Zydus Lifesciences Limited (ZYDUSLIFE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Zydus Lifesciences Earnings Conference Call for First Quarter of FY '27. [Operator Instructions] Please note, this conference is being recorded. I now hand over the call to Mr. Ganesh Nayak, Director at Zydus Lifesciences. Thank you, and over to you, sir.

Good evening, ladies and gentlemen. It's my pleasure to welcome you all to our post results teleconference for the first quarter ended June 30, 2026. 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 talk about the key developments during the quarter. I'm happy to report that we commenced FY '27 with strong double-digit growth, building on the formidable base of FY '26. This performance reflects the sustained momentum across all our key businesses, each of which contributed meaningfully to the overall performance during the quarter. With this, first of all, let me walk you through the financial performance for the quarter under review. We registered consolidated revenues of INR 80.2 billion, up 22% on a year-on-year basis. On the operating profitability front as well, our performance was robust with an EBITDA margin of 24.1%. Consequently, EBITDA for the quarter stood at INR 19.3 billion, while net profit for the quarter stood at INR 9.4 billion. Our net debt-to-EBITDA ratio stood at 0.7x as on the 30th of June 2026. Now let me take you through the operating highlights for the first quarter of FY '27 for our key business segments. In the pharmaceutical space in India, our Branded Formulations business sustained market outperformance with a strong 20% year-on-year growth during the quarter. This business has, in fact, outperformed the market growth consistently over the last 3 financial years. Growth during the quarter was broad-based as we grew faster than the market in super specialty chronic as well as acute segments. In terms of therapy performance, the business grew faster than the market in cardiology, dermatology, gynecology, anti-infectives, pain management and in the super specialty areas of oncology and nephrology. Our ranking improved in key therapies of cardiology, dermatology and pain management, while on the super specialty front, we continue to retain leadership position in the oncology therapy. Our large innovative brands led by Lipaglyn, continue to strengthen their market standing and improve their rankings quarter after quarter, underscoring the impact of our innovation on improved patient outcomes. Contribution of chronic and sub-chronic portfolio has increased consistently over the last several years and stood at 54.2% as per AWACS MAT June 2026, an improvement of 360 basis points over the last 4 years. International Markets formulations business has delivered strong growth during the last several quarters and has established itself as a formidable growth pillar for the company. The business sustained the growth momentum during the quarter and posted revenues of INR 9.7 billion with a year-on-year growth of 34%. The growth was led by strong demand-driven performance across markets and supported by focused execution. North America business comprising of the U.S. and Canada, exhibited resilience with revenues of INR 31 billion during the quarter, up 5% quarter-on-quarter. The base U.S. business continued to gain share driven by sustained volume expansion supplemented by new product launches. On the U.S. generics front, we filed 5 ANDAs, received 9 approvals, including 4 tentative approvals and launched 11 new products during the quarter. Our U.S. specialty business achieved 2 important milestones during the quarter. First, we launched Nufymco injection, which is ranibizumab, our first biosimilar in the U.S. market, marking a meaningful expansion of our specialty capabilities and laying the foundation for future participation in the growing biosimilars segment. Second, we completed the acquisition of Assertio Holdings, significantly strengthening our commercial capabilities, portfolio breadth and market access in the U.S. specialty space. These milestones underscore our continued focus on building a robust specialty platform in the U.S. and advancing our transition towards a more differentiated innovation-led business model. In Canada, we received 2 ANDS approvals and launched 2 new products during the quarter. Our Consumer Wellness business recorded revenues of INR 14.3 billion, up 67% year-on-year. With this, the international business, including the Comfort Click portfolio delivered a like-to-like growth of 25%, while the domestic business grew 5% year-on-year. Within the domestic portfolio, skin and hair care and food & nutrition continued their strong momentum, delivering growth of 35% and 16%, respectively. Seasonal brands, however, degrew primarily due to the softer summer season. In the medical devices space, the business registered revenues of INR 2.8 billion during the quarter. We are investing in enhancing our capabilities in the focused therapies, which offer long-term growth potential to create differentiated value. On the operations front, our injectable manufacturing facility at Zydus Biotech Park recently received an establishment inspection report, EIR with a voluntary action indicated, VAI, classification following a GMP surveillance inspection conducted in April and May 2026. During the quarter, we entered into a joint venture agreement with Sunshine Healthcare to establish a pharmaceutical manufacturing facility in Sri Lanka to strengthen local production and reduce import dependence for the country. Now this concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses as well as initiatives in our innovation program. Thank you.

