Sun Pharmaceutical Industries Ltd

Ladies and gentlemen, good day and welcome to Sun Pharma's Q2 FY26 Earnings Conference Call.

Thank you. Good evening, and a warm welcome to our second quarter FY26 Earnings Call.

Welcome, and thank you for joining us for this earnings call after the announcement of our financial results for the second quarter FY '26. Our Q2 financials are already with you. Let me take you through the consolidated financials of the second quarter. Q2 FY '26 sales were at INR144,052 million, record a growth of 8.6% vis-a-vis the second quarter of FY '25.

Thank you, Jayashree. In Q2, FY '26, our Global Innovative Medicines sales were up by 16.4% to reach USD313 million. U.S. sales of Innovative Medicine has surpassed generics for the first time during the quarter. Our ex-U.S. Innovative Medicine business also continues to deliver strong growth.

Thank you, Kirti. I will update on the performance highlights of our U.S. business. Our overall U.S. business declined by 4.1% to $496 million for the quarter. Growth in Innovative Medicines was led by

Thank you, Rick. I will provide an update on the performance highlights of our other businesses.

Thank you, Aalok. Let me take you through our R&D initiatives. We continue to invest in building an R&D pipeline of our Innovative Medicines business. Consolidated investments towards R&D for Q2 FY '26 stands at INR7,827 million or 5.4% of sales. Innovative R&D accounted for 38% of our total R&D spend, and stands at approximately 10% of Global Innovative Medicine sales for the quarter.

Operator, we can open for Q&A now.

Thank you very much. We will now begin the question and answer session. The first question is from Saion Mukherjee from Nomura. Please go ahead.

Thanks for taking my question.

Saion we can’t hear you. Your voice is breaking. Mr. Saion Mukherjee you may go ahead with your question. We seemed to have lost the lines from Mr. Mukherjee. We will move to the next question. The next question is from Kunal Dhamesha from Macquarie. Please go ahead.

The first one on the intangible assets, which seem to have moved sharply from the March '25 level, almost around USD 950 million plus. So I can see the $300 million intangibles which have moved from under development to other intangible head, but if you could provide a broader moving pieces here?

Thank you, Kunal, for your question. The increase in the intangible assets is also due to the Checkpoint intangible that has got added during the quarter. And we also had a milestone payment for ODOMZO.

So Checkpoint would be close to $400 million plus, right?

Yes, it is about $471 million.

So then rest of the $500 million, what is driving that?

So we had Leqselvi related apart from Checkpoint, which is another larger piece, as you would know.

So Kunal, Leqselvi moved from intangibles under development into intangibles.

Okay. So that's another $300 million, and there should be ODOMZO?

No, then the rest are several small items. It's largely Checkpoint and Leqselvi.

Secondly, on the incremental specialty spend that we had suggested that we would be spending around $100 million in this year related to the launches of Leqselvi and Unloxcyt. So is it fair to assume that some of that has started in Q2? And should we see the run rate to be more similar in the quarter 3, quarter 4 or should we expect some acceleration deceleration? Any color would be helpful?

Yes. I'm happy to address that. So we did see a slight increase in Q2, and we would expect to see further increases in Q3, Q4 particularly as we launch Unloxcyt.

And lastly, on the Generics piece. The generic Revlimid seems to have kind of gone down even on a sequential basis? Is it a fair assumption? And would it be now a meaningful contributor in this quarter?

In the quarter that follows?

In quarter 2 versus quarter 1, the movement of lenalidomide?

Yes. Okay. So on lenalidomide, we have said that Y-o-Y, there is a drop. Q-o-Q, the number is flat.

Thank you. Next question is from Neha Manpuria from Bank of America.

Thanks for taking my question. We have two questions on the specialty business. On Leqselvi, when should we start seeing revenue contribution from improving payer coverage and payer access that you talked about? Would more meaningful revenue contribution from this be evident, let's say, in the later part of this fiscal or more so would you say in fiscal '27? What would be your assumption there?

We're already starting to see paid prescriptions through commercial channels, and we would expect that to continue to grow throughout the year.

