Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. It's my pleasure to welcome you all to our post results teleconference for the second quarter ended September 30, 2025. For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Tushar Shroff, Chief Financial Officer; Mr. Arvind Bothra, Head of Investor Relations; and Mr. Alok Garg from the Managing Directors office. To begin with, let me now give you a broad overview of the developments during the quarter. I'm happy to inform you that we delivered robust financial performance during the quarter with healthy growth across our key business segments. Our U.S. formulations business delivered strong double-digit year-on-year growth driven by volume expansion and new products launched over the last 18 months. Our Branded Formulations business in India sustained growth momentum outpacing the market growth for yet another quarter. The business has outperformed the market growth over the last several quarters. In the Consumer Wellness space, we made our first international acquisition by acquiring the U.K.-based Comfort Click Limited. This strategic move will significantly strengthen our international presence across key markets of the U.K., EU and the U.S. CCL, Comfort Click Limited, is among the fastest-growing digital consumer health care platforms in the VMS that is vitamins, minerals and supplements space and derives most of its revenues from e-commerce and D2C channels. Our International Markets Formulations business delivered strong growth for yet another the quarter, on the back of robust execution excellence across markets. With that, let me take you through the financial numbers for the quarter gone by. We registered consolidated revenues of INR 61.2 billion, up 17% on a year-on-year basis. Excluding the acquisition impact, the growth was in double digits. Our operating profitability continued to remain strong with an EBITDA margin of 32.9% during the quarter, which is an improvement of 500 basis points on a year-on-year basis. Consequently, EBITDA for the quarter stood at INR 20.2 billion, up 38% on a year-on-year basis. EBITDA margin for the first half stood at 32.3%. Net profit for the quarter was INR 12.6 billion, up 38% year-on-year. Now let me take you through the operating highlights for the second quarter of FY '26 for our key business segments. Our U.S. business registered revenues of INR 27.4 billion during the quarter, up 14% year-on-year. We filed 6 ANDAs, received 4 approvals, including 1 tentative approval and launched 7 new products during the quarter. On the specialty front, in October 25, we launched BEIZRAY, albumin-solubilized docetaxel injection, further strengthening our 505(b)(2) portfolio. We remain committed to expand our specialty portfolio going forward and address diverse health care needs of patients. We received the first notice of compliance NOC approval in Canada during the quarter with receipt of NOC from Health Canada for Varenicline tablets, 0.5 and 1 milligram. We have received 3 NOCs from Health Canada so far, including 2 received in October 25. 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 sustained traction in renovation products and pillar brands. 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, gynecology and in the super specialty area of oncology. On the super speciality 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 44.5% as per IQVIA MAT September '25, an improvement of 500 basis points over the last 3 years. During the quarter, we launched VaxiFlu, India's first trivalent influenza vaccine for -- with the global recommendations of WHO. Flu remains a significant global health concern of seasonal influenza, causing 3 to 5 million cases annually of severe illness with 290,000 to 650,000 respiratory deaths annually. In the Consumer Wellness space, acquisition of Comfort Click marked our entry into the high-growth VMS segment. VMS market in Europe is estimated to be around GBP 11 billion. CCL's business portfolio comprises of 3 brands, namely WeightWorld, which includes plant-based supplements, vitamins and minerals, collagen, omegas, probiotics and micronutrients and sports nutrition for adults. Maxmedix, a specialty VMS gummy brand, which caters to all pediatric nutritional requirements and Animigo, a natural Pet VMS brand, which offers a range of petcare products. The acquisition will enhance the company's overseas digital business platform and is well positioned to benefit from rising health awareness and the growing focus on preventive health care. Overall, the Consumer Wellness business recorded revenues of INR 6.4 billion, up 31% year-on-year. Our International Markets Formulations business posted revenues of INR 7.5 billion, with a strong year-on-year growth of 39%. Growth was broad-based across regions with strong demand-driven performance in both emerging markets and Europe, supported by focused execution. On the medtech front, recently in October 25, we acquired the remaining 14.4% stake in Amplitude Surgical after acquiring 85.6% during Q2 FY '26 and completed 100% acquisition of the company. Going ahead, we are looking to expand our presence in focused areas of orthopedics, nephrology and cardiology. On the operations front, our oncology injectable manufacturing facility located at SEZ1 Ahmedabad and Baddi formulations facility received EIR reports. The EIR report with voluntary action indicated from the USFDA against the inspections conducted in June '25 and August '25, respectively. This concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across business innovation programs. Thank you.