Thank you, Mr. Nayak, and good evening, ladies and gentlemen. It's a pleasure to have you all here today on our call. FY '27 is off to a great start with a strong performance across the key businesses. More importantly, we continue to advance our transformation into an innovation-led organization. The share of our branded portfolio in the total revenues has steadily increased over the last several quarters. It accounted for over 55% of our total revenue in the first quarter of this year. As our branded business continues to gain scale across markets, we expect their share to exceed 2/3 of our overall revenue over the medium term. I'm confident that the strategic choices that we have made over the last several years will build strong growth pillars for us in the long-term. With our innovation efforts translating into commercial opportunities, a growing branded portfolio and disciplined execution across businesses, we are well positioned for our next phase of growth. On the pharmaceuticals front, our strategy for India Formulation business is working favorably. The branded business delivered a formidable 20% growth during the quarter. In fact, the business has been consistently outperforming the market growth over the last several quarters. A key driver of this outperformance is our chronic portfolio. These therapies continue to gain share and significantly aid to our overall growth momentum. This is further supported by the strong uptake of our innovation and differentiated portfolios. In addition, our brand building initiatives and a stronger execution focus are delivering clear results. We remain fully confident in our ability to outpace the industry growth and growing sustainably. Our international market formulation business continued to deliver strong growth and has emerged as a formidable growth pillar for the company. While our therapy-led strategy continues to drive momentum in the emerging markets, portfolio expansion and deeper market penetration in Europe are supporting this sustained growth momentum across the business. We have steadily strengthened our position in the U.S. generics market through a diversified portfolio, a stronger execution and a resilient supply chain. This is reflected in the sustained prescription growth market share gains and improved market rankings, reinforcing our position as a trusted generics player in the U.S. I'm pleased to report that our branded business in the U.S. now contributes 10% of our revenue in the U.S. We expect the share of this segment in the U.S. to continue to increase as our specialty and innovation-led business gains scale. The growth drivers are firmly in place vis-a-vis orphan and rare disease franchise, a growing portfolio of 505(b)(2) products, the recent acquisition of [indiscernible] and an NDA submission to the U.S. FDA of Saroglitazar, our first internally developed innovation in the U.S. Collectively, these businesses position us for a sustained shift towards a more differentiated and specialty-driven U.S. portfolio. In the Consumer Wellness business, we continue to build a future-ready portfolio through innovation, disciplined execution and data-driven decision-making. Our investments in analytics and digital capabilities are enabling sharper consumer insights, improving resource allocation and sustainable profit growth. In the MedTech, we continue to strengthen our presence across the orthopedics, cardiology and nephrology while building a scalable platform for long-term growth. Leveraging Amplitude's orthopedic portfolio and the proprietary Andy Robot, robotic surgery surgical system, we are expanding access to advanced solutions. At the same time, we are broadening our cardiology offerings and establishing a high-end dialyzer membrane facility to address growing global demand in nephrology. With this, let me share some material developments on the innovation effort during the quarter. On the NCE research front, the U.S. FDA granted priority review to our new drug application of Saroglitazar Magnesium for the treatment of primary biliary cholangitis. Recently, we received also a regulatory approval in India to initiate a Phase III clinical trial of Desidustat in patients with sickle cell disease. The study will be conducted in collaboration with ICMR. Desidustat represents a potentially first-in-class therapeutic opportunity for the treatment of sickle cell disease. On the Biotech R&D space, we initiated a Phase III clinical trials in India for our second ADC of biosimilar. This development further strengthens our deep and differentiated biologics pipeline and underscores our capability in developing advanced biologics. It further enhances the long-term growth potential of our biologics franchise. On the R&D front, on the vaccines R&D, we completed our Phase II trial of the viral typhoid conjugate vaccine and also initiated a Phase I trial of our Chikungunya vaccine in India. On the global development front, we submitted our dossier of the MR vaccine to WHO. The dossier has been accepted for review. Thank you. Now we can start with the Q&A session. Over to the coordinator for the question and answers.

