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Dr. Reddy’s Laboratories (DRREDDY) Q3 2022 Earnings Call Transcript

DRREDDY Earnings Call - Final Transcript

Dr. Reddy’s Laboratories (NSE: DRREDDY) Q3 2022 earnings call dated Jan. 28, 2022

Corporate Participants:

Amit Agarwal — Head of Investor Relations

Parag Agarwal — Chief Financial Officer

Erez Israeli — Chief Executive Officer

Analysts:

Kunal Dhamesha — Emkay Global — Analyst

Neha Manpuria — Bank of America — Analyst

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Ashwini Agarwal — Akash Ganga Investments — Analyst

Surya Narayanan — Phillip Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Shrikant Akolkar — Asian Market Securities — Analyst

Alok Dalal — CLSA — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Dr. Reddy’s Q3 FY ’22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you, and over to you.

Amit Agarwal — Head of Investor Relations

Thank you. Very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy’s earnings conference call for the quarter ended December 31, 2021. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded and a playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements.

To discuss the business performance and outlook, we have the leadership team of Dr. Reddy, comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the Investor Relations team. Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlet without the company’s expressed written consent.

Before I proceed with the call, I would like to remind everyone that the Safe Harbor contained in today’s press release also pertains to this conference call.

Now, I hand over the call to Mr. Parag Agarwal. Over to you, sir.

Parag Agarwal — Chief Financial Officer

Thank you, Amit, and greetings to everyone. Hope all of you are keeping well. We had yet another quarter of good performance in terms of year-on-year growth in revenues and profits, while maintaining healthy EBITDA margins and generating good cash flows. Let me take you through the key financial highlights for the quarter In a bit more detail. For this section, all the amounts are translated into U.S. dollars at a convenience translation rate of INR74.39, which is the rate as of December 31, 2021.

Consolidated revenue for the quarter stood at INR5,320 crores, that is $750 million, and grew by 8% on year-on-year basis and declined by 8% on a sequential quarter basis. Year-on-year growth has been supported by growth across most of our businesses and was driven by good base business performance and recent launches. Sequentially, however, our revenues were impacted on a higher base of Q2, which had higher contribution from COVID related products and recognition of out licensing income in our proprietary products business. Consolidated gross profit margin for this quarter has been a 53.8%, which was flat over previous year, however, the margin increased by 40 basis points on a quarter-on-quarter basis. Gross margin for the global generics and PSAI we’re at 57.8% and 22.5% respectively for the quarter.

The SG&A spend for quarter is INR1,541 crores, that is $207 million, an increase of 7% year-on-year and a decrease of 3% quarter-on-quarter. The year-on-year increase is in line with our business growth and on account of continued investment in sales and marketing activities for brands in India and emerging market. As a percentage to sales, our SG&A has been at 29%, which is lower by 20 basis points year-on-year.

The R&D spend for the quarter in INR416 crores, that is $56 million and is at 7.8% of sales. R&D spend increased by 1% year-on-year and declined by 7% quarter-on-quarter. The product development activities continued normally during the quarter and we continued to build a healthy pipeline of new products across our market.

The EBITDA for the quarter is INR1,266 crores, that is $170 million and the EBITDA margin is 23.8%. The EBITDA margin for the nine months in this fiscal is a 24%, and is closely tracking our aspiration target of 25%. Consequently, our profit before tax stood at INR971 crores, that is $131 million, which is a growth of 242% year-on-year and a decrease of 23% quarter-on-quarter. Adjusted for the impairment charges, our profits grew by 10.7% over previous year. Effective tax rate to the quarter has been at 27.2%. We expect our normal ETR to be in this range of 25% to 26%. Profit after tax for the quarter stood at INR707 crores, that is $95 million. Reported EPS for the quarter is INR42.48.

Operating working capital decreased by INR512crores, which is $69 million against that on September 30, 2021I think that of the tenders shortly 20-21. The decrease was primarily driven by a decrease in receivables of roughly INR616 crores aided by higher collections. Our capital investment during the quarter stood at INR414 crores, which is $56 million. The free cash flow generated during this quarter was a net inflow of INR1,274 crores, which is $171 million. Consequently, we now have a net cash surplus of INR998 crores, that is $134 million as on December 31, 2021.

Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are approximately $360 million, largely hedged around the range of INR75.4 to INR78.9 to the dollar, RUB5875 million at the rate of 0.9909 to the ruble, AUD2.5 million at the rate of INR58.74 to the Australian dollar, and ZAR36.9 million at the rate of INR4.97 to South African Rand, maturing in the next 12 months.

