Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript & Summary

Ladies and gentlemen, Good day, and welcome to Cadila Healthcare Limited Q4 FY '21 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Ganesh Nayak, COO and Executive Director from Cadila Healthcare. Thank you, and over to you, Mr. Nayak.

Thank you. Good evening, ladies and gentlemen. Welcome to our post results teleconference for the quarter and the year ended March 31, 2021. I do wish that you and your families are safe and well. 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. We continue to be at the forefront in the fight against the pandemic. While the uncertainty and challenges related to the pandemic are evolving, we stay committed to serve the demand across our markets on the back of resilient manufacturing, supply chain and distribution. In a bid to ensure access of the affordable treatment options to people across the globe in the fight against the pandemic, we, as a health care organization, have taken initiatives across the spectrum from prevention to the treatment of COVID-19 using a diverse set of capabilities in small molecule therapeutics, biologicals and vaccines, even using our range of wellness products for sanitization and overall immunity enhancement. As a part of this endeavor, we launched several products like remdesivir injections, hydroxychloroquine, dexamethasone injections, Pegylated interferon, et cetera, at most affordable prices. We are also exploring innovative ways to fight COVID, about which Dr. Sharvil Patel will speak at length in the innovation section. With that, let me take you through the financial numbers for the year gone by. During the year, we posted consolidated revenues of of INR 151 billion, up by 6%. Consolidated EBITDA for the year was INR 33.4 billion, up 20% on a year-on-year basis. This year's EBITDA is the highest ever EBITDA achieved by us. Improvement in the EBITDA was achieved by improvement in gross margins as well as by cost savings. The improvement in gross margin was achieved due to better product mix management and supported by an innovative product portfolio. Cost rationalization initiatives helped in either lower growth in expenses or absolute reduction in expenses as compared to the previous year. We expanded our EBITDA margins by 260 basis points to 22.1% against the 19.5% registered last year, which is FY '20. Consolidated PAT for the year was INR 21.3 billion, up 81%. Excluding certain exceptional and nonrecurring items, our PAT grew by 44% during the year. In the last few years, we have made a concerted effort to build our India geography in line with our U.S. geography. From nearly 50% of revenues coming from the U.S. and about 37% coming from India in FY '18, we closed FY '21 with both the geographies contributing almost equal. Further, our efforts to strengthen the balance sheet have resulted into a net debt reduction of INR 35 billion, and our net debt stands at INR 35 billion as of the 31st of March 2021 against INR 70 billion as of 31st March 2019. Net debt of INR 35 billion and net debt-to-EBITDA of 1.06x as on the 31st of March '21, are the lowest in the last 5 years. The reduction of debt was partly supported by the equity capital raise by way of preferential issue of INR 350 crores to the promoter family and a QIP issue of INR 650 crores, which received overwhelming response. Meanwhile, the acquisition of Heinz by Zydus Wellness has been integrated well and is on the growth path which is also well recognized by the investor community. Coming to the quarterly financial numbers. During the fourth quarter of FY '21, we posted consolidated revenues of INR 38.5 billion, up 3% year-on-year. Consolidated EBITDA for the quarter stood at INR 8.6 billion, up 8% year-on-year. Overall, we expanded our EBITDA margins by 110 basis points to 22.2% against the 21.1% registered in Q4 FY '20. Consolidated PAT for the quarter was INR 6.8 billion, up 73% year-on-year. Excluding certain exceptional and nonrecurring items, our PAT grew by 21% during the quarter. Despite all the challenges posed by the pandemic, our India geography, comprising of human health, consumer wellness and the animal health witnessed a strong growth of 18% on a year-on-year basis, registering sales of INR 17.7 [Audio Gap] during the quarter. For FY '21, Our India geography business registered a robust growth of 9% and posted sales of INR 64.8 billion. The U.S. geography, comprising of generics and our specialty portfolio, registered sales of INR 15.1 billion during the quarter, down 6% quarter-on-quarter. Lower offtake, coupled with pricing pressures in some of our products constrained the revenues for this quarter. In addition, Asacol HD is also signaling offtake pressures. We expect this trend to continue in the current quarter too. On a full year basis, the business posted sales of INR 64.45 billion, up 3%. Our emerging markets business witnessed a healthy growth of 46% during the quarter and posted a sales of INR 2.5 billion. On a full year basis, the business posted a sales of INR 10.17 billion, up 16%. Now let me take you through the operating highlights for the quarter -- for the fourth 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 signs of sustained recovery as it grew in a mid-single digit for the second quarter in a row with a 5.3% growth during the Jan-March '21 quarter. Performance of our business also showed signs of recovery over the last 2 quarters on the back of steady improvement in demand. In fact, we were the third fastest-growing company among the top 10 Indian pharma companies during the quarter gone by. Our specialty cluster grew faster vis-a-vis the mass cluster and in turn, led to the better performance vis-a-vis the market. Overall, the human health formulations business posted sales of INR 10.23 billion during the quarter 4 of FY '21, up 15% on year-on-year basis, largely driven by volume growth. Branded generics business grew by 16% on a year-on-year basis during the quarter. On a full year basis, the business showed a sign of revival and posted sales of INR 40.4 billion with a growth of 9%. We have observed a significant shift in the way the interaction amongst doctors and pharmaceutical companies is happening with the use of digital mode during the second wave of COVID-19. And we believe that the demand to concert patients through digital mode will continue to be on the rise. On the back of continued revival in the economy, coupled with the lower base impact, our consumer wellness business witnessed a strong surge in revenues with all the brands growing in double digits during the quarter. Overall, our business grew by 22% on a year-on-year basis to INR 6 billion, led by volume expansion. Sales growth for the year was 6%. Our Animal Health business posted sales of [Audio Gap] during the quarter, during the fourth quarter, up 25% and INR 6 billion during the year, up 25% and INR 6 billion during the year, up 16%. Recently, Zydus Animal Health and Investments Limited, a wholly owned subsidiary of Cadila Healthcare Limited has entered into an agreement to sell and transfer its Animal Health business established markets undertaking to Multiples Alternate Asset Management-led consortium. Now let me take you through the performance of our U.S. formulations business. Despite increased competition and pricing pressure, our U.S. generics business continued to grow the overall volume and maintained a top 3 ranking in about 60% of the product families that we are in. During the quarter, we launched 13 new products in the U.S. taking the cumulative number of new product launches for the year to 30. We received approvals for 4 new products during the quarter, taking the cumulative number of approvals for the year to 35. New product approvals for the year include 7 first-cycle approvals, 2 first generic approvals and 2 first-wave generic approvals. We filed 22 ANDAs with the U.S. FDA during the year. With that, our cumulative number of ANDA filings and approvals now stand at 412 and 317, respectively. We are building a portfolio of complex injectables in the U.S. We have launched a few complex injectables such as a Fondaparinux and Doxorubicin Liposome Injection in the last couple of years, and we expect to launch one more complex injectable soon. This concludes the business review. I would now request Dr. Sharvil Patel to take you through the progress and initiatives in our innovation program. Thank you.