[Operator Instructions] The first question is from Kunal Dhamesha.

This is Kunal from Macquarie. Congratulations on strong set of numbers. Dr. Sharvil, with quarter 1 suggesting strong top line growth, would we be kind of looking at a much higher growth than what we have guided for FY '27, which is currently at double digit is what we have said. So yes, that's the first question.

Thank you for the wishes. I think we continue to stay with the guidelines that we will deliver strong double-digit growth for the year, starting with the first quarter. I think our India business is poised to deliver significantly good traction, better than market, at least by 300 to 500 basis points. We see mid-teens growth continuing for that business. So is our international markets and U.S. being around single-digit growth. Looking at that, we will still see good growth for the coming year in revenue.

Sure, sure. For the India business, I think last time we shared the share of the progressive brand, I believe that with the strong growth, has that gone up meaningfully in this quarter? Should we expect that momentum of progressive brands to kind of continue at that level?

Yes. I think we have seen more than expected exceptional strong growth on our innovation portfolio, which has beaten our current expectations. Also on our value-based biosimilars, we have seen a very significant uptick on all brands. That has seen a very significant uptick also. I think both of them have significantly added to this momentum. At the same time, which has also led to an improvement in our chronic baskets and our growth booster brand. I would say the all-around performance across but better than expected on the innovation and biosimilars and also the scaling up of vaccines.

Sure. The last question that I have is on the overall -- some of these new growth drivers, right? In the medium-term, we suggested that the branded pieces will become more than 2/3 of the revenue, right? Would you say most of these new drivers would aid to our profitability over medium-term?

Yes. I think if I break down into businesses, India and EM, I agree with what -- with the improvement in our portfolio of branded as well as chronic, we'll see better profitability. On the U.S., I would say the only scale up that we need to do is Saro, which will require investments. But if you take our other portfolio, which is our Sentynl, which is already profitable and -- broken even and profitable and will continue to aid to profitability. We are seeing our portfolio on the 505(b)(2) also becoming profitable from now and growing. As I said, today, it's only 10% of our business and probably by end of the year, it will cross 15% or more. We can only see that increasing meaningfully.

The next question is from Neha Manpuria.

My first question is on the increase in the operating cost that we have seen in the current year. Given that we'll have the full impact of Assertio as well as Saro spend, how should we think about both the employee cost as well as the SG&A cost? When should we start expecting the incremental Saro cost to flow through? And just an update on our guidance -- margin guidance. Are we still maintaining the 24-plus percent margin guidance that we had indicated?

Saro, there is already certain costs that have started, but we will see an increase in the second half of the year. Owing to that meaningful increase that we'll see in the next second half, we are still guiding towards the 24% kind of margin.

Sorry, sir, go ahead.

Yes. Our current run rate of about INR 1,900 crores to INR 2,000 crores, I think that kind of a run rate, I think we should assume as a part of the other expenses, excluding R&D on a quarterly basis.

And this is despite us increasing the spend on Saro?

Yes, it's all inclusive.

Okay. And the increase that we have seen quarter-on-quarter so far is essentially on the back of what would -- this increase, like sir mentioned, Saro is one of them. But what is the other reason for the sharp increase that we've seen in costs quarter-on-quarter?

