Neuland Laboratories Limited (524558) Earnings Call Transcript & Summary

Friends, we welcome you to the Q3 FY '22 Earnings Call of Neuland Laboratories Limited. To take us through the results and to answer your questions, we have with us the top management from Neuland, represented by Mr. Sucheth Davuluri, Vice Chairman and Chief Executive Officer; Mr. Saharsh Davuluri, Vice Chairman and Managing Director; Mr. Deepak Gupta, CFO; and Mr. Sajeev Emmanuel Medikonda, Head Corporate Planning & Strategy. We will start the call with a brief overview of the financials by Deepak, and then Saharsh will give a broad highlight of the business strengths and what he is observing in the market and then we will throw open the floor to Q&A. With that, the state and the standard safe harbor clause applies as we start the call. With that said, I'm handing it over to Mr. Deepak Gupta. Over to you, Mr. Deepak Gupta.

Yes. Thanks, [indiscernible]. Good evening, friends, and a very warm welcome to all of you to our Q3 FY '22 earnings call. I hope all of you are doing safe and are healthy as of now. I expect you to -- I think that you must have seen the presentation what Diwakar was -- or Diwakar was mentioning. It was put on our website as well as it is uploaded on both the servers for BSE as well as NSE [indiscernible]. As always, any comments on the content of this presentation that we have presented will be highly, highly appreciated. And we will do our best to give additional data points wherever required, which will be helpful for you all to analyze the future performance of the company. I will briefly update you about the financials. The total income for this quarter is INR 238.4 crores as against INR 245.6 crores in Q3 FY '21. Our EBITDA for this quarter was INR 34.2 crores with the EBITDA margins of 14.3%, which is a decrease of 4.7% on year-on-year basis and 240 points decrease on a sequential basis. I would also like to give you some context of a decrease in our EBITDA margins. So similar to last quarter, we are seeing shipping costs are high. Logistics costs are also moving up and supply chain delays are happening because of raw material volatility that we have seen for some of the key reasons that we buy. In addition to this, we were also benefited in the past couple of quarters to do property hedging that we did for key materials that we buy. As stated in our previous call, some of these contracts expired in Q2 of FY '22 as there was a margin volatility. We continue to maintain high inventory, due to the fact that we were keeping some inventory for the future possible disruptions. In addition to this, similar to Q2, part of our impact on the profitability was on the terms of higher employee costs due to the key recruitment that has happened as we always continue invest for the future. In addition to this, we expect that more volumes will come from Unit 3 going forward. Profit after tax was seen at INR 12.7 crore as compared to INR 26.7 crore last year. Due to the reasons as stated above and also due to the high depreciation, which is coming on from Unit 3 commercialization, this quarter, EPS is at INR 9.9. On a 9-month basis, our total income stands at INR 699.4 crores, which is an increase of 0.8 percentage from the same period last year. With regards to EBITDA, it is at INR 104.9 crore as against INR 122.5 crore in the 9 months period for FY '21. The EBITDA margin is at 15% as compared to 17.7% a year earlier and for the reasons I stated above. The cash and cash equivalent as from the date of the balance sheet, which is at December end is at INR 21.2 crores. We continue to make investment in the future, and the CapEx of around INR 75 crore has been done in this financial year for the 9 months period. Our CapEx plan is on track and with greater commercial prospects on the horizon, we expect that our CMS segment to perform well and it will improve our future realization as well. I would like to mention that even though we have made substantial CapEx to date, our net gearing ratio continues to be low. So as of now, it stands at 0.2. With that, I would like to hand over the call to Mr. Saharsh for his remarks, and thank you very much.

