Lupin Limited (500257) Earnings Call Transcript & Summary

[Audio Gap] [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. Hello. Good afternoon, and welcome to this earnings call. You have the results with you, and I know you have lots of questions. So I would straight away hand it over to Ramesh to explain the financial details, and then we'll open the floor for question and answers. Over to you, Ramesh.

Thank Dr. Sharma, and welcome back, friends, hope that you and your family are keeping fine. I'll begin with the commentary on the sales. Sales for quarter 2 FY '22 are INR 4,003 crores as compared to INR 4,237 crores in Q1 FY '22, a 5.5% degrowth and 5.9% growth as compared to Q2 FY '21 sales. But you recognize that adjusted for NCE licensing income, the quarter-on-quarter growth is 3.6%, whilst the year-on-year growth is 5.9%. U.S. sales grew by 7.3% sequentially, at USD 184 million in Q2 FY '22 as compared to $172 million in QY FY '22 and grew by 2.4% year-on-year as compared to $180 million in Q2 FY '21. The reasons for quarter-on-quarter increase has been the increase in the sales of our respiratory franchise led by albuterol. That's the incremental business and Brovana, full quarter sales. The India region saw a quarter-on-quarter degrowth of 2.1% due to higher COVID second wave driven sales in Q1 and 16% year-on-year growth due to COVID-impacted base in Q2 last year. IRF sales, India region sales were higher than the market access both for -- both acute and chronic therapy ADS, but was impacted by higher salience of chronic therapies, which grew at a slower pace. Lupin's acute chronic mix market growth would have been much higher at 13.4% -- have been higher than the market at 13.4%. For API sales, quarter-on-quarter growth at 8.9% was driven by higher [indiscernible] sales in Cuba -- to Cuba. Core API business was flat quarter-on-quarter but down year-on-year due to sales to lower volumes and demand. Sales for EMEA grew by 33.3% quarter-on-quarter and 6.9% year-on-year due to higher sales across all markets as COVID restrictions are gradually easing. We also launched Luforbec, a generics fostair in quarter 2 in U.K. market. Sales for growth markets grew by 4.9% quarter-on-quarter and 19.6% year-on-year due to continued recovery in almost all markets, that's Mexico, Philippines and Australia for you. We have got some exceptional items this quarter, as you would recognize. Onetime costs related to U.S. specialty restructuring, about INR 326 million, INR 20 crores is under the manufacturing and other expenses, and about INR 12.6 [ crores ] in employee benefit schemes and so on. Provision we provided for Glumetza antitrust class action suit and that has been included in the results. There is, of course, the impairment expense of INR 708 crores that's essentially made into Solosec IP. The normalized operating EBITDA excluding ForEx other income at one-offs, that's the NCE income in Q1 and specialty restructuring income in Q2, were up at 14.3% in Q1 to 14.9% in Q2 FY '22. A positive impact of lower R&D employee benefit expenses were offset by the fall in gross margins as well as an increase in G&A expenses largely due to promotion, travel and, of course, a little bit of the pre-planned operating expenses as well. Gross margins, royalty/profit-sharing expenses on certain in-licensed partnered products have been reclassified and that was done, as you recall in Q1 as well. On a comparable basis, the gross margin adjusted for such change would have been 62.7% of sales in Q2, FY '21 that is. Q2 to FY '22 gross margins was 59.4% as compared to Q1 FY '22 gross margins adjusted for NCE licensing income of 60.5%. This is mainly due to the decline in U.S. mix, API margins. And this, of course, is offset by positive impact of higher U.S. sales and low GB sales. Year-on-year drop of 63.5% to 59.4% is on account of impact of higher royalty expenses, lower U.S. margins offset positive revaluation impact. Employee benefit expenses, it is expected to normalize around 18%. R&D, we expect it to be around 8%, 8.5% going forward. The ETR is on expected lines and is expected to be less than 30% for FY '22. With this, may I open the floor for discussions.

[Operator Instructions] First question is from Mr. Kunal Dhamesha.

So firstly, on the target that we had set in the last quarter in terms of U.S. revenue growing to around 200 million in the second half of -- 200 million per quarter run rate in second half of the FY '22 and EBITDA margin reaching the 17% to 18% level. Are we still on track to achieve that?

We're on track to achieve over 200 million a quarter in the second half. On the EBITDA margin, at this point, we believe that we're going to improve our EBITDA margin for the second half of both quarters, but it should be at the 16% plus level.

Sure. And if I look at the gross margin closely this quarter, our U.S. has ramped up and ramp up would have been on the back of the albuterol. So is it that albuterol is now a lower gross margin product for us? It might be accretive on EBITDA margin, but on gross margin, it's a margin dilutive product?