And on ILUMYA, is it fair to assume that the prescription growth that we are seeing, I know as a category biologics in psoriasis is growing. But even as we wait for psoriatic arthritis approval to come through, we can continue to see the momentum in prescription growth over the next few years?

Was the question related to ILUMYA for psoriasis?

Yes, that's right.

We do expect to see continued growth. As you shared, the IL-23 market continues to grow as does the overall psoriasis market. We continue to release new data on ILUMYA and sharpen our sales and marketing tactics, so we would expect to see continued growth.

And the last one I have is on R&D spend. If you look at R&D, we are obviously tracking below the guidance that we had revised down last quarter. How should we think about R&D spend for the full year? Do we expect to pick up going into second half or would it remain at the current 5.5% level that you see?

So Neha, I think we should come in the lower end of the guidance overall, that's what is our assessment today.

Lower end of the 6% to 8% guidance that you mentioned, right sir?

Right.

The next question is from Vishal Manchanda from Systematix.

I have a question on the balance sheet. If I look at the other current assets, it's almost doubled since , March '25 from INR2,500 crores to almost INR5,000 crores. Could you clarify on this? What led to this?

Yes. This is mainly on account of the GxMDL settlement, which has gone into an escrow account.

Sorry, which settlement?

Last quarter, we had a settlement on the GxMDL case, and that amount has been deposited in an escrow account.

And second one on cosibelimab. I wanted to understand whether it has been filed for European markets. And whether our competitors, Keytruda and Libtayo, do they have a European approval already?

Yes, we are in the process of compiling the dossier for Europe. Once it's filed, we will share the update with investors.

And just one final one on ODOMZO. If you could share what would be ODOMZO share in the basal cell carcinoma market among the BRAF inhibitors?

It's not a BRAF inhibitor. It's a Hedgehog inhibitor.

Sorry, Hedgehog inhibitor.

So I think it all depends on different geographies. Rick can update on the U.S. market share. But in Europe, I think, is in excess of 60% market share.

Yes. And it depends on the customer. In dermatologists, we have over a 50% share in the United States.

And in the overall market, including the oncologist?

The oncologists are slightly less. I don't have the exact figure for the overall market at this time.

And would dermatologists be the primary prescriber here?

It's both.

Next question is from Harith Ahamed from Avendus Spark.

On semaglutide, where we have a filing in Canada as per Health Canada disclosures. Based on your previous experience with filings in that market, what are the time lines that we can look at for approval of this product? And on semaglutide again, in India, where the market formation is expected in March '26. So we plan to have a product ready with an approval by the market formation time?

So India, I will ask Kirti.

Yes, India, I think what we have told you in our last call also, India will be ready for the launch in the first wave when the LOE happens on the patent expires.

For Canada, I don't believe we share that information.

One is that. And second, I think it's still not very clear.

Right? How Canada has been shared.

And in the ROW segment, we've seen a very strong growth this quarter, constant currency terms around 17% to 18%. And in the last quarter, we had alluded to some onetime sales. So has that continued into the second quarter?

So before we answer the drivers for this one, there is no one-off in this quarter sales. For ROW, basically, the growth has been led by both Generics as well as Innovative Medicines. But there is no one- off.

A couple of months back, there was an announcement by the U.S. President on 100% tariffs on patent drug imports into the U.S. Well, there's no final policy that's been released yet, but is this a risk for our IM products given that we are manufacturing these products outside the U.S. And at the same time, we are manufacturing these in geographies where U.S. already has a trade deal and these trade deals cover pharma as well. So how should we look at this particular risk?

Look as you say, there's a lot of uncertainty at this point. I mean, we don't have any additional tariffs that we're paying today. The original announcement has been put on pause, and we're still awaiting the outcome of the Section 232 investigation.

The next question is from Bharat from Equirus.

Just wanted to understand, there is some investment into subsidiaries, which is showing up in the cash flows amounting to almost like INR3,400 crores. Can you explain what is it all about?

This is mainly Checkpoint acquisition...

Because this amounts to almost like INR390 million, whereas we have paid almost INR500 million for Checkpoint. So just was trying to understand that there was a big difference?

No, the Checkpoint consideration is not USD500 million, Bharat, it's less. It's what we disclosed was USD355 plus.