Thanks, Deepak. Good evening, friends, and thank you for joining this call. Maybe I'll just add a few comments on top of what Deepak has already said, and then we can open it up for Q&A. In terms of the Prime business, we did have a very muted quarter, although we've done well in products like Labetalol. There are a couple of products, which we have been historically doing well like Levetiracetam and Mirtazapine that did perform to our expectations. This is largely owing to customer -- lower customer offtake. And hopefully, we should be back in the next few quarters. On the Specialty side, we've done really well in a product like Ezetimibe. And on the CMS side, the business did really well. We've clocked close to about INR 100 crores, which I believe is the highest we've done for CMS in a quarter. We see this as a crucial mark of gaining size as well as scale. Again, this quarter, we did see a lot of development revenues coming in on the CMS side. It also gives us a healthy indicator of the molecules that we have in our pipeline and the kind of business potential that we have as they gear up worse commercialization in the near future. Therefore, I'd like to reemphasize that CMS revenues could look lumpy on a quarter-to-quarter basis. But on an annualized basis, they are fairly steady, and we expect them to give us growth on an ongoing basis. Unit 3, which is another update I would like to give is fully operational now, and we continue to spend higher expenses at Unit 3, given that the plant is fully operational. This has led to higher costs in terms of manpower and other operating expenses. That is also one of the reasons why we are incurring higher operating expenses this quarter compared to the same quarter last year. But I'd also like to reiterate as Deepak did said, we will not compromise on spending in the short run in order to build a sustainable business for the long term. So even as we invest for the future, we are looking towards cost effectiveness through process improvement programs for all our products and also trying to improve operational efficiencies. In terms of other campaigns, we filed 3 DMFs this quarter, Vilanterol, Aripiprazole sterile and Tafamidis. These are 3 products which we are excited about and could have an important role to play in the future of the GDS growth. And we continue to see good traction with both CMS and GDS customers that could help us drive growth in the medium to long term. The potential of the CMS projects, especially in Phase III development and commercial, which have been evident in the revenues this quarter as well as the specialty GDS business and strategic Prime products gives us confidence that the long-term business outlook remains intact. With the ramping up of Unit 3 and the increased utilization of Unit 3 in the months and years to come, we should see profitability trajectory also go on. So these are the few remarks I'd like to make as part of the opening comments. Maybe Diwakar, we can open it up for Q&A.

Thanks, Saharsh. So we'll open up the Q&A. [Operator Instructions] The first question comes from the line of [ Sajal Kapoor ].

Hi. Diwakar, can you hear me?

Yes.

Hello. Can you hear me, Diwakar?

Yes. [ Sajal ], I can hear you.

Yes. Okay. Good, good. Just a couple of questions. So as a business, our core focus and strength over the years has been in the area of respiratory, cardiovascular and, of course, CNS disorders. But when I see our performance over the last few quarters and not just this quarter, even previously, the narrative and the opportunity landscape as I see is not quite matching with our performance because there has to be a stronger traction in the areas like CNS, respiratory and cardiovascular but somehow our sales are not matching that narrative. So what exactly has gone wrong? Have you lost any customer, any contract? What's exactly going on? If you could share some light on that.

Maybe I'll just add a few comments and then I'll ask Sucheth to add some of his thoughts as well, [ Sajal ]. I think the -- it is true that a lot of our products fall into these 3 categories, and they have been a significant part of our growth over the years. From our pipeline perspective, if you look at CMS as well as GDS, that continues to still hold true. In terms of GDS, if you look at products like Levetiracetam, which is the CMS category that has been the prime growth driver for Neuland. I think in terms of CMS also, we have several molecules in the CNS space. While we look at our growth trajectory, we don't necessarily track growth at a therapeutic level because at the end of the day, we are an API company, and we look at chemistry and technology as a means of tracking our growth. We do recognize that there are synergies in -- being in certain therapeutic areas. So for example, if you are able to offer one respiratory API with Salmeterol, then the customers who are in that space tend to buy other respiratory APIs from you. So for example, one of our new products, which I was mentioning in our update, Vilanterol, is a respiratory product. And one of the reasons why we developed that product is because there has been a traction from customers in the respiratory space. So I would think that we are focusing on synergies, both in the CMS and GDS and we have been steadily adding customers. It has not been any significant attrition or loss of customers per se to respond to your direct question. There are always situations as I had explained in the opening remarks that for some products, either for a quarter or for a year, we might see different sales either because of stocking up of the customers of certain products or maybe for other reasons. But there hasn't been [indiscernible]. So I think that's kind of a broad remark I would make. [indiscernible], is there anything else you want to add or clarify?

