Lupin Limited (500257) Earnings Call Transcript & Summary

Hello. Good evening, and welcome to Lupin Limited Q1 FY '27 Earnings Conference Call. Thank you for your participation in the call today. [Operator Instructions] Please note that this conference is being. I now hand over the conference to the management. Thank you, and over to you, ma'am.

Good afternoon, friends. I'm very pleased to welcome you to our Q1 fiscal year '27 earnings call. I have with me are MD Nilesh and our CFO, Ramesh and our Head of Investor Relations, Ravi. We look forward to sharing with you our highlights for the quarter as well as the outlook for fiscal year '27. We are delighted to announce a record quarter with total revenues from operations and EBITDA exceeding INR 8,000 crores and INR 2,400 crores, respectively, for the first time in our history. This quarter also marks a record 16th consecutive quarter of year-over-year growth for the company. While the U.S. has obviously had an exceptional contribution to this performance, I would like to highlight that the ex U.S. organic revenue growth for the company has been a strong 20% plus year-over-year. and a strong double-digit growth in all our key markets, including India, other developed markets and other emerging markets. This geographically diversified business model, combined with our unwavered focus on operational excellence, creates a sustainable foundation for future growth, even as we navigate the increased competition in some of our key generic products in the U.S. this year. Turning to individual business segments. Our U.S. business sustained volitive momentum and delivered another quarter of robust sales performance. While we benefited from the higher volumes in base portfolio and growth in products like tolvaptan, this was offset by increased competition in products like mirabegron. For the full year, we expect the U.S. business to be in the $1.1 billion to $1.2 billion range, aided by growth in base business, injectable launches and contribution from pegfilgrastim offsetting the additional competition in products like mirabegron and tolvaptan during the year. Going ahead, we remain focused on doubling the share of our complex products in our U.S. business, led by respiratory and complex injectables and augmented by biosimilars. In the next 3 years, we expect to launch 50-plus products in the U.S. with 10 exclusive first to files, 5 biosimilars as well as 2 to 3 Pfizer 5B2s. We are planning to file more than 15 products this year including lease 7 in the Respiratory segment. We believe that all these initiatives should help in the U.S. getting back to its growth trajectory from fiscal year '28 onwards. Coming to India. Our India business has grown 13.9% year-over-year in the quarter, with the core prescription business growing 15.1% and representing a 1.1x growth against IPM. Volume growth was strong at 6.1% during the quarter. The chronic segment accounts for around 67% of our portfolio up from around 65% in fiscal year '26. And we have set ourselves a target to increase the share to 70% in the next 5 years. Most of our key therapy areas outcome the respective market growth with anti-diabetes segment and cardiac segment growing 1.8x and 1.2x the category growth. I would specifically like to mention our Diabetes segment, which grew 31.8% year-over-year, a second consecutive quarter of 20%-plus growth, led by market leadership in human insulin and successful launch of semaglutide injection. This segment is poised for continued healthy growth with the expected launch of vial and oral dosage forms of semaglutide in second half of this fiscal year. We remain confident that our India Formulations business will continue to outperform IPM by 1.2x to 1.3x, supported by a strong India prescription sales force of nearly 11,300 people and pipeline of more than 8 new product launches over the coming years. We have set ourselves a target of novel proprietary products contributing 1/3 of our India revenues in the 10-year time frame. This innovative portfolio for India work come from in-house development as well as in-licensed products, leveraging our strong partnership track record, brand building and development, regulatory and clinical capabilities. Our other developed markets, Europe, Canada and Australia accounted for 14% of our revenues in this quarter, up from 11% in fiscal year '26. Sales grew 48% year-over-year in the quarter. Our European business continued a strong momentum with 83% growth year-over-year. We believe that we are under-indexed in Europe and have set a clear pathway to grow this business with a complex generics, biosimilars portfolio as well as specialty acquisitions such as Visiparma. Emerging markets delivered an impressive 52% year-over-year growth led by Brazil, South Africa and Philippines. Brazil continued the strong momentum of the last 4 quarters, growing 117% year-over-year in local currency during Q1 driven by successful commercialization of dapagliflozin and launch of empagliflozin. As mentioned earlier, we are starting to establish a presence in the diabetes metabolic space in the emerging markets with dapa serving as a strong start and the launch of Empi in Brazil and South Africa as well as semaglutide in South Africa later this year. Turning to R&D. Our spend was 7.4% of sales this quarter with continued focus on complex and specialty platforms. We have over 50 active products in the pipeline with near-term emphasis on respiratory, complex injectables and biosimilars. We've also evolved a strong 505(b)(2) pipeline in the last couple of years, and we'll start seeing product launch this fiscal year and ramping up in the next 2 years. We are also strengthening our India innovation portfolio through both in-house development and in-licensing of late-stage assets, as I mentioned earlier. Switching to compliance, we received EIRs for Ankleshwar & Somerset with VAI status from U.S. FDA for both sites during the quarter. With regards to Pithampur Unit II facility, we have submitted our responses and remain on track with our remediation efforts. We are fully committed to maintaining the highest standards of quality and compliance across all our sites globally. In conclusion, we have started the year on a strong note. As indicated earlier, we anticipate some moderation in performance during the remainder of the year, especially in the U.S. from increased competitive intensity on our 2 major products. So we are closely monitoring the potential headwinds from an uncertain geopolitical environment as well. We would like to reiterate our earlier guidance of high single-digit revenue growth for the organization with EBITDA margins of around 25% during the year. Before I hand it over to Ramesh, I would like to say that we are optimistic on our future growth trajectory. We are on the path to strengthen our diversified business model while we continue to evolve our business into higher barrier generics, branded as well as innovative products. Ramesh, over to you.

