Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Cadila Healthcare Limited Q1 FY '21 Post-Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh Nayak. Thank you, and over to you.

Good evening, ladies and gentlemen. Welcome to our post-results teleconference for the quarter ended June 30, 2020. I do wish that you and your family are safe and healthy during the -- this time of the pandemic. For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Harish Sadana, Chief Strategy Officer; and Mr. Vishal Gor, Senior Vice President, Corporate Finance. COVID-19 is one of the most complex health care challenges of our times, and the world is still grappling with it. On the one hand, we had an urgent task of ramping up production of drugs of COVID-19 and other essential drugs. And on the other hand, we face challenges of people not being able to come to work and other logistic hurdles. We fought the battle on many fronts and have contributed with therapeutics, preventive vaccines, diagnostics and essential personal safety consumables. Motivating people to resume work after the lockdown was quite a task. 15,000 people in manufacturing, quality and research were required for us to work at full throttle. The concerns have to be addressed, and assurance was needed to be given that they were safe at work. We engaged with these employees and their family members to allay their fears. Stringent measures in the form of maintaining adequate social distancing at workplaces, thermal scanning and providing PPE kits have been put in to safeguard our employee. On one side, all these initiatives helped us in keeping the momentum across the value chain and continue our operations with minimal medical disruption. And on the other side, the agile decision-making coupled with focus on execution helped us in finding solutions in line with the progression of the pandemic. From diagnostic kits, portable oxygen cylinders to UV sanitizers, alcohol-based sanitizers brands such as Nycil Sanitizer and Happy Hands and immunity boosters like CIMUNE, an ascorbic acid and zinc combination; and Supermune, a herbal combination of multivitamins, multiminerals and zinc, Zydus today provides a range of products [ really ] to fortify and safeguard oneself against the pandemic. In addition, all of you are also aware of our ongoing COVID vaccine program and the studies for evaluation of pegylated interferon alpha-2b as a possible treatment for the disease, about which Dr. Sharvil Patel will talk later. Coming to business. Though we began the quarter on a quiet note, business started to recover as the quarter progressed, which led to some improvement in the month of May, and the month of June was even better. And as a result, during the first quarter of FY '21, we posted a consolidated revenue of INR 36.4 billion, up 4% year-on-year. Our U.S. generics business grew by 25% on a year-on-year basis on account of volume expansion and new product introductions. Consolidated EBITDA grew to INR 8.15 billion, up 24% year-on-year. Our EBITDA margin stood at 22.4% during the quarter, which was higher by 360 basis points as compared to 18.8% registered in Q1 of FY '20 and by 130 basis points compared to 31.1% registered in Q4 FY '20. Other expenses have degrown during the quarter due to lower spending on marketing and promotional activities and reduction in administrative expenses. Consolidated tax for the quarter was INR 4.54 billion, up 50% on a year-on-year basis and up 16% on a sequential basis. Our net debt as on the 30th of June 2020 stood at INR 52 billion against INR 67.4 billion on the 31st of March 2020. Our India geography, comprising of human health, consumer wellness and animal health business registered a revenue of INR 14.86 billion during the quarter. India human health formulations saw reduced number of prescriptions and a fall in patient footfalls. The U.S. geography comprising of generics and speciality portfolio registered a revenue of INR 16.23 billion during the quarter, down 8% on a sequential basis. Excluding Sentynl, the business was down 7% on a Q-on-Q basis. The degrowth was mainly on account of substantial reduction in sales of seasonal products, mainly oseltamivir capsules and suspension. Our rest of the world business grew by 8% during the quarter on a year-on-year basis. Despite the COVID-19-related disruptions, the business registered significant improvement in the performance vis-a-vis the preceding quarter. Now let me take you through the operating highlights for the first quarter of FY '21 for each of our business lines, starting with our human health business in the India geography. The pharmaceutical market in India showed gradual recovery during the quarter as the market grew by 2% during the month of June after degrowing 11% and 8% in the months of April and May, respectively. In line with the market, performance of our business also improved gradually during the quarter as the demand started to show some early signs of recovery with doctors partially restarting their practice. This trend is likely to pick up pace in the coming months. Overall, our human health formulations business posted a sale of INR 8.29 billion, down 11% on a year-on-year basis. Large brands having annual sales in excess of only INR 250 million performed better than the overall portfolio. Zydus Healthcare Limited, which spearheads our branded mass and speciality formulation business in India, degrew by 5.9%, excluding the discontinued brands, [ as per Rx ], which was in line with the overall market degrowth. On the therapy front, we gained market share in gynecology, pain management and antidiabetic portfolios during Q1. In the gynecology segment, we have improved our rank from the third to the second; while in the respiratory, cardiac and GI and anti-infective therapeutic areas, we have maintained our ranks. With the demand-generation activity gradually returning to normal, we are hopeful of regaining lost ground in the coming quarters. Like the India human health business, consumer wellness business also registered a gradual improvement on a month-to-month basis after the quiet start. We posted sales of INR 5.32 billion during the first quarter, down 12% and a net profit of INR 892 million, up 11% on a year-on-year basis. Our animal health business in India recovered from the effects of COVID-19-related disruptions as the business posted sales of INR 1.25 billion during the quarter with a growth of 4% on a year-on-year basis. Now for the performance of our U.S. formulations business during the quarter gone by. The U.S. was the largest contributor to the consolidated revenues with a 46% share. During the quarter, we relaunched succinylcholine chloride injections in the month of May 2020 from our alternate injectable manufacturing site of Liva near Baroda after the site transfer from the Moraiya formulations facility. We also launched 3 new products during the quarter. We received approvals for 12 new products, including 4 tentative approvals. And we filed 5 additional ANDAs with the U.S. FDA during the quarter. Recently, in the month of July, we successfully completed the site transfer of doxycycline injections as we received an approval for our supplemental abbreviated new drug application from the U.S. FDA for the manufacturing of this product from the injectable manufacturing facility of Liva. Our API business registered sales of INR 1.31 billion during the quarter with a growth of 89% on a year-on-year basis. Before I conclude, on behalf of the organization, I must say that one of the most important learnings during this lockdown has been that there are better and more agile ways of doing business. From connecting with customers and business partners through digital means to working from home while maintaining the same level of efficiency were important lessons of this pandemic. We intend to continue these efforts of finding innovative and cost-effective ways to enhance productivity and drive revenue growth using newer technology tools. To this effect, we have already launched an enterprise-wide cost-transformation initiative, working on the principle of zero-based budgeting. I will now request Dr. Sharvil Patel to take you through the progress on initiatives of our innovation program. Thank you.