With this, I now request Erez to take through the key business highlights.

Erez Israeli — Chief Executive Officer

Thank you, Parag. Good morning, and good evening to everyone. I hope you and you’re family are all safe and healthy. I’m pleased to share that we had a strong financial performance during the quarter without any benefit from one-off or COVID related sales. We have grown on year across our key businesses in both EBITDA and ROCE margins are closer to our aspiration target of 25% each, while we continue to invest in our future growth business.

We have been able to achieve this in spite certain industry level headwinds, like higher level of price erosion across the Generics segment in the U.S. market, increase in commodity prices and higher freight costs. These sustained performance shows the resilience we have been able to build with our diversified business model to mitigate such external headwinds. We also generated significant cash flow during the quarter and are now having a cash — net cash surplus which will enable us to invest for future growth.

Let me take you to the key business highlights for the — for the quarter. The reference of these numbers in this sections are in respective local currencies. Our North America generic business recorded sales of $248 million for the quarter with a year-over-year growth of 6%, however, the sequential quarter decline of 2%. During the quarter, we continued to gain market share for some of our key products, including a recent launch of [Indecipherable] However, the sales were impacted due to price erosion for some of our products and has been the case for the entire sector and seasonal demand variation for few of our key products, we launched four new products in United States during this quarter.

Our Europe business recorded sales of EUR47 million and was largely flat both year-over-year or in sequential. During the quarter, we launched four new products in Germany and one product each in France and Ireland. We are expecting few good launches during Q4, which would enable us to return to growth in this market.

Our emerging market business recorded sales of INR1,154 crores with a strong year-on-year growth of 20%. However, reduced of a sequential decline of 11%. Within the emerging markets, the Russia business grew by 2% on a year-over-year basis and declined by 18% on a quarter-over-quarter basis in constant currency. As informed earlier, the Q2 performance in Russia was very strong, which supported by seasonal demand and launch of biosimilar Bevacizumab. In the rest of the world market, sales were supported by one-off sales of the COVID related products.

During the quarter, we launched 16 new products across the various emerging markets. India business recorded sales of INR1,027 crores with a year-over-year growth of 7% and sequential decline of 10%. Adjusted for COVID related portfolio sales in the previous year and the last quarter, the business performance has been fairly strong and in-line with expectations. During the quarter, we launched four new products in India market. As per the IQVIA report of December 20, 2021, we have grown higher than the market at 23.1% on net basis against market growth of 18.1%.

Our PSAI business recorded sales of $97 million with a year-over-year growth of 2%, but sequential quarter decline of 14%[Phonetic] We expect the performance to improve in the coming quarters.

During the quarter, we filed 32 drug master files globally, including filing made in the United States. We have also filed 22 formulation products across global markets and one ANDA in the United States. As of December 31, 2021, we had 91 cumulative filings pending for approval within the U.S. FDA, which include 88 ANDAs, and and three 505(b) (two)NDAs.

During the quarter, we have signed a deal with Citius [Phonetic] for commercialization of our biosimilar rituximab in the United seats. We are also continuing with the global development of five to seven other biosimilar in our portfolio within various stages of pre-clinical and clinical development. Earlier during the month, we have launched Molnupiravir in India, expanding our portfolio to fight against the ongoing COVID pandemic. We are also working on certain export content in line with the licensing rights of [Indecipherable]

As regards to Sputnik, we are now ready with capacity in India. We are working actively with the Government of India to reduce the [Indecipherable] of the vaccine and as a booster dose for Sputnik-V. We have also submitted proposals to DCGI to conduct trials to test booster to other vaccines. Sputnik continue to be a viable option for Dr. Reddy’s, for India and other and other countries.

Consistent with our aspiration and healthy balance sheet, M&A remains an integral part of our growth strategy and therefore we are actively pursuing few deals across our focused geographies. We are progressing well to strength the key processes in core businesses and in the digitalization journey. Going forward, we are looking to double down our efforts on the very critical and important areas of innovation, as well as ESG. There is a good progress to deliver in the short term and long-term growth levers across our businesses and we remain committed and optimistic about this.

