Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. It's my pleasure to welcome you all to the post results teleconference for the first quarter ended June 30, 2025. For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, CFO; Mr. Tushar Shroff, President, Corporate Finance; Mr. Arvind Bothra, Head of Investor Relations; and Mr. Alok Garg from the Managing Director's office. To begin with, let me now give you a broad overview of the developments during the quarter. We commenced FY '26 on a strong note, following a formidable base of FY '25. We delivered a stable revenue growth during the quarter, with most key businesses performing well. Our U.S. Formulations business sustained execution excellence, delivering both sequential and year-on-year growth on a high base. On the India geography front, our Branded Formulations business in India sustained the growth momentum, outpacing the market growth for yet another quarter. The business has consistently outperformed the market growth in the last couple of years. Consumer Wellness business navigated through the challenges posed by early monsoon conditions, which impacted the seasonal brands. However, the nonseasonal portfolio remained resilient cushioning the overall performance. International Markets Formulations business delivered yet another strong growth performance seen over last several quarters, driven by all-round growth across key geographies, reflecting a good diversity of performance. With that, let me take you through the financial numbers for the quarter gone by. We registered consolidated revenues of INR 65.7 billion, up 6% on a year-on-year basis. Our operating profitability continued to remain strong with an EBITDA margin of 31.8% during the quarter. Consequently, EBITDA for the quarter stood at INR 20.9 billion. Net profit for the quarter was INR 14.7 billion, up 3% year-on-year. Aided by strong profitability, our balance sheet strengthened further with a net cash position of INR 56.3 billion as at 30th June 2025 against the net cash of INR 48.8 billion as at 31st March 2025. Now let me take you through the operating highlights for the first quarter of FY '26 for our key business segments. The U.S. business registered revenues of INR 31.8 billion during the quarter, up 3% year-on-year and 2% quarter-on-quarter. We filed 3 ANDAs; received 6 approvals, including 2 tentative; and launched 3 new products during the quarter. Our India geography, comprising of Formulations and Consumer Wellness business, accounted for 37% of the total revenues during the quarter and grew 6% year-on-year. As mentioned earlier, the Branded Formulations business in India grew faster than the market during the quarter with 9% year-on-year growth, driven by strong uptick in pillar brands and innovation products. Chronic segment continued to grow at a faster pace, driving the overall growth of the business. In terms of therapeutic performance, the business grew faster than the market in key therapies of cardiology, respiratory, anti-infectives, pain management and in the super specialty area of oncology. On the superspecialty front, we continue to retain leadership position in the oncology therapy. Contribution of Chronic portfolio has increased consistently over the last several years and stood at 43.7% as per IQVIA MAT June 2025, an improvement of 420 basis points over the last 3 years. Our Consumer Wellness business recorded revenues of INR 8.5 billion, up 2% year-on-year. Excluding the seasonal brands, the business posted strong double-digit growth, reflecting the underlying strength of the portfolio and balanced business model. International Markets Formulations business posted revenues of INR 7.3 billion, with a strong year-on-year growth of 37%. The growth was well spread across different regions, as both the emerging markets and Europe delivered strong demand led growth during the quarter, benefiting from focused execution. On the MedTech front, we recently completed acquisition of 85.6% stake in Amplitude Surgical. During the quarter, we entered into a strategic partnership with Braile Biomédica, an innovative cardiovascular device manufacturer in Brazil to exclusively commercialize its transcatheter aortic valve implantation, which is TAVI, technology across Europe, India and other select markets. With this partnership, we look forward to expand into the fast-growing interventional cardiology segment. On the operations side, our API manufacturing facilities at Ankleshwar and Dabhasa received EIR from the USFDA against the inspections conducted in March 2025 and April 2025 respectively. This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drive initiatives in our innovation program.

