on one from Nithya -- Nithya Balasubramanian.

A very quick question on the partnership that you announced yesterday. If you can tell us -- throw a bit more color on what these assets are? And are these short-term opportunities FY '22, '23? The partnership with ForDoz Pharma?

Yes. Sure, Nithya. So very pleased with the expansion enhancement of our injectables portfolio to this partnership with ForDoz. We have 2 products in the partnership, Doxil, Doxorubicinv Liposomal as well as AmBisome, further along on Doxil, we expect it to be filed next year. And AmBisome the year after. So the certainly our calendar '23 probably will miss fiscal year '23, given our year-end in March. Probably will be fiscal year '24 opportunities, but certainly significant enhancement to our injectables portfolio.

So these are products that are likely sold through specialty pharmacies. Do they require any additional capabilities when it comes to your commercial infrastructure?

Yes. So we have been in the process of building into institutional commercial strength in the organization, just given the portfolio that we are focused on. With all of the focus on the injectables. In the near term, we have a few simpler products in the next 2 years, I would say. It's going to be simpler products there are a decent opportunity. Second, we have pegfilgrastim that we expect to file this fiscal year. We expect to be in the market in fiscal year '23. So we are building up a commercial strength to be able to participate effectively, both on the injectables as well as the biosimilars. There's a lot of synergy on the commercial infrastructure for both.

Are you likely to commercialize the biosimilars in the U.S. on your own? Or are you looking for partners to do that?

No, we very much expect to commercialize on our own, especially the first couple of products, pegfilgrastim as well as ranibizumab, those would -- the kind of infrastructure we will have in place for our injectable generics, we can easily leverage that for those 2 products.

Next question is from [ Rishikesh Patole ].

Vinita, just to follow-on albuterol, one as you said was pricing is fairly stable, right? So this aspect is interchangeability. So as you mentioned, you're targeting the full marketplace from the players that are already there in the market right now currently? Are you witnessing interchangeability already?

Well we haven't launched as of yet, right?

No, from the players that are already there in the market.

Yes. I mean, there we have...

How is the market like shaping up here? We are gradual? Or is it going to take time?

Sorry?

Is it going to be gradual, interchangeability?

No, we don't see the interchangeability gradual, especially for ProAir, which is the largest part of the market. If you look at the shares right now, the ProAir generics are doing pretty well. Also the Proventil overall has taken a little more of the market really at the cost of GSK, the Ventolin product and it's AG. So we see ProAir as very -- giving us access to the entire market from an interchangeability standpoint.

Sure. And if you can help me with the branded revenue figure in Q1?

Yes, branded business was very severely impacted. As we had mentioned also in May, was down 45%, 50%, so from the $4 million base of Q4, it was $2.5 million in Q1.

We have the last question, which is a follow-on from Sameer Baisiwala.

Just a couple of questions. Is it fair to say that albuterol authorized generics are being supplied from there from the branded company? So the costs are quite different from yours? And is there any other competitive difference between having a pure generic versus an authorized generic as a complicator?

Sure. But your first point, the authorized generics are from high-cost facilities, primarily in the U.S. in fact, even the largest generic, the ProAir generic from Perrigo is from Catalent, which is a U.S. facility, so a high cost facility. I believe that both ourselves and Cipla have a real advantage with the product out of India. And I think the fact that we have a couple of U.S. manufacturers in the mix really helps us keep that pricing stable as we look at the market evolution over the next couple of years. Sameer, can you repeat your second question?

And is there any other competitive difference with outside generics or is this only difference?

Yes. I mean, there was some of the mail order in the past, have preferred the brand, keeping the brand. But when you have a couple of players, 2 players, you typically see a switch. So we really don't see we're looking forward to really accessing that market have seen a tremendous level of interest.

Okay. And one final one from my side, if I may. On Metformin, when you go back to market, you get all your market share back or your customers back? Or is it rebuilding all over again?

We hope -- so the for the last 5 years, we've been such a strong player in the Metformin market. From a supply chain perspective. We have really built a very strong relationship over the years and believe that we have the ability to regain share. And hopefully, we'll be able to regain majority of it.

With this, I would like to hand over the reins to Dr. Kamal Sharma for closing remarks. Sir, please.

Yes. Okay. Friends, thank you very much for your participation. I hope you had adequate answers to your queries. I look forward to connecting with you again next quarter end. In the meantime, stay safe and stay healthy and good luck. Thank you very much.