I am pleased to share also the recent recognitions of our efforts towards ESG. In November 2021, we were positioned number nine, a non-pharma company in the world in the Dow Jones Sustainability Index 2021. During the quarter, we were also recognized by the UN WAP for general inclusivity in the workplace. [Indecipherable] manufacturing plant in Vizag was honored with the prestigious nation energy conversation award by the Bureau of Energy Efficiency, Ministry of Power, Government of India. We have been recognized as the most innovative company for the year of 2021 at the CII Industrial Innovation Awards 2021. Earlier this month, we won at prestige Ethics award, sustainable corporate of the year at the 2021 Frost & Sullivan TERI Sustainability 4.0 Award. As you can see, this should continue to remain our focus area and we are going to increase our efforts in this direction.

With this, I would like to open the floor for questions and answers.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question is from the line of Kunal Dhamesha from Emkay Global. Please go ahead.

Kunal Dhamesha — Emkay Global — Analyst

Good evening, and thank you for giving the opportunity. So the first question is on the U.S., you have mentioned that the price erosion has been kind of little be here, but if we kind of do a back calculation, is it fair to say on a sequential basis it’s somewhere in the high single to low double digits kind of price erosion in U.S. for this quarter?

Erez Israeli — Chief Executive Officer

Yeah, so we — we did see an a kind of a [Indecipherable] of a kind of global phenomena, it continue to be a quarterly [Phonetic] basis situation, but in Q4, relatively a larger number of products [Indecipherable] work on the overall basis it’s more or like a double-digit, but despite that we are still growing. So managed to offset this erosion with new products, with market share, as well as with productivity activities. So this still remain an issue and and the growth of about, I think now 9 out of 10 quarters we are growing in the U.S., and this will continue to be a kind of the phenomena also in the future, in which I do see growth, may be slower than other markets, but we are still going to go and see.

Kunal Dhamesha — Emkay Global — Analyst

Okay. Sure. And secondly on this COVID related contribution across our India and emerging market, would that be a percentage of revenue for the first nine months?

Erez Israeli — Chief Executive Officer

It was primarily in the second quarter, not so much in the first quarter. So, third quarter was without major sales of COVID product, and we will see probably also more in Q4. So in this respect, the main contribution of this portfolio will be in the second as well as in the fourth, not so much on the third.

Kunal Dhamesha — Emkay Global — Analyst

And India, there was contribution in first quarter as well [Indecipherable]

Erez Israeli — Chief Executive Officer

In the third quarter not so much. That’s why on the sequential basis when you compare India and that’s why there is a decline because it was relatively large contribution during the second quarter, but not so much in the third. The second, you have remember was very much affected by the Delta wave and this one is Omicron wave. In between, luckily there was — there was no another wave, therefore not so much demand.

Kunal Dhamesha — Emkay Global — Analyst

Sure. And for — just on the follow-up on that. Now that we are seeing healthy COVID contribution at least for the first nine months, do you see that to continue in FY ’23 or do you see that COVID contribution would not be a big part in FY ’23?

Erez Israeli — Chief Executive Officer

So we are preparing for that. We are prepared for that, so all the activities around the prevention, whether it’s vaccines or products as well as community treatments, whether its a product so that we have like no COVID and additional products that we are working on they are meant for that area. Naturally, we don’t know how this pandemic will evolve, its hard to predict how its going to be, but we are we prepared for it.

Kunal Dhamesha — Emkay Global — Analyst

Okay, and in case this — if it doesn’t pan out, do we have — still have growth levers in place to grow on this base?

Erez Israeli — Chief Executive Officer

Absolutely. We will continue to grow in the spirit that we have discussed in the past that we did before, 25/25 [Phonetic] while financing the business with or without COVID products [Speech Overlap]

Kunal Dhamesha — Emkay Global — Analyst

Okay, okay, thank you. Thank you, Erez.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Yeah, thank you for taking my question. Erez, you just mentioned about double-digit price erosion in the U.S. Could you give us some color on how this is trending in the quarter given it was product deficit. Should we see this a beating to more normalized price erosion? Any color on that.

Erez Israeli — Chief Executive Officer

It should be. So I believe that most of the products that faced the erosion were already there and I don’t anticipate. The business model, the transition in the U.S. will continue as it normally does. So, the business model will not change. But in terms of the products that were affected by that, I believe that most of the — most of the effect is behind us.

Neha Manpuria — Bank of America — Analyst

Understood. And, just to understand, given we saw double-digit price erosion in the U.S., but if you look at our generics gross margins, they seemed to have improved close to about 100 basis points quarter-on-quarter. Any color on, and despite the fact that we had headwinds in terms of raw material cost, etc. What drove this improved margins?