Actually, the growth has been both albuterol as well as Brovana. We have 55% share of Brovana. At this point, it's a material product for us. The gross margin on Brovana is lower than our average gross margins for the U.S. business. Albuterol is a pretty high gross margin product. But even for Brovana -- and for that matter, all our partnered products, which are a nice complement to our internal portfolio, our EBITDA margin is very fairly accretive. So over 20% plus in terms of contribution to our EBITDA margin for all of our partnered products that is.

Next question is from the Damayanti.

My first question is on your specialty restructuring in the U.S. So after restructuring, what kind of cost savings you expect on a sustainable basis? And now what is the team size for SOLOSEC? And in general, what is your specialty strategy for U.S. market going ahead?

So with the restructuring, we are going to have $15-plus million annualized savings starting Q3. It should be $15 million, $16 million savings starting Q3. And what we have done is retained a skeleton structure comprised of market access as well as distribution because in the last couple of years, we have really built enough awareness on SOLOSEC, and are at this time, really planning nonpersonal promotion of the product until we can get to a point where it justifies to really have a dedicated headcount visiting the physician's office. So now we believe that with the current nonpersonal promotion strategy, we should be able to at least hold the current scripts at where they are, if not grow. And likewise, we had multiple pipeline programs that we have developed on that women's health front. We have pretty far along actually in getting those pipeline programs funded by partners. So in effect, what we have done is reduce the current burn from specialty, but retained the optionality to build specialty in the future. And we'll really look at how things evolve on our overall business. The focus in the near term is really to execute on the generic front, which is the biggest part of our growth for the company as well as the business in the U.S., and really have the optionality to build specialty in the future.

Ma'am, one clarification on specialty pipeline assets going ahead, you mentioned optionality. So are we going to do all products in partnership rather than taking all expenses on our books?

Yes. We basically -- we are working on getting funding partnerships on the pipeline.

No. But I think just to clarify, so obviously, if there are commercial assets that we like, which would be accretive, obviously, that would not be a partnership. We would make investments if we found the right assets. But the focus right now is on execution on generics and India business, and getting both of these to a very solid position.

Okay. And my second question is, can you provide update on key respiratory pipeline assets?

Well, the main -- the largest one in the near term, beyond the products that we have in the market, which, of course, albuterol and Brovana in the U.S., Fostair in the U.K., which has launched very successfully is Spiriva, where we've entered into a settlement with BI on the litigation front. So it's really taken away the litigation risk. We've got very favorable date that we will look forward to disclosing in the future. We are right now working towards getting the product approved. We just recently responded fully to CRL that the agency had raised. So expect to get approval in the next calendar year. So that should be a material growth driver in the near future. And then we continue to make progress on other pipeline programs like Dulera, and we have Flovent, Symbicort, QVAR in the pipeline. We have also the next wave platforms, electrodevice that we have developed in-house and are developing programs on the device. So really a rich pipeline of inhalation products in the years to come.

Next question is from Sayantan.

This is Anubhav from Crédit Suisse. Just one question, Ramesh sir, clarity on other operating income was pretty high in this quarter at INR 89 crores. I don't know whether you mentioned this in the opening remarks. We were doing about INR 25 crores, INR 30 crores so far. So was there some one-off in this quarter in the other operating...

Yes. In terms of operating income, yes, there was. There was, of course, a settlement or litigation avoidance, which we had.

So what's the usual run rate, should we still continue to build about INR 25 crores, INR 30 crores for you guys for the next 1 or 2 quarters?

Yes, that should be pretty okay.

Okay. And you guys talked about in June, after the Board meeting you mentioned that you want to get into a digital health business, and recently you started the diagnostic arm as well. Can you talk about what you plan to do in digital health piece of the business? Secondly, in diagnostics in next 3, 4 years, how are you are you aiming -- are you expecting that to be INR 200 crores, INR 300 crores kind of business? Or anything you can talk about?

Sure. So I can talk about that. Both the digital health as well as the diagnostics, these are not the dominant part of the India story. The India story very much is prescription branded generic programs, even generic-generic products, and to a lesser extent, OTC products. Diagnostics, as you know, we've already talked about that. There's a full rollout next week onwards. We will be commercial, we'll be operational. And we believe that this is a great adjacency to our prescription business. We'll see how it shapes up. So premature to give guidance on where the numbers will head. But obviously, the numbers have to become meaningful. And we believe that this piece is big enough, wide enough for us to be able to grow. On the digital side, I think there are many initiatives that are underway. I think we're still looping them all together. But obviously, with the COVID period, we moved to detailing to doctors, that continues even now. Each representative would make a digital detail to a doctor in addition to the requisite physical ones as well. There is a teleconsult platform that we're launching as well. And there's a whole bunch of initiatives there. Again, premature to look on altogether and say, okay, where does this go from a revenue perspective.

