Lupin Limited (500257) Earnings Call Transcript & Summary

Hello, everyone. Welcome to Quarter 3 FY '21 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Lupin management. Thank you, and over to you, sir.

Yes. Good morning, everyone. I'm Kamal Sharma. It's a pleasure to connect with you for the Q3 performance. I have with me Vinita Gupta, Nilesh, Ramesh Swaminathan, Vishal Rathi and Arvind Bothra from the management to address this conference. As you would have seen by now, we've had a very strong quarter. I think the sales at INR 3,917 crores are 3.6% higher from the subsequent quarter and 5.4% on corresponding quarter. There has been substantial improvement in the EBITDA margins, as we've been speaking about over earlier earning calls. Team has worked hard and delivered a good EBITDA margin. And also, I'm pleased to say that our effective tax rate has substantially improved because most of our major subsidiaries have done well this quarter, and we do look forward to delivering similar performances going forward. And now to give you complete financial commentary and details, I would hand this call over to Mr. Swaminathan. Ramesh, over to you.

Thank you, Dr. Sharma. And dear friends, welcome to Q3 FY '21. Happy to share with you a good set of numbers after quite some time. Let me walk you through the key aspects of our Q3 performance. Q3 has been a good quarter for us with sequential sales growth across all markets, highlighted by 5% growth year-on-year on the domestic formulations business and 4% growth in U.S. sales with continuous ramp-up of albuterol. Despite the impact of a weak flu season seen across various parts of the globe, we've been able to post sales growth both sequentially vis-à-vis Q2 as well as year-on-year vis-à-vis Q3 FY '20. The operating EBITDA has also improved sequentially for the fourth quarter in a row due to improvement in business mix and reflection in some of -- and reflects in some of the cost optimization efforts on the profitability front. Talking about sales, U.S. U.S. sales grew by 4% sequentially at USD 188 million in Q3 FY '21 as compared to $180 million in Q2 and grew by 1% as compared to Q3 FY '20. The sequential growth was driven up by ramp-up in albuterol as well as new products like lapatinib, tacrolimus, et cetera. The demand for seasonal products continues to be pretty weak on back of -- in fact, of the weakest flu seasons in the last decade, leading to a fall in quite a few of those products as compared to the previous year. Other in-line products, however, remained stable. India region saw a growth of 5% year-on-year since demand for acute as well as chronic products picked up as the market began to open up, leading to higher patient visits to the clinics. Despite a lower contribution from COVID therapy products, Lupin was able to match IPM growth this quarter due to superior performance of our chronic portfolio. API sales degrew quarter-on-quarter due to low volumes of some of our antibiotic APIs on account of weaker flu season in most parts of the world. Gross margins were up by 1.4% vis-à-vis the previous quarter at 64.9%, driven by improvement in business mix across regions and continued moderation of freight rates. We did some excellent work on the manpower cost front. Employee benefit expenses in Q3 came in at INR 707 crores as compared to INR 685 crores in Q2 on account of increments rolled out during the quarter and certain onetime restructuring costs. However, you recognize this is actually quite some amounts lower as compared to the previous years. Employee benefits have come down to less than 18% as a percentage of sales from 20% that we saw in FY '20. And we will continue to keep our efforts to improve from the current levels. On the manufacturing, other expenses front, there's, of course, a reduction. The reduction -- the decrease was driven by lower ForEx losses, lower R&D due to spacing off of -- and of course, a higher spend of SG&A expenses and higher royalty on partnered products. Most important line from our perspective, EBITDA. Operating EBITDA is 18.6%, excluding ForEx and other income. However, the top line EBITDA is 20.4%, as you recognize. On the other operating income line, we saw the full impact of loss of MEIS export benefits for this quarter, and barring the one-off income linked to litigation settlement recognized in Q3, this would have been about 25% to 30% on a normalized basis. To repeat again, Q3 operating EBITDA adjusted for the one-off is about 18.6%, excluding ForEx and other income. And this compares well with Q2 of 16.8%, actually an increase of 1.8% as you recognize. On the ETR front, the impact of various initiatives taken to rationalize ETR in all our key subsidiaries -- with all our key subsidiaries reporting profits in Q3, and that would actually be a good reason for the ETR to come down to 15.9%. But you also note that this is -- for the full year, we would expect the ETR to be in the mid-30s. With this, may I open the floor for discussions.

[Operator Instructions] Now Mr. Kunal Dhamesha.