Thank you, Mr. Nayak, and good evening, ladies and gentlemen. It is a pleasure to have you all here today on the call. We had a steady start to FY '26. All our businesses maintained the growth momentum with robust operating profitability and performed in line with expectations, except for a couple of summer-oriented brands in the Consumer Wellness business, which faced seasonal challenges. We stay committed to achieve our targeted top line growths and profitability for the current financial year. This will be driven by our strategic intent of going beyond the pill to address diverse health care needs of the patients and also superior execution. In the U.S. generics market, we have steadily expanded our footprint by building a robust and diversified portfolio across various dosage form. This growth has been driven by a combination of strategic in-house development efforts and prudent licensing initiatives. To broaden access and provide diverse treatment options, we have been expanding our presence in the specialty space by enriching our portfolio of the 505(b)(2) products and enhancing our focus on the pediatric rare disease platform. Powered by robust customer relationships, a versatile network of manufacturing facilities capable of delivering a wide range array of dosage forms and an agile and responsive supply chain and disciplined cost management, our U.S. business is firmly positioned to have a sustainable growth trajectory. On the India formulations front, our Branded Formulations business continues to outpace the market growth. Our strategic initiatives are focused on expanding our presence across targeted therapeutic areas, thereby enabling us to serve a broader patient population. We have effectively leveraged a rich and diverse portfolio of innovative products to deliver novel solutions that address critical unmet medical needs. In the Consumer Wellness space, we are driven by our mission to meet evolving consumer preferences and choices in the wellness domain and inspire healthier lives. Our portfolio of wellness products build over the years position us well for the future customer needs. We look forward to drive growth through innovation, scale, sustainability and serve consumers with differentiated evidence-backed wellness products. In the international market formulations business, which comprises of different countries of emerging markets and Europe, it has emerged as a reliable third pillar of growth and continues to deliver strong double-digit growth over the last several quarters. In the emerging markets, we remain committed to satisfying diverse patient needs across chosen therapies through multiple levers. In Europe, our focus remains on expanding our offerings and enhancing the market coverage. In line with the vision of going beyond the pill to make deeper impact in patients' life, we forayed into a global biologic CDMO business through our plan to acquire Agenus Inc.'s U.S.-based biological manufacturing facilities. Agenus Incorporated is a clinical stage immuno-oncology company committed to developing immune therapies to combat cancer. The acquisition marks our strategic investment in the U.S.-based manufacturing for biologics, thereby adding a sustainable growth driver for the future. I'm also happy to note that we successfully completed our stake acquisition in Amplitude Surgical in France, a European MedTech leader in high-quality, lower-limb orthopedic technologies. Amplitude's portfolio comprises of technologically advanced products and solutions backed by cutting-edge research and innovation and complemented by robotic surgery platforms. With this acquisition, we look forward to offer numerous value-added innovations to meet the patients, surgeons and health care facilities. With this, let me share some material developments on the innovation efforts during the quarter. On our NCE research front, we initiated a Phase IIb clinical trial of Usnoflast, a novel oral NLRP3 inflammasome inhibitor in the U.S. in patients with amyotrophic lateral sclerosis, commonly known as ALS. The USFDA granted fast-track designation to the molecule for ALS indication during the quarter. The molecule also holds an orphan drug designation from the USFDA for this indication. In the Biotech R&D space, we rEceived market authorization approvals from the drug regulator for Rituximab and Aflibercept biosimilars. We also received regulatory approval to initiate a Phase III clinical trial for our second antibody drug conjugate. On the Vaccines R&D front, we completed a Phase II clinical trial of Hepatitis E vaccine. We also initiated a Phase IV trial of rabies vaccine to evaluate the long-term immunogenicity and safety vis-a-vis the WHO prequalified vaccine in animal bite cases. Thank you, and now we start with our Q&A. Over to the coordinator for the Q&A session.

[Operator Instructions]. Please note this conference is being recorded. The first question is from Kunal Dhamesha.

Congratulations on good set of numbers. The first question on the -- our U.S. run rate, which is obviously good this quarter. But when we look at, let's say, beyond FY '26, we had initially commented last quarter that we don't expect a sharp fall, so can you provide some more color there? How are we seeing the FY '27 U.S. revenue shaping up and some of the key products that we are expecting to launch?

So in FY '26, with the price challenges on Revlimid, we still believe we will have a single-digit growth in this year. So we are maintaining our current guidance of growth in the U.S. for FY '26. And we expect to launch 30-plus products and -- with clearance potentially of our injectable facilities also some more launches.

For FY '27 or for FY '26, sir?

FY '26.

Okay. But my question was more on FY '27, sir. Beyond, let's say, Revlimid, how are we basically planning to offset the Revlimid cliff with the kind of products that we have?