Okay. That's helpful. And in terms of within the specialty business, the $15 million you take out, but what's remaining there? Is it like $5 million to $10 million kind of number, which is on an annualized basis, are you still spending there not even that much?

Yes. So it's like $5 million to really keep the distribution and access going.

[Operator Instructions] Next question is from Surya Patra.

First -- in fact, on the albuterol side, can you clarify whether the full benefit of albuterol in terms of 18% to 20% kind of market share what you have been indicating that is visible in the current quarter, means Q2 number?

Market -- are you asking about the market share of albuterol?

Whether that's reflected in prior numbers?

Yes, it is ramping up. I mean the last couple of IMS data points, we are at 16% share of the entire market, 20% of the generic market. We are the third largest player now in the albuterol market, and it is ramping up. So we've seen some growth for albuterol, quarter-over-quarter, you'll see more so in Q3 and Q4.

And in terms of R&D spend side, if you can give some clarity here since now there is a kind of a revised thought process in terms of spending, in terms of asset allocation and all that about the specialty business. So what would be the R&D spend mix and outlook for that, considering specialty and generic?

Yes. So it should be at a similar level as the first half, so roughly INR 350 crores a quarter. And as Ramesh said, like it should be 8.5% of sales for the year. And like -- as I mentioned, the specialty programs, we're getting them funded. We were able to get very lucrative funding for it. So the primary focus on the R&D front is a complex generic portfolio, the other limited competition or a solid portfolio, biosimilars. And right now, of course, also the NCE, the oncology programs. But we're also pursuing on the oncology front, a plan that will help us spin it out. I'd say the bulk of the investments on the R&D front are geared towards complex generics and biosimilars.

Okay. Any kind of moderation in the R&D spend on an absolute number moving ahead?

We would -- yes, so you may even see in the next couple of years, the R&D as a percentage of net sales coming down. I think we should be able to maintain this 8% level and then bring it down as we grow our revenues. But it should be at a similar level going forward based on the pipeline that we are pursuing. And that makes sense to pursue.

Even as an absolute number, obviously, we have ended at this level, and the intention, like Vinita said, in H2 is to hold it at the same level as what was for H1.

Sure. Sure, sir. Just last one question on the diagnostic initiative also. So sir, what is the strategy that we are thinking? Or what is the kind of a strength or synergy that we are kind of driving from the existing business for this new initiative? And what would be your thought process here, whether being a new entrant, you would be focusing more on the cities, metros like that, where the competition will be higher or even from the day 1 like try to capture as much as of the Tier 2 cities as well? Or what would be the strategy here?

Sure. So first of all, I want to be candidly clear. I would not build too much of expectation around the diagnostics for it, right? and that is something that we are starting, it's something that we will get into. I'm sure we'll make us -- share our mistakes as we do that as well. The core focus in India very clearly, I'm reiterating is the prescription business. We have always grown 20% to 30% more than the market, and the goal is to continue doing that on the Rx side of the business. The diagnostic for itself is a full rollout in itself. It is a national play. But it will be calibrated. It will be stage-gated. There are key metrics that have to be met as we decide how and if to scale it up as well. So I would wait for it to roll out. And we'll be more than happy to come back and talk about it as it gets more meaningful.

Sure, sir. Just on the margin outlook, front, sir, if you can talk something more about why because there are so many changes in the business model that we are anticipating and there is a conscious effort also to improve the profitability of the consolidated number and all that. So what triggers that you are thinking that should be taking -- looking as a profitably growing company going ahead?

I could take this question, Nilesh. So if you look at, in fact, last year, we did grow our margins from the 14.6% to 16.6%, 18.6% and eventually to 18.8%. When we started this year, we expected in fact, the margins to -- the tempo to be kind of sustained. But unfortunately, we -- there were a couple of setbacks, the first, of course, famotidine. There was more competition coming in, 2 competitors whilst we expected only 1, and that will sometime later. And there's, of course, the move away from spot sales for albuterol to be long-term contracts. And there was an element of 50 years. So all of this was setbacks that we saw and that actually -- it did impact somewhat on our gross margins. We also explained, in fact, the accounting treatment for [indiscernible]. But having said that, our initiatives are -- there's tremendous commitment to maintenance of initiatives on reducing costs which includes procurement excellence, the outsourced interest and all of that. And of course, more importantly, I think one of the issues that we've faced is essentially not being in a high realization products. And as you would know, we've got a pipeline. We've got a plan to bring a lot of those products together over time and so on. Continuing on the same front, there is a lot of rationalization happening when it comes to the sales force, productivity out there and when it comes to the R&D spend and the like. And apart from that, we spoke last time around also on restructuring endeavors, which includes, in fact, the NCE spinoff and a host of other things, including specialty and the like. So there is the march towards, in fact, recognizing the fact that we are behind the curve when it comes to the EBITDA margins. It's a march that is on. And we are very confident and for -- committed to getting to the 20% mark, but we wouldn't like to put a deadline to it, a timeline to it, but it will certainly happen in the next few quarters. And for sure, you would see the incremental things coming through in Q3 and Q4 also. And as Vinita and Nilesh committed, it could be about the 16% mark in the quarters to come.