Thank you, Mr. Nayak. Good evening, ladies and gentlemen. It's a pleasure to have you all on the call today. We are pleased with our performance during the quarter and the first half of fiscal '26. The business continued to demonstrate strong growth momentum, driven by consistent performance across segments and underpinned by robust operating profitability. We are on track to achieve our targeted top line growth and profitability for the current financial year. We remain committed to accelerating innovation that drives our long-term growth across our businesses and are guided by our strategic vision of going beyond the pill to meet diverse patient needs and deliver superior outcomes for all stakeholders. In the U.S. generics market, we consistently scaled our presence by building a diversified portfolio across multiple dosage forms through in-house development as well as partnerships. Our growing presence in the specialty through 505(b)(2) product development initiatives and a sharpened focus on the pediatric rare disease underscores our commitment to broadening patient access and delivering differentiated therapies with strong customer relationships and a flexible manufacturing network and agile supply chain and disciplined cost management, our U.S. business is well positioned for sustained long-term growth. On the India front, our Branded Formulations business has been growing ahead of our market over the last several quarters. We are committed to building on this momentum by deepening our presence in key therapy areas through multiple growth levers. Backed by a rich and diverse innovation pipeline, we continue to deliver differentiated solutions that address unmet patient needs and expand our reach across a broader customer base. In the consumer wellness space, we aim to empower consumers to integrate wellness driven products into the journey towards better health. Acquisition of Comfort Click Limited marks a significant step in the Wellness domain. Through this acquisition, we look forward to enhance our global capabilities, expand our footprint in digital health and personalized wellness and pioneer scalable, sustainable models that redefine the future of wellbeing. The International Markets Formulations business, which comprises of different countries of emerging markets and Europe have emerged as another resilient pillar of growth and continues to grow in strong double digits over this last several quarters. In the emerging markets, we have adopted a focused therapy-led approach, tailoring the offerings to meet the needs of specific markets and in turn, build a more agile market responsive portfolio. In Europe, the focus remains on expanding our offerings and enhancing the market coverage. In the MedTech space, we have identified cardiology, nephrology and orthopedics as the focus areas to execute our global strategy. We shall leverage Amplitude's portfolio for value-added innovation to meet diverse patient need for surgeons and health care facilities across different geographies globally. On the cardiology front, we look forward to expanding our portfolio. And in the nephrology space, we are putting up a facility for producing high-end membranes for dialyzers to meet the global demand. With this, let me share some other material developments on the innovation front during the quarter. On our NCE research front, we reported a positive top line result from the pivotal EPICS Phase III IIb trial of saroglitazar magnesium in patients with PBC for the U.S. market. The trial met the primary endpoint with a statistically significant treatment difference in the percentage of patients achieving a clinically meaningful biochemical response with saroglitazar compared to placebo. We are on track to file the new drug application for saroglitazar with the USFDA in quarter 4 of FY '26. On the vaccines front, we have received regulatory approvals to initiate Phase II clinical trial for our bivalent typhoid conjugate vaccine in India. Thank you. And now we will start with the Q&A session. Over to the coordinator for the Q&A.

[Operator Instructions] The first question is from [ Devang ]

Sir, is there any. Sorry, there has been significant increase of about 32% in other operating expenses. Could you elaborate key drivers here? What aided these expenses?

Yes, Tushar, can you take that?