Erez Israeli — Chief Executive Officer

So it is a combination — it is a combination of what I discussed; first, launch of products which should change the mix, so it’s important mix. Second is productivity activity that we are doing on cost improvement programs and others. And third is market share with the relevant products within which we have better productivity. So we were preparing our self for this phenomena and like I mentioned in my script, we are growing despite those headwinds. So, and so I’m not so concerned about going forward.

Neha Manpuria — Bank of America — Analyst

Understood. And my last question, as you know, is on the India business. I think you mentioned there was no COVID product contribution today, assume there was no contribution from or very little contribution from Sputnik too in the quarter?

Erez Israeli — Chief Executive Officer

Yes, in quarter two there was a — in quarter two there was relatively a higher demand because it was very much affected at the time by the Delta wave. And in this quarter, luckily there was no such demand there in India. So what we are going to see is the contribution in India in Q2, as well as we are going to see some in Q4 because of the current wave of COVID. But Q3 was very less.

Neha Manpuria — Bank of America — Analyst

And what about the export — export opportunity for Sputnik? Are we in discussions with the government to allow us to export given that the booster trial will just start, so that is some time away.

Erez Israeli — Chief Executive Officer

We will, we can export, we can export the products. Both the vaccine as well as the other products.

Neha Manpuria — Bank of America — Analyst

Okay, and we have started exporting — exporting it in the current quarter or not as yet?

Erez Israeli — Chief Executive Officer

In Q3, we did not export any COVID products.

Neha Manpuria — Bank of America — Analyst

Understood. Thank you so much.

Operator

Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets. Please go ahead.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

First question is, can you share your observation around the commodity and raw material price? Whether you have seen some kind of moderation compared to second quarter and how do you see this part moving up in next few quarters?

Erez Israeli — Chief Executive Officer

Yes, we did see, we saw it in three areas. Some commodity intermediate, so especially on that are serving us in the API. The second is in the energy cost, especially coal, few months ago, especially in India. And the third is on the freight — on the freight and the shipping the cost. And all of that we absorbed and are within the margins. So we counter-measure it with other activities to offset little bit. I believe that the trend is behind us in a way that I do not anticipate additional hike in this magnitude. Some of the prices did not go down yet to the original level, but I don’t anticipate additional inflation in this magnitude or scale.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

So, maybe broadly we can assume that the peak is over and price might see, I’ll say more moderation from here on.

Erez Israeli — Chief Executive Officer

That’s which is one can predict, it looks better now. How to predict through the pandemic and the geopolitical situation in the world, assuming no other big event, it should be better.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

Thank you. And my second question is, can you talk a bit about your biosimilar portfolio which you are working on, and which are target markets for key products?

Erez Israeli — Chief Executive Officer

You’re talking about COVID?

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

For biosimilars.

Erez Israeli — Chief Executive Officer

Our biosimilars. Yes, we are targeting globally. We have — we have Rituximab, which is we have now it commercially with most of the emerging market and the primary markets for it is today is India and Russia. And then we have the Bevacizumab [Phonetic] and additional four biosimilars primarily for the emerging market. In addition to that we are in the development. As I shared in my script, we signed a deal for Rituximab for the United States and we hope we will do it by ourselves. So, and Rituximab is going to be our first global products and we have right now additional three products in clinical trials as well as additional products that are in the pre-clinical stage. So overall it’s a healthy portfolio and this will cover us very nicely from about 2024 until 2031, 2032, in which we will launch all of these products.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

And my last question is, have you heard any update on your Duvvada plant from the U.S. FDA?

Erez Israeli — Chief Executive Officer

We did not receive any feedback from the U.S. FDA as of the date, and we – normally 90 days, 90 days of — sometimes next week. So we need to — around that date we will probably get the feedback. We had the two milestone to submit certain data as part of our commitment to the response to the U.S. FDA of and going through the figure and we submitted it on time and we are awaiting the feedback and hopefully to get for those products.

Damayanti Kerai — HSBC Securities and Capital Markets — Analyst

That’s helpful. Thank you. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Ashwini Agarwal from Akash Ganga Investments. Please go ahead.

Ashwini Agarwal — Akash Ganga Investments — Analyst

Hello, am I audible.

Erez Israeli — Chief Executive Officer

Yes, yes, please.

Ashwini Agarwal — Akash Ganga Investments — Analyst

Yeah. Sir, my first question would be on this pre-filled syringe, which we have talked that, that would be mostly be commercialization in Q3 FY ’22. Can you just update me this status for like what is right now current situation on that part?

Parag Agarwal — Chief Financial Officer

Sorry, we couldn’t get your question. Can you please repeat?