Thank you, Dr. Nayak, and good evening, ladies and gentlemen. Again, to reiterate Dr. Nayak's point, I hope you and your family are safe and healthy during the health crisis that you all are going through. In the midst of this challenging time, we have been able to continue the momentum in the innovation and drug discovery space during the quarter after attaining significant milestones during the previous financial year. Let me give you an account of various actions that have been taken in different areas of drug discovery and innovation. Talking about our progress on the NCE research, recently, in the month of July, we are very happy that we have received an approval from the COFEPRIS, which is a Mexican drug regulator for a study of desidustat in the management of COVID-19. The attack of the COVID-19 causes less and less hemoglobin that can carry oxygen and CO2. The lung cells have been reported to develop extremely intense poisoning and inflammation due to the inability to exchange CO2 and oxygen frequently. Our molecule desidustat mimics the physiological effect of high-altitude oxygen deprivation. At higher altitudes, the body responds to lower oxygen availability with stabilization of hypoxia-inducing factor, and this can lead to increased red blood cell production and improved oxygen delivery to tissues. With this in knowledge, recently, we have now also got an approval from the U.S. FDA to initiate Phase I clinical trials of desidustat for chemotherapy-induced anemia. On saroglitazar magnesium, we are happy to inform that the Phase II double-blinded, placebo-controlled clinical trial for the [ optum like ] indication PBC in the U.S. has been completed. And we shall seek the U.S. FDA's approval for subsequent phase of clinical trials. On the biologicals front, we have received an approval from both the Drug Controller General of India and the Mexican regulatory authority to conduct clinical trial for our pegylated interferon alpha-2b to treat novel coronavirus. At present, clinical trials in India and Mexico are under way for this molecule. We are in the process of filing an Investigational New Drug with the U.S. FDA for pegylated interferon alpha-2b for the treatment of mild cases of COVID-19. On the emerging market front, we expect to see an array of approvals for our biological products in the next 6 to 9 months, which will pave way for our biosimilars entry into the emerging markets. Talking about vaccine, we have now successfully completed Phase I clinical trial for a ZyCoV-D, a plasmid DNA vaccine to prevent COVID-19. The doses of the vaccine administered to healthy volunteers in the Phase I clinical trial, which began on 15th of July, have been well tolerated. Previously, the vaccine was also found to be safe, immunogenic and well tolerated in the preclinical toxicity study. The vaccine was able to elicit high levels of neutralizing antibodies in the animal model. We will now commence the Phase II trial from the 6th of August, which will be conducted in over 1,000 healthy volunteers as part of our adaptive Phase I/Phase II dose-escalation, multicentric, randomized double-blinded, placebo-controlled study. The Phase II trial will be evaluated -- evaluating the humoral and cellular immune response for the vaccine candidate, in line with the current global trial protocols approved globally. Coming to the development of other vaccines, we have also received marketing authorization in India for the pentavalent vaccine, the -- and the Haemophilus influenzae type B conjugate vaccine during the quarter. We also received regulatory approval to conduct Phase II/Phase III clinical trials for our diphtheria and tetanus vaccine during the quarter. This marks an important movement for our development of vaccine. Coming to our [indiscernible] 505(b)(2) and other special initiatives, we are developing a portfolio of branded speciality products, comprising of novel concepts offering incremental innovation with an aim to fulfill unmet medical needs to enhance patient [ ease ] and offer better treatment options to physicians. Some these programs have a focus on orphan and rare diseases. At present, 9 products are under different stages of clinical development, and we are planning to file an NDA for one of the products in the pain management area in the current financial year. During the quarter, we conducted 3 IND meetings for 2 products and have also submitted an orphan designation request for one of the molecules. We are continuing our effort to seek potential strategic collaborations including inorganic opportunities to further build on to our speciality business. In addition to building the speciality business, we are also working on expanding our presence in the complex generic space. And till date, we have already in-licensed 14 products with brand value in excess of USD 15 billion. To augment our presence in this part of the business, further 10 more licensing deals are under discussion with near-term commercialization opportunities. Thank you. And now we move over to the Q&A session. Over to the coordinator for the Q&A.