Next question is from Tanvi.

This is Nithya from Bernstein Research. So my first question is on the India market. So if you look at IQVIA data, unfortunately, chronic therapies like diabetes or cardiology are showing slightly lesser growth than what we're used to seeing. And given Lupin's exposure to chronic therapies. One, are these numbers something that you are seeing in the market as well? Or is your covered market growing faster than that? And is there any likely impact -- any hypothesis on why we are seeing this slowdown in growth?

Sure. So internally, first of all, our growth in Q2 was 17.4% versus the market reported growth of 15.4%. Both on the acute and the chronic side, we grew faster than the market. Obviously, the IMS reflection is what it is. There is definitely -- obviously, the acute side is really what has driven growth through the COVID period. It continues to be an important part. It's coming down. It came down in Q2. It's going to come down even more in Q3 to Q4 as well. We made a conscious decision to focus on chronic therapies, I think about probably some 20 years ago. And I think it's reaped rich rewards. In our entire peer set, the amount that we draw from chronic is the highest. And we believe that, that means sticky, sustainable growth. Our goal very clearly on the chronic side is to grow 20%, 30% higher than the market growth rate. There is a slowdown, especially with the COVID period, there was definitely a slowdown. For example, the respiratory was a terrible slowdown last year. It's come back with a big bang at this point of time. Diabetes seems to be slow at this point of time. We believe that it's possibly a function of patient footfalls. Again, patient footfalls are back. So we would expect for this to pick up. And obviously, we will continue to do 20%, 30% more. So I think the hypothesis remains the same. I think the focus is there on the chronic therapies. There are other chronic therapies where we're not as strong. For example, in CNS or in gastro, our goal would be to build in those spaces as well. Their own great growth area is still an extremely fragmented market and a lot of room for growth.

Got it. My next question was on your biosimilars pipeline. If you can give us an update on your filing and the pipeline? And are you looking for, again, external funding by partners? Or will this be funded through your internal R&D?

Sure. So we're pretty happy with where we were with the biosimilar portfolio to date. Funding has been a concern and it has been a part of our story so far. Obviously, our lead product was Etanercept, which is approved in Japan and Europe. One day it will come to the U.S. when the patent expires as well. Our first lead product to the U.S. was [ peg-G ], which we filed. It's going through the review process nicely. We don't see any showstoppers right now. Obviously, a key milestone is going to be a likely inspection of the facility. And obviously, there's some to and fro on when that might happen. The next product is ranibizumab, which is in development. There's a global clinical trial underway, ran slower on account of COVID. But again, we hope to ramp that up going forward. And there are 2 or 3 new products which are in the earlier stage development pipeline as well. I think with the way that Lupin is able to fund this, obviously, there is a constraint on how many of these projects we can finance. And then Vinita talked last quarter about a spinout of -- one was the oncology. The second was likely the biosimilars. The third was also taking care of the specialty expense. So we've done the specialty expense. We're on the way on the oncology spin out as well. And the biosimilar spinouts, there's certainly something that stays on the table as a discussion item. We do hope to be able to action that. I think that would really free up the way for a lot more portfolio expansion, not necessarily waiting for a funding partner to tie up on a project-by-project basis and it will give a lot of latitude to development. But in the meanwhile, we cherry pick. We do 2 or 3 products at a point of time, likely 1 or 2 products in the clinic. At any point of time, we have great capability on the R&D manufacturing, API, drug product side on the regulatory side. So there is a great capability to be used globally as far as biosimilar is concerned. It is going to be a good growth opportunity. But I think the financing story has to be still played out.

A quick follow-up on pegfilgrastim. So assuming you secure an approval in FY '23, will you also be investing then in building a commercial infrastructure to push the product in U.S. and wherever else you file it?

