Aurobindo Pharma Ltd

Thank you Vandit. Good morning and a warm welcome to our first quarter FY25 earnings call. I am Shriniwas Dange from the investor relations team.

Thank you Shriniwas. Good morning all and a warm welcome to our Q1 FY25 earnings call. Before we get into the details of our Q1 performance, I would like to share that – 1. We have published our Second Integrated Annual Report for FY24, which includes details of our progress so far in terms of our business and financial performance and also touches upon our strategic pillars and growth levers. 2. I am also glad to share that we will be completing our first ever buyback of Rs. 750 crores in August’24 at a price of Rs. 1,460. The cash outflow for the company is

Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask questions may raise your hand from the participant tab on the screen.

Hi. Good morning. Thank you for the opportunity and congratulations on good set of numbers. One for Subbu Sir. On the EBITDA margin guidance of 21% to 22%, since adjusted for some of the one off that you have highlighted, this quarter we would be at roughly 22.7%. We also said that this is kind of seasonally slightly muted quarter from the US perspective. Also, we have baked in all the Pen-G related commercialization expense. So, shouldn't the run rate from here on improve? And you know, is there any possibility of raising the EBITDA margin guidance at this point?

Kunal, you are absolutely right. But if you recollect in the last earnings call, I said very clearly, we will revisit the EBITDA guidance in the earnings call of November that is the second quarter call. We will be looking into that and then reflect accordingly.

Yes sir. And in terms of Pen-G plant cost, we have baked in for the full three months in this quarter?

Yeah, three months we didn't have sales at all because of the various reasons in the Pen-G plant. [Though] The equipment are ready for the mechanical integration, we have synchronized the power and boiler and we lined up all the utilities together; we encountered teething problems in the last quarter when we are trying to scale it up, mainly due to the different operating environment compared to some of the foreign

Sure sir, but my question was more on the operating expenses side. Is it already baked into our P&L?

Yes. Everything got into the P&L.

And depreciation of 400 crore plus also reflects the plant capitalization?

That includes all the plant depreciation, everything.

If you can provide any incremental updates on our biologics/biosimilar business over quarter four? It would help.

Good morning, Kunal. With our biosimilars initiative, we are making the intended and steady progress with our clinical trials as well as our review of filings. Our pipeline now extends up to 2032 and I'm reasonably convinced about the progress we are making. With the first wave of biosimilars, I'm pleased to state that we have achieved an important milestone in May of completing recruitment of all patients as part of our Denosumab trial in European sites. The clinical study closure will be in June next year and we will be on track to file this product with both European Medicines Agency and the FDA in the second quarter of the next year [Q2FY26].

Sure Sir. Thank you. And if you can quickly also update on the biologics business, where are we in the process of putting the 30,000-litre capacity, etc?

In the last earnings call, I have talked about us being optimistic about closing the deal with MSD Singapore entity and after three days of the earnings call, we have signed on the dotted line. Now we have entered into a definitive agreement with MSD, and we have one product schedule, as well, with them. The definitive agreement means that the civil works for the facility have now gathered pace, and I hope to complete the project by 2026 [CY], which allows the engineering batches or water runs to be conducted. From 2027 [CY] onwards, I expect the stockpiling process to begin for this product and the revenues to trickle in. The facility is progressing well and I'm reasonably confident of executing the project on time in 2026 [CY] for the engineering batches to be taken within the facility. So, I don't see any showstoppers there. The thing is progressing well, Kunal, if that answers your question.

Yeah, Sir. Good luck and I'll have more question. I'll join back. That’s it. Thank you.

Thank you.

Thank you. Requesting everyone to restrict themselves with two questions, please. The next question is from Amey Chalke.

Thank you so much for giving me an opportunity to ask a question and congrats to the management on the good set of numbers. First question, is it possible for management to guide how the Revlimid sales have moved from quarter four to quarter one?