Thank you, Vinita. And friends, I welcome you all to our Q1 FY '27 earnings call. I'm happy to report another record quarter of earnings with total revenue from operations growing 32% year-on-year to INR 8,277 crores and EBITDA excluding ForEx and other income growing at strong 50% year-on-year to INR 2,464 crores. This marks the 16th consecutive quarter of growth for the company. What is happening is that the growth has been diversified and robust across our major geographies, be it the U.S., which grew by 43% on year, India prescriptions, which grew 15.1% year-on-year. Other developed markets, which grew 4% Emerging markets grew 52% year-on-year and our GP business, which grew 40% year-on-year during the quarter. As Vinita mentioned, our organic growth at [indiscernible] was strong 20% year-on-year during the quarter, bearing testament to the resilience of our business model. During the quarter, the U.S. business recorded sales of USD 366 million, 30% higher than year-on-year in constant currency terms. This growth has been driven by higher volumes in base business offset by additional competition in key products like mirabegron. As we continue to benefit from our differentiated strategy on focusing on complex products, as indicated in our earlier interactions, -- the overall sales in the U.S. be impacted the competition in key products like mirabegron and Tolvaptan this year. However, we anticipate the business to revert to its growth trajectory from FY '28, largely led by a rich pipeline of products, including exclusive first 25, biosimilars and 505(b)(2) products. In addition, we have an attractive pipeline of more than 60 products in injectables and our respirate 3 products currently under development, which will augment our complex portfolio going ahead. India region. During the quarter, the India business recorded sales of INR 2,380 crores grew 13.9% year-on-year. I would like to highlight that the co-prescription business grew 15.1% year-on-year as against IPM growth of 13.5%, translating to 1.1x IPM growth -- this is offset by lower tender sales in our JV business in India. Key segments like diabetes and cardiology [indiscernible] outperformed their category growth at 1.8x and 1.2x, respectively. This is offset by lower growth in Respiratory segment, which was 6.9% as against category growth of 11.3%. Volume growth has been a healthy 6.1% during the year and the chronic share in the mix has increased to around 67% from around 65% in FY '26. The share of in-licensed products in this quarter is around 6%, similar to the FY '26 levels. We have launched around several products in Q1 FY '27 and plan to launch about 20 products in FY '27, we sell us 15 products which launched in FY '26. We remain confident that our India formulations business will continue to outperform IPM by 1.2 to 1.3x supported by our strong sales was more than 11,000 people and pipeline of more than 80 new product launches over the coming years, including innovation in-house and in-licensed products. Other developed markets for the quarter, while other developed markets, Europe, Canada and Australia recorded sales of INR 1,149 crores, growing 48% year-on-year and accounting for 14% of our total sales, an increase of -- from 11% in FY '26. I would like to highlight that we have begun consolidating Busu Pharma in our financials from this quarter. As Vinita mentioned, we are focusing on various strategic initiatives to grow our business in this region, especially in Europe going ahead. Emerging markets. For the quarter, MRT markets recorded sales of INR 990 crores, delivering an impressive 