Yes. So the major opportunity is really the U.S. with pegfilgrastim. It's very late in Europe. with that product. So we have other products that we are still focused on Europe, but the opportunity is really in the U.S. And we will definitely look at investments to effectively commercialize and start a biosimilars business in the U.S. effectively and really calibrate it versus the opportunity. I mean we also have a follow-on from pegfilgrastim, the Onpro biosimilar. And we're going to have both pegfilgrastim as well as the Onpro biosimilar. There's going to be a timing gap. So we will assess does it make sense to try to club them together to be able to leverage the commercial investments or launch pegfilgrastim ahead of the on-body product. We hope that we have the opportunity to launch next fiscal year. Like Nilesh mentioned, it's going to depend on the inspection. The agencies already informed us that they will have to inspect the site. So we'll wait for that milestone to pass and then determine the right timing to set up commercial infrastructure. I'll also say that the commercial infrastructure for biosimilars, their synergy with our injectables institutional portfolio. So we are simultaneously building our injectables portfolio as well, both internally through our pipeline as well as through partnerships, through in-licensing. And we'll determine the exact timing to be able to really get effective portfolio as we enter the market, both with pegfilgrastim as well as the institutional products.

Next question is from Sameer.

Vinita, just to be sure, so are you still looking for Spiriva launch in the U.S. in fiscal '23?

Sameer we just had a settlement where we agreed not to disclose the date until the product approval. As I mentioned, it continues to be a material growth driver in the near term. We don't change our guidance on the product from what we have shared so far.

Sorry, Nilesh, I missed that.

I just said it's a very favorable data. We recognize that this is a clear part of our inhalation build over the years to come. And obviously, we were not going to compromise that.

We were very pleased to really take the litigation risk out.

Excellent. And second is on pegfil on-promo filing. Is this a separate dossier, separate clinical trials? And what exactly is the status on this?

Yes. So it's undergoing development. It's going to be a supplement on to our pegfilgrastim product, but it is additional studies that we have undertaken. We expect to file it in the next fiscal year, fiscal year '23.

Okay. Okay. So it is at least about 18 months behind the regular pegfil?

Yes. I mean this pegfil was filed in April that will be filed in third quarter next year, exactly. Yes, you're right.

Okay. Great. And the other question is on the 20 exclusive FTF opportunities, the ANDAs for which you have filed. So of these 20, what could be the launch expectation over the next, say, 18 months?

So we have a couple of the, first of all, the major ones. We already talked about Spiriva. We have talked about pegfilgrastim. We have Suprep that we expect September next year. Yes. So we have a couple of others next year as well, but these are the major products for next year.

Okay. Okay. Great. And one final from my side. What's holding back REVLIMID settlement? And are you still on course for 2022 launch?

So we are still working through our strategy on settlement. And we'll determine what makes sense from a risk perspective. We haven't determined that it makes sense. We're still under negotiations. I can't really talk more about it.

Next question is from Harith.

On generic ProAir, the other approved generic that left the market sometime last year. Will you be able to give some sense of when they're likely to return? So I see that their ANDA is currently under discontinued status.

Yes. So we haven't heard of any new developments with the product. We know that the site that they were manufacturing the product also had an issue recently with the agency. So we think that is at least not in the next 12 months. So we don't see the competitive dynamics on albuterol, ProAir changing anytime in the near future.

Okay. And on generic Spiriva. I see that there's been some switch from the DPI version, which we filed to MDI version, which was launched more recently. So how should we think of the opportunity by the time we launch in terms of the opportunity that is left in the DPI product?

Yes. So still a material opportunity despite the model switch and second expansion of the market. Relistor has also expanded the market for the product. So certainly, it's another pipeline program for us. And -- but we still look at the HandiHaler, the DPI as a material opportunity for us in the next couple of years.

Okay. And then last one on biosimilars. So what percentage of our R&D will be biosimilars? And could you also share the gross lock related to our manufacturing facility for biosimilars?

Less than 10% of our R&D spend is in biosimilars. The gross lock Ramesh will probably...

I think you will have to take it offline, Ramesh, unless you have it handy.

Yes, I think it's less than INR 500 crores at this stage anyway, much less than that.

Next question is from Mr. Nitin.

On the U.S., you mentioned a portfolios of [indiscernible] are under development. Now Spiriva, obviously, you guided to. But for the other products, what would be the tentative broad timelines can we look at for the market permission?

So after Spiriva, I mean, Dulera, of course, is around the same time, I would think. And we're working with the agency right now on Dulera. We have QVAR in pretty far long in development. And then behind that, we have products like Symbicort and Flovent. And then, of course, the ELLIPTA products and Respimat products.

Right. So will we have a position where we probably have -- maybe launch is literally coming to every year, starting next year onwards. So is that a fair way look at? Or the way the dividend pipeline is there, we probably will have a little bit of a lag before these rational pipeline begins to kick in post-Spiriva?

So we are hoping that we should be able to get 1 year after Spiriva. I think we should meet that position given the status of our pipeline.

Okay. That's great. And secondly, a little bit more near term, with Spiriva, as you guys have already mentioned it starts to come through September of next year. Over the next 3 to 4 quarters, how should we see the U.S. business, we talk about a scale for $200 million. What is going to drive that as we go forward?