Thank you, Mr. Nayak, and good evening, ladies and gentlemen. As you are aware in the fight against the COVID-19 disease, we have been exploring various innovations as part of our initiatives in therapeutics as well as the wellness space. This includes development of 2 vaccines to combat the spread of the virus, exploring the biological route, including repurposing of existing drugs to offer alternate treatment options to the patients and evaluating a few small molecules to treat COVID-related complications. Let me first give you an update on our COVID portfolio. As you already know, our DNA vaccine candidate, ZyCoV-D, targeted at combating COVID-19 is currently undergoing Phase III clinical trials in India and will be -- and post SEC and DCGI approvals of Phase I, Phase II adaptive clinical trial results. The trials have been conducted in over 28,000 subjects across 60 sites to evaluate the efficacy of the vaccine. The population selected for the trial includes people in the age group of over 60 years, those between the age group of 18 to 60 years, with and without comorbidities, and those in the age group of 12 to 18 years. We have submitted the data to publish the results of our Phase I clinical trials, and the results will be published soon in a peer-reviewed journal. We have also put up a plant for the production of large-scale manufacturing of the ZyCoV-D vaccine, and the plant is ready for commercialization by end of June 2021. For a second vaccine candidate, the ZyCoV MV targeted at COVID-19, we have received an approval from the CGM to carry out the preclinical and safety toxicity studies during the quarter. Coming to biologics. We have successfully completed a Phase III clinical trial for our Pegylated Interferon alpha-2b brand name Verafin in the treatment of moderate COVID infections in adults. Recently, in the month of April, the DCGI did grant us the emergency use approval for Pegylated Interferon in the treatment of moderate COVID infections. In order to facilitate the treatment of COVID-19 globally, we will be seeking permission from other regulatory authorities in different countries to file for registration of the product in those markets. The molecule is very potent antiviral agent. And post its launch, the initial results are extremely encouraging, and we have seen an increased demand from many of the hospitals and government institutes. The product is part of now the Karnataka state treatment protocol, and 4 other states are considering it to include same in the treatment protocol. During the quarter, we completed preclinical tox studies for our novel biotherapeutic cocktail of monoclonal antibodies directed towards the spike protein of the virus, SARS-CoV-2. The novel biotherapeutic cocktail of monoclonal antibodies can emerge as one of the main treatments for mild COVID-19 cases as it has been designed to have a long half-life protection for a long period of time, has reduced immune-effector functions to minimize potential tissue damage, side effects of the virus, neutralizing monoclonal antibodies and are better equipped to deal with variants that single monoclonal antibodies-based products cannot. We are currently seeking permission from the drug regulator to initiate our clinical trials for this cocktail of monoclonal antibodies. On the NCE front, our desidustat successfully completed Phase IIb trials in Mexico for the treatment of hypoxia in hospitalized COVID-19 patients. And the data shows potential of desidustat in helping in the ARDS disease. With this, let me take you to the update and progress made by us on the other critical R&D projects that are also targeted. On the NCE front, this year has turned out to be a very encouraging one as a lead molecule, saroglitazar magnesium received an approval from the DCGI for the treatment of nonalcoholic fatty liver disease, which is called NAFLD, and thus became the first medicine for the treatment of NAFLD. In fact, the drug has been approved by DCGI in India for 5 indications: Diabetes dyslipidemia, hypertriglyceridemia, NASH, NAFLD and Type 2 diabetes. On the global development front, this molecule is at different stages of clinical development for multiple indications in the U.S. and Europe. Coming to the progress made for saroglitazar during the quarter, recently, we have received an approval from the U.S. FDA to initiate the Phase IIb trial for saroglitazar for NASH and F2/F3 fibrosis. These trials will be initiated next month. We have also submitted the protocol to the FDA to get an approval for initiating Phase IIb/III clinical trial of saroglitazar magnesium for primary biliary cholangitis indication. We expect to start this trial from the month of August after securing the necessary approvals. The trial will be conducted in 192 patients across 100 sites globally. For NAFLD and PCOS indications, patient enrollment is ongoing at present in the U.S. for the Phase II clinical trial, which is expected to be over by quarter 3 of FY '22. Thus, saroglitazar offers us a great opportunity with at least 2 to 3 indications, which have shown strong promise for us. We are also developing a new oral small molecule candidate known as ZYIL1 targeted at selectively suppressing the inflammation caused by the NLRP3 inflammasome. The Phase I clinical trials are currently ongoing in India for ZYIL1. And this molecule could have a potential to treat the inflammatory diseases like IBD as well as rare autoinflammatory diseases like CAPS. Coming to the biotech research side, we completed our clinical study for rituximab for the India market. On the international front, dossiers of 4 biosimilar products are under different stages of review cycle by the regulatory authorities of Mexico and Colombia. We are also very happy to say that we launched our first biosimilar of pegfilgrastim in Russia during the quarter, which is a significant market for biosimilars among the emerging market countries. This was also the first biosimilar launch of filgrastim by any other player in Russia. And we have launched this product by creating filling activities being carried out by a local partner, which will enable us to participate in the procurement activities by the government of Russia. Further, the approval in Russia opens up the door for us in the CIS region, enabling us to get approval on fast-track basis for other CIS countries. We also filed a dossier of one more product with the Russian regulatory authority during the quarter. Also now as part of a global biosimilar program, we have selected 2 candidates for global market development. These products are selected with an aim to have a robust presence in the oncology biosimilar space of the regulated markets of Europe and U.S. And the approval in this market will make us eligible for approval in many other countries as well. We are evaluating various possible partnerships with a focus on co-development and partnership models. Coming to our 505(b)(2) and specialty initiatives, in the specialty focus area, which is pain, CNS, orphan drug and rare diseases, we have developed a portfolio of 9 products, including 2 orphan disease -- in the 2 orphan disease space with a focus on CNS and pain and other opportunistic areas. During the quarter -- during the year, we have filed 1 NDA, [ 1 p ] NDA and 5 INDs with the U.S. FDA. We also received an acceptance from the U.S. FDA for one of our NDAs filed in the area of metabolic disorder with a PDUFA goal date of September 2021. We are planning to file one more NDA in the pain management area in FY '22. As you are also aware that on the orphan and rare disease space is an area of strategic interest for us is part of our U.S. specialty portfolio buildup. And as part of that strategy, we have acquired rights to CUTX 101 from Stream Therapeutics. This drug has been granted orphan drug and fast Track designation by the U.S. FDA for Menkes disease, which is a rare and fatal pediatric disease caused by mutations in the copper transporter gene due to which this new born is unable to absorb copper. If untreated, it may cause premature death within the first 3 years. The product is under rolling submission and all modules are expected to be filed by December 2021. Being a fast track designated product, we may receive approval in the first quarter of 2022 in the best case scenario. We continue to explore the potential strategy collaborations and licensing opportunities to grow our specialty and complex generics business. Till date, we have successfully in-licensed 20 products to build a portfolio of complex generics. 7 such deals were concluded in FY '21. And out of these, 2 were concluded in the last quarter of FY '21. Out of all the in-licensed products, for 2 products, we are likely to hold an exclusive first-to-file status and are likely to have a 180-day exclusivity upon launch. Thank you. And now we'll hand over for the Q&A session.