No. I think [ Sajal ], you've been following the company for a while, right? So we appreciate that. One thing where there is a valid point is that in the area of respiratory diseases, some of the approvals that we originally anticipated didn't materialize from a timing perspective, some approvals that we expected in 2018, '19 are actually happening now as we speak. So we definitely expect to see that, that part of the business will kick in. So we're still very confident about the business model, like you rightly put it, our focus on certain type of molecules and the margins from those molecules. The timing did not pan out for sure like we anticipated, but that doesn't mean that the long-term potential of the product has been halted. Having said that, there are also products such as broad spectrum antibiotics, such as Ciprofloxacin and Levofloxacin, which are also degrowing. So we're constantly working in the Primes admin to increase volumes of our other products, where there's a lot more potential to substitute the volumes of these products which are continuing to degrow, in some cases, much faster than the market or we expected. That's the only additional insight that I would like to add.

Sure. Thank you for that. And secondly, when I read your press release, you've mentioned that you have been impacted by customer issues on the market share and the inventory front. So can you just add a bit more color around what those issues are? And what do you actually mean by market share and inventory front for 2 key products?

I think plainly speaking, as I had mentioned in my opening remarks, products like Mirtazapine and Levetiracetam, they have been traditionally doing well and we have very healthy market share, especially in the regulated markets where we are strong in. We have seen in shipments for these 2 products. And the commentary that was mentioned is referring to possible reasons why we did not ship as much product this quarter, and that could be because customers are holding on to inventory, strong orders that they may have in place in the past or it's just that they don't have production campaign or a need right now. In a way, we also think that, that's something that could be a short-term issue because in terms of our understanding, given the few number of players in these APIs and the fact that we are registered long-term suppliers for these customers, we are fairly confident that, that business should get back on track.

Sure. So basically, this is kind of a delay in the offtake, not a loss of sale as such. So this should hopefully get reflected in the next fiscal, if not Q4?

Yes and no, [ Sajal ], because in one way, because there's been a delay, it has impacted, say, the performance of the current quarter. And the fact that we've not lost the business gives us the confidence that we will continue to do well going forward. So it's not that what we've lost we will get back totally, it's just that we've lost maybe certain orders. We are likely to get those orders back in the coming quarters. So it's maybe a right shifting of business, I would say.

Next question comes from the line of [ Keshav Kumar. ]

Hi. Am I audible?

Yes.

Firstly, it's great to see you doing well with the CMS market, both in clinical and development, great performance despite headwinds the industry has been facing. So congrats to you guys and the team. My first question is I have sort of a scientific doubt regarding peptides. So we know that there is quite a lot of work that's happened in -- and has been happening in genomics. And the cost of sequencing has been coming down at a rapid pace, which has helped create avenues in the entire bio-based landscape. Now a parallel focus has been there on proteomics, and it holds a potential to create huge value going forward. For example, mRNA display technology. So to reduce the protein characterization to a gene sequencing problem, which can be dealt with NGS in a high throughput way. So do you think that it could also solve a lot of issues or complexity involved in manufacturing of biologics like peptides, like what gene sequencing and parallel technologies such as CRISPR are doing to the gene therapy space with the decent databases to tap into? So could these advancements in proteomics space lead to synthetic peptides better able to be synthesized using these DNA mRNA libraries? Or did that these molecules can't be synthesized ribosomally at all?

Okay. [ Keshav ], maybe I think in terms of synthetic peptide space, which is really where we operate in, we use essentially traditional technologies for making these peptides and these building blocks. What you're referring to could possibly have an impact in terms of how you're making peptides using biological processes. At the moment, we don't see any kind of impact for us. What we look at is how we can effectively make peptides, either using liquid phase or solid phase. But I think the kind of breakthroughs we are seeing now in genomics and proteomics, I think, for a company like us to tap into those technologies, we would probably have to get into fragments of mRNA and probably work with other biologic companies to supply to them. But I guess the short answer is we've not really seen any direct impact of these developments in our industry, at least for now.

Sure, sir. So secondly, I wanted to understand the role of peptide synthesizers for automated and high throughput peptide production. So is it an enabler for somebody like us to get stronger in manufacturing capabilities? Or does it make it easier for others to manufacture peptide and bridge the gap? For example, there is CSBio, which is offering -- which has peptide synthesizer offerings. So I wanted to have your view on that.

So typically, the CSBio type of peptide synthesizers are used for very small-scale peptide synthesis, and these are employed effectively for drug discovery-related working peptides. Neuland's -- most of Neuland's peptide projects and projects elsewhere are all where the drug candidates are already identified, and we are working in the clinical stage. And usually, in these stages, the scale of peptide manufacturing is higher. And while it may still be conceivable to use peptide synthesizers and we do have a peptide synthesizer in Neuland, we believe we add value when we do it without automation because in many ways, peptide synthesis is considered to be more of art than automated function. And most of the projects we make, especially the ones that require GMP controls, we typically make them in a nonautomated way, but you could use the peptide synthesizers but not at the kind of scale that Neuland deals.