Yes. So really a ramp-up of albuterol is a big one, which we probably already started seeing in the last couple of weeks, months. And Brovana continues to be a big opportunity, given our strategy to launch a few weeks before the rest of the generics. So they certainly continue to be good growth drivers. We have -- our team has worked very hard to win back some of the business that we lost on the baseline through the supply challenges that we had in the last year through COVID. We lost a good number of product and market share, if you recall, that we talked about in the last quarter, especially with Express Scripts breaking out of [ VBatch ]. And our team has done a really good job in building the baseline back again. So you'll see a better baseline. The older in-line products and then growth of products like albuterol and really ramp up of albuterol and Brovana for our contracted volume, contracted customers and then executing some of the new product launches. We have a few like Sevelamer, we expect to launch fairly soon. We have a couple more products, hopefully, that we'll have the opportunity to launch. We are working on Varenicline right now. Don't have certainty on that as of yet. But if that comes through, there will be a material opportunity. And then we have a partner products, which I know the gross margin, we don't like the impact, but on a net basis, significant contribution to our profitability. So we recently launched the AG to do access, and we continue to work on our partnered portfolio. We have a very rich pipeline of partnered products that we are working on right now that, hopefully, we should be able to announce soon that will again help us grow our revenues as well as bottom line.

And if I can squeeze on associated point on that. You talked about getting market share back in in-line products. Last 6 months, there has been a lot of talk about the resurfacing of the pricing pressure in the U.S. How is that environment shaping up? Is there any easing off? And when do you see things sort of coming back to a more normalized behavior on the pricing front?

It's hard to predict. Every time we say something and we correct ourselves the next quarter. I'd say that the majority of our peers are talking about pricing pressure in the mid- to high single digits. And we continue to see that. And so it's very important to really be able to continue to work on cost saving efforts on the baseline, the in-line products and execute on the new product launches.

Next question is from GS Shyam Srinivasan.

Just first one is on this Glumetza antitrust settlement, right? So is there -- is this the end of it in terms of -- are there other litigations that are still there? Or at this point of time, we think we have provided through the settlement for most of those things?

Yes, we believe we have really put it behind us.

Got it. And Vinita just to step back and look at the history of Glumetza, it's been a name that's been associated with us. Just what are some of the learnings out of this entire process, right? I think given that litigation has been especially pay-for-delay and other such litigations, how should we look at pricing our products in the U.S. specifically?

Yes. I mean when you think about actually the execution on -- when we launched the product, I would not do anything differently. I mean from our perspective, we had really got an early date to launch when we were in a situation in 2012 that we were going to lose the patent case. And we got a negative markman hearing and were about to lose the patent case and got a date before the patent in question, which obviously got a generic early to market, right? And in the interim Valeant raised the price of the drug and increase the price 10x, so it became a very different opportunity. And at the same time, we bought $0.5 billion worth of savings to the U.S. customers and governments and payers. So to be honest, I mean, on the commercialization front, I won't do anything differently. Then would we do a no AG kind of settlement? No. I mean that changed from 2012 to even 2014. Where in 2012, when we did the settlement, AGs were considered uncompetitive. They were considered as that they would cut the exclusivity of the first to file. And then there was a case that changed it a couple of years after. So I think and also the learning is really on the settlement front, we will not do a no AG. And we wouldn't do no-AG settlement anymore. But from a commercial perspective, I wouldn't have done anything differently.

Got it. That's very helpful. The second question is on capital allocation. Just in terms of we have reduced our exposure to the U.S. spec business. It looks like we're investing in biosimilars. So just want to understand what are the capital allocation priorities for us? If you could highlight in either areas, in geographic areas or product segments that we will -- Lupin will probably invest for the next 3, 5 years?

Yes. So maybe I can start and then, of course, Nilesh will add to this.

Ramesh can add as well.

Ramesh as well. I mean our priorities are very clear. At this point, our base business, the U.S. generic business, complex generic biosimilars, which all is part of the future of what we believe a very high-growth, high-margin business in the future is a big priority for us. And India is a big priority for us. Leveraging our portfolio across other geographies, I mean inhalation platform, the biosimilars have very strong potential across other key geographies, Europe, Australia, Canada and the like. So really leveraging the portfolio and trying to really figure out what the best way we can get the full impact of our platforms across the geographies is the other major area that we are investing into.