Yes, sure. So during this particular quarter, we had acquisitions, we completed the acquisitions of Amplitude and CCL. The Amplitude was for 2 months and CCL for 1 month, which has resulted into the increase in the other operating expenses as well as we had because of the M&A activities, there were project-specific expenses, which also resulted into the increase in the overall operating expenses for the quarter. Those expenses were not there in the previous quarter. And we expect the run rate going forward, post acquisition to be at about INR 1,500 crores to INR 1,550 crores.

My second question is, could you please elaborate the rationale behind proposed fundraising initiative is the company evaluating any large acquisition opportunity or strategic investment in either domestic or international market?

So the key objective is to deleverage our balance sheet by reducing our existing debt. Also, there are strategic moves which will enhance our financial ability and agility to strengthen our capital structure positions us better for future growth. Also, the Board has approved at the enabling QIP resolution to allow us to have the flexibility to tap capital markets, which are when required. And more importantly, we also have potentially, as we have always stated, opportunities to look at the U.S. specialty business and scaling it up beyond saroglitazar, also opportunities in the international markets, specifically Europe and also some more innovative assets that we are looking at. So this will allow us the capability to execute on some of these.

Can you elaborate the potential deal size in what band you are looking?

So we don't have currently any immediate actionable deals. So -- but as and when, as I said, the key areas is U.S. specialty international markets. And obviously, specific brands for India, if any opportunity arises, and also our adjacency areas that we're working on, on the mid devices side.

Sir, lastly, on saroglitazar. Can you please share the management perspective on the U.S. market's opportunity size in the PBC, given Gilead's recent acquisition of Livdelzi for $4.5 billion. What is your view on the transaction in context to saroglitazar commercial potential and markets positioning in the same indication?

So there are 2 approved drugs on the market today for PBC. We would be the potentially the third to market. We see this as a tremendous opportunity with the current, the use of medicines for PBC has seen a big uptick. And so we are seeing a good traction for this class of drugs, and we're quite excited with the potential launch that we will see in about 14 to 15 months from now. So we see it as a large sizable opportunity and unmet need that exists. And with our clinical evidence, we should be able to have a level playing field.

The next question is from Bino.

Sharvil bhai, could you give some idea about how REVLIMID and Myrbetriq panned out? Has REVLIMID come off from last quarter? And what is your expectation for the next 2 quarters?

So REVLIMID for the next 2 quarters will not see any meaningful numbers as it was in the first quarter. So it has significantly come off in terms of its sales. Substantial portion happened in quarter 4 of last year and quarter 1 of this year. And we have trading quantities in this quarter and next quarter. But quarter 4 onwards, obviously, there will be genericization. On Myrbetriq, we are seeing good traction and steady market share increase. So we are quite pleased with the performance.

Got it. So you said generic REVLIMID in Q2 is significantly lower than Q1.

Yes.

Okay. And do we have yet clear visibility about how the U.S. revenues will pan out into FY '27, given that REVLIMID is not there, Myrbetriq remains unpredictable. Do we have a confidence that the U.S. revenues organically can grow FY '27 or '26?

So I think, obviously, it's subject to the court decision, but -- and we have to wait until February for the court decision to come. But we -- as I said, we believe that with the current pipeline of products that are supposed to come and the new launches, we will be able to maintain our current pace.

[Operator Instructions] The next question is from [ Annamalai Natarajan ]

And congratulations on achieving good results. Sir, my question is on -- my first question is on U.S. [indiscernible] being account for 45% of your...

Mr. Natarajan, for some reason, I'm getting your -- your voice is coming and breaking.

There is a 40% decrease in the quarter...

I think we're not able to hear you well so maybe -- can get a better line.

Yes. We would request to join back in the line for the same. The next question is from Neha Manpuria.

Sir, first on the medtech business. In the opening comments, you mentioned wanting to expand presence in nephro, cardiology along with ortho. Could you give us some color on how we see this evolving after Amplitude? When should we start seeing? I mean what can we do and in nephro, I think you're setting up a facility, but in cardiology, will there be another acquisition and how should we look at the entire medtech business evolving for Zydus, let's say, in a 3-year perspective?