[Operator Instructions] Our first question is from the line of [ Mukesh Prajapathi ], an individual investor.

So congratulations for set of numbers, sir. My question is that, how is the price rationalization, margin realization in the [ U.S. ], sir?

So the U.S., the pricing has been very stable. And our guidance for U.S. generics price erosion is that it could be in the low single digits.

Right. So are we expecting that there will be upward price margins, in particular U.S. export, looking towards the [ condition ] across the world?

I'd say it really depends on what kind of supply chain disruptions there are there, but on a normalized basis, we have seen that the price erosions are in the mid- to low single digits. So I think that would be our current guidance for the future unless there are some disruption.

Our next question is from the line of Tarang Agarwal from Old Bridge Capital.

Congratulations on strong performance in the U.S. formulations business. On this business, I have queries relating to the injectable space, sir. I just wanted to understand what would be the size of the injectables business in FY '20?

So it's very small. Vishal, I don't know if you have the number, you can give, but it's not any meaningful number right now. Okay? The large part of our injectable buildup is going to happen in the next couple of years. We have earlier elucidated to the point that we have a very large investable franchise that we have been developing including complex injectables. So we have a portfolio of 45 products that are filed and another 24 under -- another 30 under development. And we believe that in the next 2 to 3 years, we will have at least 20-plus injectable products, which will have good value proposition in terms of limited competition and complexity, which will help us build our overall injectable franchise.

So out of your maybe 108 pending ANDAs as on 31st March '20, 45 are injectables. Would that be the right way to look at it?

No. There are [indiscernible] as well. And then there are [indiscernible].

So Moraiya products are getting [indiscernible] Liva. So it would not mean they're under approval. A lot of them are approved, but they are obviously under the site transfer process.

Okay. Sure. And how many -- what is the size -- FY '20 size of the business?

So it's less than $15 million, 1-5.

[Operator Instructions] Our next question is from the line of Prakash Agarwal from Axis Capital.

This is Prakash. Congrats on the numbers. Can you hear me?

Yes. Yes.

Yes. So my first question is on the R&D side. So I just wanted to check on the percentage of sales that you plan to do for the whole of the year and the split between your generics versus your complex [ probe innovative ]? And if you can split that up? And what is the plan ahead?

Hello, am I audible?

Dr. Patel, can you hear us?

Yes, sure. Can you repeat your question, please?

Yes, sure. So I wanted to check on the guidance on the R&D expenses and also the split that we're doing currently and in future on generics.

Just a minute. I think I got a message from Dr. Patel that he's not in a position to hear anything.

Okay. So I'll call back. Mr. Agarwal, I'm sorry, you'll have to repeat your questions but remain connected. We'll call Dr. Sharvil. Ladies and gentlemen, request you to please remain connected while we connect Dr. Sharvil Patel. [Technical Difficulty] Ladies and gentlemen, thank you for your patience. We have the line for Dr. Patel connected. And Mr. Agarwal, I unmuted your line as well. Please go ahead with your question.

Just wanted to check on the R&D as a percentage to sales. So what is the plan ahead for this year and next year? And how do we think the split is going to be, given that our complex generics as well as innovative initiatives are increasing? So what is the current split? And what it could be year after?

So our guidance continues that we will be between 7% to 8% of revenue as the R&D spend, which will be divided sort of largely into our generic portfolio, followed by the NCEs and then biologics and vaccines.

Could you help us with the breakup, sir?

I would say about 60% is on generics ANDAs, and the rest is divided between the NCEs, biologics and vaccines.

Okay. And this includes the current COVID-related initiative, Phase I/Phase II that you are doing.

Yes.

And this will likely to continue next year as well?

Which part?

Is that 60-40 split?

I think there will be a little increase on the NCE front, but by and large, I would feel that we'll be at best 50-50, if not 60-40.

Okay. Fair enough. And secondly, on the -- the gross margin has improved, but EBITDA margin improved largely due to cost savings. So what has led to this kind of gross margin expansion, a? And secondly, what has been the FCF and debt reduction for the quarter?

Gross margin has been because of better product mix in India business, which has helped our gross margin, and also the U.S. business has done well. So those 2 businesses have led to better gross margins. Other than that, Vishal, if you can answer the other question.

So Prakash, are you referring to the gross margin on year-on-year basis or quarter-on-quarter basis?

On the gross margin, he clearly explained. The other one was on the FCF and debt reduction, sir, for the quarter.

So debt reduction, Mr. Nayak, in his opening remarks, has already mentioned that our net debt is about INR 5,200 crore vis-a-vis INR 6,700 crores in March '20. So on a net basis, there is a reduction of INR 1,500 crores. But on an annualized basis, we believe we should be in a position to reduce the debt by INR 1,000 crores.

Okay. So this quarter was INR 1,500 crores reduction.

Yes.

And this is a function of what? I mean...

Yes, better control on the working capital as well as some timing differences in terms of business in [indiscernible].

Better receivables and working capital management.

Our next question is from the line of Surya Patra from PhillipCapital.