Next question is from Shyam Srinivasan from Goldman Sachs.

Just the first one again on the consolidated cash flow statement. Just the net cash generated Y-o-Y has declined despite similar profits. So just -- I can see it is working capital. But if you could explain why our lower cash generated, please?

Yes. There is some amount of increase in the working capital, which we believe will get normalized in this quarter. As I was also mentioning in the initial commentary, there has been a settlement that has happened towards GxMDL plus our brand acquisitions that have happened, which is the reason why the cash flow overall has come down compared to the 1st April '25.

So by the end of the fiscal, we expect this to be -- the generation to be in line at least with the growth in PBT. Let's assume?

Yes. I think the cash generation to clarify has been good. Working capital changes happened during the quarter, and this has happened during this quarter. Other than that, there have been 2 other items. One is the business acquisition. The other one is a settlement. So they should get normalized.

And just on the opening comments now, I think called out that the U.S. business formulation, we have now innovative higher than Generics. So obviously, you don't call it out, but of the $500 million U.S.

Our strategy is to grow both our Innovative Medicines business as well as our Generics business.

Last question, just again, just in light of the tariffs and U.S. based on localized manufacturing in the U.S., what are your thoughts? Is there any move for us to move supply chains back into the U.S.? I know policy is still uncertain. But just your thoughts, you have enough cash. What about looking at U.S. manufacturing assets?

Yes. We already have a manufacturing footprint in the U.S. We are kind of constantly assessing that manufacturing footprint. And we are open to considering moves to the U.S. in due time.

Next question is from Kunal Dhamesha from Macquarie.

Just on ROW, is there any particular new launch that we have seen or particular geography, which has done good? And what would be the constant currency growth?

Yes. So there is very little forex impact and the growth was led by both the Generics and the Innovative Medicines, particularly by ILUMYA and ODOMZO.

Yes. And the second question I have is on the India semaglutide market, once it is Generics, Sun Pharma being with the dosage form? And slightly, longer horizon question is Sun Pharma's expectation of how the GLP-1 market is expected to grow in the medium term? Any color would be helpful?

No, I can tell you broadly, the GLP market is very exciting, and it will continue to grow, but very difficult to give any specific numbers and what it will grow in the future. What we can say, we want to participate in the market whenever the first opportunity is available.

And will we be there in both the dosage forms, injectable as well as oral?

I don't want to disclose that much but we will remain competitive, if others launch, we'll also launch along with them. That's what we are saying.

Next question is from Damayanti Kerai from HSBC.

My first question is on your USD 100 million spend for supporting the 2 launches in this fiscal. So if you can explain how costs will build up, say, majority of hiring for salespeople, etcetera, will be done in this year itself. So going forward in '27, what kind of cost you assume to continue? Some color on that will be helpful?

Yes. We have already launched Leqselvi, so that sales force is in place, and we do now have the sales force in place for Unloxcyt. So we will start to obviously see those expenses. Some of these expenses will continue to occur in '27 and beyond as we continue to support and grow these 2 very important products.

So is it reasonable to assume that majority of the fixed costs will be covered within this $100 million budget, which you have put aside? And then going ahead, it will be more variable costs in line with how products gain market share? Will that be a logical assumption to take?

I think so. What I would say is that the sales force, obviously, that cost will continue. Our marketing expenses will continue. The patient support programs will continue. Some of the upfront marketing costs will not. Those are more onetime costs, but we'll continue to have the carrying cost of the people as well as our marketing and patient support programs.

My second question is a clarification on Revlimid opportunity. So should we assume September was the last quarter when you had some meaningful sales coming from that product? And going ahead, there will be virtually no sales? Or how should we look at that?

We'll have a small amount of sales for the rest of the fiscal year.

Okay. But majority is done in first half, right?

Correct.

Next question is from Vishal Manchanda from Systematix.

So just a clarification on Fibromun, is the Phase III and Phase II data on soft tissue sarcoma and glioblastoma. Is yet to come out? Or it's already there?

Yes. I think both the data are yet to come out. But this is also something which will be disclosed by Philogen, who is managing the studies.

Okay. Any time lines like would this be announced this fiscal year or it will take longer?