So for the orthopedics, obviously, we hope to bring the portfolio of amplitude into more geographies and continue to strengthen their position in Europe with more market access. We are very close to the -- also, we have a future launch with our robot. So I think that is also going to pay way for future entry into both further market share increase in Europe specifically France and then also, we take it to Australia, India and other markets and also build up front end in India in the orthopedic space. So we believe Amplitude acquisition will allow us to commercialize this and grow in double digits for the business. On the cardiovascular side, we already have stents business that we have, and we are -- we have both drug-eluting stents and normal stents, and we will also have future drug-eluting balloons and also TAVI, which we have in-licensed and we are going through a clinical development for Europe and also a potential launch in India for TAVI for intervention cardiology. So that's how we will continue to build on the cardiovascular side. And nephro, the facility will get commissioned in the coming year, and then we hope to start filing for the dialyzers for both India and for future European markets as well.

Understood. And historically if you were to look at, let's say, the European market, how much of a risk is pricing regulations in your assessment? Has there been instances because we've seen it in probably pharmaceuticals, I'm not so sure about MedTech, but is that a risk that we need to sort of keep in mind the price control or price regulations for MedTech in Europe, any color then?

No, for price, yes, every like generics, there is price regulation. Yes. So as generics are there in medical devices, there is every 3 to 4 years price negotiation. We did have a 3% to 4% kind of price reduction in France, which is sort of normal as it happens every 3 to 4 years. So yes, that is some part and parcel of it, we do believe that going forward, I mean it will be in similar lines as we move forward. And we do see a lot of potential on cost reduction in Amplitude by today what they're outsourcing as well as how they're sourcing. So we will see -- we do see a benefit of Zydus bringing in a significant cost reduction to improve our margins and profitability there and also gain more market share.

Understood. And based on the comment that you made in fundraising, is it fair to assume that your priority for any M&A would actually be the specialty business in U.S. and Europe over, let's say, something in MedTech. Would that be a fair assumption?

Both are important, but yes, our first priority will remain the specialty in U.S., Europe.

And in specialty, what areas would we be focused on? I mean, which are the therapies or segments that you're looking at for acquisitions, any particular focus areas, and assuming part of it would be for PBC.

For us, we have -- I mean -- so we are in, obviously, pediatric rare disease. So that's one area that remains important, but we don't see any very large ticket item there. The area which we are looking at is gastroenterology as a call point and we are seeing how do we see if we can build some capability there through strategic acquisition. Also, we have Usnoflast in ALS and also recurrent pericarditis. So we see some opportunity also in the CNS or in the cardiology space. So I think these are some of the areas in the super -- and the specialty side that we will focus on in the U.S.

I'm sorry, one last question. What would be given specialty assets don't come cheap. What would be your -- when I think about sort of target net debt to EBITDA, what would -- what is the level of leverage that you would be okay with given the deal that size comes your way?

So currently, we don't have immediate something that we can really talk about. But obviously, we are looking at a commercial capability in the U.S. through the commercially launched product, which is either an EBITDA neutral or EBITDA positive. And that's what we will look to do. And in terms of our net debt-to-EBITDA ratio, we have always said that without any question, we don't want to cross one time. And for a short period of time, we can go 2x and then obviously release our net debt to one time. So that is the kind of range of spend that we'll look at.

The next question is from Kunal Dhamesha.

First one on saroglitazar in PBC. Now that you would have detailed, some details on the results, et cetera. If you could share how does our molecule compare with the currently marketed therapies? And what are the opportunity areas that we are seeing in terms of positioning the molecule?

So as I said, on saro for PBC, we did meet our primary endpoint. I think the main results will be declared in one of the major conferences because that's how we would like to release the data in our proper conference. So that will happen either most probably in the May ESL or maybe something before that. But in the coming calendar year, and that's why we will put out more results. But we are quite happy with the results in terms of what we have seen versus market.

Sure. And now that the Phase III trial is over, do we expect an R&D intensity to kind of go down a bit from where we were in the last 3, 4 quarters?