It's all acquisition driven the impact that we see on increase in the other expenses. Largely, I would say that almost like I would say that about 80% is increase in the cost is driven by acquisitions that we had in last 1 year.

That I understand. Sir, year-on-year, I understand. But even if I look at this number quarter-on-quarter, it seems like a fairly steep increase.

Zylidac, Assertio and the freight expenses.

Okay. Okay. Understood. My second question is on the CapEx. We see a pretty sharp increase in CapEx this quarter as well. If you could give us some color in terms of where we are spending in terms of CapEx and what the guidance for the full year would be?

From the CapEx point of view, I think a meaningful part of it, obviously, is setting up the facilities SEZ-III, which is coming right now, the completion of the expansion that we have done in our existing facilities for higher capacity, including Moraiya, Goa, Baddi and the Unit 2, Unit 3 and SEZ. We are also building a new higher or bigger R&D center for formulation development, which has happened. There is one-off investment in Wellness for a larger land acquisition for future facility, which is a little exceptionally for onetime kind of investment. Then it's a new CAR-T facility that we built for biologics, new vaccines, DS facility. So there are multiple things that have led to this increase, including some investment that continues in Zylidac also. It's a whole host of many things. It's not a one particular thing that is a large item other than the wellness land acquisition, but multiple investments in increasing scale and capacity in existing and new capability.

And for the full year, what would this number be in that case?

We are right now guiding for around INR 1,500 crores to INR 1,600 crores CapEx.

Understood. And for Saro, based on -- given that we have the TAT coming in the later part of this year, how should we think about the ramp-up of market share there? If you could give us some color to help us understand in terms of what the sales opportunity could be?

On Saro, I mean, we are building for next FY '28 launch right now, so April launch and we are investing for that. The first year -- first 3 years -- I mean, first 2 years will be just a buildup of this. We won't see any significant revenue in the first year, large. But as we move into second and third year, we will see the revenue build up. I think it will -- first 2 years will look more from an investment point of view as to how much we're investing. On the market point of view, obviously, if you see the recent guidance from both the other competitors in the current segment, they are seeing better traction than their earlier guidance and they've upgraded some of the guidances. That is led from higher patients -- bigger patient pool and more patients wanting to access this indication. We are seeing a positive in terms of market being a bigger market than expected. We are only seeing some positive signs in terms of how this market formation is happening. We're quite excited with that opportunity.

Noted, sir. And any indication that you would want to give on target market share or, let's say, peak sales that we expect from this product?

As I always said, on our conservative side, we are looking at a $200 million to $300 million range and maybe more optimistic we can cross the $400-plus million range.

Next question is from Saion Mukherjee.

On the U.S., sir, you mentioned currently, we have 10% of revenues coming from branded. So that would mean roughly, let's say, $130 million, $35 million, right, of revenues on an annual basis. How is that like the rare disease would be like $40 million, $50 million? And if you can throw some light, what are the other constituents and whether Assertio is a significant number in this?

Currently, in this quarter, which is 10%, we don't have any Assertio number fully. Last year was around $60 million, which is the ultra-rare disease business. I think start adding from the coming quarter, that's why we said the numbers from an annualized point of view will go up towards 15% because those numbers are still to be baked in.

Understood. So you're saying rare disease is around $60 million and the remaining $60 million to $70 million is like 505(b)(2) products. Would that be a right way to think about it?

Yes, they have a cluster of 505(b)(2) products.

Okay. Okay. And sir, this Assertio acquisition, ROLVEDON sales, how should we think about the contribution this year, next year? What's the expectation there?

I think we have just begun. It seems to be on track. We are looking at around $15 million to $20 million per quarter run rate.

And this will -- we would see that from next quarter, right?

Yes.

Understood. Understood. And sir, on the India business, we have seen good growth here. If you can -- I mean, what's really driving? If you can give some color, of course, you mentioned about innovation asset, maybe how is semaglutide done? If you can give some color here. I'm just wondering what's the sustainable number, let's say, if I take a 2-, 3-year horizon, how should we think about the growth for India business?