Ashwini Agarwal — Akash Ganga Investments — Analyst

Yeah, sure. So the question is on with the bag fill crash team, which we have the prefilled syringe which we have been, we’ll be launching in Q3 FY ’22. So can you just update me with this status right now.

Parag Agarwal — Chief Financial Officer

Currently, it is with Fresenius. For the U.S. and Europe market we have a deal with Fresenius and basically they have, I think guided for calendar 2022 launch. So as of now that’s the status.

Ashwini Agarwal — Akash Ganga Investments — Analyst

Okay, okay. And my second question would be a bit odd, but actually I wanted to understand on that part. Whenever we launch the product, how, what is the average duration at which we can command the premiumization compared to when that it becomes, you can say a normal or a pricing product?

Parag Agarwal — Chief Financial Officer

No, I don’t think we will be able to comment on that part.

Ashwini Agarwal — Akash Ganga Investments — Analyst

Okay, okay, no issue. Thank you, thank you so much.

Operator

Thank you. The next question is from the line of Surya Narayanan from Phillip Capital. Please go ahead.

Surya Narayanan — Phillip Capital — Analyst

Yeah, thank you for this opportunity. Sir, just on the pricing erosion situation in the U.S., is it largely to Dr. Reddy specific that double-digit kind of price erosion situation? And possibly could be because for more number of Para 3 launches by you. Is that the situation or it is broad based double digit kind of price erosion that you have experienced in the U.S.

Erez Israeli — Chief Executive Officer

Its the business model in the United States. So naturally every company is facing price erosion. I think the proportion of the price erosion is very much based with how many of your products are facing [Technical Issues] and what is the timing in which the customers are issuing their RFTs [Phonetic] In our case we had the — we launched, let’s say in the last three years about 80 products in the United States. So naturally these products by design will face competition that allows the proportion out of the entire basket. So, and let’s say that’s why percentage per se is less for me at least to indicator of the health of the business. The health of the business the way I dictate it is growth and EBITDA and ROCE. And so far it’s pretty healthy and we are maintaining the margins and even growing a little bit in the United States, despite those revenues.

Surya Narayanan — Phillip Capital — Analyst

Sure sir. Sir, the second point is on the, let’s say, U.S. has so far been the dominant revenue contributor and earning contributor for us, but in the recent times we have obviously thought about diversifying our focus towards emerging market, new markets like China and all. And also accordingly reducing the R&D spend focus targeted for the U.S. market. So let’s say five-year down the line, is it fair to believe, Sir, the share of North America — revenue share of the North America will be meaningfully different than what currently it is.

Erez Israeli — Chief Executive Officer

Indeed you described our strategy for the last four years, and so we are investing in other markets for growth, thus India and emerging markets and this is providing us — by using the same fixed assets. So it’s based on the portfolio of assets, our knowledge, etc. So this is allowing us more goals, more [Indecipherable] And yes, I think it’s fair to say that these markets will grow faster than here. So, the United States will continue to be an important market for us and just want to emphasize what I mean, and we will continue to invest in growing in the United States.

And the other markets, emerging market, India will grow faster than the United States. So therefore then the average weight to United States will decrease, is decreasing already and will decrease over time. And the capital allocation is done accordingly to the diversification report.

Surya Narayanan — Phillip Capital — Analyst

Okay, just last one question, sir, on this generic Revlimid. So whether we are seeing — see we have already launched the product in Canada and that is also kind of influencing size market for this product. So whether we have seen the appropriate number of — or the kind of revenue that we would want, the product could have generated out of Canada market, whether we have achieved the right size revenue out of it as if it or will take longer time to achieve the peak potential out in the market from Revlimid?

Erez Israeli — Chief Executive Officer

Yeah, in Canada, that will take a bit longer because the way that the Canadian process is what historically each one of the relevant provinces in Canada and then for each one of them to participate in the relevant sales processes, say with the tenders or other mechanism in which each one of the states is providing, so both is expecting a bit longer and it’s not the day one launch that you have seen in the United States in that respect. In any case, the launch in the U.S. and the launch in Canada are unrelated as the launch in the U.S. in spite of the settlement in Canada is naturally, it’s really market situation. And so I would not draw any kind of — it’s not the same situation. I would not draw any conclusion from one market to another. Last but not least, we are going to launch this product not just in Canada and the United States, we are going to launch it also in Europe as well as in some emerging market, so this is going to be a little bit product cost.

Surya Narayanan — Phillip Capital — Analyst

Sure, Sir. Okay, thank you. Wish you all the best.