Congratulations for the great set of numbers, sir. A couple of things. Just on the in-licensed product opportunity that you have mentioned, you have already seen license something like 14-odd products, having your business potential of 15 billion and 10 more that you're adding. Can you give some clarity that these are like currently into the business already and contributing something and the potential of what you are indicating or it is entirely futuristic [ initiative ]?

No, these are all for -- these are already products that we have in-licensed which are either filed and yet to be approved or to be filed. Most of them are complex technologies, which are sort of dedicate a large part of the [indiscernible]. And some of them will have to do with first-to-file where we didn't have that in our pipeline, and we've been able to partner in first-to-file with limited competition. So most of these [ release ] are either regular [indiscernible] advantage because of some chemistry and API, complex carbohydrate chemistry, where there are some injectables which require dedicated resources. So they are [ companies ] with a limited competition. But all our -- some are filed and some are yet to be filed as a result for future projections.

Okay. So then in the R&D spend or -- so whether any cost is likely to be incurred on these assets and whether that is part of the R&D that we are talking about or -- and when from -- these assets can start contributing? Any color on that would be helpful.

So most of these assets are -- will be commercialized in the next 3 years. So they're not beyond that for the next 3 years.

Okay. Okay. And any costs that could be incurred on that, too?

Yes, Vishal can give a technical breakup of it. But the other costs that are mostly incurred are in giving approvals and the launch.

Okay. And my second question is on the -- all of your portfolio that you have created. I think you're one of the companies having the entire portfolio of products targeting COVID, whether it is vaccine or it is product or [ diagnostic kits ] or like [indiscernible] and all that. So now it is -- it seems that, okay, COVID is going to be there in the global system for some time. So in terms of business, have you seen any opportunity during this quarter because of the COVID from any of your product? Or are you -- or what business progress or what incremental business that you are anticipating out of all your kind of COVID initiatives, whether it is vaccine or it is the test diagnostic kit or it is the existing product or the [ future ] product that you are trying to do the clinical trials. So anything on that front would be kind of useful.

So we are working on multiple fronts. I can give you some example of some of the things. On the diagnostic tests, we are currently able to commercialize about 2.5 to 3 lakh tests commercially every month. On the vaccine front, we have -- we are committed to being able to produce 100 million or 10 crore doses annually. That is the capacity that we are planning for the vaccine. So if we find -- if we meet our clinical end points and safety and immunogenicity results, that is a sizable opportunity for the coming future. And we are also working on some of the biologicals, which are important as therapeutic treatment, which [ were the ] pegylated interferon has enrolled [ the case for ] Phase II and almost [indiscernible] to complete that. So some of those will again have meaningful opportunities in the future. And we will also be launching remdesivir, which will add to our further revenue [ in the coming quarters ].

Okay. But this is very difficult to really give an indication about potential business that we can gather out of the entire [indiscernible] targeting COVID.

It's large and meaningful. If the commercialization comes, I think we can give a better estimate. Right now, it would be too early to give those estimates knowingly any [ case ] that gives a [ proof ] of COVID has a good commercial potential if you have limited competition.

Okay. Just last question, if I may, sir. In the opening remarks, Mr. Nayak has indicated about the [ additional ] costs continuing. So if you can just add what incrementally that we are doing to contain the cost? Although we have already been doing that -- segregated our initiatives, our domestic business into mass and the branded, and we are anyway rationalized some of the cost there. Right now, you are talking about additional incremental kind of cost [ measures ]. So can you talk something more on that?

Yes. So they are -- I think the whole crisis in COVID has obviously given us a lot of positive lessons. The first is the whole use of digital technologies, we believe, can enable us both in the operations and in the front-end side to improve on productivity by improving throughput as well as improving our costs. So I think that is one big initiative that we have taken. And we believe through the means of digital, we can go forward and reduce cost and improve productivity. The second is we are adopting zero-based budgeting for many of our established businesses because I believe going forward, there will be no [indiscernible]. So we are adopting that for the future, and we believe we can bring good cost savings from that. So a large part of it is going to be driven from operations, [ everything ] driven towards productivity, which will lead to a benefit. And also, these are costs we believe for the [indiscernible] related to travel and other expenses, which will all be curtailed for the future.

Our next question is from the line of Kunal Dhamesha from Systematix Group.

So the first question is on, again, on the India business. So what was the percentage of our branded as well as the [ trade in this ] business for this quarter? And have you seen any dichotomy in terms of growth in both of these engines? And secondly, on the vaccine Phase I. So how many patients were enrolled? And on Phase II trial, what is the time line in terms of enrollment and then we -- whether we'll be having any early date -- any timing points we'll be releasing. So any color on that would be useful.

Thank you. So I'll take the second question first on the vaccines. We are starting a Phase II trial where we are hoping to enroll 1,000 patients -- 1,000 healthy volunteers. And we believe we will be able to complete that by October. So that's our time line. And as and when we see the recruitment improving, we will keep everybody updated. So that's our current time line for this vaccine trial that is ongoing. With regard to the formulations business, we have -- I think, again, Vishal, if you can give the breakup of GX and the branded. I think it's about 10% Gx? Vishal?

Hello.

How much is Gx as part of the overall...

Yes, it's about 10%.

Yes. So I would say the branded side is better than the generic side on a comparable basis.

We'll take our next question from the line of Sameer Baisiwala from Morgan Stanley.