So the first question is on the specialty rationalization that we have done. So have all the benefits of that reduction in sales force and some of the infrastructure, front end infrastructure cost efficiencies have flowed into this quarter? Or do we expect some more savings to continue?

They have flowed, Kunal, into this quarter, and we will take a stock of how things change over the next couple of quarters with regard to the COVID environment and related impact to the ability to reach the doctor's office to determine if there is a need to do any further adjustments.

Okay. And secondly, on the R&D expense, which has decreased significantly in the quarter 4 -- quarter 3. So what would be our expectation for quarter 4 and also for the FY '22?

Yes. We expect to keep R&D at the 9% level. I mean, as you can see, we used to be at a 10% level as of the last fiscal year and managing it at the 9% level. So we can expect to see that going forward.

Now I would request Nithya Balasubramanian.

So quick question on the respiratory generic products and the pipeline. So in terms of albuterol, what is the kind of market share ramp-up are you seeing? I think the weekly TRx data is showing a little bit of dip. So any comments on what might be the reasons? And is there any capacity constraint?

So the market share is ramping up very nicely, Nithya. Actually, the monthly data is more accurate than the weekly, typically, just based on what we see. And the latest monthly data that I have -- I'm looking at shows 9% plus market share of the generic market. So it's ramped up very nicely over the last couple of months. And we continue to ramp it up, both from a supply as well as the customer share gain standpoint. So we will continue to see that within this quarter and going into the next fiscal year.

So any comments on what kind of ramp up are you likely to see now that Perrigo's announced that they're unlikely to get back in the market this year?

Yes. We're hoping to get to 20% plus shares over the next couple of quarters sooner rather than later.

Got it. Any updates on the Spiriva, both the filing as well as the litigation?

The litigation is ongoing. And on the filing, we continue to make progress with questions that the agency has. So still on track to launch it mid of next year, mid of '22. Yes and apart from Spiriva question was also the other inhalation pipeline. So as we look at Q4 as well as fiscal year '20, of course, we have the albuterol ramp-up. We have a couple of other products on the inhalation front, nebules Perforomist as well as Brovana that we intend to bring into the market in the U.S. We have Fostair that we expect to get approval in the next couple of months and launch soon after. So for the next fiscal year, it's these 3 products in the U.S., albuterol, Perforomist, Brovana and Fostair in Europe. And then the following year, we would expect Spiriva as well as Dulera, hopefully.

Understood. Just a quick follow-up on Spiriva. So the kind of queries you're getting from FDA, the regular IR sort of queries or do you have like a minor CRL? Or what sort of queries are you trying to address, if you could throw some light on that?

Yes, it's IRs.

[Operator Instructions] Next question is from Neha.

Go ahead, Neha. Neha, you are on mute.

Neha Manpuria...

Hello. Can you hear me?

Yes, go ahead.

Yes, sorry about that. So Vinita, just to reconfirm, you said Spiriva would be a mid-FY '22 product or FY '23?

Mid-calendar '22. So it's FY '23.

Okay. Fair enough. Okay. And second, in terms of our cost optimization, I think, Ramesh, you mentioned that some amount of it is reflected in this quarter. How much more of cost rationalization or optimization should we see, particularly given the specialty rationalization is behind us and R&D will probably now as revenue ticks up increase from here?

Neha, as you recognize, this is a continuous effort. We have been working on, in fact, trying to improve upon our gross margins by actually looking at alternate vendor development, looking at routes to synthesis. And of course, we are also embarking on a digital journey. And very recently, we actually looked at -- in fact, looking at the rationalization of our workforces there. All of these are actually reflected in the numbers itself. But as you recognize, it's a continuous journey, and we would continue to go down that path, and you'd see further improvements coming up.

So would it be fair to assume that the incremental margin expansion from here would be dependent on probably our pipeline execution rather than cost rationalization?

I would say it's going to be both. It certainly is going to be a function of the kind of products that we bring to the market, the kind of product -- the kind of cost rationalization that we'll continue and the kind of productivity that we see on the R&D and the SG&A front in terms of operating leverage.

Okay. And on the R&D front, if you could throw some light on our progress on the complex injectable and the biosimilar, where we are in terms of trials or filing? Any color there?