The next question comes from the line of [ Rakesh Kumar ].

Hello. Am I audible?

Yes.

My question relates to the supply chains in the world because a senior management from largest CDMO mentioned in an interview that they are rethinking of the API supply chains from China and India to European Union and then to U.S., understand? So with the -- how big is the possibility with this kind of impact would be on our company? And what early signs are you seeing already, if any?

[ Rakesh ], you're saying that you've heard someone else talked about people shifting their supply chain from China to other parts of the world to make it more reliable. Is that correct?

Yes, yes.

We've followed a similar strategy, [ Rakesh ], on the past several years, even much before the pandemic. Just to give you an idea, there was a point in our history where almost 50% to 60% of our raw materials were coming from China. Today, less than 10% of our raw materials actually come from China, and we're actively working to reduce that to close to 0. I don't think it'll ever been possible to be able to source nothing from China. But notwithstanding that and to give you a further level of clarity, it doesn't mean that our total procurement value is less than 10% from China. It only means that for less than 10% of our materials, we are actually dependent on China. So everywhere else, we've actually qualified sources from India, from Europe, from U.S. so that we have multiple sources, and we can continue to maintain that sustainability in our supply chain. So it's a very similar strategy we have followed, I would say, over the past decade systemically. We've created alternate options for our supply chain.

Okay. So you don't see the effort by the big players of shipping their whole manufacturing to Europe or U.S. in the future?

Say that again?

You don't see the effort by big players of shifting or complete chain of manufacturing to U.S. or European Union, do you?

When you say complete chain, I'm not quite sure what that means, [ Rakesh ], but China still supplies a lot of basic raw materials globally that means that somewhat intermediates or more advanced chemicals where we're coming from U.S. and Europe, but what all of us must understand is that basic inputs to a large extent are still coming from China. So whether a company acknowledge it or not, the entire economy is indirectly dependent for a lot materials from China. However, what Neuland has done is create multiple options so that if there was any disruption from China, we are able to quickly fall back on our second or third option to continue sourcing to maintain our continuity in supply chain.

The next question comes from the line of [ Swarnashish Chatterjee ].

Sir, am I audible?

Yes.

Sir, could you please give some more color on your developmental project basket, the CMS segment? In earlier calls, you have talked about almost 6 molecules getting commercial in next 2 years and maybe a few of them can blockbuster. Is there any more color you can add?

If we just compare the progress that we've made over the last 12 months, we've actually seen that the development -- today, in terms of development, we have about 18 molecules. And in terms of commercial, we have about 18 molecules. The kind of progress we've made in the last year or so is that we've seen 1 Phase III molecule getting to a step closer to commercialization. In addition to that we've seen in the last quarter of this financial year, a development molecule get into commercialization. What we've been also saying is that our Phase II pipeline has been fairly active. As I had mentioned earlier in the comments, we have projects which are in CNS as well as COPD. And those projects seem to be advancing quite well. And all in all, we expect maybe -- and this is just a guesstimate at this point that in the next 24 months, we should have at least 2 more molecules add to our commercial pipeline. So what is at 18 today, with 7 APIs, we expect to have maybe 9 APIs in the next 24 months out there. So this is just kind of a rough guesstimate. I think in terms of -- because of the nature of CMS business, we cannot disclose the names of these molecules, but we've seen fairly steady progress. And also, we are also happy to note that so far we've not had any attrition or failures, the Phase III and upwards projects.

Next question comes from the line of [ Mitesh ].

Yes. Am I audible?

Yes.

Congratulations on a good set of numbers. I would just like to know, can you explain how we could see Neuland in, say, maybe in next 3 or 5 years? Where do you see the company growing?