No, we are not specifically talking about Revlimid as a separate sales segment. But our run rate continues to be in a similar way when we launch the product and we expect to continue in a similar way.

Sure. I don't want quantification, but qualitatively, is it possible to guide?

Qualitatively at this point of time, yes, the pricing remains constant. We don't see any decline and we are trying to as best as possible to schedule it in such a way that like every quarter we have decent set of numbers. Except for the one or two quarters, we expect the similar run rate to continue.

Sure. And should we assume that this year we should book higher sales compared to last year or it should be similar?

It will be like 10 or 15% here and there, but it will be similar.

Got it. Second question I have is on the Europe and China revenue potential considering both China plant and Vizag plant are being operationalised in FY25. So if you can give us some outlook on both the plants. Thank you so much.

Well, let me just talk about Eugia Vizag then probably Subbu, you can take care of China. Eugia Vizag plant is up and running. We started capitalizing the plant last quarter itself and our European audit is done and we will be hopefully starting filings from next quarter because we are waiting for the GMP certificate to come from European authorities. Once we receive the GMP certificate, we will start filing products for the Europe.

Yeah. So, in terms of China, we are planning to start small volume in the month of November-December and expect to ramp it up in the period between January to March quarter of next year [Q4FY25]. And the full-fledged volumes will start going only the next fiscal year [FY26]. In fact, we are trying to do some filings for China as well as for US. So all this will take the China revenue potential up in the coming years. This year we will see only a small volume and value.

So, if I may add Subbu something to what you said. In China, we have also shipped the first commercial product for BFS through our JV partner.

Thank you. The next question is from Neha Manpuria.

Thanks for taking my question. Yugandhar, my first question is on the US business. I thought we were supposed to see improvement in the US business with the resumption of the facility in the quarter. Could you give us some colour on what's happening to that? Should we expect the improvement in the injectable business to be a little slower versus our initial expectation? And just an extension to that question. We've seen another facility get an OAI for the injectable business. You know, how are you thinking about compliance for the injectable business, given that's a key for our growth momentum in Eugia?

Thanks, Neha. Yes, you're right. In fact, we thought last year Q4, we have taken the hit, but because we wanted to be robust enough in terms of our remediation action, it continued in Q1 as well. Our overall manufacturing was not to the fullest extent what it used to be. So Q4 and Q1, two quarters I have taken the hit in terms of other remediation actions for the Eugia-3 plant. So, I am cautiously optimistic that from this quarter onwards, that is Q2 of FY25 onwards, our regular injectable business should move up. I'm quite confident of that.

And does that make us confident to be able to gain the lost market share for these injectable products? Because I can see that we have lost market share in some of the products in the injectable side.

I think at this point of time, the way I see it is, I don't think we have lost too much of market share on any of the molecules. It is mainly the supply constraints, what we created on ourselves and that is what has taken a bit of a beating in terms of Q4 and Q1.

Got it. And my second question is on Europe. Particularly strong quarter. I know Subbu sir mentioned in his opening remarks that this will be north of 880 million for the full year. Could you give us some colour on the reason for the step up in the quarter and why we believe this will be sustainable going forward?

Good morning Neha and good morning everyone. Murali here and I'm going to take this question. Yes, Europe has been a contributor, silent contributor to the global revenue of Aurobindo in the range of 25%. And of course, we are having certain plans for new launches. And if you take the Q1 performance and on a straight-line basis alone, we'll be touching €880 million. We have a couple of major launches coming up during the year. So we are quite confident and bullish that we'll be able to go northwards of 850 million towards €880-900 million. Thank you.

Understood. Thank you so much.

Thank you. The next question is from the Damayanti.

Hi, good morning and thank you for the opportunity. My first question is on remediation related costs. So, in your opening remark, you mentioned there were some additional costs which you incurred in the 1st Quarter due to this remediation charge etc. Can you quantify that? And how much of that could be seen in this current 2nd Quarter?