So there will be -- obviously, we continue to have important launches in FY '27 also. Ibrance as well as the other 2 molecules where we believe we will have decent launches. Also, our 505(b)(2) scale up is going to be seen in FY '26 end, but more so in FY '27, so that will substantially add to the business. And we're quite excited with that prospects, especially with our 505(b)(2), we have almost 25 product pipeline with 15 products that have already been filed and future products that are to be filed. So that is also going to create a long-term differentiated portfolio for the organization.

Sure. So shall we expect like FY '27 to be more flattish growth or...

I think it's still early to tell because we have to see many things play out. But as I said, the pipeline-wise, we have exclusive launches. We have a 505(b)(2) program that will scale up. So we are quite -- and obviously, regular products of 20 to 30 launches every year. So we believe all of that will aid to the growth. But I think better clarity, we can give only probably end of the fourth quarter, once we are clear about what will be the current status.

And my second question is on saroglitazar. If you could provide an update there, how the trials are progressing? Whether was there any interim clinical trial data readout, which was -- you have seen interim data, et cetera? How does it -- and then on the time line of launches, I think we have suggested late FY '27 or early FY '28, but how are we looking on those time lines?

So I think it's the same as we -- nothing has changed. I think we are looking -- we have completed a trial. The last patient readout is also done. So we will wait for the data to be seen in the next quarter. And if the data looks promising, which we hope, then we will be going for NDA filing and provide -- and if all that goes well, then in FY '27, we'll see a launch for saro.

So data -- just the last bit. Data is already there and it's being analyzed, is what you are suggesting?

No, no, it's under lock right now. So once everything is done, then we'll be able to unlock data and do a readout. So we are saying it will be in the second end of third quarter beginning.

The next question is from Bino.

Can you hear me?

yes, I can hear you.

Sharvil, could you also comment on Mirabegron? First of all, in this quarter, has it been pretty much similar levels as last 2, 3 quarters? And is it likely to continue for the time being?

Sir, Revlimid and Mirabegron, 2 special products in totality and more or less the same kind of sales.

Okay. And has it changed significantly 4Q to 1Q or more or less similar continuing?

More or less similar.

Okay. Got it. And sir, what is the outlook for Mirabegron? Of course, litigation is pinching, but when you look forward into FY '27, do you see this continuing in FY '27 or it is highly unlikely that it stays in FY '27?

So we'll have to wait for the trial before we can comment on that. So I think, as I said, the trial date is in February 2026. So only post that, we can give any more comments on that. Until then we do continue to commercialize the product.

So what is the best outcome of the trial that the product continues to be under patent, you will be unflinching and only the current 2 players will stay for 3, 4 years? Is that such a...

I think it will be very difficult to speculate what outcomes can be. So I would not do that right now. We'll have to wait till then. I said until then, we know we are commercializing the product.

Got it. Another question about these 2 facilities, which you have acquired. One is the Agenus one in California and the earlier acquisition in India of the Sterling Bio facility. When can we look at some sort of meaningful scale up in these facilities? So you have paid a decent quantum of money. Even if one applies 1.5x, 2x asset turnover, still it could be $100 million, $200 million revenue coming from these kind of facilities. When can we see this kind of revenue?

So on the second facility, the BioCDMO facility that we have acquired in U.S., it is under qualification, it's a brand-new facility, which is under qualification. And once it's qualified, it is going to produce BOT/BAL for Agenus and there is a contract for them for the next 3 years to produce BOT/BAL. Beyond that, we will be looking to bring more BioCDMO manufacturing into this facility and also potentially bring some biosimilar manufacturing. So that's the current plan. So I would say it's probably at least a 2.5-year, 3-year plan before we will see a large -- I mean, see capacity utilization and revenue uptick. With respect to our other joint venture, which we have with -- for the Sterling Biotech facility, it has -- we are under -- our large CapEx program going on to build, I would say, world's first recombinant whey protein manufacturing at scale that have never been made in the world. So we are making large-scale manufacturing for the whey protein, and we isolate through fermentation and that program we will see -- probably in the next 2 years, we would see commercialization come -- kick in. So it's nothing in the short term for both of these facilities.

But just one point on that, that when you talk of Sterling Biotech, it is an existing company with sales and EBITDA and what we have paid is for that existing business. What Sharvil bhai just now mentioned is the future projects that we intend to put up in the same company.

The next question is from Neha Manpuria.