Thanks for the question, [ Mitesh ]. I think in terms of 3 to 5 years, we definitely expect the CMS business to grow on the basis of these pipeline projects. I think as I was answering the gentleman before, we do have a fairly healthy pipeline of Phase III and development projects, which are not yet commercialized. And many of these molecules, although still they are not commercial for Neuland, they had the potential of being game changers for the company. So one thing that we would expect is that at least we'll have a couple of these molecules becoming commercial and becoming successful, and that could drive a lot of the CMS growth. In addition to that, we expect to see consolidation in our GDS Prime business. We've been talking at length about products like Levetiracetam, Mirtazapine, Labetalol, et cetera. We would like to continue on our path of trying to achieve sort of a dominating market share for those products, which would again help us, one, leverage economies of scale and also try to improve our profitability. And of course, I think there has been continued traction on new products. I think somewhere 2 years ago, 3 years ago, we had lost a little bit of momentum in terms of our development of new GDS products. But as -- given in the update today, I think we are back on track over there. We have some exciting new DMFs also that we are filing, and we expect some of the commercializations to happen as well. But I think in summary, we would expect ourselves to be -- continue to be an API specialist catering to both CMS as well as GDS businesses. But we would be a lot more selective in terms of what kind of GDS products we would be playing in. And we would be very strategic in terms of -- at a product level or whether we want to backward integrate or we don't want to backward integrate, whether we want to continue a product or we don't want to continue a product. I think there will be a lot more thought on that. So I think those are some of my thoughts. Sucheth, anything you would like to add?

No, that's good.

[ Mitesh ], does it answer your question?

Yes.

We'll take the next question from the line of [ Sureshna ]. Since we don't hear from him, I'm going to take the next caller. The next caller is [ Varun Mohanraj ].

So am I audible?

Yes.

I have 2 questions from my side. So the first question is on the gross margin trend. So I don't want an exact -- I mean, absolute figure on the gross margin, but can you share some details on the comparative gross margin on a Y-o-Y basis? Just to compare the absolute number, if you could shed?

So you were talking about quarterly number or for 9 months?

Quarterly. Quarterly or 9 months, anything is fine.

Okay. So if you look at the gross margin on a -- EBITDA margin I'll talk about it. So EBITDA margin is, as we have published, roughly dip of 3% to 6% on -- compared to the previous year.

If I could interrupt. I got the EBITDA margin. I wanted to ask some color on the gross margin please, just the comparative.

Deepak, he's asked the gross this quarter compared to the gross of third quarter a year ago.

Yes. So I think there is INR 10 crore change -- overall, INR 10 crore, INR 12 crore change in that gross margin. So mainly, it is because of the reason that we have Unit 3, which is commercialized in this year compared to previous year. And also, we are building the capability for the future. So we are investing in few new resources in this year, current year.

Do you have the percentage numbers, Deepak?

I don't have it.

We can get back to you -- why don't we get back to you before the end of the call on the exact numbers. But do you have a follow-on question?

Yes, just one more on the Unit 3. So I think in one of the previous calls, you mentioned that we have 6 blocks on the Unit 3. So do we have a dedicated facility between the APIs and the CDMO or these reactors are fungible between themselves? And if I could follow up one more. I think we've -- you have mentioned in one of the previous questions that we do expect that 4 molecules to get into commercialization. And if they become a blockbuster molecule, our capacities in Unit 3 are sufficient for next 24 months? Or should we look beyond Unit 3 as well in the next 24 months?

So for the first question, [ Varun ], the capacities are fungible since we made KPIs both for GDS as well as CMS. I think for the second question, we have allocated capacity. I think whether the molecules that have become commercial or will become commercial, whether they'd be blockbuster or not, that only time will tell. We are in no position to predict that.

What we normally do is we do a probability-based simulation of these capacities. And we only plan for what is obvious in terms of the customer outlook. But if there is an outlier, if something was expected to be 10 tonnes and then suddenly it's going to 150 tonnes, then obviously, that kind of capacity would not exist, and we would have to plan for it. But then realistically, we would have the time to plan for it. So it's something that would be a good problem to have, frankly speaking.

Yes.

So Unit 3 is where the growth is going to come from in terms of volumes in the future. That's why we've also seen an increase in our operating expenses so that we are ready for any anticipated increase in volume.

Okay. If I could sneak in one last question. So in the previous calls, we mentioned that we have maybe an internal target to have a utilization levels of 40% to 50% by the end of this financial year in Unit 3. So does the stance -- do we remain that stance?

Yes. Also, we have to keep it in mind that 40% to 50% would have been for the current capacity of Unit 3. But as the company expands and grows, the capacity in Unit 3 will also increase. So what 50% means today, it will be different from what 50% will be 2 years down the line.