And if I can add. So I think the amount of capital that we're allocating is coming down a little bit. Certainly, we see the reason to moderate in the U.S. specialty. Vinita already talked about. But even on the generic side, you can see that the R&D investment is coming down. The intention would be to keep it there. Obviously, focused on the complex generics and biosimilars. We believe that those are incredible growth opportunities. We believe that the capital that we allocate to the generic business in the U.S. has to come down, and we are taking the right steps towards that. A small portion of that will go into investing into markets like India, whether it's R&D or manufacturing or what have you. So you will see -- not just you will see, but I think there is a very conscious capital allocation change, which is happening. Obviously, there was a period of time where we were very heavily weighted towards generics in the U.S. that is moderating a little bit and obviously bringing back more focus to India and in terms of also maximizing our portfolio globally. Ramesh, do you want to add?

Yes, I think both of you have articulated our strategy pretty well. You recognized that, of course, money should flow where the yield is going to be the highest. And from that perspective, the endeavor on a lot of the organic part comes to impact the complex and differentiated products. Of course, I -- we would, of course, be calibrated in terms of our evaluation of the risk itself and where we believe the risk is very high, you would, of course, partner with the financial partners, taking away the risk element from the overall -- from the risk score itself. And if your question is directed towards M&A. Of course, I've learned our essence and to that extent, any aggression on that score would be very heavily debated and we would view it accordingly. And of course, on the newer ones that I think have been raised in this call, diagnostics and digital, the factors, as Nilesh very clearly articulated, it's going to be baby steps in that direction. The major theme, of course, is going to be on the existing business itself. But we would take a very calibrated approach in the way we allocate capital towards that and watch out for returns before we start investing more in that.

Next question is from Prakash Agarwal.

Just one clarification. I just wanted to clarify if I heard that right that over 16% margin, was it for H2 or fiscal '22?

For H2.

Okay. And what is the reason for the second reset? I mean last quarter, we had talked about this famotidine pricing pressure, reclassification, et cetera. So despite we talking about entering albuterol long-term contracts from Q3, which is an incremental sales coming through specialty costs coming down. So all these is incremental that should add up, right? So what has really changed versus last quarter that we are taking another 100, 200 basis point reset?

Yes. There is -- there are several moving parts. And you would also appreciate that material prices, and in a general sense, inflation seems to be raging across every part of the globe. So we would like to play it in a prudent in terms of the way our estimation -- in fact, the way margins should pan out. You would recognize that there are issues around, in fact, KSM imports from China, there are host of things relating to. For example, look at the pen G prices are close to about $25. Not so long ago, it was $8 and moved to $12 and now $25. So all of this obviously has an impact. Our ability to pass on to the customers, to the channel partners is something that we need to gauge. So all of these would actually cause us to be a little more prudent in our outlook towards things.

If I can add to that, Ramesh, the other piece, especially related to the U.S. business is the flu season products. We have pretty much taken the flu season products out from our estimates for the second half. We really don't know how it's going to pan out. We're not seeing any uptick right now in products like Zanaflu or the Cephalosporin. So we have idle costs in those facilities. And we hope that will change. I mean, we're hearing that in December, we should see a severe flu season, but it's yet to be seen. We are not seeing it in the customer forecast and estimates or the buying pattern. So the adjustment is on the business front, it's -- on the one side, the inflationary pressures, like Ramesh mentioned, about the flu season products, which are impacting both our U.S. business as well as our API business.

Absolutely. API, I was just about to add to that.

Okay. Perfect. And second one is on the U.S. FDA. So we had couple of visits, I understand, and then there are some repeat observations. So what is the current status? And the view that we take that by when do we start seeing some resolution?

Sure. So Somerset we've talked about that in the past, so I wouldn't go back there. Goa, it's obviously relatively fresh. We had 7 observations. None of the observations were characterized by the FDA as a repeat observation, although there are obviously some commonalities that we see with some of the observations. I shared earlier today that we feel that the observation was very readily -- we in our first update would address 6 out of the 7. And the last observation would take maybe a month or 2 more. But we feel very good about addressing these observations comprehensively for Goa as well as for all of Lupin. So I do think that we are moving ahead. I don't like the fact that we had 7 observations. But like I said, these are very addressable. And we're very conscious that we have to demonstrate with outcomes as far as what we do on the regulatory side. So we're hoping that we should be able to close the Goa inspection successfully. We're ready for inspections at our other sites like Pithampur and Tarapur. Obviously, FDA has now sporadically started inspections in India. And obviously, these sites will get inspected at some point in the next few months or quarters to come.

Okay, timelines for both?

For what?

For you to close out and get approval?

So like I said, in the next 2 months, we expect to -- in the next few months, so the next 2 to 3 months, we expect to be able to close out all the observations, all our actions in line with all the observations that we had. And then obviously, it goes back to the FDA to make an assessment is obviously a process within the FDA to follow. Hard to predict that accurately. But obviously, in the next 3 to 6 months, we should know well on where the sites resides in the eyes of the FDA.