I'll try and maybe summarize a little better. I think there are 2, 3 things. One is overall chronic part of our business is growing, I mean, at more than 20%. If you look at even July numbers that has been reported by the AWACS, we are seeing strong traction on the chronic side of therapies and growing very meaningfully which helps that growth. The second is we are seeing a very meaningful uptick on Saro and Desi, which is adding quite meaningfully, almost 30% to 45% kind of growth in this business. That's also adding very meaningfully and scaling up, and we see that traction continuing. The other third is our biologics have seen extreme traction on 3 or 4 brands, which have also very, very significantly scaled after genericization also. We are seeing very strong momentum on those. Sema is just the beginning. It is a small contributor. We are third to fourth in market share today in our own brand, but overall, we are largest as a semaglutide innovative generic that we have launched. That also is adding to the momentum. I would say it's the whole differentiated pipeline and the chronic business, both helping this growth, and we see that sustaining going forward.

Understood. Sir, I know the INR 6,500 crores of revenues that was booked last year, how much would be biologics, innovation and vaccine in that? If you can give a rough percentage?

We have not given any breakup because it's all the different divisions, which have multiple brands, both chronic and this. We don't track them separately. But as I said, oncology portfolio is the fastest growing and then followed by the chronic portfolio. Then vaccines is obviously a very different business, which is -- I always said that we want to achieve the INR 300 crores to INR 400 crores kind of crore mark, and we are on track to achieve that.

Understood. Sir, if I can ask one last question, which is on the international formulation. We have crossed $100 million of revenues this quarter, and the growth has been exceptionally strong. I would appreciate if you can give some granular color on this, either in terms of geographic segment or product segment, which is driving this. Again, the question is around sustainability of very strong double-digit growth from, let's say, next 2, 3 years perspective?

I think 3 things. One is our core existing markets have delivered on the emerging market front, delivered -- they continue to do better than last year and are growing very strongly. The second is Europe, which used to be a little difficult business for us in terms of growth, has done -- 2 things have changed. Both our core old markets, France and Spain have significantly delivered on growth, and they continue to see a very strong traction on that. Our new market entry of U.K. has scaled up much faster than expected and is also becoming a very important business for us. The international part in terms of EU has started doing extremely well in terms of the revenue. The third is we entered new geographies. Those geographies, we are seeing our innovative pipeline or first generic kind of launches in many markets, which is seeing a good healthy traction in terms of commercialization. I think all in all, all these 3 things are helping core markets, the Europe doing much better and the new markets meaningfully scaling up.

The next question is from Bino. We might move to the next. The next question is from [ Vamsi ].

Congrats on a good set of numbers. So my first question is in terms of the 505(b)(2) portfolio that we have. So of the 20 assets, if I'm not wrong, close to 5 have been commercialized. So how much of -- how do you expect the overall portfolio to ramp up in terms of the launches that are going to -- which are scheduled for the rest of the year? And in terms of the steady-state sales, I remember in one of the calls, we have guided that some of these assets could hit a $50 million kind of mark each. So how is that kind of panning out at this point of time?

On a 505(b)(2), we have a good mix of our own products and licensed products also. We have about 19 products that we have from our in-house and own pipeline creation. We have partnered products, which are about 8 that we are working on in different areas. We have commercialized 4-plus products now, as we said. We have more products in the pipeline. I think it's a pipeline that we are trying to develop for the markets. From the current point of view, I would say the -- most of them are doing better than expected. I think the going out business is lower than what we had expected, and we hope in the next financial year, we will see mostly bigger scale up. But beyond that, the other 2, 3 products that we have launched are doing extremely well. At the same time, ROLVEDON will add meaningfully to that business going forward. Then the biosimilars launch of, initial launch of ranibizumab and with the PFS coming next year and also further products, we will see good uptick on that. Also our specialty rare disease business on Sentynl, which has meaningfully started to do well. All in all, I think that's doing well and it's growing well.