The next question comes from the line of [ Badri Vishal ].

Sir, about -- based on the Q1 FY '22 and Q2 FY '22, the results that were published and we achieved, it was a confidence that this year, FY '22 will be crossing around 4 digits, INR 1,000 crore revenue comfortably. But until now what we have discussed on FY Q2 -- FY Q3 '22, that because of inventory front difficulties and some customer issues, we could not get the required revenue generation. And it was a difficult quarter for you, I believe, and still you have overcome. And for the Unit 3, you are increasing the capacities and turnovers for the revenue generation. But now Q4 is still pending. Do I expect as an investor that we can cross INR 1,000 crore revenue generation this year FY '22? Okay, sir.

So In terms of our business so far, I think, [ Badri Vishal ], you have analyzed the situation fairly accurately. I think we've been hit both on the revenue front with certain market uncertainties, like the ones we talked about. And on the expense front, with Unit 3 expected share as well as the challenges in the raw material cost, et cetera, we've faced the challenges this year. And although to some extent, for the first half of the financial year, our contracts with our raw material suppliers had helped us overcome some of the margin-related challenges. We did experience some of them in this third quarter. As an organization, we've typically never given any sort of guidance in terms of what we expect to do. That's just purely because of the nature of the business. In terms of the answer to your question, while we would not be able to give any sort of guidance on what we expect to do in Q4 and then we would expect to cross a certain number, we think that the performance of Q4 as it stands today is likely to be better than what we have experienced in Q3. But beyond that, I would not really make any comment to your question.

The other thing I would add, [ Badri ], to what Harsh has said, is that our preference and our focus, especially over the last several quarters, given the volatility of the situation with COVID, with the Chinese situation has been margins and focused on the protection of margins now as well as in the future. Therefore, when it comes to certain kind of business, which would drop -- which would drive the top line growth, but not really contribute to our margins at bottom line, we have consciously stayed away from that business as well. So our focus will continue to be on the margins, on profitability and to respond the best we can to the market situation rather than just the top line growth.

Yes. I appreciate your response because you cannot predict. But already, we are in mid-way, already 1 month is over. And you have put all your confidence level on revenue generation as well as customer issue. And I hope that you'll keep up on to the new high other than Q1 and Q2 given that half year turnover. That is what the confidence I'll see in you. All the best, sir. Good day.

Our next question comes from the line of Aman Vij.

Yes. My first question is on the CMS side. So sir, on the commercial side, if we see 9-month to 9-month revenue, will you see a sharp dip? So if you can talk about the same, is it because some of the customers have lost some market share in some of their products? Is it because of they are now using multiple sources versus only relying on Neuland, if you can talk about the same?

Aman, so I think the answer to that question is that one specific molecule in our CMS commercial pipeline has actually -- one of the older molecules that we had started working on, I think, over 10 years ago, is actually facing patent expiries in various markets. And as a result of that, there has been a considerable reduction in volumes. We do expect that we -- but that has actually been the semi factor that has created that drop in commercial revenues. But having said that, we also expect that some of these development molecules, which we talked about, are going to get into commercialization, which could actually more than compensate for whatever dip we are experiencing right now on the commercial front.

That is good to hear, sir. So on the commercial front, if you remove that molecule, apart from that, what is the average growth of the remaining molecules?

So if we were to neutralize that particular molecule, the remaining molecules would be growing at a considerable size, maybe about 20%, 25% or so on. I don't have the exact numbers with me. But if you look at the commercial pipeline of the CMS molecules, we are typically seeing anywhere from 10% to 30%, 40% growth in these volumes of these products. And that growth could continue for 5 to 7 years. And then it's expected that there will be a decline as patents expire. Our CMS business is not old enough for us to have a very clear number on that. But notwithstanding this one particular molecule, we actually think that the base CMS business has grown quite well, but I don't have the exact number right now.

Sure. That helps. Finally, out of the remaining molecules, which are the bigger ones, is there any molecule which is up for these kind of issues like patent expiry in the next 1, 2 years?

Nothing right now that is close on patent expiry. I think we have maybe about 5 active molecules other than this one in our CMS pipeline. One which has already -- other than this one, there has been another one, which has already expired, but that continues to be at a steady volume because it's from the Japanese market. And as you may know, in the Japanese market, even after patent expiry, the innovator continues to hold market. So these are the only 2 ones, which are actually close to patent expiry. So top of my head, I don't think there's anything else for the next 3 years at least.