Damayanti, in Q1, we have spent around [$] 9 million dollars against the remediation cost of year Eugia-3. And we expect the Q2 to be only a very fraction of that. I think, hopefully, it will be around [$] 2 million. And we have completed all the remediation, and we don't expect anything more than what we have already spent. So, Q1, yes, it is [$] 9 million plus, and Q2 would be around [$] 2 million plus. That's what is our expectation.

Okay, so majority done and now maybe a few related to Bhiwadi plant.

Bhiwadi, we don't need any remediation there. It is only clarification. So, it is going to be more about clarifications of this. Absolutely, there's no remediation in Bhiwadi. It is only Eugia-3 where the remediation was required and we have, to our best of our effort, done that particular piece and that is over.

Okay. And you just mentioned Q2 onwards, you expect the generic injectable sales to move up and then maybe you will back to the pre-disruption stages.

That's right, Damayanti.

And you maintain your guidance for global speciality, like Eugia sales, which you had given some time back?

Yeah, in fact, for this year, I've already guided that we will do around [$] 600 million plus. I think we still are optimistic about touching the [$] 600 million.

Okay. And my second question is on your Indonesia operations. So, you mentioned 20 million sort of sale you have booked. So, what kind of ramp up you see in that market? Are you optimistic about ramping this up significantly?

No, Damayanti. What I was mentioning is, in the Q4, we have accounted the Q2 and Q3 sales because we did the closing sometime by December 20th. So, the entire thing, the net economic benefit, has flown into the Quarter 4. That is the reason why it has come there. Otherwise, we have been traditionally doing around 8 million per quarter and we will continue to do that at least for the [current financial] year. We are also thinking how to increase the overall sales and ramp it up, because this is an existing business.

Okay, sir. That's clear. Thank you.

Thank you. The next question is from Shyam Srinivasan.

Yeah, good morning. Thank you for taking my question. Just the first one, again on the European business, you talked about EUR 850 million for the full year kind of run rate. So just want to understand how is the underlying profitability of this business now tracking, have we moved past that double digit into mid-teens in terms of the margin profile?

I think Shyam, in terms of the euro business, I think they have been doing it extremely well in the last 2-3 quarters. They have been gradually increasing their overall revenue, overall margins. And I think the margins have already moved to nearly mid- teens level. And the way Murali has communicated, this is expected to be sustained if not improved.

Well said, Subbu, I agree with you.

Murali Sir, just in terms of the integration where we have tried to move to some of our local plants. How far are we on the journey and how much more can be done incrementally for integration for the European business?

When you talk of local plant, in Europe we have only the plant at Generis, Portugal. But if you're referring to the expanded facilities in India, the Unit 15 has undergone expansion, which is clearly helping us in feeding the markets. And despite Q1 bearing months still impacted by Red Sea issues, the production and dispatches from India has really helped us in time-to-market being achieved. So, we are doing fine. And when China plant starts feeding us, all the more we will be able to supply clearly to the market better.

That's helpful. Just quickly on the second question, if I were to look at the Pen-G plant, has all the CapEx now done, Subbu sir, in terms of what CapEx we had to do?

Relating to the CapEx, Srinivas, we have more or less incurred around 95% of the CapEx. Any 5% is dependent upon the [additional] requirement, while we are ramping up. So more or less the CapEx is over. The second question is that we didn't have any significant revenue flow last quarter. This quarter we are planning to do a good set of batches as a process of ramping up, which is expected to give some revenue during this quarter. These two months are very critical - August, September. Once we achieve that, next quarter we will be going towards 80% of the ramp up. We are working towards the same. So, we will be able to give better clarity during the 2nd Quarter earnings call.

Understood. Thank you and all the best.

But I just want to add, Shyam, we have taken some good number of operating expenses and we didn't have the sales during that quarter. And once the [capacity] ramps up, it [will] help in overall growth of the company, increasing the EBITDA margin. The existing operational expenses cost, which we have incurred during the period of stabilization, will not be there.