Sure. So on the complex injectables, we're making really good progress across the areas that we have focused on. On the depot products out of Netherlands. The first 2 products, we are ready to go to the clinic. Actually, the first product is going into the clinic this quarter. And the second will go into the clinic in the next couple of months as well. We have the liposomal products out of ForDoz where we're making really good progress as well. We would expect at least 1 filing in the next fiscal year. If possible, we'll try to get both the filings in the next fiscal year. On the peptides, we are making progress as well, getting ready to file a couple of products in the next few months and likewise, on the iron colloid products as well. So we have come a pretty long way on the complex injectables. And then on the biosimilars front, apart from Etanercept, pegfilgrastim, we made really good progress. Look forward to filing that to the U.S. this quarter and are getting ready to put together our go-to-market plans, build commercial capabilities to launch it -- be ready to launch next fiscal year or early the following fiscal year.

And Vinita, besides peg, are we doing any other biosimilars for the U.S. market?

Yes, ranibizumab.

Yes, correct. Okay. And that goes into clinical trials this year?

Yes, just started.

In Phase III. Okay. And despite all of this, we will keep the R&D at 9% of sales?

That's right.

Next question is from Mr. Tushar Manudhane.

Yes. Am I audible?

Yes.

Just on albuterol, what kind of capacity utilization we are currently? If you can throw light there?

Yes, we're fully utilizing our capacity right now.

And so this ramp-up would happen over what periods for us to gain this 20% market share?

We are in the process. It's ramping up month after month. So this quarter, we'll be able to produce more than the last. And we would see full ramp-up, I would say, in the next quarter.

Any -- roughly, how many units per month kind of number you can share?

So roughly, you can assume the market is 70 million units, and we are targeting 20% plus share. So 15 million, 14 million, 15 million units. We'll have capacity to do more, but that's the kind of share that one should look at.

Got you. And then secondly on Spiriva, on the litigation side, we are in the district court currently. So any further development in terms of what is the time line for the outcome on the district court front at least?

I don't have the time line right now.

Next question is from Mr. Prakash Agarwal.

Am I audible?

Yes.

Yes. Sir, just a first question on the U.S. FDA. So is there any dialogue that we are already into? We heard that the Indian U.S. FDA guys have started inspecting one of your competitors. So is there an update of physical audit inspection dates? And is there any progress in the U.S. as well?

Prakash, see, so there's been document requests and the like that we've been answering, but there really isn't any traction on a firm date at this point of time. We're very hopeful with the fact that I think pretty much the first inspection for an Indian facility started a couple of days ago. So we're hopeful that at least for the more meaningful mission-critical inspections, FDA would increase their activity in India. So we're hoping that it picks up. But I think meaningfully, it's going to be -- by the time vaccination picks up, by the time travel opens up, I think it will definitely be late in the second half of the year when we would really expect for meaningful FDA activity.

Okay. And from our side, we are fully ready?

We are. We've actually -- given the -- we've gone back to FDA on sites like Goa and Pithampur and Tarapur, and we would obviously expect for FDA to come there sooner rather than later.

Okay. And any take on the U.S. FDA that you saw -- observation that you saw on the U.S. plant? I mean while you maintain that you're ready across facilities, you again saw that 13 observations. So what's your take there? And by when do you plan to resolve that?

And maybe I can start up and Vinita can add. But I think the -- obviously, I think we were not happy with the fact that there were 13 observations. This was a tough, very long inspection. But that being said, it is what it is, and we have to be able to deal with it. Clearly, there were areas for improvement in Somerset. I wouldn't generalize that for the rest of the operations because we have a pretty bespoke kind of plan for each facility, as we are -- as we gear up remediation activities. So for example, you saw in the past that Mandideep had a significant number of observations, which eventually went to a warning letter. There, we have a very deep transformation program. In Pithampur, too, we've had a very deep transformation program, not the same way in Goa or Tarapur even for that matter. So I wouldn't generalize across the board. And obviously, I think, again, there is a deeper transformation that is being conducted right now in Somerset as well. There were specific areas of improvement there. So some of the things that happened there do not happen elsewhere. But I think suffice it to say that this is one of our biggest priorities to get it right. As you know, we had a very solid start in 2020 in the first quarter -- first calendar quarter. 6 facilities we got the EIRs for and still being cited for some of the observations that we have been cited for in the past. So I think we're moving in the right direction. Job is not done. I think perhaps job will never be done, but there's still work to be done on the compliance front.

Okay. And second question is on -- you mentioned about R&D being at around 9%. So is this for '22, '23 as well? And what's the kind of filing and launch expectation on both these years?