Sir, is it possible to give some more color around INR 1,500 crore debt you have managed this quarter? Very impressive. But if you can break it down, how much was receivable, internal accrual or some other [ head ] that you had?

So Sameer, Nitin, here. So basically, as you know, in the [ retail ] business, most especially in the U.S. business, [ target ] have different kind of [ tenure period ] depending on the [ primary section second ]. So with the kind of approach in terms of liquidity management that we did, we have been able to get better collections in our sales for 7 months. Also in India and other geographies, we had stringent controls in terms of management of inventory, [ et cetera ]. And also certain postponement of certain programs, including CapEx for a limited period of time. That was in the light of [ upsize increase ] during lockdown. So that has [ answered ] in terms of about INR 1,500 crores of net debt reduction during the quarter. However, on annual basis, some of these would be of reversing nature, especially in terms of receivable part in U.S. and therefore, we, on a consolidated basis, [ significant ] INR 1,000 crore plus kind of production for the entire year will be possible.

And so if I can add to what Nitin bhai said, we have set up a cash management office to manage our daily cash flows and everything as part of the response to the COVID. And what we have seen is because of that other than U.S., which is sort of cyclical, we have seen better receivables and much better healthy receivables than sales in the quarter -- in the months gone by. So that has also helped our cash position. And obviously, CapEx is delayed for [ one-off ] issues related to availability of doing some of those.

Okay. So -- and our year-end target is INR 1,000 crores down from June end or from March end?

From March end. Yes. So as Nitin bhai said, some of the things which will be reversing in the time to come, including higher collection in U.S. comparable sales. So by March '21, we are expecting to reduce net debt by INR 1,000 crores compared to March '20.

Okay. Got it. And what's the update on Moraiya?

So Moraiya, we have completed all our remediation, and we have written to the FDA for -- requesting them to start the review and request for desktop audit if possible.

Sir, the expectation earlier was to get it resolved in the current calendar year. Does that still stand?

We are hopeful that we -- I mean, our earlier -- before COVID, we were looking for an inspection by end of this calendar year, which would have meant that by first quarter of next calendar year, we could have seen resolution provided we had a successful audit. So now in response to what the FDA looks at the review, it will all depend on that, but we are still hopeful that we can stay with those time lines, but it is still unknown right now.

Okay. And sir, on HCQS, was it a big incremental part of the driver for this quarter? I mean not your regular base business but the -- just the COVID indication.

Yes. So we did have higher sales for HCQ for the -- so some part in the U.S., which is a new contracted business that we have. And also the state and central government sales that we did in the quarter, which still continues in the quarter.

Sir, the reason why I'm asking is this may be transitory, may not be -- so is that a big number of INR 100 crores, INR 200 crores or a smaller number?

No. Vishal can answer, but it is not that big.

Okay. Vishal, any color on that?

It's less than INR 100 crores, incremental basis.

Okay. Good. Sir, maybe with your permission, my final question on 45 injectables. And that's quite important for your growth story next 2 years. So just wanted to understand how many of these are approved? And how many of them are presently tied to Moraiya versus the new site Liva? So just clarity on this would be very helpful.

Yes. So I won't have it off hand on me, Sameer, but I will definitely make sure that Vishal gives you the ones which are in Moraiya, which are getting site transferred and other facilities where we have filed the products from -- of the 45 and the remaining that we have to be filing, which is another 30, which is under plan. Some of these are partnered in also filed and to be filed side. The other part -- the good part, I can only say for this is that our big manufacturing facility, which was Liva, it was [ maximized ] which was audited, got completed successfully, but we have also through we believe got doxycycline, which is on a new line, which gives us the confidence that we'll get further site transfer approval from now 2 lines instead of 1 line because 1 -- only 1 line was inspected earlier, but the second line approval has also come through. So that would mean that Liva will see further ramp-up of site transfer from [ Moraiya ].

Our next question is from the line of Harith Ahamed from Spark Capital.

On the COVID vaccine, you mentioned that you finished Phase I and then you are about to start -- in the process starting Phase II. So in the Phase I study, was there an immune response that you were able to monitor in terms of utilizing antibodies or any other cellular response? Or is it a part of the Phase II trials?

No. As part of Phase I, we will look at initial results, but large part of the data will come from Phase II. The Phase I is initially set up for making sure that the safety is -- safety protocols and the safety is seen. So the following results, which you're talking about, you will see in the next 4 to 8 weeks with that data.

Okay. And on the saroglitazar, you were planning Phase III trials in NASH indication in the U.S. Any updates around that?

Yes. So we believe that we are still committed to, in the coming quarter, to go to the FDA with our next clinical trial protocol for NASH as well as also working because we have completed our PBC Phase II enrollment also. So we will actively be also working on how to take it forward for PBC as well. So 2 indications. In the next 3 to 6 months, we will be taking FDA's advice on that.

Okay. And any progress on the partnership plans for these trials?

Partnership is still -- we have not officially started any discussions on partnership. We are still working with a consultant to help us formulate our plan. And once the whole plan is formulated, then we would reach out in terms of partnership or any other model, which will help propel this trial forward.

We'll take our next question from the line of Sapna Jhawar from Dolat Capital.