[Operator Instructions] The first question is from the line of Damayanti Kerai from HSBC.

First question is on the India business. So last 2 quarters, we very good growth. So... [Technical Difficulty]

Sorry to interrupt but your audio is breaking up so requesting you to please use the handset mode while speaking.

Is it better now?

We can't hear you.

I'm sorry, ma'am, but you're not clearly audible.

Is it audible now?

Yes.

Okay. Sir, my first question is on India business. So last 2 quarters, we have seen very good momentum. So first, can you tell us like what is the contribution from COVID-related product? And my second question related to India is like how much is specialty and mass? And how do you see India growth trajectory in coming quarters?

So for this quarter gone by, there is no -- any major or significant contribution from any COVID-related products for the quarter 4. So all of the growth or the value that you are seeing is only driven by our established products beyond the COVID portfolio. If you look at the split of our business, we have about 60-40 split between mass and specialty for the last quarter. And both the businesses have grown better than the market, but the specialty business has significantly done better than the market. And going forward, we definitely see this trajectory is still continuing in the coming quarters also. And with the important launches that we have had earlier and some of the new brands, they are also tracking very well in the diabetic space and in the cardio space. So that business continues to deliver. And with the improvement that are happening on the acute side also, we can see good momentum during the quarter as well.

Okay. So broadly, the base portfolio is driving the growth with little contribution from the COVID product profile, right?

Yes, quarter 4 COVID had almost insignificant contribution.

Okay. My second question is on your long-term business view. So in one of the last interaction, you mentioned that you are reviewing your strategy for next 10 years. So if we look at the business split right now, U.S. and India contribute around 80%, and other businesses are slightly subscale. So in next 5 to 7 years, how do you see your mix changing with like India, U.S. and other segments?