Operator

Thank you. The next question is from the line of Sameer Baisiwala Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi, thank you very much, and good evening to everyone. So the first question is for Icosapent, which is Vascepa in the U.S. So good job done on the market share gain. I think it’s now stabilizing around 11%, 12% for last few weeks. So have we reached the peak or what’s the outlook over here? And is it the supply that is holding you back?

Erez Israeli — Chief Executive Officer

I think we, and — I think that the product is going well and we are planning to continue to do well also in the next quarters to come. There is still a lot of market share to gain with this product as the innovator is still holding nice market share. And the — and in terms of supply, it is not constraining us any such.

Sameer Baisiwala — Morgan Stanley — Analyst

So then why is the market share in early double digit and not much higher if supply is not holding you back? So what’s the roadblock?

Erez Israeli — Chief Executive Officer

The outlook globe is the desire of customers who take the product from us.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. But, Sir, that’s little counterintuitive because generic is lower cost, lower priced. So most of the time customers are too happy to take generic product. Is there anything different over here?

Erez Israeli — Chief Executive Officer

No, nothing different here.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, okay, that’s fine, Sir. Sir, the second question is, is on the Russia, Ukraine business. Given the geopolitical situation, what’s your read of the situation? Have you seen any disruption or any problem in the business that you are doing over there?

Erez Israeli — Chief Executive Officer

So Ukraine, Russia situation is beyond my paycheck. But, we are, we both — Russia is a very important market for us, will continue to be an important market for us and there — and if there will be any, hopefully not, I wish not. But if there will be any adverse events, we’ll have to accordingly be prepared for which, and we are. But I wish that it will be only peace in the world and calmness.

Sameer Baisiwala — Morgan Stanley — Analyst

So far have you seen any impact on the business.

Erez Israeli — Chief Executive Officer

No, no.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Sir, one final question, if I may, which is on your health tech platform. Is there any update away here? How has been the progress? Anything you can share on the physical infrastructure that you have built, especially for online pharmacy fulfillment and diagnostic side and how many cities have you rolled out? What’s the plan going forward for next four to six quarters?

Erez Israeli — Chief Executive Officer

Sure. It is growing very nicely. We basically are in the last stages of finishing the pilot. We are now present in five cities, going to 10 in the next few weeks. And this will cover, of course, the main cities of India, Including Mumbai and Delhi. And accordingly will be the rollout of the companies that join this platform. So there are many ways to grow this businesses by convincing the companies to work with us and give treatment to their employees and basically insured by our insurance in this format. And of course, rolling out a good service of — by physicians, as well as by other vendors to provide excellent service. This is very, very neat project and I’m very proud of the beginning and we believe that deliver is very much. It’s a good thing for us and I believe it’s a very good thing for India as whole.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Thank you so much.

Operator

Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan — Goldman Sachs — Analyst

Hi, good evening, and thank you for taking my question. Just the first one is on the PSAI business. In your opening remarks, Erez, you had mentioned we expect performance to improve quarter-on-quarter. What’s driving that optimism? I remember last quarter we had the issue of inventory destock from some of our customers. So just can you help us understand the dynamics in the PSAI business?

Erez Israeli — Chief Executive Officer

Sure. If we are taking out, like to call it COVID related behaviors by companies and take business, especially its consumption, the main driver of course will be the launches that will be in the marketplace of FY ’23, FY ’24 and FY ’25 by the customer, both by internal use as well as external use. And if we [Indecipherable] meaning, the top of products that used to drive this, which are going to be changed by products that will be launched in this area, which will be one more profitable and second, biggest in the size. This will drive the growth on the base LPI [Phonetic] PCI is comprised also on the CDMO activities that are lightly picking up and we very much believe in it. So most of the ceiling that is down now with small projects which are in Phase 1 and early Phase II, and actually some of these projects will come to Phase III and beyond that and, of course sale which goes by the CDMO type of the business which is as I discussed in the first part of our writing to activities and in sitting and picking up. The sales is — we are selling the B2B in the PCI and its picking up and with launches of pharmaceutical product that we are serving in Japan as well as in some Middle Eastern and African countries. So the combination of the three should grow PCI in the future.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. That’s very helpful. And is it early days? And if so, can you quantify some of the non-API sections in the PSAI, CDMO, the projects that you’re talking about?