So my question is pertaining to the annual report, specifically on the other expenses side. Are we seeing, 2 [ heads ]. One, the miscellaneous expense and second, the legal and professional fees increased rather high. And the miscellaneous expense has probably increased around INR 800-odd crores now. Any breakup there would be helpful.

Yes, I think we'll give that to you off-line.

Sure. And the second question, with regards to the COVID trials and the entire initiatives done so far, can you guide us the amount of investment that has gone through these trials so far? And how much do we intend to spend more over here?

So we don't give individual -- plans on individual programs. The substantial part of investment is still to be made. I would say only initially, 15% to 20% of investment is made. But now we have to make 2 investments. One is obviously the larger trial and followed by investment in manufacturing as well.

And this would -- I mean, I'm assuming a large part of these trial expenses would be carried only in the R&D side? Or we will be recapturing in some other [ line items ] there.

No, it is in R&D.

We'll take our next question from the line of Nitin Agarwal from IDFC Securities.

Sir, on the U.S. business, we've seen a Q-o-Q sharpish decline in the business. Can you help us understand the drivers in terms of what sort of led -- because what our understanding was that there is seasonality in our business and sort of largest one-off on sales in the Q4 U.S. sales. And [ clinging ] to that, how should we look at U.S. sales progression through the quarters now for the year?

So the main seasonality that we see for the U.S. business is because of the oseltamivir capsules and the suspension, which is highly seasonal and which has -- which is one big gap that is always there between quarter 4 and quarter 1. So the majority of the drop is because of that and the new product. But beyond that, we had -- I think it's just a question of -- we get a lot of onetime buy opportunities. And while we completed a lot of them in the quarter 4, we believe now in the coming quarters, we would again be able -- we have built up some further inventory, so we will further get those opportunity. So our guidance for the financial year is we'll definitely grow in mid- to high single digits for the generics business in the U.S., and we are on track for that.

Okay. And then secondly, in terms of -- on your emerging market business, the biologics approvals and all that you talked about, the impact of that, will it be visible, start getting visible to this year? Or it's going to be more like a FY '22 onwards opportunity?

Meaningfully FY '22, but we are -- we have good traction going on. I think the key milestones will be the approvals in many of these markets. Which ones we get, we will obviously inform, which will be able to then predict the sales. So as I said, the critical approvals we are hoping for are from Russia, from Latin America, in Colombia and Mexico. So those 3 are in debt, and we are very hopeful that they will come through in the next 6 months, which will then lead to meaningful sales in the coming year.

And sir, how many biologics have we -- are we looking at on average across these major geographies to come through? And secondly is the fact that we will be not filing them -- these biologics in U.S. or not looking to get any approval right now, is there a hindrance in getting approvals to this geography?

So in the geographies that we have filed, we don't believe they are invested because we already -- at least all the geographies that we have filed for, we already have been audited in terms of our plant, both formulations and API. So we are regulatory-wise clear in terms of our capabilities on the manufacturing side. Now on the review of the dossier, I think we're in the final stages in many of these markets. In some of the markets, we have also done local studies as is required. So I think we are comfortable with some of our biosimilars in many of these emerging markets. The advanced markets where we have not filed it because, obviously, we don't have the EMA approval. So we don't have current plans to take them for that route. We are taking a next wave of biosimilars for the developed market. But in the first wave, it is only limited to markets in Latin America, some markets of Africa and North Africa, the Middle East and Southeast Asia.

So will you be able to name some of these -- [ key ] of the important or largest biosimilars you're looking at?

So we have -- we are looking at PEG-G-CSF, trastuzumab, bevacizumab, adalimumab and followed by rituximab and follicle-stimulating hormone are in the first wave of product -- and parathyroid hormone are in the first wave of products that we are -- we have filed or are filed and moving forward. In the next wave, you will see rituximab and [ xalone ] in the next wave of biosimilars.

Our next question is from the line of Arvind Kothari from Niveshaay.

Thanks. All my questions have been answered.

Our next question is from the line of Anubhav Agarwal from Credit Suisse.

Yes. First one, clarity on the injectables. Before we had the issue at Moraiya, we were doing roughly about $50 million from the injectables sales. So if you assume normal approvals for us, if you start assuming products [indiscernible], that's the first [ goal was ] for me to get to fulfillment [ definitely ]?

So this year, definitely, we will try and achieve those numbers. But in the next 2 years is where the large part of the portfolio comes. So then we are talking about significant -- when we talk about larger value, as I said, we believe our injectable value for FY '24 is between $150 million to $200 plus million.

Okay. Sure. And one clarity on the vaccine. Now by the time your Phase II will be done, this year October, we will have Phase III for some of the global vaccines, which have been done. So how would you evaluate the path forward? Would you evaluate your candidate versus them? [ Take your call on to better proceed ] or not? How are you thinking about it?

Well, it will all depend on the data that we get, but we very strongly. I mean we -- I think globally, it is very clear that there cannot be a single vaccine that can solve the issue that we are currently facing. So there will be multiple vaccines that we believe are moving forward, which will be approved. And also the kind of requirement that would be there in terms of at least sometimes 50%, some people say larger immunization required, I believe there will be multiple vaccines that will be approved and will be available. And depending on the results, obviously, the success will be there. We are building -- we are planning for 100 million dose capacity and that we believe if a vaccine is successful, we will -- this is the kind of investment that we are planning for. Obviously, if [ their ] vaccine data is very good, which we believe will be, then we will look at how do we further build up on the capacity through partnerships.