My first question is on the 505(b)(2) portfolio that you indicated would ramp up by the end of this year. Currently, we have sitagliptin. I think there was one more docetaxel that we had in-licensed last year. Are there any other launches in the 505(b)(2) portfolio that is expected as we think about the next year? And how big can the 505(b)(2) portfolio be for Zydus next year?

So we have -- as obviously, you mentioned already the one product that we commercialize and docetaxel, which will commercialize in the next quarter. We also have some 2 more 505(b)(2)s that one is about to get commercialized, one we are waiting for approval to commercialize. Over a period of time, I think the 505(b)(2) will definitely be a significant value as well as profitability driver for the specialty space, which would be more sticky. So we already have a decent revenue on 505(b)(2) with good profitability, but we are seeing a major scale up in the FY '27 and beyond.

Besides sitagliptin, can the other portfolios also, I think, sita, you mentioned that can be $50-odd million. So can the other products be as large as sita or sita would still end up being the largest product in that portfolio?

Others will be larger.

Okay. And the usual ramp-up for these would be similar to what we've seen in sitagliptin for docetaxel and the 2 other products that we commercialized?

No, I would say the peak for the others would be in the second or third year. But they will have longer patent life, and they will not be facing generic competition that way.

Okay. Understood. My second question is, I think in the opening remarks, you mentioned about emerging market being the third pillar of growth. We've seen a significant step-up in emerging market revenues this quarter. Is there any one-off that we are seeing in EM? Could you provide some color on what sort of growth we should expect and what's driving this acceleration in growth in the emerging market business?

No. So for us, the emerging markets, including U.S. had -- both have driven very strong growth and it's been broad-based across geographies. We are very confident of strong double-digit, high teens to mid-20s growth going forward for the overall international markets, and we are seeing that to be sustainable.

And this high-teens to mid-20s isn't anything -- I mean, there's no tender component, which is probably one-off to this year, which we don't see. I mean this is the sticky run rate that we should assume for the emerging market business?

Yes, we are talking about high-teens to mid-20s growth for the international markets.

The next question is from Harith.

Hope I'm audible?

Yes.

Yes. First question is on Usnoflast, given it's a very promising molecule and you talked about commencement of Phase IIb trials. Can you give some more color on the time lines for Phase IIb trials and the best case scenario for the launch for this product?

Yes. So I think we're just about to initiate the trial. We have a global CRO whom we have contracted and everything is in place. So the trial will begin in the next 1 to 2 months. It will be a 2-year kind of trial and then post that readout. So we are talking about a 2- to 3-year window for seeing our clinical data for ALS. But it's mostly an efficacy trial. So we believe that depending on the results, we could see an approval on Phase IIb or we may have to then further do a Phase III. But high chances that we -- if we see good data, we could go for an approval post this trial.

Okay. And next one is on biosimilars. So far, we've refrained from any investments targeting regulated markets for our biosimilar portfolio. Given that we have a fairly broad portfolio of around 14, 15 biosimilars, is there any rethink on our regulated market strategy? Or is there any plan to partner with someone who will undertake all the R&D spends and the commercialization part of it?

So we are working on both ideas. One is the regulatory if the scenario has changed for certain class of biosimilars, there is no longer a requirement for an efficacy trial. So the pathway has become obviously much better for -- both for U.S. The second is we have a manufacturing footprint now in the U.S. to make biologicals. So we are looking at both opportunities in in-house portfolio as well as licensing in with manufacturing in U.S. as an opportunity to add maybe 1 to 2 products in the biosimilar space to launch -- I mean, to develop and launch.

Okay. Got it. And 1 clarification on the saroglitazar comment in PBC as we await the data and you mentioned that we'll be looking at the data before deciding on the next steps. So what exactly are we awaiting? I mean are we going to compare the data for saroglitazar with some of the existing products in the market and only if we meet the expectations versus those products, we'll be taking a call to go forward with saroglitazar. Is that the correct understanding?

No, it's a blinded trial. So we're waiting for the efficacy as well as safety data to come out. So if both those are good and if it is comparable with the treatments of available today, we will obviously take the next step of filing for an NDA.

The next question is from Surya Patra.

Sir, just first question is on the Amplitude acquisition. If you can just give some more color, after the acquisition, what is your thought process about it? Is there any kind of acquisition-related costs that we could see in this quarter? And having done the licensing arrangement for the devices also, what is the kind of medtech thought process or the goal that we would be having going ahead, if you can?