Understood, Sir. Thank you.

The next question is from Bino.

Okay. First question regarding this product generic Emflaza [Deflazacort] which we had launched in the US a few months back, how is it doing? Are we only the player in the markets still?

Yeah, Deflazacort. Yes, we have launched this product. At this point, I think we are the only player i.e. for the tablets.

Okay. And do you expect that situation to continue for some time?

We can't predict that, but we have strengthened this product. So, we think that we continue to do well.

Okay. Second, there is lifitegrast ophthalmic solution for which you have an approval already. Is that a product we can expect in next 12 to 18 months or is it far away?

Lifitegrast is not going to be anytime soon. We have the final approval, but we also have a settlement with the innovator. Based on that, I can tell you that it is not a 12 to 18 months period product.

Understood. And finally, on Mirabegron, where there is some litigation going on, some people have launched. Do you have plans to launch near term?

No. Bino, you have raised this question at least twice in the past and we responded to you. We have a settlement in place. So, whatever the two companies which have launched, have launched, I understand, at risk. There is a case that is ongoing, and the hearing is expected. The final hearing is expected sometime in October or end of this year.

Got it. One final question on MSD, if I can push it. The deal, would it be for manufacturing of products also for the US and European markets or would it be more for the emerging markets?

Bino, right now the markets are still under discussion. But it will be majority of the markets with probably Europe also coming in. But owing to the confidentiality nature of the discussions between my team and the MSD, I would not be able to provide any more update on this now. But as and when things get clearer, I can provide you an update.

Understood. Thank you very much.

Thank you. The next question is from Jigar Walia.

Yeah, thanks for the opportunity. My first question is now with this Unit 3 classification also kind of getting out of the way things getting resolved, is the board probably planning to go back to the proposed spin-off or IPO listing for Eugia?

So, Mr. Jigar, we have last year, in the month of August, the board decided to evaluate, explore various options. And we put it on hold subsequently because the inspection for the Eugia business started. All the units have undergone the inspection. So, now that inspections are over, we can revisit it. And some of the bankers are also approaching us. So, we have to decide it. But as and when a firm decision is taken and we are going to implement it, we will certainly inform the market as per the compliance.

Great, sir. So, one question is on the margin. You mentioned about Rs. 100 crores one off this quarter, which gradually will reduce with the operating scale and the business ramp up. But as the business scales up, it will take a while, I mean, it will take its time to come to the company level margin. So, overall, we maintain at 21%-22%, while in absolute terms, the margin is definitely ramp up.

Mr. Jigar, my colleague, Mr. Yugandhar has clearly articulated that.

Absolutely. So, the absolute EBITDA will be more reflective

Yes, more reflective. At least these OpEx will not be there.

Understood. Sir, last question is, with this board change and now the new Chairman, etc., is there anything different on the board meetings or other things?

No, we have been conducting the board meeting with the highest standards always and with the new board chairman coming in, he is bringing his own set of ideas on things, which we are implementing. We have also strengthened the board by having one more Independent Director by name Dr. Deepali Pant. And, also, Dr. Satakarni joined the board to strengthen on the R&D and the science side. So, lot of new things are happening in the board meetings.

Thank you. Thank you so much, sir.

Thank you. The next question is from Ankush Mahajan.

Good morning, Sir. Sir, my question is related to the injectables. Taking run rate of the gRevlimid, [are] the other injectables either flat or showing some declining [trend]?. I’m just trying to understand how is the price erosion in the base injectable business if I deducted the gRevlimid part?

The price erosion is low single digits.

Okay, Sir. Thank you.

Thank you. The next question, the next question is from Kunal Dhamesha.

Thank you for the opportunity again, Sir. Subbu Sir, on the effective tax rate, this quarter we have around 30%. If you can provide the outlook for FY25 and what is driving this higher ETR for us?