52% year-on-year growth led by markets in Brazil, South Africa and Philippines. Brazil, in particular, maintained strong momentum post the turnaround of the last few quarters, growing 117% year-on-year in ropocurrency, driven by successful commercialization of dapagiclosin. Going on to the pay other operating income at INR 60 crores as against INR 105 crores in Q1 FY '26. It has decreased 43% year-on-year -- this decrease is primarily on account of lower export benefits from the PLI schemes during the year. Gross margins. Coming to the profitability of gross margins the upward trajectory continues. But this year, this quarter was 74.6%, up from 71.3% in Q1 FY '26 last year. This 330 basis points year-on-year improvement is driven by multiple factors, which includes better product mix higher profitability in India, increased volumes and cost improvements and efficiencies, which have undertaken over the last several quarters. Employee benefit expenses for the quarter, employee benefit expenses stood at INR 1,383 crores, increasing 28% year-on-year from INR 1,083 crores in Q1 FY '26 translating to 16.8% of sales versus 17.6% last year. This change is largely attributable to higher costs due to regular annual increments and business growth during the period. manufacturing and other expenses. FY '27 manufacturing other expenses came in at INR 2,341 crores, which translates to approximately 28.5% of sales as compared to 28.7% of sales in Q1 last year. The expenses were higher, mainly due to higher volumes in normal course of the business, higher SG&A expenses in account of field force expansion, license repayments and the part of settlement agreements. R&D at INR 608 crores is 7.4% of sales in Q1 FY '27 as compared to INR 498 crores at 8.1% of sales in Q1 FY '26. For the full year, R&D is expected to be around 8%. EBITDA. EBITDA, excluding ForEx and other income during the quarter was INR 2,464 crores, we saved INR 1,641 crores in the same period last year. an increase of 50% year-on-year with margins of 30% a 26.6% last year in the same period, an increase of 340 basis points over the last year. During the year, as indicated by Bonita, we expect EBITDA margins to be around the 25% mark. Depreciation and amortization at INR 453 crores as compared to INR 299 crores in corresponding quarter last year. This increase is due to the higher amortization of settlement agreements. The effective tax rate stood at 29% for the quarter. For the full year, however, we expect it to be in the region of 27% to 28%. And injective balance sheet items. The operating working capital was INR 8,260 crores as of 30 June 26, as compared to INR 7,132 crores as of 31st March 26, which translates to 90 days of net working capital as compared to 87 days recorded earlier. The net cash stood at INR 2,831 crores as of 30th of June, INR 4,636 crores, as at the 31st March quarter, largely due to closure of our Vishu Pharma acquisition. Whilst we focus on increased cash generation for our business, we'd like to highlight that we continue to explore strategic allocation of our capital. to achieve the long-term mission of the company, including on the specialty front. ROCE for the company translates to 29.5%. We serviced 28.4% as at end FY '26. On the ESG front, Lupin continues to advance steadily towards its 2030 sustainability goals, achieving approximately 41% reduction in greenhouse gas emissions and 45% water recycling as of FY '26. Our efforts have been recognized externally through inclusion of Timeworld's most sustainable companies at 2026 list for the first time. With this, we'll open the floor for discussions.