Not really because we still continue with our studies on saro, we still continue with the new Phase IIb Usnoflast. We are adding recurrent pericarditis as the next trial. So no, I don't think we will see any major reduction in R&D because of this.

Sure. And beyond saro, I think the next in the pipeline would be CUTX101. Is that fair understanding?

CUTX101, yes. So that will be -- we are potentially looking at fourth quarter or first quarter launch next year.

Quarter 4 or quarter 1 of next year, which is calendar year or fiscal year?

So between Jan to June, we will see a launch exactly...

Jan to June of 2026.

Yes, yes.

Okay. Okay. So that would be the first one. And saro would be potentially the second one.

Yes, you're right.

And sir, with the, let's say, getting a good trial result, would you be open to leveraging this molecule for other developed markets in terms of partnership or your own venture into other developed markets? How should we think about that?

Yes. So for them -- for saro specifically, we will look at other markets where we don't have direct access through partnership. And also, we already have direct market access partnerships for our rare disease portfolio. We'll also build that for CUTX.

Sure. Sure. So do we have anything like any potential partners, et cetera, with whom the talks on saro ongoing given that we have trial results, et cetera.

I think we will -- we have opportunities and options in mind, but we will wait for our publications and a filing before we initiate some of this.

Sure. And sir, 1 may, if I can squeeze in. On the QIP or the fundraise resolution, what are the areas? I think you suggested specialty and MedTech. But do we have more of an upper cap on MedTech at this point in time that these are the 2, 3 areas that we want to invest in and then kind of execute it and see where it goes. How to think from, let's say, next 2- to 3-year perspective?

Our current priority will be U.S. specialty and -- can you hear me?

Yes, yes, I can. I can, sir.

Kunal. Our current priority will be U.S. specialty and international market opportunity. MedTech, we don't have anything immediate. So that is not something immediate. But obviously, we continue to be opportunistic there.

The next question is from Damayanti Kerai.

I hope I'm audible.

Yes.

Okay. So my first question is, can you update us on 3 of your focus segments, which are injectables, transdermals and vaccine in terms of progress in last few years? And then what is the current contribution at the consol level? And how do you see these segments growing in medium term?

So on the transdermal side, we have obviously launched hormonal patches as well as rivastigmine and scopolamine as the critical patches. So we have 4 approvals for -- for that, we have remaining sales capacity and launch for these molecules as well. One more hormone patch and one clonidine. So -- and the business is doing well. It's a sticky business. We continue to hold good market share on that. So I think that's going well, and we have also filing plans also for remaining 1 or 2 products, and we have capacities built for that. With respect to our injectables piece, Obviously, we have had not any substantial lunches in the last 12 months because we had facility challenges. But we have niche products launched in the U.S. through partners. And also, we have just launched our first 505(b)(2) in injectable space, which is BEIZRAY, which can potentially quite a significant product for us in the specialty injectable side. And with facilities coming out of issues, we see very important launches over the next 2 to 3 years, both from simple vials, PFS, cartridge and pen device products as well as also products, which are [ nice ] related. So we have a lot of products that we have in the pipeline for launch where we could have limited competition in some of them. And it's still under scaled business. We believe in the next 3 years, we will see it meaningfully scale up the injectable side of our business in the U.S. With respect to vaccines, we are a strong Indian vaccines player. We have the flu as well as the rabies as the 2 important products that are sizable today. With the winning of the MR tender, MR also becomes a very important immunization program vaccine for us. We have TCV, which is approved by prequalified. So we are also going to participate in TCV global tenders and potentially also MR global tenders going forward. And the flu vaccine is doing extremely well. We are the first company to launch the trivalent flu vaccine now. and we see significant market share for Zydus vaccine in India. So that's how we are scaling up vaccines. I think as I have said before, in 2 years, it will become a very meaningful part of our business. Is already tracking very well, and we are seeing good traction by winning these tenders.

But vaccine mostly remains India focused business, right? And your international part is yet to pick up.