So with the acquisition of Amplitude, obviously, we become, at least, from an Indian context perspective, a decently important player in the med devices space. The acquisition gives us the opportunity to enter into the orthopedic implant space for knee and hip. It gives us a navigation and robotic capability as well, which is the future for all surgeries, as you see. So it gives us both those capabilities. It has a strong footprint in Europe with a strong presence in France. And what we hope to do is obviously continue to build and increase our share in these markets, but also enter and scale up markets like Australia, Brazil, Mexico and enter more markets through both their network as well as Zydus' capabilities. Also, India offers a great opportunity to launch high technology, high-end implants in India, and we will be also launching these products in India. Beyond that, we do see opportunities to improve on our profitability looking at cost reduction through helping us improve margins. Also, on the interventional cardiology, our licensing capabilities with TAVI allows us to enter more markets, including India. We will be doing clinical trials for CE approvals for Europe as well as in India, and we hope to build an intervention cardiology business both through stents, balloons, TAVI and future more products in this category.

And acquisition-related cost, Surya, largely booked in March quarter only.

Sure. And second question is on the GLP opportunity. So in the emerging market that is now likely to be activated starting with Canada, Brazil like that as well as in India, so if you can give some clarity about your preparedness for these markets and your ultimate plan of integrated operation for the advanced market in the subsequent period, your plan, please?

Sure. So first, we have, in semaglutide, a different formulation, a formulation that gives convenience and ease of administration and also reduces the overall burden in terms of economics. So we will be launching this new formulation in India, and we are on track to do so, and we should be present when market formation happens. So we are quite excited with that. This formulation does offer significant benefit versus the existing formulations in the market. Similarly, we are also taking this novel formulation to the other markets like Brazil, Canada and future other markets, which will open up. So our strategy is not to go with the same, but a differentiated formulation in all other markets. And we will get to see that. The filings will start to happen by end of the year, and we will see maybe from a year to 2 years from then launches in different markets, depending on our approval -- how long does it take for the approvals to come. But right now, I think from the commercialization point of view, India will offer the most benefit to us in terms of revenue.

Okay. Sir, in regards to the CDMO acquisition or entry into the biologics CDMO business, so these two acquisitions -- these two facility acquisition obviously facilitate your foray, but is there any investment plan beyond that?

No. I think our current investment plan is to get these facilities up and running and qualified and start doing business through them. We don't have any more bio CDMO expansion plans in U.S.

Okay. Just last one on the sitagliptin. So considering the kind of bulk supply arrangement as well as the government supply, put together, is it fair to believe that this is kind of a compensating for the losses, means the revenue losses what we have been facing in the Asacol HD in this current year? And what will happen to that revenue stream once the generic competition in sitagliptin starts?

So I would say the franchise is a good product, which will have business over the next couple of years. It is definitely not replacing the loss of revenue for the lenalidomide. But from a new product 505(b)(2) of view, it's a good product, which has a good NPV with at least 2 to 3 years of good earnings. So we are quite happy with that, but it doesn't replace -- on its own doesn't replace any earnings.

No, I was asking about the Asacol HD revenue loss is getting compensated by this product right now this year, sir?

Asacol has gone quite -- I mean there has been a steep decline. So the revenue gap has been obviously some of this, but also so many other products that we have launched. So I would not attribute all of it to this product.

Okay. One just clarification, sir, about the finance cost. See, we have been talking about reducing our debt and hence, the finance this thing -- finance cost, but that has still been kind of stagnated or it is remaining there only. So some clarity on that front would be useful.

So there are 2 kinds of finance cost. One is because of the accounting treatment that we do for acquisition where we have to do unwinding of interest amount on the contingent payments that we need to make to the sellers. So that is one important component. I'll give you separate amounts. Sir will provide that specific amount for that. Second is that we are having arbitrage income in terms of government securities. So we have made investment, we buy government securities, we place those government security against the security, again borrow. So that actually helps us in terms of maximizing return on our own capital. So you would also find increase in other income in our results. And the increase in other income is largely attributed to interest income. So on a net-net basis, there is still a gain in what we are doing. So you will have a large cash balance, and there will be some borrowings also against the government securities. On a net-net basis, we have a net surplus only. There is no borrowing.

The next question is from Kunal Dhamesha.