So the R&D would remain at 9% for FY '22 as well. We're kind of in the middle of our budgeting, so we're still seeing whether there will be a slight increase or not. So we'll come back later with more color on the absolute number as well as the filings and launches. In general, we filed about 30, 35 products. About 15 to 20 of them are oral solids, first-to-files exclusive kind of opportunities, [ few octal, few derma ]. The injectable pipeline, as Vinita shared, is starting to pick up. So we're hoping sooner rather than later, we started getting to the 6 plus filings each year on the injectable side, with a couple of them being the extremely complex ones as well. We're getting to a very good pace on the inhalation. So on the inhalation, we're increasingly looking at 3 to 4 products each year. Even right now, we've taken 3 or 4 exhibits, which will turn into filings for next year. So the inhalation pipeline is picking up. All in all, together, getting to 30, 35 products for the U.S. and obviously, a subset of that goes to other geographies as well.

Okay. And this year, clearly an aberration, we are at 6 for 9 months?

Yes. So we typically do see this lumpiness in Q4. So you will get more filings in Q4. Some of the exhibit dates moved out because of scheduling issues with CROs and the like when COVID was more an issue in India, but you'll see that starting to even out.

Next question is from Mr. Surajit Pal.

Surajit, you're still on mute.

Surajit, you're on mute.

Yes. Am I audible now?

Yes.

Yes. So on cost front, in a sense that what part of the employee cost is one-off this quarter?

Yes, there is an element of one-off because, obviously, if you rationalize, there is some payments to be made and the like.

So can we quantify that?

Yes. So there has been -- we have not quantified that. But having said that, if you recall, the first quarter, we had -- we gave INR 794 crores. In the second quarter, we came down to INR 685 crores. This quarter, we also gave increments and the like, and there is, of course, people who left us, and there was some rationalization payments that was made. So all of this put together is the figure that you see, but payments that we've made would not be material, would not be huge.

Okay. You said your adjusted EBITDA is around 18.6% vis-à-vis 20.6%, which is the reported one. So this 2% gap is entirely ForEx or any other?

So there is a onetime income, which has been captured in here, which if it would be taken off, there would be a reduction to that levels. You'd also recognize that there is actually a reduction on MEIS. All of this actually go into the other operating income line. So we'll have to take that. That line itself would be about INR 25 crores to INR 30 crores on an annualized -- normalized basis.

Okay. Okay. Improvement in your gross margin is entirely because of favorable product mix this time?

Yes, there are several factors. There has been this continuous effort to kind of shore up the gross margins, which has been happening for some time now. The second, of course, the sales mix, including, in fact, albuterol coming in. The third, of course, in terms of lowering of the overall freight cost itself vis-à-vis the previous quarters.

Okay. The last one is that what could be the -- what was your branded sales in U.S. this quarter?

It is small. It is $2 million.

Yes, $2 million.

$2 million. And what would be the number of people currently in the branded business?

Number of what?

Number of headcounts.

We have a 40-people sales force.

Next question is from Mr. Sameer Baisiwala.

Nilesh, how are you thinking about the plant inspection for Spiriva?

So we've been inspected in the past for Spiriva already. But we are going through -- like Vinita said, there is an active conversation going on with the FDA. I think there's still some hoops to be covered. We still feel very good about that '22 launch.

And you would not require -- like a plant visit or plant inspection won't be a bottleneck, is it correct?

Like I said, we've been inspected in the past, specifically for Spiriva. So unless they want to reinspect for whatever reason, we've not done before. But I think there's still a little bit of ground to be covered before we have the Spiriva approval. Yes, no show stoppers, but still some ground to be covered.

Okay. And Nilesh, clearly, you guys are very confident of mid-2022 launch. But the time is not enough for the court case to get resolved until then. So how are you thinking of resolving that?

Sure. So I...

Go ahead, Nilesh.

No. You please go ahead, Vinita.

I think we would have district court decision within a year. I don't have the exact date, but we would expect it within a year.

Okay. Okay. That's great. And the second thing is on biosimilars. How is Enbrel doing in the market? Any color on the market share, et cetera? And second is on pegfil. Being a third or fourth entrant, do you think there would be enough value left in the market, given that even the current incumbents are struggling a fair bit?

So on Etanercept, Sameer, the ramp-up is slow. I mean it's more of a branded build in the European market. And our partner, Mylan, has chosen market where we have the opportunity to maximize from a pricing standpoint. So, so far, launched in Germany, France and Belgium -- Germany, Belgium and one smaller market, but we're getting ready to launch in France. So we would expect in the next 12 to 24 months for the product to be rolled out in all the key markets. And so it's a slow buildup of share. On pegfilgrastim, we certainly believe that it continues to be an attractive opportunity based on the go-to-market plans that our team has built and the segments that we are targeting. We believe that it should continue to be a reasonable opportunity, especially given the dynamics in the biosimilars market, you don't see the kind of price erosion. Of course, we'll have to earn our share, which our team is working on the strategies to make sure that we do. But I'm looking forward to that launch in calendar '22.