Sure. That's helpful. One clarity on the point which you mentioned over the India business earlier, the use of digital media and this drive higher sales productivity. I just want to clarify here, is the use of digital -- is this -- are you referring to promotion to doctors? Are you referring to monitoring the costs and better [ sales force ] more effectively? In which one segment are you there?

This is all -- we are doing all -- everything. So it will be a doctor-patient connect, and we bring some solution that can be independent. We are talking about how do we do better scientific medical education, which is the large part of what we do in a more faster and agile manner. And we are looking at how do we reduce -- doing better calls -- better frequency of calls and more precise calls, which will improve productivity of our sales reps and also reach a larger audience through the digital platform. And also, which would lead to lesser travel and lesser other ways -- I mean lesser other costs.

Sure. Okay. Maybe after a couple of quarters, I will just [ stay ] with you again on this because right now, it's very [ short ] time line how this [indiscernible]. My view was this is so dependent on what other players are doing. Maybe the market more [indiscernible] then it's much easier. Internally, you can adopt more and more digital, that the doctors are attuned to talking more on digital. I was not sure about [indiscernible].

And that is the big question, and that is, as you said, it is only time will tell. So we are making a very honest attempt that we are building a pool -- group for the doctor. And we make sure that our final outcome is how do we get better patient outcome. And if we are able to build a meaningful digital tool to address that, I think we will see success. But yes, it is -- we are going ahead with it. We will be launching it very soon, but the proof of the results will be, obviously, a few quarters from now.

Our next question is from the line of Nimish Mehta from Research Delta Advisors.

I just wanted to know how big do you think in the market for the [ industry ] in India and other companies were [indiscernible].

I don't think I can fully estimate that. But today, there is a significant shortage on remdesivir. So -- and this is a lyophilized injectable product. So from -- and a very large vial size and volume, which leads to lower capacity. So I believe it is -- whoever has significant capacities will be able to do well. What we believe is we should be able to sell out most of our capacity. I feel the advantage for us is that we develop -- manufacture our own API, and we manufacture our own [ finished good ] from formulations. And we have 4 facilities that can manufacture lyophilized products, and we are -- go to all 4 facilities. So we are building significant size and scale, which will -- and we are backwardly integrated completely. So we believe we will create a meaningful availability of the product, which is the need of the hour. Today, the major concern is both access and affordability of this molecule. We hope to -- we hope that we -- by coming to market, we will be able to address both.

So I understand the prices also will come down [ as ] more and more players [ are coming ]. But I mean, just to share [indiscernible]. I mean, I understand it's a [ play ] situation. But some ballparks for Indian markets today and also how big is our export assessment vis-a-vis other Indian opportunity? I mean, do you think that there is a meaningful -- I mean there are 127 companies included. So can this be bigger than the India opportunity that we are [ undecided ]?

I think currently, it is difficult to predict the opportunity. We are in the midst of discussing that and working out with different partners because you have to go through a regulatory process also, while it may be abrupt and short. One thing is very clear. This drug is not easily available. And because it is a difficult technology, it is not easily scalable in different countries. So India can definitely play a meaningful role in creating -- and not only for India but for other countries where the need is, and India is a large manufacturer of some of these things. So we believe it is a meaningful opportunity, but to give an estimate, I mean I believe that the current need of it, we probably, whatever you can make, you want to be able to sell. But we have to wait and see how the market forms.

Our next question is from the line of Neha Manpuria from JPMorgan.

My questions have been answered. Thank you.

Our next question is from the line of Kunal Mehta from Vallum Capital.

You mentioned the number of $150 million for injectables. So I was just trying to confirm, this is the potential to your P&L. That is correct?

Yes.

Yes. So sir, when I look at the injectable space, [indiscernible] we are going to see a lot of -- yes, we are going to see a good number of products losing exclusivity. So just wanting to understand the launches which you're talking about while you grew -- while you build up your injectable business, are those really aligned to those LOEs? Or you are expecting that the launching a lot of existing products -- new products and including on injectables also.

So definitely, there are also injectables. And on the injectables front, there are a lot of injectables, which complex chemistry that there are no patents, so there are no generics. So you can say -- a lot of our in-licensing opportunities have been products where there are no generics without any LOE left. So large part of them are those. Some of them -- and large one of them are where there are few shortages in the U.S. market. So we have identified those types of products. And then there are certain products, which we believe are good volume products, which if there is any disruption, we can see some meaningful [indiscernible]. So it's a mix of portfolio. We have an oncology injectable site, which is approved by the FDA. We have a Liva site, which is approved, and we have one more injectable site, which has also approvals. The 3 of these sites and through our partners in products will help us achieve these revenues.

Understood, sir. Sir, second question I have is on the API side where we've seen almost the entire industry now report very strong business momentum in this segment. So would you look at external APIs as a lever of growth going forward for the next, at least, few quarters until we can the -- I'm sure you must be receiving good inquiries about the APIs you have on the portfolio. Would you -- as a Board, will you take the decision to allocate more capacity for external sales provided the pricing is in your favor?