So as part of our next 5- to 10-year strategy, we believe that the 2 markets will remain the strongest markets for us, which is U.S. and India. India will be strongly driven on 2 principles. One is on access and affordability. So with the launch of biosimilars and vaccines beyond what we do on small molecules front. I had earlier stated once that we have 30 products that we want to launch in India in the small molecule front also, which have potentially strong opportunities. So some critical new products, the biosimilars and vaccines business, which is doing extremely well. And our proprietary IP-driven products like saroglitazar, desidustat and the [indiscernible] products in the future to come, will aid strong growth in India and which can also be taken for many of the developing countries. With respect to U.S., it will be on 2 strategies: building -- continuing to manage the base of the overall solid products, which is very large, launching the whole new range of complex injectables and the whole injectables franchise, which is currently very small, and we believe it can be a sizable 300 million franchise for us in the near term. And then obviously, our role to play on the specialty front, which we want to do in the orphan drugs and in the niche indications like CNS, pain, which we are looking at GI, which will add to the value creation in the specialty space in the U.S. And obviously, the large opportunity is going to be for saroglitazar in the areas of PBC, which we still believe we can have an NDA submission by end of '23 or early '24, and in the next 1 to 2 years for NASH as well. So that is the trajectory for the growth for that. So base business growth, coupled with vaccines and biosimilars for developing countries. And also now, we do nominate at least 2 biosimilars for the developed markets, which is beyond 2025.

Okay. And my last question, if I can say it, any update on transdermal products for the U.S. market?

Which product?

Transdermals.

I couldn't hear the name, sorry.

Transdermal, sir. Transdermal package, which we were working on.

Oh, transdermals Yes. So transdermals, we need a resolution for our Moraiya facility for us to commercialize these products in the U.S. So currently, our best time line looks like end of this year if we can go through this audit process. And other than that, we have currently 1 or 2 products that we have launched, but the large part of the hormonal products, which are yet to be launched, are filed out of Moraiya. So post the clearance of Moraiya facility, we are seeing at least 4 critical launches, which are very important for us.

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

Yes. My first question is on, let's say, I wanted to have a sense on the cost and visibility for our COVID portfolio. So having developed one of the strongest COVID portfolio amongst peers. So if you can give some visibility more in terms of the [indiscernible] and when we see really that continue moving to the...

Sorry to interrupt you, Surya. But I think -- [indiscernible], I think it's something to do with your line because we are just not able to hear the participants' question at all.

Hello?

I can hear you better now.

So the first question, sir, having developed one of the strongest COVID portfolio in the country. So can you can provide some more scope and visibility for your key product opportunities on that side in terms of, let's say, vaccine, what is the volume that you are targeting? Because there are multiple media updates that we have received about the likely launch time line likely see the volume that you'll be doing? And even if you can indicate something about the pricing strategy that you're thinking about given the large branded market opportunity that has opened up after the government policy about Verafin as well as the cocktail -- antibody cocktail, which is -- could be a kind of ultimate answer to the COVID treatment. So if you can provide some scope and visibility on that front, sir?

Thank you for the question. So I do agree. I think the kind of effort on the R&D front has been really good by the team of scientists and clinicians that are at Zydus. On the 3 opportunities that you spoke of on the ZyCoV-D DNA platform vaccine, as I said, we are in the final stages of waiting for our events data to study the efficacy of the product. We have already have good data on the immunogenicity and safety, and we are just awaiting to achieve an event number, which we have to for efficacy. And as soon as we do that, we do file for an emergency use authorization, which we believe can happen in the next 2 weeks if -- and it is all dependent on the events number that we get. We have committed to initially start producing 1 crore doses per month for the vaccine and with partnerships with other manufacturers as well as also looking to see if we can debottleneck and improve our yields going forward, we can come between 2.5 crores to 3 crore doses over a period of next 4 to 6 months. So that is our current plan for the vaccine. This vaccine is also, uses a device, and we have also secured the whole supply chain for the device as well because it's only intradermal device, and the only application in the world, which is a needle-free application for a vaccine. So this talks about, again, the strong capability of the company that not only could we develop the vaccine, but we have the whole device, which is also made in India, now assembled in India and going to be distributed. So that's true do with the first vaccine. The second vaccine is still in early days of trial. With respect to Verafin, we are seeing very good results so far in a controlled release of the molecule at key institutions and major hospitals. We have extremely positive feedback on the results that we are seeing, which we have demonstrated in our Phase III also. So this drug has potentially a good opportunity to become a very critical product for the treatment of COVID for people who are diagnosed and who have -- and definitely stops the severity of the disease. And we are very confident that this drug for the near term will be a very important drug for the treatment of COVID. Amongst all the antivirus, it has shown one of the strongest antiviral properties. And as we always say that Pegylated Interferon or the interferons are naturally occurring protein in the body. So we are actually not adding anything, any new drug, any new substance, which can harm the body. So it's doing very well for us on that front. On the monoclonal therapy, again, this talks about our research capabilities that we have now demonstrated in animal studies and others that the monoclonal cocktail of antibodies not only protects the creation of antibodies and protects against COVID as a therapeutic and prophylaxis, but also reduces immune suppression or immune expression, which also helps in lung damage, reduction of lung damage and other areas, which are co-morbid conditions of COVID. And we are hoping that in our Phase III -- Phase I, Phase III trial, we get to demonstrate this. The drug has been designed, which will have a longer half-life than any other monoclonal therapy available in today's market. So we also believe that the efficacy of this monoclonal therapy could be longer than any of the current therapies available. And all of these 3 will remain an important area from the therapeutic point of view for the treatment of COVID, and we have -- we are working on it. We also have some oral drugs that are under development. And our commitment has been that we will continue to develop drugs for COVID.

Sure. Sir, just if you can add on to the, let's say, for Verafin, so how is that different from the prescription point of view compared to that of [indiscernible] help of your own product and other interferon alpha that is there in the market? That is one. And also on this COVID portfolio, having kind of a dedicated effort to build kind of one of the strongest portfolio, how sustainable the opportunity that you will look at?