Okay. And with your permission, final one. Vinita, what's your updated thoughts on SOLOSEC and its ramp-up going forward? Do you think it would remain slow or anything to really accelerate it?

So there are a couple of accelerators, Sameer, but the biggest decelerator is COVID. With the COVID environment, just the access into the OB/GYN office for acute care product, in particular, has proven to be really tough. So the accelerators are -- we continue to really get additional formulary access through recent efforts around the DoD. We have been able to get the product in. So that is a positive. We have the trich indication which, again, is an opportunity to reposition the product. So a really nice opportunity in the summer. We expect that in June. So right now, we're gearing up to launch the trich indication successfully in June. And I'm hoping that with the vaccine rollout, things start improving by mid of this year. So I'm hoping that we start seeing real traction in the second half of this calendar year. I mean so far, when I look at it quarter-on-quarter, the scripts have kind of flattened. And with some of the gross to net improvements, one has seen some pricing improvement quarter after quarter. So -- but I think a meaningful build, I think, would be after the trich indication launch and for the COVID environment to abate a bit as well.

Next question is from Mr. [ Dev Daga ].

Hello. Am I audible?

Yes.

Sir, I wanted to know, given that we have had an albuterol ramp-up this quarter, so why has our top line not growing proportionately as compared with the previous quarters?

We said that, right? Vinita, you might like to address this question, but that's essentially because of the fact that there has been a very poor flu season across various parts. So products in America didn't sell as much. And equally, when it comes to API products, the demand for, in fact, the antibiotics across the globe was very poor.

So if you look at our growth, I mean, we still had year-on-year growth in the U.S. of 5% despite the fact that we've really not had -- there's no flu. It's one of the weakest flu seasons in a while. So all of the demand of the flu products, the cephalosporins, Tamiflu is -- has been really, really weak. So that obviously has -- we've not had a contribution from flu products. The other area compared to year-on-year is Metformin, that we unfortunately had to withdraw because of the NDMA issue, we relaunched in September and are in the build mode right now. So when you compare to the last year, both the flu products as well as Metformin products are really missing in our top line. And the flu products, we'll see if we have a late flu this quarter, but the Metformin products are building right now. And then Glumetza was relaunched, and we are well on our way to earn our share back again. And this quarter, we expect to launch also the Fortamet product.

Okay. That helps. And my second question is, we have seen a very good growth in the rest of the world business this year. So can we expect this going forward? Or will we see other geographies ramping up in the next quarters?

Sorry, your question was that there is still growth -- the market has been -- has grown?

Yes. So in the next quarter, can we see a similar growth in this business? Or will we see the other geographies showing better growth?

So the markets are growing. If you look at, for example, Brazil, so we have been growing steadily over the last few quarters. We've done a great job there. Other markets are just about opening up. For example, if you look at markets like Philippines, it's past going through its worst depression in several years. Mexico, it's just about opening up and it did particularly -- it was okay in Q3. India, also. India was, again, in terms of acute therapy, the overall prescriptions have been lower. So you would expect all of this to ramp up. So you would expect, in fact, the rest of the world, including India, to certainly go up in the quarters to come.

Okay. And what about the other geographies? Where can we see growth concentrated, Europe, U.S.?

Dev, so if you look at America, we got albuterol the full quarter ahead of us, so there would be a ramp-up there. We've got products for Europe also, NaMuscla, it's still ramping up. So all of this will certainly see growth. And as would South Africa. South Africa, Q4 generally is, in fact, a very good quarter.

And in India, also, Ramesh, obviously, we'll get back to that double-digit growth in the next year, which is obviously single-digit at this point of time.

[Operator Instructions] Next question is from [ Mr. Ankush Mahajan ]. Okay. We'll move on. The next question is from Mr. Nitin Agarwal.

Just one question on the Q-o-Q business that you talked about in the U.S. sales. Barring ProAir, how has the portfolio been on Q-o-Q basis? Has any of the -- has the -- barring -- how is the other ex ProAir portfolio grown in the quarter, albuterol portfolio?

So ex albuterol, Nitin, the baseline business has been fairly stable, and we've had some contribution from the new products that we've launched in the last couple of quarters. For example, lapatinib has grown a bit as well as we ramped up or we're in the process of ramping up really products like Vimovo and we launched tacrolimus. Just got very little of tacrolimus. We should see a better contribution this quarter and APRISO. So there are a couple of products apart from albuterol, but the largest contributor being albuterol in terms of quarter-over-quarter growth.