We'll now start the questions and answer session. [Operator Instructions] We'll take the first question from Damayanti Kerai.

My first question is on your opening remarks where you mentioned that U.S. sales should be back on growth trajectory starting FY '28. So just want to understand this growth will be on the base of U.S. 1.1 billion to 1.2 billion number, which you mentioned for '27 or how should we understand this part?.

Over the [indiscernible] '27 base.

Okay. So the base $1.2 billion in FY '28. That's clear. My second question is if you can update us on some of the key launches of key products in injectables and respiratory space, which will be meaningful from your U.S. sales perspective related revenues?

Yes. So multiple products across I'd say, biosimilars, injectables as well as respiratory. On the -- I'll say biosimilars and injectables -- there is lots of disturbance in this line.

Damayanti, you would like to mute yourself.

So I was saying that multiple products on the biosimilars, injectables and respiratory front over the next couple of years. In fiscal year '27 itself, -- we have yet to launch Petilbrastin that is going to be an H2 product for us. Well, we expect it to contribute very nicely into the second half. then we have a 505(b)(2) to dalbavancin injectable that is going to be a good sized product for ourselves as well. And nasal sprays like fluticasone nasal spray as well as injectables sigamadex, epinephrine, raltegravir where we're exclusive first-to-file era injection, which is all fiscal year '27. Then fiscal year '28, we have products like, I think, full year impact of [indiscernible] we have azepam nasal spray. We have epinephrine nasal spray as well as apixaban, Pfizer 2 mean that is starting to look like a material opportunity for us. We're still sizing it up, but looking fairly interesting for us then and sucrose injectable -- we have ivacaftor, exclusive first to file, midazolam nasal spray. And there are just a few of the products. We have other nasal sprays as well as injectables in the pipeline that we'll expect to bring to market in fiscal year '28. And then I'd say that in fiscal year 2019, we should have more biosimilars aflibercept, petrograstim on-body. Dulera is expected. Hopefully, we can get it in fiscal '28. But if not, for certain in fiscal year 2019 on the market. And depending on what transpires from a 4 standpoint, we would expect also Spiriva estimate. We made good progress on that front. We expect to file it. In this fiscal year, we should subject to what happens with the brand, the P4, we could potentially be in the market on the reseat front as well in fiscal year '29.

Elaborate answer on this. My last question is, when you look at tiotropium market share, it has been hovering around mid-30s, so do you have room to improve it further? And if you can talk a bit about your progress in the channel -- in the intra channels for this product?

No, it's kind of settled at that 38% level and there is a good balance what the brand has in terms of share and what we have in terms of market share. So at this point, it should hover around that level.

The next question is from Shyam Srinivasan.

Can you hear me now?

Yes, yes. We can.

Just trying to do math on your U.S. guidance, right? So we did $366 million this quarter. And you talked about $1.1 billion to $1.2 billion for the full year. So that brings us like roughly $100 million lower per quarter in some of the quarters, right? So if I did -- I'm doing simple math, going to 250 and 280 million roughly, right? So what is that big step down? Is it both the top 2 products that will likely see the step down? Or is there an element of conservatism built into the kind of step down. So I just wanted to get some qualitative sense of how we should -- why despite a very strong Q1, how are we looking at it?

Yes. So in Q1, you don't have any additional competition on tolbactem and from Q2 onwards, you will start seeing the impact of Apotex and Teva. We also expect in September, we could potentially have 1 more entrant. So we expect to be 4 players market with tolvaptan, and we expect the market to grow as well for the molecule in that it is still 40% generic conversion so far. But given the additional competition, we expect pricing to come down and obviously also some share redistribution. So we expect tolvaptan to come down over the next couple of quarters. Mirabegron has already seen pressure in the first quarter, and we expect that to do with a full quarter impact from Q2 onwards. So we expect revenues to be anywhere between $250 million to $280 million a quarter over the next couple of quarters.

Got it. And when I look at your full year margin guidance of what we did the gross margins of 75% for the current quarter, right? So what's a more normalized gross margin, please?