So on Pegylated Interferon on, it's a biological product. So every biological is not the same. Every biological is considered as a new drug. So I think it is every biosimilar biologic is different than the other, and they all have to prove their clinical efficacy. And we have proven the clinical efficacy. It's very critical how you pegylate the molecule and how you produce the interferon, which is a very complicated process. So I don't think we can compare to interferons in the market. And second part to your question is I think COVID treatment protocols will remain critical and essential, and we have committed to being able to provide.

Okay. Sir, I have a couple more questions, but there is some disturbance. I'll come back in the queue.

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

Am I audible?

Yes.

Yes.

On the U.S., we did see erosion quarter-on-quarter in the March quarter. In the opening comment, there was something about Asacol HD seeing lower offtake or signaling some offtake pressure. If you could give some color on the U.S. business and how we see that panning out, the [ PHD2 ]?

So I think on the Asacol front, the market shares have remained stable, so there's no issue with that. But the offtake are on 2 things. One is because of COVID issues in the U.S. also, maybe there was -- I mean, the prescription had slowed down for all drugs and potentially for Asacol also. So that is one impact of it. And the other is the stock adjustments that happened quarter-on-quarter, which would lead to some of that correction. So we believe that from quarter 2 onwards, we would see a normalized activity on that. And so that is to do with Asacol. And with respect to others, we obviously didn't see any of the seasons related to flu, which was obviously a major impact as part of the quarter. And we have now seen some price erosions with price challenges, which will be offset over a period of time by more volumes and new products.

And sir, in the U.S., we launched about 30 products this year. And this is a momentum that you can continue for the next, [ 2 ] years?

Yes. So our aspiration is that we will achieve 40 to 45 launches, but comfortably, at least 30-plus launches every year.

Understood. And for the R&D, since we are starting a Phase II trial for saroglitazar now that you've got FDA approval. How should we look at R&D going forward?

So I think for the near term, in the next 1 to 2 years, we have -- I think we're still okay at around 8% of revenue as R&D expenses. As we come later on to a larger Phase III, maybe a post [ 24, 25 ], we can give a different guideline. But with the commensurate growth in revenue and opportunities, we still believe that we can maintain our R&D around 8% of overall revenue.

The next question is from the line of Tushar Manudhane from Motilal Oswal Securities.

Yes. Am I audible?

Yes.

So just on the COVID front, while currently, the supply rate can be 1 crore per month but -- and considering the -- checking with the industry experts, it suggest that the contract manufacturing capacity is kind of chock-a-block for other vaccines. So how do you see the availability of the capacity for our product?

So we have completely built our own capabilities to produce both drug substance and drug product and the devices. So we don't have a concern anywhere between 1 crores to 2 crores. And for additional capacities, we are already looking at licensing technology to at least 1 company immediately, but potentially 1 or 2 more. So we believe we could have an ecosystem of at least 2 to 3 other contract manufacturers who will be able to produce this vaccine. And that is our current plan for the medium term.

Okay. Sir, just on an Verafin just to understand why we protocol through state government route rather than going through ICMR or the central government route?

So we will work on all of that, including ICMR, but we have just given you an update of what has come first. So as a part of our ongoing process with the experience, we will obviously work towards the drug being involved in part of this overall protocol as well. But already through states, we have got some successes and all major institutions also like in [ AIMS ] and some other institutions, we have seen good usage of this now.

Understood. And just lastly, on the domestic formulation front, while the digital users enhanced -- is being enhanced due to this pandemic situation, but how do you see this cost saving over FY '22 as well because of increased use of digital fees?

So I don't think digital will show any cost savings at least for the next 1 to 2 years. This whole ecosystem has to be built. The user and the customer has to find it comfortable to move to a new way of working and new way of using it. So I think this is a medium- to long-term investment in the digital space. We don't believe that we will see success overnight and immediately and we don't commensurately see any immediate cost savings on that. What we hope to see is higher productivity by the team, better reach that we can create through this and larger reach that we can create for more brands of the company and also a dissemination of more scientific data for our proprietary products that we will be launching. And our end goal is to make sure that we look at the disease management and how do we show compliance to the patients in terms of the dosing and the requirements that are there? So that is our overall game plan in terms of how do we improve better disease management for the diseases that we are targeting for and make it more compliant so that we can see better patient outcomes. But it is not something that can be achieved in a period of next 1 year. It is a 3- to 5-year journey now.

The next question is from the line of Kunal Dhamesha from Emkay Global.

So first, a housekeeping question on the vaccine front. So there is some confusion regarding what kind of -- what dosage regimen will we be applying for approval, whether it would be two-dose or whether it would be three-dose because our Phase III is three-dose regimen and there was some talks about applying for a two-dose regimen. So can you please clarify that?

Yes. So I think our study -- we have 2 clinical studies. One is the large Phase III study, which is a three-dose study, for which we are waiting for the efficacy data. We have also, at the same time, done a bridge study for a two-dose regimen for the same vaccine for which also the data is -- potentially will be coming in the next 10 days. So looking at both of that, we will make a final call with the regulators in terms of which will be the best mode to move forward, whether it will be three-dose or a two-dose. But currently, the body of evidence is largely based on the three-dose vaccine. And once we see our data for two-dose, we can give you further updates, which will happen in the very near future.

1 And secondly, on the saroglitazar trial for the PBC. So you suggested that trial would start in August. So are we still speaking to the launch of the product by FY '24? for the PBC indication? In the...

Not FY '24, we said in the end of calendar year '23, we may potentially file for NDA. So it will be late -- it will be at least not before FY '25. In the year of FY '25, we can see the launch.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Just picking up from the previous participant. If it does turn out to be a three-dose regimen, is the Cowin app enabled for that? And do you see a lot of administrative issues around this?