So the reason I was asking, Vinita Gupta, Q-o-Q, we had an $8 million increase in revenue. So it seems given the fact ProAir, albuterol should have contributed a fair bit. So that seem a little surprising in terms of being a little on the lower side.

Yes. So some of the -- yes. I mean ProAir has been a good contributor as -- but the others are smaller.

And I think we would just say of the flu season products, right, Vinita. So that is further -- those numbers are depressed in Q3 even over Q2 a little bit.

Yes.

Okay. Okay. Perfect. And secondly, on -- you were mentioning about the launch, the key launches over the next couple of years. Where does Suprep fit in this sort of schematic?

It's fiscal year '23 launch.

And is it going to be a reasonable launch for us? How are we looking at it?

Yes. I think it's a reasonable-sized product. It's the $200-plus million product that we're first to file, and we have a final approval.

Okay. Perfect. And second one, Ramesh, on the ETR, what should we -- how should we look at ETR now over the next couple of years? Do we see it coming down to 30% towards the next couple of years?

Yes. This year, we'll perhaps see an average rate of the mid-30s. But going forward, you certainly could expect the lowering of the ETR.

Okay. And sorry, if I can squeeze in last one. Vinita, on the specialty side, you mentioned that the field force now is 40-odd million -- 40-odd people. And given the size and the structure that we have for the specialty business now, what typical size of specialty business do we need to start breaking even on this business?

So depending on, of course, the margin of the product, but around $20 million.

$20 million annualized. That should be enough for us to break even on this business model?

Yes.

The other way to look at it is, do we also get other products into the portfolio, so that we can actually deflate that expense base over the hard, larger revenue base.

Next question is from Mr. Prakash Agarwal.

So just on this 40 people MR, is there a further rationalization or cost savings possible there? Or this is the minimum threshold we want to keep as we also talk about adding more products?

Yes. So we are in the process of looking at what we need for the trich launch, Prakash, which we want to do effectively and obviously, looking at other products as well. So we'll take a call in the next 2 quarters depending on both in terms of what is the optimal size.

Okay. Got you. And I don't know whether I missed this. This other operating income, you said there's some litigation income. Could you explain that, please? I mean because you mentioned that this INR 30 crores to INR 40 crores kind of the export incentive that was there. But what's the remaining INR 70 crores?

So we made that very clear. So the annualized number, it would be about INR 25 crores to INR 30 crores. This is because of the fact that MEIS export benefits have been called off by the government. This quarter, there is also -- we recognized some litigation settlement, and that's reported in this -- the overall figure.

Yes. I understood that. But if you could give some details on litigation settlement? What is this related to?

Unfortunately, we're not in a position to share further details at this stage.

Okay. So you're just calling out this as one-off at that point?

That's correct. Absolutely. So we're making it very clear that this is one-off.

Okay. Perfect. And second one also for you, Ramesh. On the tax rate, so there's a clear call-out on some of the subsidiaries, which have turned profitable, and you mentioned that you expect they'll likely to be so in future. So how do we see annualized tax rate for this year, next year and year after, ballpark?

I've clarified. So this year, it would be in the mid-30s, but progressively it will certainly come down because the most important subsidiary for us is America. And given the kind of, first, introduction of products; second, the kind of rationalization that has taken place, it would be profitable. Other was essentially Brazil. Brazil has also turned a corner. It's profitable at this stage. So things would only progressively become better for us from an ETR perspective.

So around 30% for next year?

Yes, slightly lower.

Next question is from [ Raja Kumar Vaidyanath ]. [Operator Instructions]

My name is Mr. [ Raja Kumar ], I'm individual investor. So I have a couple of questions. So the first one is with the Democrats coming back to power in the U.S., just wanted to know what is the pricing scenario the management is expecting? Do you expect any pressure on the pricing, given that you have kind of said that they will make the health care more affordable going forward? That is my first question. And second question is on the albuterol. Just wanted to know now how is the competitive landscape given that Cipla also has a significant share. So just wanted more color on this. I'm sorry if this was answered earlier, I just joined the call a little late.