So it is really going to be a function of how much of tolvaptan says and at what realization the kind of competition that you see out there. And more importantly, the impact of, in fact, price increases that we have seen in the post the cost increase that is because of the geopolitical tensions around. So the first quarter was not so hugely impacted because of the fact that we had inventory to be carried forward. But going forward, we will have to take that into account. So I think we are being a little more cautious when we speak about the fact that the EBITDA margins would be in the range of 24% to 25%. And obviously, this would be as a reduction of -- on the gross margin front as well. Thanks.

We'll take the next question from Neha Manpuria.

Vinita, in tolvaptan, we have seen a quarter-on-quarter increase in market share. Would that be a fair assumption?

Yes.

And I think in one of your previous calls, you had mentioned that despite additional competition coming through, we should be able to defend our market share in tolvaptan, do you see that dynamic playing out given that we've been able to gain share over the last few quarters?

Yes. So we would expect the market share, the term to be longer because of the fact that it's a specialty pharmacy product as well as our REMS program. But we obviously will have to give some share as well to the additional entrants.

Okay. Understood. And on apixaban, how should we think about the opportunity? I know you mentioned you're still sizing it up. But how should we think about the 505(b)(2) launch and our ability to take market share in case we launched it in '28?

Yes. So we are looking at the different channels for the product. It's a very large brand, which makes it a very interesting opportunity. But given the time we have prior to the other generics entering the market in fiscal year '29. We believe that very targeted approach around a few channels is going to serve us well. So we are looking at ways and means of entering a few of the larger channels where we can through our national accounts efforts as well as some incremental commercial efforts, be able to get strong access.

Okay. Understood. And do you think this should be as large as probably mira and Tolvaptan was for us? Could this be as large in your view?

ThatIt it could potentially get there.

Last question on biosimilars. Given -- let's take a 3-year time frame because you have a couple of launches coming in, how big can the biosimilars piece be for us here as well as in Europe put together?

Yes. put together, it's a material opportunity for us. The U.S. itself for, we have to deliver this year, but it's looking like a very interesting opportunity with pectilgrastin. Ranibizumab, we'll have to convert the market. I mean there's really the market has gone into the other products. So I think a little bit of a smaller opportunity compared to pexigrastin, but Ranibizumab looks like a big opportunity for us in Europe, in a few countries direct and also through our partnerships with Sandoz as well as others. Now with busy pharma footprint that we have across the ophthalmology call point, we're going to leverage that as well for ranibizumab. And then we have aflibercept coming in fiscal year '29 and Petrobras OBI and then fiscal year '30, of course, is Galenica. So I think we are looking at biosimilars ramping up in the next 3 years to a couple of hundred million dollar scale business across these key markets.

Thank you. We'll take the next question from Surya Patra.

See, my first question is on the respiratory portfolio. See how big is the respiratory portfolio contribution to the overall business for Lupin right now? And in terms of the U.S. business, if we see what would be it share currently?

So in the base business, and it's going by memory year, it's over 20% right now. with really 2 main character as well as a Tiotropium visual as well as Open -- so a little bit more than 20% even. And as we look at our pipeline, we have Dulera that is filed. We have multiple products that we are now making progress on like resumed, we have made significant progress over the last quarter, and we are in a position to file this fiscal year. We also have been successful with a pivotal PK on Breo. So very pleased to get the Ellipta franchise also started from a pipeline perspective, and we would expect to file the ANDA later this fiscal year. We have green propellant, the Life new propellant filed in Europe in the last quarter, in fact, and multiple pipeline programs also making progress for Europe. So really pleased with the progress now that we are making on the respiratory pipeline, both with MDIs, DPIs, reset Ellipta as well as MDI products and [indiscernible].

Sure. So in fact, from the arbitral side, which the market share, which has, to some extent, subsided from the level of 19%, 20% to 16% currently. And possibly we have already reached the peak potential of the tiotropium. So sure, in the midterm to the time that the pipeline products are getting launched in the U.S. So whether it is fair to believe that the respiratory portfolio in the U.S. is likely to remain flattish or kind of a moderating like that?

This is hard to predict for certain. But right now, the arbitral market has stabilized. It has the 16% share and the relative positions of competition, a kind of stabilized based on the supply situations from the different competitors. So -- and on Tiotropium, we know how difficult it has been for us. So we haven't really heard of any imminent approvals and launches. So we would expect that the baseline should be stable as Dulera, nasal spray products in the next year and then the new products, reseat as well as others come to market.