Erez Israeli — Chief Executive Officer

At this stage, the two sections are not big and we are not going to be PSAI specifics proportion, but they are not big. They will be, but they will be more and more meaningful and the — so right now still most of the — most of the PCL comprise of API, of the API persistence. And in the case of Q2, it was comprising some COVID sales as well, so which was not there in that magnitude in Q2. So some of the sequential trend is related to COVID.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, helpful. Second question is on the Sputnik, I missed some of the early comments. You said we are actively looking to register Sputnik Light as a booster, right? And the trial we are doing it as just to — was the reason for doing the trial with other vaccines?

Erez Israeli — Chief Executive Officer

Yeah, we will — we will — we’ll have to get approval from the authorities here in India for the protocol of the trial. And based on the pending date of that protocol, we will have the trial with other vaccines, so it will serve us another option for private as well as the government for any booster in the future. We believe that boosters will be part of our life and we’ll have to take it one or twice a year now, and we believe that we want to build further.

Shyam Srinivasan — Goldman Sachs — Analyst

Hot it. Helpful, Erez. Last question. Again on your opening remarks, you are now net cash M&A. Can you just help us understand what those therapy areas or is there a geographical flattish [Phonetic] swell. Which are some of the assets or products that you will be looking to acquire?

Erez Israeli — Chief Executive Officer

So we are looking for opportunities in all of our spaces, all the geographies. India, naturally as well as emerging market, United States and Europe, in all of those geographies there are now active projects. Some of them can be faster and within the next few weeks, if of course will be concluded, and some of them may be later. The nature of the capital location will be the same as we discussed in the past. We are not in the shopping spree. We see it as complementary to our organic goals. At the same time, because we have a very comfortable financial situation, we are planning to use that. So now let’s see which of the projects will be, actual eventually come to conclusion. But likely that we will see multiple deals in the next coming months.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. Thank you so much, Erez, and all the best.

Erez Israeli — Chief Executive Officer

Thank you. Thank you. The next question is from the line of Ashish Topdar from Motilal Oswal Asset Management. Please go ahead.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Yeah, thanks for the opportunity. Sir, on the Sputnik you said, obviously, we have got permission from the government to export. Can you quantify the doses that we are planning to export? Or we’re open to export any amount of there is a restriction?

Erez Israeli — Chief Executive Officer

No restrictions I cannot specify now specific number, but there are no restrictions that prevent us as the output.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Okay, but the, but the — these numbers will be reflected in fourth quarter you believe so?

Erez Israeli — Chief Executive Officer

We’d say it depends on the type of [Indecipherable] allow for the product. For example, we say Sputnik Light will be approved eventually as a vaccine and subsequent will get as a booster, so will be as a booster for other products and we look in WHO. If all of this will happen, it can create a nice opportunity for us. And of course, the quantities will be accordingly. So it depends, of course, on the type of approval that is available for this market at this particular time.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Okay, okay. So just to get this thing clear, you cannot export till you get some sort of approvals from various agencies. Is that a right understanding?

Erez Israeli — Chief Executive Officer

No, no, we can export export. Export is — we can export, but naturally our customers will not buy a product that is not approved for use in the relevant markets, for the relevant patients, if I want to use it. So it has to be approved in that specific country for the use either as a vaccine or as a booster, and this is where the — from from there we’ll derive the quantities.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Okay. But, Sir, as you understand, this product is approved from most of the Scandinavian countries. So how about that?

Erez Israeli — Chief Executive Officer

This is not a part of our agreement with Russia. So this will come directly from Russia, not from us, to these type of markets.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Okay, yeah. Got it. Sir, next question was on this Pegfilgrastim. So earlier participant asked to this, but I missed it. We were supposed to launch in quarter three, right, through Fresenius Kabi. So we have launched the product or there is a delay? And if the delay is there, why so.

Erez Israeli — Chief Executive Officer

I did not get the questions.

Parag Agarwal — Chief Financial Officer

Yeah, so Ashish, basically Fresenius has mentioned or indicated basically calendar 2022, is when you expect to launch the product in both U.S. and Europe market.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

So do you say that we are just, we are still two to three quarters, probably two, three quarters away from the launch?

Parag Agarwal — Chief Financial Officer

No, they have not specified the quarter, but maybe next one or two quarter it may happen, but obviously we don’t have the specific date.

Ashish Topdar — Motilal Oswal Asset Management — Analyst

Okay, fair enough. So just last question on this price erosion in the U.S., it’s been quite a while since we have price erosion. But as the investors understood, we felt that by the end of March of be intensity of the price erosion should gradually start coming off. So in your experience and what do you see in the market, would you be on similar lines? Would you also say that price erosion intensity would eventually come off by end of March?