Yes. So on the pricing environment, it's early days, but we really thought that both Democrats as well as Republicans it was bipartisan support in terms of looking for ways and means to make drugs more affordable. So pricing -- especially pricing of high-priced brands, biologics, oncology drugs would likely be under pressure. But we really see it as an opportunity for affordable medicines, the part of the business that we participate in from a generic side. Obviously, all of our generics are affordable medicines as well as biosimilars, affordable versions of biologics. So we see it as a positive for the generic side of the industry. On albuterol, certainly Cipla had a head start from a timing perspective into the market. So -- and then after we launched, we ramped up our share in a couple of months to 9% plus with -- while still ramping up our supply. And we see a really good opportunity for us, given that we are the only true generic to ProAir, which is the largest part of the market. With Perrigo going out of the market, Lupin is the only true generic to ProAir and have the ability to ramp up to be the largest product from a generic perspective. So we're looking forward to the next couple of quarters, this quarter, next quarter to be able to ramp the product up.

Next question is from Mr. Rakesh Jhunjhunwala.

Congrats on the fine performance. Ramesh, why should our rate of tax be in the 30s? Your Indian income is 25%. The rate of tax in America is 20%. You have carryforward losses in Americas. I don't understand why our rate of tax -- it should probably be, if anything, beyond 25%?

Mr. Jhunjhunwala, the fact is we still have our subsidiary in Amsterdam, in Holland, which actually is a research subsidiary, which is to still to make profits out there, which will not commercialize the products and so on. So that is the reason why it is what it is.

That's a small subsidiary. How much loss can you incur about INR 100 crores, INR 50 crores?

Yes, America has turned profitable this quarter. So going forward, as I said, it will certainly impact -- there will be a reduction in overall ETR.

No, but in America you have carryforward losses. I think the American income won't be taxable. The rate of tax is more than 25%. I don't know what the income tax in Brazil is. So I don't understand how the rate of tax your Netherlands subsidiary will incur INR 100 crores loss. How much more? So I don't know why our rate of tax should be more than 25%. I think you better look at it finally and come back.

Okay.

We still -- Rakeshji, I mean, I think Ramesh mentioned sub-30%. So we'll come back.

Because there's a lot of difference between 25% and 30%, ma'am.

I agree.

I think we need to -- you need to study this more correctly and report to us.

We'll do, Rakeshji.

Anyway, congrats on a fine performance.

Thank you.

Next question is from Mr. Shyam Srinivasan.

The first one is on the U.S. generic pricing environment, Vinita. So anything you can share? 2020 was kind of benign. But calendar year 2021, do you think things could get worse off from a pricing perspective?

What we've heard at JPMorgan from all of our peers as well as our customers was a relatively speaking stable environment on the generic front from a pricing standpoint. So we are hoping that it continues to be the low single-digit erosion.

Yes. Just extending that. So the conversations with the distributors, the supply chain in the U.S., is there the same angle that we had last year, which is the reliability of supply. Do you think that theme continues to remain in 2021?

Yes, reliability of supply is very important to them. That continues.

Got it. Got it. Second one is on Levothyroxine. Can you help us understand? I think we've talked about contracted market shares in the past. So where are we right now? And what's the kind of upside on Levothyroxine?

So we are at 17% plus of the generic market share, roughly 14% of the overall market and still working towards that 20% plus share. So a couple of percentage points away from that 20% plus share.

Yes. So Vinita, is that like a hurdle you think or -- we have done well, so I'm just trying to see can we go higher? It's a large market, but is there any impediments to taking share higher than that?

We think that unless we have an opportunity, just given the new entrants that have come in as well, it makes sense to really target really that kind of share and then see, depending on the opportunity going forward. But it's a material product and switching the product also -- switching share is also not that easy as you've seen over the last couple of years, and customers are fairly reluctant to switch share, just given that it's another therapeutic-indexed product.

Got it. Last couple of questions. We have talked about the product momentum going from whatever single-digit in the U.S. to healthy 25, 30 products. So where will these product approvals come from? Which plants? Or are they -- can you just help us understand from where these approvals could likely come? Which plants, I mean?

Yes. So a number of our plants. So for example, all of the inhalation products, if you look at albuterol from Pithampur Unit-3; Spiriva is from Pithampur Unit-3. Our nebule products are outsourced. They're contract manufactured. So those are the major products. Fostair is Pithampur Unit-3 as well as Coral Springs. We have both sites qualified for Fostair. In fact, we are qualifying both sites, U.S. as well as India for a couple of other products also, where there's government channel business that we can access potentially. So we have the near-term product from these sites. And then we have products coming out of Nagpur. We have products coming out of Aurangabad. We have products coming out of Pithampur Unit-1.

Got it. So largely, the unaffected plants. We have been not building in like anything coming out of some of the OAI affected plants. Would that be right? Would that understanding be correct?