So currently, from whatever we have understood, it should not be a challenge. And with both the state government or the center when we have discussed, They already are fully aware of it being currently a three-dose regimen. So currently, it is not a challenge.

Okay. And can you talk a bit more about the order book that you have, either domestic or exports? Do you think your 1 crore per month can easily get absorbed? Or do you think there can be some challenges? And any thoughts on the pricing?

So I think it's an evolving area. If I can answer, if you talk about it for the next 4 to 6 months, we have the potential to sell more than what we have significantly more. And so I don't think the concern today is about being able to make the vaccine available, is to make sure how much we can produce in a compliant manner. So I don't think the demand is the issue for the current period of time for at least till December. On going forward, I think it will all depend on the results of the product, the cost, the pricing of the product, the efficacy and the safety which will all matter. And this -- potentially all vaccines potentially need -- I mean, we are looking at an option of whether there will be a booster dose that will be required annually or in some form. So vaccines will -- I think the vaccines will be an important aspect of the overall future in terms of how it is administered on an annual basis. But I think today, we have more orders than what we can commit to in terms of manufacturing. So order book is very good. On the pricing front, we have always committed that we will bring the vaccine at an affordable price. And our effort is on that. And as soon as we are filing for our emergency use and on the way on approval, we will also announce our pricing.

Okay. Great. And just how you think about this going into 2022? I asked this because if you see everyone's scale-up plans, it seems like right now there's a lot of shortage, but in 2022, there will be massive supply and so I think it's -- everyone has been doubling or tripling their capacities between Sputnik and the other 2. So do you think there will be a business case for you going into '22 and beyond?

So Sameer, I think that's a question, obviously, which we all think about. Now there will be multiple points to it. One is to vaccinate a good part of our -- the global requirement for vaccine is still very large. And it will be dependent on multiple things, one, including access and pricing and cold chain and other logistics related to it. So I think the pricing will play a critical role in terms of how these vaccines play out in the long term. I strongly believe that for treatment for COVID and vaccination related to that, it could potentially become part of the annual vaccination programs. But only time will tell whether that will be the need. We have seen data of whatever is published so far of talking about antibodies going down between 3 months to 6 months to 7 months. So assuming that you need to take a booster shot, we know that the vaccines will be required on an ongoing basis. So that is one data point. The second is pricing and access in terms of cold chain and other things. which will also play a critical role in terms of what is made available. And finally, obviously, the data on safety and efficacy for the long term will matter. So I think there are many moving parts to it. And only then we will be able to figure out finally what happens. But I believe that when you talk about global vaccination and continuous vaccination, then pricing becomes very critical. And at least, we believe that our technology offers us to produce vaccine at a lower cost, which can be beneficial.

The next question is from the line of Naveen Baid from Aditya Birla Capital.

Am I audible?

Yes, sir, you are. You may please go ahead.

So my question is the Phase III clinical trials, the results from the Phase III were supposed to be published on where middle of April or end of April, but they've gone on -- seem to have gone on well into June now, I mean, as per your comments. Any specific reason why the Phase III clinical trials have taken like 40, 45 days extra especially since the end points were defined at the start.

So when you talk about efficacy, you have to hit an event number of interim, maybe 79 or total event number of 158, which is you need these many number of people to become positive. Now that is a statistical -- I mean we are all guessing as to by when we will achieve that kind of number. So until -- so that is not something that can be hard planned weekly. We were hoping that you would get to see by end of May. Now we are potentially thinking that with the ongoing trend, it can be seen by first week of June, maybe.

So as a corollary, can I assume that maybe the vaccine is showing higher efficacy, and that's why you are taking slightly longer to reach the end point, considering that the pandemic is raging across the country.

No, I don't think 1 can assume that. I would wishfully like to, but I don't think that is right. It just sometimes takes time. It's difficult to plan statistics on a weekly basis. So in a month, we know we achieve it, but every week, how many positive cases we'll get is very difficult to predict.

The next question is from the line of Charulata Gaidhani from Dalal & Rocha.

My questions pertain to the innovative products for COVID like interferon, how is the acceptance across India and what type of revenues would you anticipate from if not interferon, the entire innovative products for COVID.

So as the use -- with the launch of interferon, we have seen very good use and repeat purchases by all major institutions that we have supplied it to. As we're able to make more supplies available, obviously, we will go for larger supplies to state governments and larger institutions as well and make it then also available in the retail as we have proper stock so that we don't run into any wrong practices related to the use or misuse in terms of the drug. So that is our endeavor right now. And currently, we are -- whatever we are able to produce, we are able to make it available and we are able to make it available to the patients. We are looking to scale it up by 4x what we make today, and we are on track to do that for June. And we are still seeing good demand with the amount of cases even if 7% to 10% of people become eligible for it. This will become an important treatment for the patients for early use. So we are seeing good traction for this molecule, and it will continue to do well. With regards to other products like remdesivir and others, we are still seeing good uptake. We are the most accessibly priced remdesivir. We are at 1/5 of most of the companies. So that, again, is doing very well, and it continues to be made available as and where it is needed. So overall, this quarter, because of the clearly large -- I mean, positive rates that I've seen in the country, we have seen very good traction for all our COVID portfolio.

So how much contribution would you expect from the new products?

So COVID portfolio from the current quarter will be significant. For future, it will be still very difficult to answer. But for the ongoing quarter, it is critical, it is significant because of the number of cases in the country.

Okay. Yes. And my second question pertains to the animal health transaction. By when would you expect the money to come in?

So we expect the transaction to be completed within a period of 90 days in all probability earlier than that.