I mean I don't want to announce on their behalf, but I'm not aware that there is any delay in the recruitment or conduct of the study.

On the GLP-1 compound, GL0034. We have been kind of pushing this like a bit -- considering the competitive landscape, we are probably pushing it later, I think. We're not hurrying to develop this. Is there a reason to this or how should...

No, I think we are quite excited with the early data that we're getting with patients, both for MASH as well as for diabetes. And we would be presenting this data shortly. But the Phase II study also, I think we disclosed that should be in the press release we've given that should start shortly global Phase II.

And are we doing this through the recombinant route or the synthetic route?

So as on today, I think the initial -- all the studies have been done with synthetic. But at some point of time, we might even consider switching over to recombinant.

Next question is from Neha Manpuria from Bank of America.

Quickly on Cequa, I know that Restasis already has enough generic players, but there is anticipation that you should see some more competition there. Does that impact our ability to grow Cequa at all?

We continue to see good growth for Cequa, even as new competitors have come to the market.

A new competition coming into Restasis does not impact pricing at all for Cequa. Would that be a fair assumption?

Can you re-ask the question?

What she is saying is that Generics for Restasis whether that affects your growth of Cequa?

Not really. No. I think what currently is in place for Restasis, it will just be eroded by further Generics. As you know, they've been able to hold on to quite a bit of share, but the Generics will largely compete with Restasis and won't have a meaningful impact on the other brands within the category.

And second question, I know there's a lot of uncertainty on the tariff situation, but I think there was another new investigation under the Section 301 that was mentioned recently. Does that in any way impact ILUMYA, even though we don't sell ILUMYA, in Europe, its through the partner. Do you think that could be under consideration as a part of this investigation? Any views you have around that?

I don't think we have any views at this time. I think as we shared before, the tariff situation, as you know, is very fluid and uncertain. So it's hard for us to predict what the impact will be on our -- on either our Generics or Innovative Medicines portfolio at this time.

The next question is from Surya Narayan Patra from PhillipCapital India.

Sir, my first question is on the specialty business in the non-U.S. In fact, what we are observing that the ROW and Emerging Market growth looks really strong in the recent quarters. So is it mainly driven by the fundamental growth triggers that we are witnessing in those markets or it is also a role played by the specialty business in the non-U.S.?

Both actually.

Yes. I mean I would say both of them are factors in how the growth played out.

So can you elaborate a bit on your specialty in the non-U.S. market business, although it has already been indicated that brands of U.S. is likely to see newer markets and hence, growth. So any incremental initiative thought process about expansion, extension of these brands, if you can?

No, what I said is like ILUMYA, we are launched in 35 countries. And some of the countries, the launch has happened over a period of last 1 year. So this launch will also get picked up, and we see there will be good commercial traction. So ex-U.S., I believe that ILUMYA will be a strong franchise for us to continue to grow.

And second question is about the Semaglutide entry in Canada, although we have filed for that. Whether we will be there in the first round of commercialization? Or how later that we would be even if our filing is relatively recent. So any time line about the commercialization of the product in the Canada?

Yes, we really don't have any further comments on that at this time.

My next point is about the tariff one. So whether we have any negotiated price, the way innovators are offering to Trump for their Medicaid program. So for our innovative brands, whether we have any negotiated price with the TrumpRx?

We do not. As you probably are aware, we were not one of the 17 companies that received letters from the Trump administration.

So then this tariff concern is a kind of overdone now considering the kind of arrangement what innovators are trying to have with TrumpRx?

We don't know is the honest answer. I think it's unclear what will happen with the tariffs after the investigation. What we know now is that there's a pause. We believe that Generics are already excluded. We believe that will continue to be the case. And it's unclear at this point what the impact will be on brands. Certainly, we'll be prepared to have discussions when the time comes.

Sir. Just one bookkeeping question...

Surya, can you get back in the queue, please?

Next question is from Alankar Garude from Kotak Institutional Equities.

Sir, first question on Leqselvi. Even though the penetration of targeted treatments for alopecia areata is quite low in the U.S., you've seen some stagnation in prescriptions for 1 of the other 2 molecules for this indication in particular. So from a market standpoint, is there any aspect that could hinder growth for targeted treatments like Leqselvi?