Sure. My next question is on the Europe business, which has been doing great for us, and that is visible even in this quarter. but I'm just going through the kind of a higher rebate policy initiated by Omni wherein they are kind of doubling the rebate requirement. So given that would be your reading about the either profitability or the pricing pressure, what we can see in the European market or, let's say, if it is Germany, then even if you restrict that policy to Germany, then what implication that overall euro portfolio that you can see because of this?

Yes. So it's very interesting, the dynamics in all of the European countries that we're realizing. And even in Germany, on the 1 side, you see the increase in rebate on a part of our portfolio. But in others, for example, in our biosimilars in particular, for ranibizumab and aflibercept, we are finding that is not part of the EK tenders anymore. So it becomes a nice branded opportunity. Overall, we are seeing all of the major European markets really struggling with their overall health care budgets, the overall drug spend budgets and they are struggling to really bring more innovative products into the fold and not making enough parts available for unmet needs for patients. So we're starting to see like in countries like France, we have recently noticed that they are really doubling down on biosimilars, just given how important the biologics LOE is over the next right now, it's like $100-plus billion worth of biosimilars that go up in over the next 5 to 10 years. So more incentives for substitution of biosimilars that we've seen to be able to reduce some of the drug spend so that they can make room for innovative products. And I think if that model works for France, we will see very soon the other countries following a similar model to be able to afford innovation while making the generic side and the biosimilar side of the business, more substitutable to be able to get efficient access to medicines. So we actually are very optimistic, very hopeful that Europe is going to increasingly become a more important geography for Lupin for certain, just given our portfolio of respiratory products, biosimilars on overall as well as the ophthalmology biosimilars as well as the specialty portfolio. We have tremendous headroom to be able to build in Europe.

Sure, ma'am. Just last 1 question from my side in regards to biosimilars, 2 points specifically here. How important -- or let's say, how sizable this opportunity first to product opportunity in U.S. for us because pegfil or even the ranibizumab, if you consider both our kind of a partner product and the prices for this product for biosimilars has already corrected to the tune of 85% to 90%. So considering that, how sizable this could be -- that is the first point. And secondly, given the kind of price erosion SAR that has happened already in the U.S. market, how -- I mean how is the European product prices there in biosimilars compared to that of the U.S.?

Yes. So we're finding actually even with Petrobras, as I mentioned earlier, also the last couple of quarters, we've been pleasantly surprised with the opportunity that we see right now. And of course, we'll want to deliver that in the next this fiscal year to be able to give that confidence operationally. But as we look at our partners forecast and what we can do in the current fiscal year, it's a really good size opportunity for Lupin. And as I mentioned, I will not size up each and every product. But if I look at the next 3 years, between U.S. and Europe with these 30 products or so, we have a couple of hundred million dollars worth of opportunity on the biosimilars front.

And price difference in U.S. and Europe.

So in Europe, we have found the pricing on our products is fairly stable. And I mentioned, we're also starting to see new developments like in Germany, these products are not part of the tender. So more of a branded opportunity on the ophthalmology front in France, new measures to -- that will likely enhance biosimilar adoption and ease market for us, all of which that gives us this optism on the biosimilars front.

Okay. Sure. Wish you all the best.

Thank you.

We'll take the next question from Bino Pathiparampil.

Vinita, just a follow-up question on a couple of products you mentioned. You mentioned the first-to-file exclusivity in FY '27. I didn't the name, but is that a sole exclusivity?

On a takeaway, yes. I mentioned that.

Sorry, which one?

[indiscernible]

Okay. Second, in FY '28, which is the 1 you mentioned exclusivity?

I think I mentioned dazapam,epinefran F, that is Tsesprays, ivacaftor, there's a number and yes, those would be the main ones. So flat is another exclusive first to file next year.

Got it. And last question on [indiscernible]. How is the market compared to the DPI?

It's moved more towards [indiscernible].