If I just may also ask a couple of questions around the liquids portfolio. So currently, how big is this in terms of the overall contribution? And how many of the overall 505(b)(2) assets within the liquids portfolio have already been commercialized?

We have around 7 launches, I think, and we have 10-plus approvals, and we continue to create a larger pipeline.

Understood, sir. And lastly, also on Desidustat, any update in terms of our China partner launching it in the Chinese market and how the ramp-up is happening there? And how big of an opportunity do you think it could be over the next couple of years?

Yes, I think we have achieved the milestones of getting it approved in China now. We are supplying now API for formulation manufacturing in the market. With this product nationally reimbursed in the drug list. Obviously, we need to get an approval through the -- in the NRDL to gain major part of the share. But having looked at that, there are 120 million CKD patients in China. It's a very, very large market. The prevalence of anemia is very strong in that market. Looking at all of that and looking at how the peers have done in this space, we see it as a good opportunity. But first, we need to go through the registration and making sure it is available through the reimbursement phase. Once the reimbursement phase goes through, then we can see an uptick in that business. Maybe in a couple of quarters, we can give more highlight, but we see this being a decent opportunity, a long-term opportunity, but we'll have to wait for another 2 to 3 quarters to make sure that all the important approvals go through and the access to the molecule is created in the list.

Understood, sir. And just one last question. So given that it's an NCE asset, and I presume that, of course, it will also be under patent protection in the Chinese market. So if not as big as Saro for the -- in comparison, like how much of steady-state sales would this asset generate once it reaches its, let's say, 3 to 4 years down the line, what kind of top line contribution could be coming from this product from the China market?

The opportunity is very difficult to say right now. We have not factored in any meaningful scale in terms of our current year. But as we get experience in terms of it getting reimbursement through, then we can see it importantly doing well because the other molecule is doing very well, which is already launched. I think they are doing about $200-plus million in the Chinese market. We can see it also being a meaningful contributor to us.

The next question is from Kunal Dhamesha.

Can you hear me?

Yes.

Dr. Sharvil, one question on Saroglitazar. So for the incremental addressable patient pool, one, do we need to do additional studies? If yes, what would be the size, scope and duration of that study? And with, let's say, initial indication we already applied, would we be going for an expedited process there?

Saro has already been granted priority review by the FDA for its first indication in PBC. That is on track. As I said, we are building for prelaunch capabilities on that. This will be a continuing trial because we have to follow the patients through and do a rolling Phase III. That will continue. We are also adding a marginal ALP trial to Saro for certain patients who have marginal ALP issues. That will also expand the opportunity size of the market, which that trial is about to start. Those are the updates on the key trials.

The duration, if you could share like the, let's say, expanded indication, can it be a near-term opportunity or would take, let's say, 2 to 3 years? How should we think about it?

No, it's not. The expanded indication is not a near-term. It will take 2 to 3 years.

Okay. Sure. And any update on Usnoflast for ALS indication? When is the readout that we expect for that?

On Usnoflast, as I said, we have a couple of trials that we are doing. One is a Phase II. We initiated a Phase IIb in the U.S. for ALS. That is ongoing. The study is ongoing, enrolled 240 patients against the placebo. That is the way it is moving on. Maybe see it as FY '28 kind of time line when we can see some data coming out of that, so end of FY -- late calendar year '28 or early '29. That's when we see the data come out. On the ulcerative colitis side, we are also looking at that as a potential opportunity also. We are seeing good Phase IIa data, and we hope we can -- in India, and we hope to move that obviously in India in the next Phase IIb or III and also potentially evaluate it in the U.S., which is under evaluation right now.

The next question is from Damayanti Kerai.

My first question is for Dr. [Technical Difficulty] indicated your medium-term goal of [Technical Difficulty]. So for these, what kind of spend you foresee, whether it's towards the SG&A or building up team for specialty, et cetera?