Aman, you can get back in the queue, please. We have a long queue waiting. [Operator Instructions] The next question is from the line of [ Sameer Dosani ].

Hi, Diwakar, can you hear me?

Yes, I can hear you clear.

Can you just maybe give some insights about the competitive intensity? And what is the opportunity size of the 3 DMFs we have filed? And what is the expected time line this will start in our revenue?

So [ Sameer ], I think if you look at the DMFs that we have filed, the first one is for Aripiprazole for the injectable where the patent is expected to go off the year 2025 onwards. But what we also need to keep in mind is the fact that the landscape is also now quite dynamic. But overall, this is quite an exciting molecule, and the competition is quite limited because of the fact that it requires stabilization. So that is one molecule, which is quite interesting. And the other molecule is Vilanterol, which is, again, in the respiratory space. There, again, the expected time lines are a little away, but we expect to see significant volumes and revenue even during the development case. And the third molecule is Tafamidis Meglumine, which, again, is a small volume, high-value kind of a product with a limited competition where we see the patent expiring first in Europe and later in U.S. and other markets. And again, this is with limited competition. But again, low in volume but high in terms of value per kg.

Any indication on the size of these molecules?

So most of them would be in the range of, say, $20 million or so with very few competitors in them.

$20 million, right?

Of the API value.

Okay. $20 million, API value.

Yes.

The next question comes from the line of [ Praful Lal ].

Am I audible?

Yes.

Okay. I only have one question left. It's on the -- I think in the presentation, there was a mention about a green chemistry being used to combat the higher solvent prices. So can you elaborate a bit more about that? Is it -- is the new -- is it basically used for new molecules or even for existing products?

We actually intend to use it for both, [ Praful ]. So I think some of our old molecules are the ones which actually tend to consume the most solvents. But then for the older products, there is more challenges in changing the processes given the regulatory restrictions. And also for new products where we are able to design the process from scratch, we are able to factor in green chemistry and try to do things innovatively. I think as part of that pursuit, one, we have a team of technical people in R&D who are focusing exclusively on green chemistry. But notwithstanding that, we're also looking at technical collaborations with other institutions to explore ways of bringing in green chemistry as well.

We have a follow-on question from [ Rakesh Kumar ].

Hello? Yes.

Yes.

So in reference to the biologics CDMO space, I've been reading more and more about end-to-end solutions as an in-housing of clinical manufacturer fill-finish. So a few of bigger players are consolidating the value chain, and that would definitely be a big plus for the customer. So in reference to our peptide business as well as the small molecules side, are we seeing any similar trend like with a broader capability in-housing rather than segregated functions for both API formulation and the drug substance part?

I think so in terms of -- I cannot comment on what's happening in the biologics, you probably know much better. But I think in the peptides front, what we have observed is that the technologies for making peptides are very different from the technologies involved in, say, formulating a peptide or packaging a peptide or doing any of the other ancillary activities. And therefore, it's seen as a very exclusive competence. And therefore, what we are observing is that a lot of pharmaceutical companies, whether they're generic or innovators, they tend to gravitate towards the peptide API specialist. And even within that, there are very clear segments within that. So if there are fermentation-based peptides and there are specialists who are there in that area, Neuland is not in that category. If it is a solid phase peptide, then there are certain companies who are very good. They are liquid phase or there is hybrid phase. So I believe that peptide -- pharmaceutical companies requiring peptides will prefer specialists because what they need is very, very specific and it may not really bode well with the integrated approach. That's kind of what we've seen. That's what we've heard our customers tell us in multiple projects.

Awesome, awesome. So second one is that, do you think peptide vaccines as a space to be in? What do you think of it and if we have the capabilities and if we are looking in that direction?

Again, can't say that I am an expert over there, but we've heard of the concept of peptide vaccines not really examined that space closely. Again, peptides is a very vast space. There are peptides, which can extract out of DNA. There are peptides that you make in a fermented process. Even a drug like insulin is a peptide, technically speaking. Neuland has a very specialized focus in peptides, which is the synthetic peptides. And we have also gone as far as working with biologic companies, which require a peptide linker to be tagged to an mRNA. So we've worked on a lot of exciting projects, but the key is, do they need a synthetic peptide? So the answer is if there is a peptide vaccine that is a synthetic peptide, and I believe we will have a role to play over there, but it's not like we've seen any specific opportunities in that area.