That's right. I mean our material opportunities are from these sites that I just mentioned.

Got it. Got it. And my last question is on the PLI scheme, the one that we had the first results come out in the antibiotic space. I was surprised to not see Lupin, so -- but maybe we were never in consideration. So just wanted your thoughts on the scheme in general? And do you think it makes sense or did we pass it completely?

Maybe I can take that. So I think the second version of the PLI scheme is going to be even more powerful than the first one. They still have to announce the entire list. There's some smaller products that we are playing a role in the initial. We -- I think there still has to be overall alignment with the business strategy. But I think the second version of the PLI scheme gives room for a lot more to be done, and that is somewhere where we believe we will participate meaningfully.

Nilesh, when the -- even second version, is it the rest 46, 47 drugs? Or you're talking about the formulation PLI?

The formulation one.

Got it. And do we know any time lines because it seems to be in the press, but do we know anything?

No, I think it's still in Parliament, right? So I think it's still be a couple of months away. I do see this as something, which rolls out in the next 2 quarters, though.

Next question is from Mr. Sameer Baisiwala.

Vinita, can you talk a bit more about commercialization angle for Fostair once you get the approval in the next couple of months? What sort of a market share ramp-up do you expect over a year or 2 and the competitive scenario for this?

Yes, it will build because it's a branded like product. So it's going to be building over the next 2 years. And we will start in U.K., but have plans for all the other countries as well, Germany, Italy, France, Spain, the main countries, the majority of the Fostair brand market. And from a competitive standpoint, we think -- we believe that we have the first-mover advantage, but think that there may be 1 or 2 players behind us. And for a EUR 600 million product, it seems like with 2 or 3 players is still going to be a reasonable market.

Any indicative pricing that you think once the competition settles down? It's just a broad range, does it go down 50, 60, 70, 80? Anything that you can share?

Sameer, I don't have it off the top of my head, but I know that it operates more like a branded market, just given that you need to have a sales force in key markets like the U.K. So I would think that pricing would -- strategy would follow the investment model as well.

Okay. Very clear. And one more, how is the company thinking about M&A opportunities going forward?

We're focused on specialty build where we can. And apart from specialty, also looking at areas that we can accelerate on the generic front, like injectables, in particular, for the U.S. and opportunistically also for India to scale up our business in India, especially in therapy areas where our share is not at the top level.

Maybe we take one last question.

We'll just take last -- one last question from [ Mr. Ritesh Rathore ], and then we'll go for the closing comments.

Yes. You mentioned a 20% market share for albuterol, which is 40 -- 50 million devices. So when you said 9% market share, you mean you are at 6 million, 7 million devices annually?

Yes, roughly.

Yes. Okay. And second, on the cost optimization front, for each line item, whether it's employee cost, R&D and other costs. You mentioned about R&D about 9%. But for the other 2 line items, on more on a medium-term basis, where we are in the journey? Like what we are targeting as optimization from the percentage to sales?

Go ahead, Ramesh.

Yes. From our perspective, so we are saying that our EBITDA margins should be actually about 20% to 22%. If there are products being introduced, it could spike to a higher level. But I think the base level should be about 22%. So our endeavor is to make sure that the cost lines are contained in such a manner, the EBITDA lines -- EBITDA margins reach those levels.

So would it come more from other expenses or R&D will go down as you scale up or employee cost...

It comes from all lines. From our perspective, which is, of course, on the gross margins. It is, of course, making sure that the ramp-up on the manpower doesn't happen as much. And of course, the operating leverage clicks and R&D productivity, for sure. All of these will contribute to keeping the EBITDA.

And Ramesh, on the EBITDA, is there any ForEx gain or loss element within the EBITDA number?

No. So we reported 18.6% without taking into account the ForEx. The ForEx loss for this quarter was INR 28 crores.

Okay. And just on the first question of 6 million, 7 million devices, I presume it's not fully reflective of the quarter. It would be month end over the quarter.

Just think about it as annualized 20% target, yes? And 9% building over month after month, obviously.

I'll now hand the conference over to the management for closing comments.

Thank you very much for your contributions and look forward to connecting with you in the next quarter. If there are some questions, which have not been answered, you can always deal with them off-line with Mr. Bothra and Mr. Swaminathan. Thank you very much once again for your participation. Bye for now.

Thank you, everybody, for joining so early. Bye-bye.

Bye-bye.

On behalf of Lupin Limited, that concludes this conference. Thank you for joining us, and you may now exit the webinar.