We expect the market to continue to grow. You're probably commenting one of the competitors has stopped promotion. So as well as we've launched, there's been another competitor that have launched that are having an impact on that product's growth. We believe the market will continue to grow. We see that. We see new physicians that are starting to provide JAKs, are starting to prescribe JAK inhibitors. And over time, we would expect that confidence to grow, the number of prescribers to grow and more patients to be treated.

And the second one is more of a clarification. I missed your response on the U.S. manufacturing presence. You spoke about already having a presence, but you also spoke about open to considering a further manufacturing presence in the U.S. Did I hear it correctly?

That is correct.

We're open for all options.

Next question is from Shashank Krishnakumar from Emkay Global.

Just one question that I had on biosims. I know that we have been always steadfastly focused on scaling up our specialty portfolio in the U.S. But given the FDA's recent guidance, any rethink in terms of U.S./Europe biosimilar strategy. Given that a lot of our peers have been incrementally allocating more capital and R&D investments to biosims, so any rethink there in terms of our strategy for the U.S.?

So I think we are studying and possibly waiting for the clear guidance to come before we take a decision. Because clearly, this would reduce potential investment, but there will also be impact in terms of future competition. So also, there is no complete clarity on substitution. So all of that will help us finally take a decision.

Thank you. Next question is from Anubhav Sahu from MC Research.

My first question is on the sema opportunity. Basically I want to understand how calendar year '26 will look at as for this opportunity is concerned? Are we basically targeting Canada and India as the 2 geographies for the generic launch? And at the same time, I mean, just trying to understand what capacity we are looking at for ourselves for the GLP-1 drugs? I mean -- and how much we plan to do it in-house?

I think Canada, there are two questions already been asked. We are not giving any clarification on Canada. Coming to India, as I said earlier, we will launch once there is an LOE. Regarding capacity and where we manufacture, we are not disclosed as of yet.

And for our Innovative molecule, let's say utreglutide, I mean could you mention which key indication we are looking at? I mean I understand obesity, anti-diabetes, one of them, but there are other indications also which we are looking at?

Yes. I think the Phase II that we have disclosed is a type 2 diabetes study.

Next question is from Rashmi from Dolat Capital.

Just one question. We have seen a spike in interest cost this quarter. And if I see the balance sheet short- term borrowings have also gone up. So is it because of the acquisition or it would be reduced in the future or anything if you can comment on it?

Yes, you're right. This is a short-term borrowing that we have taken for the acquisition.

So the amount will be more or less similar to last year level only? I mean, you will bring it down to that level?

Yes, it should get reduced over a period in time.

Next question is from Surya Narayan Patra from PhillipCapital.

So one clarification about the tax rate. So this quarter, it looks obviously higher with 27% plus kind of tax rate. And also, there is a kind of onetime adjustment relating to the merger. So if that is to be factored, then the tax rate will look even higher, more than 30%. So first of all, what is that INR140 crores adjustment whether it is into the crate already, and that is to be separated, considering it is one-off. If you can give some clarity about that ma'am. And what is the ETR that you are expecting for the full year?

Yes. Our ETR has gone up to 24.5% and we expect it to be hovering around 25%. This is what we've been guiding. We used to get some benefits on account of carry forward tax losses as well as the benefits of having our facilities in Assam and Sikkim. Those are getting over and therefore, the tax rate will get normalized.

And just one more point about the GLP-1 opportunity. So how do we position ourselves whether our focus would be vial oriented to enter into the domestic market or it would be pen-oriented approach that we follow?

Those are -- I mean we have to remain competitive, and we need to have a product which can compete with the best product. Even the Semaglutide, which Kirti is talking about will be a pen product. So that's not an issue.

That was the last question. I would now like to hand the conference over to Dr. Abhishek Sharma for closing comments.

Yes. Thank you. Thanks, everyone, for joining in. If you have any questions which remain unanswered, today, you can always reach out to the Investor Relations team. Good evening, good night to all of you.

Thank you.

Thank you very much. On behalf of Sun Pharma, that conclude the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.