See, some of the units, like biosimilar company and the Lyfius, which is the penicillin-G company, where we are incurring the OpEx loss, we are not taking the deferred tax credit. Once we start a tax credit, obviously it will come down. And in terms of the year as a whole, with the Lyfius plant expected to do well by 3rd and 4th Quarter etc., probably we may come to more than a break-even scenario by which the tax rate and the tax credits will be taken and the tax rates will come down. Overall, I think we will be somewhere around 27-28% at this particular point in time.

Sure, Sir. Thank you for that. And one for Yugandhar sir on Revlimid. We said that the net gRevlimid contribution this year would be 10-15% higher than last year. But this time around, we will also have a full year impact of gRevlimid versus the half-year impact for last year. So, shouldn't the contribution be higher?

No, Kunal. Frankly, like I never wanted to say anything about gRevlimid because we never announced what is the gRevlimid sales, whether it is last year or this year.

Sure, Sir. Thank you.

The next question is from Tarang Agarwal.

Hi. Good morning. A couple of questions on Eugia and then on the US business. Over the last two years, how has your market share moved in the US injectables business? Because there has been quite a lot of movement in the marketplace. So, just wanted to get a pulse on how the market share has moved. And second, what is the dollar impact of revenue, say, in Q1 because of the remediation activity happening in Eugia-3?

In injectable business, mainly the speciality portion of the US, it is steady.

Dollar impact revenue, because of Eugia-3.

Revenue impact, I told you, like last quarter i.e. Q4 of FY24, we had a $ 20 million revenue impact. And the Q1, we had around similar $ 15 to 20 million impact. And we hope that is the end of it.

Perfect. That is quite helpful. So, now on the US. Swami Sir, is it possible for the OSD business to reach US$ 300 million quarterly run rate anytime soon, purely from products perspective, in terms of market approvals, and from a capacity perspective?

Yeah, Tarang. I will not give a specific number, but I can generally talk about it.

Sure. And specifically on the OTC business for this quarter, I saw some softness. Is it just a quarterly aberration or is something happening there?

OTC business was soft in this Q1. There are a couple of reasons. One is, seasonality. Definitely, this was not the season. Despite that, it should have been better, that I agree. But we are optimistic. We have some new awards that are going to start sometime this quarter, and I think that will get ramped up sometime during the year. We believe that we will see some progress in the OTC business going forward, at least from Q2. That is our expectation. And, you know, we also have the OTC branded business that's in a separate company. We have recently had restructuring the last one year of the leadership team and we have got a new strategy. We are very optimistic about the future of that business too.

Okay. Just last two, any update on Ryzneuta? I mean, how is that product shaping up?

Ryzneuta, unfortunately, there was some problem with the CMO. We were to launch in the Q2 of this year. The problems are being resolved, and I think there could be a delay and the launch would be probably in the last quarter of the current fiscal at this point in time.

Okay. And the last question on Europe. Given that the business has achieved almost a EUR 850 to EUR 900 million run rate and the margins have moved to mid-teen levels, are there possibly more levers in the business from the point of view of margin expansion.

Tarang, thank you for [asking] this [question]. Yeah, obviously, we expect to move upwards, of course, on the oral solid business, which is predominantly the contributor as of date for the European revenues. We are trying to do our very best. But also, as very clearly explained by Dr. Satakarni in his initial elaboration, we are keenly looking at the launch of some of the biosimilars in the upcoming period, and that would contribute to increasing the EBITDA margin substantially. Similarly, also we are looking at the Vizag plant of

Thank you, sir. All the best.

Thank you. As this was our last question, I now hand the conference over to management for closing comments.

Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the Investor Relations team.

On behalf of Aurobindo Pharma that concludes this conference. Thank you for joining us and you may now disconnect your line and exit the webinar. Thank you.

2024.08.16 14:58:07 +05'30'