Today, rabies is partly our export as well. But other than that currently is India focused. I think in my FY '27, '28, you will see public market access to global tenders, and we will see more foray of our vaccines in global market.

Okay. So in medium term, when you say this will be sizable. So that will be broadly what 10%, 15% of consol number? Or how should we look at in terms of contribution at top line?

Which -- you're talking about all 3 combined?

Yes, maybe injectables is something, I guess, which sounds more promising. So maybe from injectables, if you can give some thoughts.

I say injectables, we still need 2 years -- at least 2 years to scale up. I would say they will be part of our overall generic strategy. We don't drive injectables as a separate strategy. So a part of our portfolio forms, oral solids, topicals, injectables, transdermals, and that's how we are building the portfolio. So it's not a focus by that, it's focused by the value and a product that we launch. We do have a lot of 505(b)(2) ideas on injectables, which we see traction. So as you said, the BEIZRAY product is the first launch, which we are very excited about. And potentially, you will get to see more of these opportunities in the next couple of years. So with 505(b)(2) as well as 505(b)(2) injectables plus generic injectables, it will be meaningful.

Sure. That's helpful. My last question is on Comfort Click acquisition. So how do you see this portfolio scaling up in again, say, next 3 to 5 years? And what will be the key growth levers here?

So Comfort Click is a D2C platform for fast-growing vitamins, minerals and supplements business. It's a very strong Europe asset driven business. It is the largest market share on the online platform in Europe. So this allows us to be present in the D2C digital VMS market. It also has a very strong own loyal platform business that it does, and it's also scaling up meaningfully. So that also helps us in terms of building it. CCL does enjoy a very strong brand recognition and high customer loyalty and retention. And we believe that this product portfolio and business is strongly positioned towards the high-growth area that exists for VMS. And we are quite bullish with how we can scale up not only Europe, where they are very strong, but also launch in more markets in the Middle East, U.S. and other geographies and they have gained significant share and lead the lion's share of the business, and we hope they can continue to build that in other markets also.

Sure. So it's basically market expansion plus improving the reach within the existing...

Yes. And so far, it does 3 assets. One is the WeightWorld, which is -- then the second is the Animal, I mean, pet supplements and then third is pediatric -- of the children gummy bears kind of range. So one of them is scaled up, the other 2 still need to scale up. So yes, we have plenty of opportunity. I think the key thing would be to focus and make sure we continue to build market presence stronger.

The next question is from Saion Mukherjee.

Dr. Sharvil, you mentioned about the specialty business is one area where you would probably like to invest. In the current context where there are some concerns on pricing, particularly in the U.S. market, tariff is still uncertain. Does that in any way change your view around specialty? And do you consider it is at high risk? And how they're factoring in that risk in case you want to make a big capital commitment for that market?

So from our point of view, in the space, we are in, the price is already very well established by the incumbent players. So it's a rare disease business. So I think it has a very different connotation piece. So we believe that currently, we don't see any major pricing challenge when it comes to the indication that we are working for. And there's already precedence there that exist. So I don't see that as -- today's concern for us. And obviously, whenever we are looking at anything in the special, we are obviously looking at the importance of what pricing could be in the future, and that is going to be an important factor for us to make any kind of choices.

And for saroglitazar PBC launch, what is the kind of investment in terms of front end you would need to make? Can you sort of -- at least for the first year as you roll out the launch that we should model in our models?

So I think we still have to go through an NDA submission. We need to then wait and see whether we get fast track or we get -- if it's fast track, it's a 6- to 9-month launch, if it's normal submission, it's a 1-year launch. Depending on that, obviously, we need to then decide on scaling up our presence. So what we are doing is the preoperative work right now in the U.S. for preparing for saro commercialization. But the hands, feet on street and the real hiring will happen much later once we are more clearer towards launch. So we would see that getting formulated in the next -- as we present in the next financial year, we'll have much more clarity in terms of where we will be. As I said today, the major part is filing and then maybe 6 months from then, once we have a first review with the FDA then talk about the ramp-up.