The next question is from the line of Surya Patra from PhillipCapital. As there's no response from the current participant, we take the next question from the line...

Hello?

Yes, sir, we can hear. You may please go ahead now.

Yes, yes. So just 1 question about the the 20 product licensing pack, what you have mentioned out of it, 7 have already been signed and you were indicating about this is all about your expectations of building a specialty portfolio in the U.S. So if you can add some more color to that, that could be useful.

So the 20 products that we have licensed for are mostly driven towards complex injectables, where you will see where there are difficult to produce and limited competition. Also, some products where we potentially didn't have the capability to do it in small molecule space, and that also we have been able to license where we can be amongst the first generic or with some exclusivity. So it's a mix of those high-value products where we sometimes are late or don't have the capability to do so. And we've been able to partner it in and build this franchise on complex injectables, largely complex injectables, but also some small molecule oral solids also.

But is there any time line that you can indicate right now, sir, for whatever the portion of the portfolio...

So as I said, one, we launched Fondaparinux last year. This year, we are saying we will have another complex injectable launch, which will be critical. As and when these come up for critical launches, we will definitely make you all aware of it. as soon as we can. But currently, for reasons of -- business reasons, we can't make some of these things known right now.

Okay. And is it fair to believe that the sequential decline in the U.S. business, what we have seen, it is entirely because of the weak flu season and specific to the fourth quarter that way.

Three reasons for it. One, we said that offtake on Asacol did slow down. This flu season, definitely is not nonexistent. And third is we did face pricing challenges on some of our base products, which obviously will lead to erosion in value. So all of those 3 reasons led to lower, but the other 2 are the larger part. First 2 are the larger of the...

Okay. And since Asacol is the important product. So if you can just add some more color to that, sir, what is the kind of challenge and how sustainable that -- you have mentioned that it can continue for this quarter as well. But what's been...

So there is no challenge, we are the only generic in the market. It's only a question of offtake, which can be -- for 2 reasons. One is inventory adjustments that happened by the distributors. And second is, overall, in the U.S. prescriptions came down and so did Asacol prescriptions come down. So both of those are the reasons for lower offtake.

Okay. Just last question, sir, if I may. On the margin front, see, we know that this COVID portfolio could really surprise FY '22 earnings in a big way. But on the core business front, What margin visibility or trajectory that 1 should really expect for [ category ]?

So again, without COVID portfolio also, our gross margin profile is actually much better than the COVID portfolio. You would see that in most of the portfolios that we have launched for COVID, we are one of the most accessible products or lowest-priced products because our interest here is to make sure that we can make these drugs affordably available to the patients at large. So this is a conscious effort by the company to not charge what we would normally charge but significantly reduce the pricing. So on the gross margin front, overall business delivered better gross margins. Our base business minus COVID also did extremely well and overperformed as so in the health, animal health or the consumer health and the pharma business. So it was an overall good performance by the whole India geography and not driven by COVID. So COVID does add to the profit, but the profitability is lower compared to the base business.

Okay. For the outlook wise, if you can just provide some sense of what margin -- what would drive that? And what margin trajectory for the base business that we should expect? Because there are so many things happening in the profitable progress in the domestic business. And the U.S. is obviously getting the benefit of the export opportunity. And you have exited out of the animal business, which was not that great or not fitting to the strategy, long-term strategy. So given all these, the base business itself is positive sequentially in terms of profitable progress?

So as I said, 1 is the India geography overall has made more than 50% contribution to the quarter. The branded portfolio has done significantly well. Our consumer health business also has delivered very strongly. The second part is our portfolio. So the gross margins are good because the product mix has been very good. The second part is we always said that we are looking at around 22% margins for EBITDA on a sustainable basis. However, because of COVID, we would see some better results for the coming quarter because obviously, a larger sale of the COVID products. But by and large, because of better utilization, better cost management, and making sure that we improved our health on the overall front by reducing the nonviable products. And now for the proprietary products and IP-driven products also contributing, biosimilars contributing, All of that is improving the profile of the branded business.

The next question is from the line of [ Jatin Karani ] from [ Samarthya Advisors ].

Dr. Patel, congratulations on great set of numbers. I just had a question on -- you mentioned there is another vaccine candidate that is under clinical trials. So just wanted to understand the thought process behind this second candidate that we have, why are we pursuing that considering we are on Phase III of our main candidate? And as far as ZyCoV-D is concerned, can you just give some color on what kind of logistical requirements are required for this as well as administration will still happen at the hospital level side?

So I'll answer the second question first on the logistics and supply part of the ZyCoV-D, it has some of the least challenges because it is thermostable. It is stable at [ 2 to 8 ] degrees, and it is stable at 25 degrees for more than 5 months now. So it is -- logistically, it will be definitely something that would be not a significant challenge compared to some of the other vaccines and potentially will lead to less wastage or less of all of those concerns related to mishaps and cold chain because it's very stable. With -- and obviously, it will be given at medical centers with -- supervised by the nursing staff or whoever is. The good part of this vaccine is that its intradermal application, so it has a lot of benefit compared to the intramuscular injections that are given for other vaccines. And that benefit will definitely play out in terms of the acceptability of this vaccine when it gets rolled out into the general public. With respect to the other vaccine, when we were in the development phase of COVID, we were obviously wanting to work on beyond 1 strategy. So we have 2 opportunities. One was the DNA platform and one is a measles-sector-based platform. We believe that going forward, the whole virus understanding is evolving. We also know that there is mutation and other challenges, that can be posed. And so I think from our point of view, we believe that it is prudent for us to have work on at least more than done 1 technology, and we do have the capability to do so also. So we are going to move forward in a not as aggressive manner as we move for the DNA vaccine, but definitely do the animal studies and maybe certain Phase I studies to see if the new generation vaccines could potentially be better than the current vaccines. And that effort is an R&D effort, which will continue. So we would want to bet on more than one vaccine. And we are making an effort to see whether the second platform is equally good or has some other advantages?