The next question we have is from the line of [ Sachin Jain ].

My question is, if I see the last 2 years, there has not been a meaningful addition to project pipeline in CMS vertical. But now if I read your commentary, you specifically mentioned that you are seeing a very good traction in new opportunities in CMS. Can you just give more color on this?

Yes. [ Sachin ], So I think if you look at the numbers per se, your observation is reasonable that the number of new projects added to our pipeline over the last 2 years are not as high as they were perhaps for the year before. And this is something which is also consistent with the commentary we've made that our rate of adding new projects over the last 12 to 18 months has slowed down to an extent. It's not really a cause of concern. I think that's how the reality is because of COVID, biotech companies, pharmaceutical companies have not able come and audit new CMOs. They're not able to select new partners. And therefore, they tend to work with who they are comfortable with. And therefore, it's been challenging for us also to add new projects. But what has been very important about the last 2 years is that the quality of projects that we've added to our pipeline are very exciting. And every quarter, we've been adding projects, which are either in the Phase II or Phase III. The rate at which we have added Phase III projects in the last 3 years is far higher than what we added in the first 10 or 12 years that we started CMS business. The potential of each of these molecules is also very high. We have seen a lot of molecules, which have potential blockbuster status adding to our pipelines. But we're very, very carefully in projecting too much from them because these drugs are still under investigation. Also bear in mind that over the last 18 to 24 months, we've also dropped projects, projects which have either failed in clinic or for whatever reasons the drug has not been advanced. So net-net, our pipeline number has increased not significantly. That's also because we've been removing the molecules from our pipeline, which are no longer active. So that's kind of how I would look at this pipeline. And I would again reiterate that the quality of the pipeline in terms of the potential for commercialization and dive in growth for CMS is very strong.

And then sir, you see, next couple of years, you expect now the traction of ignition should accelerate further because maybe COVID was a reason largely. But now as thing improves from here, you expect now a base of addition in pipeline should further accelerate from here?

So what I would expect is the Phase III -- Phase II, Phase III opportunity should increase considerably. I think as a strategy, we are not really looking at maximizing the number of projects for the company. What we are trying to do is find the right kind of projects, projects where commercialization support is needed for innovators. But typically, Neuland strength is we go work with biotech companies, who have a drug in Phase II, but don't have a supplier who can supply commercial scale. So we tend to work with those biotechs really well. And even if we're able to add 2 such companies in a year, that would actually be a remarkable addition to our pipeline because if these drugs since they're in Phase II, their chance of getting commercial is very high and then the quality of revenue addition would be very strong. So I think we're not really going after big numbers in terms of pipeline addition, but we are focusing more on Phase II, Phase III kind of opportunities.

And I would now hand it over to the Neuland management to deliver their closing comments.

Once again, I really appreciate all of you being here and gaining your trust and faith in Neuland's performance. I think we got a lot of good questions today, and we hope that we've answered and clarified most of the questions. Notwithstanding that, we're always available for your follow-up questions and your interest in the organization. I think as far as the quarter performance is concerned, I think it was clarified that the performance was impacted by a decline in the Prime segment of our GDS business, the volatility in raw material prices and obviously keeping our Unit 3 ready for our future growth in terms of incurring those expenses. I think notwithstanding that, the Neuland business model for the long term is intact in terms of its focus on building and consolidating our position in the CMS business, focusing on fewer but high-quality APIs in terms of market share, protecting its margins and continuing supply for the customers who trust us. I think that business model is intact, and we continue to be excited. Nonetheless, obviously, we're not in a position to influence what the outcome of a specific molecule will be in terms of growth, whether it be blockbuster or not. But maybe are in a position to influence is the number of DMFs that we filed, the number of molecules we've developed and the number of projects that we execute on the CMS side for our customers, and that's where our focus is and will continue to be. Having said that, once again, thanks for being here. Thank you for taking the time, and we look forward to hearing from you in the future.

Thank you, Sucheth. Thank you participants for participating in this call. In case you have any further questions, please do write to us, and we'll try our best to answer your questions. With that, this call concludes. Thank you to everybody, and have a nice day.

Thank you.

Yes. Bye.