Erez Israeli — Chief Executive Officer

As I mentioned before, price erosion and the magnitude of the price erosion not a top-down, it’s bottom up, meaning which depends on the product that is facing that weekly competition. And in our case, most of our portfolio faced it, and so likely that we are not going to see another round for these specific products and hence will probably calm down. So it’s not the top down, it’s a bottom-up and this from their comment this [Technical Issues]

Operator

Mr. Akolkar, your line is unmuted. Please proceed with your question.

Shrikant Akolkar — Asian Market Securities — Analyst

Yes, thank you. Thank you for the opportunity. I have a question on the Chinese market. So recently, we have seen there have been lockdowns in several provinces. So how has been our performance in the recent quarters [Technical Issues]

Parag Agarwal — Chief Financial Officer

We can move on.

Operator

Sure sir. We take the next question from the line of Kunal Dhamesha from Emkay Global. Please go ahead.

Kunal Dhamesha — Emkay Global — Analyst

Yeah, thank you for the opportunity again. So on Pegfilgrastim, we are seeing that we are not, and once again happening in next one or two quarter. But have we supplied any initial inventory to Fresenius Kabi or it will happen once the approval comes down? And I assume that it will also take time, right? It’s already not supplied.

Erez Israeli — Chief Executive Officer

So just to strengthen. As part of the deal [Technical Issues] and therefore we are just ahead of the certain financial arrangements with Fresenius. Once they will go, we will enjoy the extreme of the value of that will come from their launch. So we are not supplying and not involved in the launch and we are not aware of the date and we are going to be advised by then when they will be decide to do this.

Kunal Dhamesha — Emkay Global — Analyst

Okay, sure. Thank you.

Operator

The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah, thanks for the follow-up. I hope my voice is audible. There seems to be some disruption. So just one final question. How are you thinking about your injectable portfolio for the U.S. market? As in how many ANDAs have been filed? And are there any complex long-acting type, micro spore type product, peptide products that you’ve done the filing? And when can we start to see the approval cycle begin for these?

Erez Israeli — Chief Executive Officer

So, it’s naturally very important to us, not just in the U.S., but also globally. And the answer is yes. We do have these complex generic assets I spoke a bit, some of it took long time to develop, some we are still in development. Overall, the injectable and the complete generic will drive the growth in the United States on the generic product and it will grow faster than the retail product.

Sameer Baisiwala — Morgan Stanley — Analyst

Sir, very specifically, have you filed some of these high value complex injectables?

Erez Israeli — Chief Executive Officer

We did file some high value complex injectable, yes.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And the PAI done Duvvada. Does it relate to one such product?

Erez Israeli — Chief Executive Officer

Some of these products are coming from Duvvada, yes.

Sameer Baisiwala — Morgan Stanley — Analyst

No, no, sir. The question is, is the PAI, pre-approval inspection done by FDA? Was it related to one such complex large injectable product?

Erez Israeli — Chief Executive Officer

The PAI was not related to specific products like that, but naturally when we have the PAI, they’re not checking only the specific products, they’re checking the entire site.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, got it, got it. Yeah, thank you so much.

Operator

Thank you. Ladies and gentlemen, we take the last question from the line of Alok Dalal from CLSA. Please go ahead.

Alok Dalal — CLSA — Analyst

Yeah, good evening. Taking Sameer’s question forward on Duvvada. Would you — would you still expect to grow in the U.S. next year if there is an adverse observation on Duvvada from the FDA?

Erez Israeli — Chief Executive Officer

Firstly, Hi, Alok. First, we hope not to have this adverse affect. And the secondly is at this stage we’re not looking for scenarios that we don’t have the sties. But these sites are very, very important on the growth in the United States, not just next year, but also in the years to come. Okay. And, Erez, any update on NuvaRing? Internally, have you decided to go ahead with the launch or drop it? We did not finish all the evaluation, but unlikely that you’ll see launch in the next few months.

Alok Dalal — CLSA — Analyst

All right. And lastly, any update on Copaxone?

Erez Israeli — Chief Executive Officer

It’s still in process. It’s now in the FDA’s court. The ball is in their court. Meaning, that we submitted all the relevant information and we are waiting for the response. Again, I I believe that at least I don’t think likely to see a launch in the next few months.

Alok Dalal — CLSA — Analyst

Got it. Okay, thank you very much for taking my questions.

Erez Israeli — Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Amit Agarwal — Head of Investor Relations

Thank you all for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you.

Operator

[Operator Closing Remarks]

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