Sure. And sir, as far as ZyCoV-D is concerned, I understand you're also doing trials, as you mentioned, for 12 to 18 year olds. So will that make us the first vaccine if -- once it gets approved, we will be the first vaccine that is applicable for children?

So it definitely has the potential because we are covering more than 1,000 children. So It definitely will have that opportunity. And as I said, this vaccine is a needle-free application. So it will be far more suited for children because of the worry of giving needle injections and other things. So it is a pain -- it doesn't have any onset of pain. It doesn't have site reactions, on-site reaction that happened with many intramuscular injections. So it will be far more suited for children also. And that is why we were approved to do a study in children because of the platform and the safety of this platform and obviously, the way of administering it. So we are hoping that once we see the body of evidence and if it looks good, it will potentially be approved for children also.

Sure. And as far as our capacity you mentioned, we will be starting off with 1 crore per month capacity, which at some point will be ramped up to 3 crores a month, right? That's what we are planning. So what would be the time frame for this ramp-up?

So initially, we will be producing about 1 crore with partnerships and maybe some debottlenecking, we can -- first, with partnerships in the next 4 months, we can probably improve it to another [ 15% ] more. And then if we are able to do any further -- some incremental investment, we can then double our internal capacity. which would take around 6 crores.

And sir, can you give us some color on what would be the margins for this kind of a product? I understand you will have a very affordable product, but even at an affordable price point, what could be some guidance on the margin?

So it's currently not easy to answer that. And definitely, it will have -- I mean we have put in a lot of money and investment behind it. Yet we will also make sure that it is made affordable. So it will definitely be profitable. But it's very difficult to say yet because we are still in the scale-up phase to producing up to 1 crore doses and all of that. And once we're able to do that and then obviously, the pricing, then finally, we can give you that answer. But at least as of today, it's a little premature for us to give you margin outlook.

The next question is from the line of Kunal Dhamesha from Emkay Global.

So on the vaccine front, have we reached the interim event data? Or are we still waiting to reach interim event?

We are waiting for the interim event data.

And that we expect by -- to happen in Q1, yes, sure. And based on that, will we be able to file for the emergency use authorization?

Yes.

The next question is from the line of Sudhir Singh (sic) [ Ranvir Singh ] from Sunidhi Securities.

Ranvir here. Sir, one question on trastuzumab ADC. Can you give some outlook, what would be -- what kind of market is currently existing or what the revenue potential we see from this product?

So the potential of this molecule is very good. We are aspiring to achieve a 50 crore number in the next 12 to 15 months. And that's what we are gunning towards, but it is definitely a 30-plus crores opportunity in the short term. So it will be a sizable new introduction for us because it will be an accessible -- today, the cost of treatment for this is very expensive, and we believe with the affordability that we have brought for this medicine and the science behind it, it has a potential to be a very important biosimilar launch in the oncology space.

So I wanted to understand some data. You mentioned that roughly 2 lakh patients are currently on breast cancer. And I think most of them might be using this trastuzumab. Going by this even 10,000% pool would give some 30 crores, more than 30 crore kind of market size. So of that 2 lakh, can we get more than 20%, 30% kind of market share in terms of percent pool?

We will definitely get more than that.

Okay. Okay. And another bookkeeping question. Other income is negative. So what is the reason? In Q4?

Vishal, you want to answer?

Yes, so actually, we have an agreement with one of the joint venture partners, and that is accounted for as forward contract because of the certain terms of that agreement. Under that forward contract, we had a loss on fair valuation, which [indiscernible] we were having gain. So the cumulative loss for the year has been accounted for as a negative amount in the other income side. And that amount is about INR 49 for the quarter.

Yes, yes, Okay. And the last one, if -- this quarter, we have a very strong boost from wellness business and some COVID-related portfolio also. Just if I remove that your wellness business from the overall consolidated number, actually, we have seen a degrowth. So apart from U.S. India should have -- we are expecting India to give better performance ex wellness. So in India business also, apart from COVID, the base portfolio, we have seen weakness there?

I don't think you've got the numbers right. India business for quarter 4 has shown very good growth. So I don't know where you got saying it is negative.

All 3 business within India.

All 3 businesses have delivered double-digit growth.

Okay. So going forward, basically, that I wanted to understand the base business because COVID, I understand this is the gravity of pandemic will -- definitely will reduce going forward. So base business, can we see some 2, 3 years down the line growing at least in double-digit or higher double-digit kind of number in India...

Yes. So we have definitely -- we have said that the base business has done extremely well and will continue to do well. Even in the quarter, it has grown at 15%. And if you take the branded market only, it has grown at 16%. So the base business has done extremely well. Even the emerging market business had a double -- strong double-digit growth. So I think overall, other than U.S., all businesses have delivered strong double-digit growth. And they continue to do so, and they were all driven by base business because in the last quarter, there was no impact of COVID products in the business.

Thank you. Ladies and gentlemen, due to time constraint, we take that as a last question. I would now like to hand the conference Over to Mr. Ganesh Nayak for closing comments. Over to you, sir.

Thank you very much, and look forward to interacting with you again in the next quarter results in the month of August. Thank you, and good night.

Thank you. On behalf of Cadila Healthcare Limited, this concludes this conference.