Okay. And is Spiriva linked to Goa or Pithampur.

No, it's not. So Spiriva is from our innovation facility in Pithampur Unit-3. The FDA has obviously been to that site. Then we have albuterol from that site. We have applied some of our derm products from that site. They've been to that site. Tiotropium also before in the past. So it is completely unconnected and that site has had a pretty solid record.

That's great to know. And last one on the injectable, complex injectable that Vinita has alluded to. So in the past, we had partnered with one of the players, I'm unable to recall the name, but -- so what -- where we are in the development side? Sorry?

Do you think it's -- right, for the...

Yes, yes, yes. That's right, yes.

Yes. We're making progress on the clinical development, and we were expecting to file it this fiscal year, and I think it's on track to be filed [indiscernible] this fiscal year and AmBisome next fiscal year. So -- and apart from that, we also have our own first gen of risperidone in the clinic. So we are in recruitment there. And have made product -- progress also on the peptide products. We have glucagon that we should be in a position to file this quarter, our second peptide product. Yes. So really making progress across the complex injectable pipeline.

The second half fiscal '23 is what we last said that you'd start seeing some approvals. Are we on track on that? Or there might be plus/minus on that?

I mean we should.

Yes, absolutely. So we're also filling I would say, about 3 to 5 ANDAs as of -- not prove to -- and those are the ones that you'll start seeing coming in from FY '23.

Due to time constrains, we'll just take last 2 questions. Next question is from Mr. Tushar Manudhane.

Am I audible?

Yes, you are.

You're a little muffled. But we can hear you.

First of all, just a bit clarity on Spiriva...

He has gone altogether. Maybe we'll move on.

Yes. We'll take the last question. Last question is from Mr. Sameer Baisiwala.

Yes, thanks. I managed. So the question here is on Fostair and Enbrel. Do you think these have the potential to become sizable? I know what that is, maybe $50 million per annum. And what's the time frame that you're looking for?

Yes. Fostair certainly has a significant potential, Sameer. When we've seen really good reception to the product in U.K. and I believe that it will be a very strong double-digit product in the U.K. next year. And then we launch in the other European countries through our partners. So certainly has the potential of $50-plus million. Enbrel is -- so I think the build on Fostair just to finish there, I think, is in the next 2 to 3 years just given the patent expiries and across the different countries and the time it takes to build up because it's more like a branded buildup as opposed to a pure generic. And Enbrel, Mylan is launching in other countries right now. They recently launched in France. They're getting ready -- launch -- to launch in other countries as well. So I think that in the next 2 years, again, Enbrel should be in a very good place. I don't know about $50 million, but certainly strong double digit between $20 million, $30 million.

That would be Lupin's share?

Exactly, yes.

Okay. Great. And the other question is on diagnostics. Nilesh, is it a question of FOMO, fear of missing out, they get 20x sales, you get 20x earnings. What's really behind this...

We should have been in a bunch of other businesses as well. No.

Well, you are in HealthTech. That's the other one.

Yes. No, I think there was a very conscious decision to pursue adjacencies in India. India is a market that we know best. We have a very strong position, especially in some therapies, we have a very, very solid position, right? And the idea was, how do you leverage that? So obviously, you do everything that you can from an Rx perspective, from an OTC perspective. And we feel that there is a hook for diagnostic. We feel that there is a hook for digital health as well. Honestly speaking, time will tell, right? And obviously, it's different from what other people have done. I think there's a great first mover opportunity here. We're going to ramp this up quickly. But like I said, it's going to be calibrated. It's going to be stage-gated. And it's never going to be the dominant story. The story is the prescription story. And that's already INR 6,000 crores. it's going to be INR 10,000 crores in the next 5 years. So everything else fails in comparison with that from a size growth perspective. But we see these as adjacencies that can really help build. Create much more touch points with doctors, much more touch points with consumers. And honestly, keep us at the front end of things as far as India is concerned. So I think the story will unveil in the next couple of years, and we're looking to make it a very nice story of Lupin in India.

Sure. We'll wait for that. But just a related question. Can this be a big margin track, something that we are trying very hard to lift over the next say, 2 to 4 quarters?

No, absolutely not. First of all, this is all consolidated within the India business. So we are making sure that, that business in itself keeps providing the lift that it has provided in the last few years as well. And we would absolutely not do anything to drag down margin. We understand that our margin is well under -- anything that we had in the past and well under our peers as well. Our 1 goal is to shore up that margin in H2, into the next year firmly to the 20% and then start getting back to being leaders of the pack.

Thank you. I now hand the conference over to management for the closing comments.

Thank you very much, and I hope you had the quite a clarification for your questions. We hope to see next quarter again. And meanwhile, take care of yourselves and your families as well.

Thank you.

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