Yes. So I think our API business has turned around and started to do well from merchant sales point of view, and with the kind of products that we have planned for in terms of good capacities and good capabilities, we will see a good momentum for our API -- our own API business in terms of third-party sales. And we see good momentum for it as this quarter has also good results. With the kind of orders that are in hand, they should continue to do well in the coming quarters as well.

Okay. And the final question from my end is, you have a facility -- you have an investment opportunity for transdermals. So just wanted to clarify, is this only transdermals or can you manufacture the whole topicals category in these products? And are the filings covering transdermals where generics is essentially very rare? Or we are covering all basic products on the topical side also.

No. So our transdermal facility, we have 3 facilities. One is in Moraiya. And the oral solid, we have a plant in [ plant ]. We have a Zydus technology facility in SEZ, and we have one facility in U.S. in Baltimore. So those are our 3 transdermal facilities, which cater to transdermal products, and that can only cater to transdermal products.

So you don't have topicals or manufacturing in those plants.

Topical is a different facility, which is also approved, and we sell our topicals through that facility.

Understood, sir. Could you tell us [indiscernible] the size where [indiscernible] topicals?

It's in Changodar.

Our next question is from the line of Krishna Prasad from Franklin Templeton.

On the vaccine front, how large will the Phase III have to be? Is there a sense that you have now?

It's too early. Obviously, the Phase II will also lead to some better understanding, but we believe it will be between 5,000- to 10,000-patient study.

Okay. And in terms of delivery of this DNA vaccine, is it just a regular injectable? Or you'll need a device or something to improve the efficacy.

We are trying out both regular injectable, and we have also added a device for better delivery. And we are trying trial -- the trials are going on for both.

Okay. And the Phase II would tell you what would be the route.

Yes. Yes. It will very clearly tell you which dose because we are trying multiple dose and multiple delivery platforms.

And would you share the Phase I efficacy data at some point whatever you have generated [ result ]?

Definitely. Once What the data will be out, we will be definitely sharing it.

Okay. And that you said is in 4 to 6 weeks, right? That's what you mentioned before.

Yes. So it will depend on the completion of all cohorts. And once we have results of all cohorts, we'll definitely share it.

Understood. Just on injectable side, I think you mentioned you will get to 160 million to 200 million by FY '24, right? I mean, if I am telling you correct. So how are you thinking about this trajectory? Like is it like going to be somewhat more front-end or more equal? Or are some of the larger products really more back-ended, sir?

So it is -- I mean, you would see meaningful increases in the next year, but more importantly, it is FY '23, FY '24. So the last 2 years where you see this significant scaleup because large part of the complex products are something that we are filing now or have filed. So because they're complex, we believe at least in 1 -- at least one CRL, which will mean at least a 14- to 16-month approval cycle. So looking at all of that, we are looking at FY '23 and FY '24 as a meaningful ramp-up to the injectables business.

Sure. And just last question, sir. On the injectable side, we are seeing almost any Indian player kind of build capacity. I know it is today very attractive, but I'm just wondering how are you thinking about the medium term? And for example, you've done a great job in [indiscernible] in remaining competitive. How are you thinking about for more similar kind of strategy in the [indiscernible] side?

So it's a couple of strategies. I think what is maybe a little bit unique for us, and maybe that is also because we were leaked to the [ DM ] also is that we have these 3 strong manufacturing footprints, which is what we feel we will consolidate. And there could only be further incremental investment but not any meaningful more investment. And whatever we have planned for, we have sufficient capacity for the next 4 to 5 years. What we are now doing, taking up a lot of partnerships in in-licensing a lot of injectables because the kind of injectables that are differentiated and high value would mean dedicated capacities and dedicated capital investments. And that is -- and I think to do everything and build so many -- every product requiring a separate kind of line and a separate kind of scale and the whole system was becoming very expensive. So with -- we have formed meaningful partnerships from Europe and some parts of Asia, where we've been able to in-license complex injectables. A lot of these injectables are also [ mean ] complex carbohydrate chemistries, which means the APIs are very difficult to find. And we have forged very good relationships there. So I think it is -- our model is in a way derisked because we are not relying only on our plants. We are spread in terms of our partnerships in Europe and there, and our own plant, which will deliver some of the base volumes and some of the important launches that will come up. So it is diversified [ in itself ], which is the biggest challenge when it comes to injectables. And we have formed a meaningful partnerships where companies have demonstrated successes in Europe or some other markets. And we are bringing those products to the U.S. So I feel it's a well-balanced strategy. Obviously, time will only tell us how successful we are. But we are very excited about how we have been able to form some of these partnerships.

Our next question is from the line of from [ Vishal Maluteni ] from Motilal Oswal.

So just on this desktop inspection, it's been now almost 3, 4 months, in fact, start of the COVID has not just [ scheduled ], but other companies to pursue [ a desktop ] audit. But is there any guidelines given out by U.S. FDA, which can give some clarity in terms of when can this happen?

So there are no clear guidelines. There is a view of desktop audit and the FDA is conducting desktop audits. So that is what I can say. Our Liva approval of the new product doxycycline is through a desktop audit.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference back to Mr. Ganesh Nayak for closing comments. Over to you, sir.

Thank you very much. Stay safe, and look forward to interacting with you again in the beginning of November. Thank you and good night.

Thank you, members of the management. Ladies and gentlemen, on behalf of Cadila Healthcare Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.