Q1 2027 Aurobindo Pharma Ltd Earnings Call
Speaker #1: Varun Mali, thank you, and over to you, sir.
Speaker #2: Thank you, Vandit. Good morning, ladies and gentlemen, and welcome to our first quarter FY27 earnings call. I'm Varun Mali from the investor relations and corporate communications team.
Speaker #2: We hope you have received the Q1 FY27 financials and the press release that was sent out yesterday. These are also available on our website www.aurobindo.com.
Speaker #2: I would now like to introduce our senior management team, who's on the call with us today. Represented by Dr. Satakarni Makkapatti, CEO Aurobindo Biosimilars Vaccines and Peptide Businesses, and Director Aurobindo Pharma Limited, Mr. Yugandhar Puvala, CEO Ugia Pharma Specialities Limited, Mr. Swami Iyer, CEO Aurobindo Pharma USA, Mr. V.
Speaker #2: Murli Dharan, CEO Europe Formulations Business, Mr. S. Subramanian, CFO Aurobindo Pharma Limited. We will begin the call with the summary highlights from the management, followed by an interactive Q&A session.
Speaker #2: Please note that some of the matters we will discuss today are forward-looking, including and without limitations, statements relating to the implementation of strategic actions and other affirmations on a future business, business development, and commercial performance.
Speaker #2: While these forward-looking statements exemplify judgment and future expectations, concerning the development of a business, a number of risks, uncertainties, and other important factors may cause actual developments and results to vary materially from our expectations.
Speaker #2: Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in future events or circumstances. With that, I will now hand over the call to our CFO for the business highlights of this quarter.
Speaker #2: Over to you, sir.
Speaker #3: Good morning, everyone. A warm welcome to Aurobindo Pharma's Q1 FY27 earnings call. Thank you for taking the time to join us today to discuss the company's financial and operational performance.
Speaker #3: The first quarter of the current fiscal year. Q1 marked another quarter of disciplined execution underpinned by strong operating performance, continued strategic progress, and prudent capital allocation.
Speaker #3: Our diversified business model continues to perform well, despite geopolitical issues positioning us for sustainable long-term value creation. Our consolidated revenues increased by 16% year on year, to 9,150 crores, driven by broad-based performance across our business area.
Speaker #3: Europe on growth market maintained strong momentum, and our US business contained a sustained growth. Operating EBITDA excluding one-time impact of 43 crores towards the loss on de-recognition of lease residual stood at 1,924 crores, with a margin of 21%.
Speaker #3: A defining milestone during the quarter was the successful completion of the Lanet acquisition following FTC approval within the stipulated timelines. Beyond adding scale, the acquisition strengthens our US platform, expands our presence in complex and controlled substances, and enhances our long-term competitive positioning.
Speaker #3: Further production at our China OSD facility doubled over past 12 months, making significant milestones in the ramp-up of one of our strategic investments for sustained growth.
Speaker #3: We are pleased to report increase in supply from China to Europe and also to US starting now. Business highlights. Let me walk through the key business highlights for the quarter.
Speaker #3: Our formulation business remains a primary growth driver, growing 17% year on year to 8,101 crores, and contributing approximately 89% of the consolidated revenues, supported by growth across all key markets.
Speaker #3: API business clocked revenue 1,049 crores, accounting for 11% of the overall revenues, supported by our backward integration strategy. US revenue grew by 8.1% year on year to 3,770 crores, or 399 million, reflecting resilience of our base business.
Speaker #3: We launched 10 new products this quarter, filed 9 AMDs, received 10 final approvals, indicating strong pipeline execution and regulatory momentum. Our European business continued its strong trajectory with revenues reaching 267 million euros, delivering 11% year-on-growth in constant currency terms.
Speaker #3: Growth markets revenue increased by 38% year on year to 1,063 crores, or 113 million, supported by strong underlying performance across key markets. ERV formulation remained stable at 35 million for the quarter, driven by stable volume.
Speaker #3: Our biosimilar and biological CMO strategies continue to progress well and represent important long-term growth drivers along our base business. Operational and financial highlights. Gross margin remains resilient at 60.4, compared to 58.8% of Q1 FY26, benefiting from an improved business mix and operating efficiencies.
Speaker #3: Our gross contribution amounted to 5,523 crores, net capex for the quarter stood at 78 million, capital expenditure remained focused mainly towards theranin biologists. R&D expenses for the quarter is around 350 crores, amounting to 4% of the revenues.
Speaker #3: We expect the current rate to continue driven by research costs toward the pipeline and the higher base of revenues. Further, since multiple clinical studies are at advanced stage, we expect slightly lower development costs for the upcoming period.
Speaker #3: Our balance sheet continues to remain strong with a strong net cash portion of 42 million, after payment of 65,85 million towards buyback and 247 million for Lanet acquisition, reinforcing our strong financial resilience and focus on various accurate growth opportunities while maintaining a disciplined capital structure.
Speaker #3: Our average finance cost declined to 4.8% from 5% in the previous quarter, reflecting prudent treasury management. Our net effective tax rate is 31.9% on account of not taking the tax credit on loss-making subsidies.
Speaker #3: However, we expect the tax rate to normalize around 28 to 29% by year-end. Profit after tax stood at 1,032 crores, reflecting a healthy operating leverage and efficient capital management.
Speaker #3: Return on capital: the investments we have made in the past decade are now approaching an important inflection point. Many of these platforms are transitioning from an investment phase to milestone monetization phase.
Speaker #3: Which we believe will progressively improve margins, cash generation, and returns on capital over the coming years. As we look ahead, our strategic focus is increasingly centered on enhancing the quality of growth rather than simply pursuing scale.
Speaker #3: Our past several years we have consciously allocated capital towards high-value businesses, superior margin profiles, and structurally high return on capital. Whether it is complex entries or specialty pharmaceuticals or injectables or biologics or CDMO services, or backward integration, each investment is guided by a common objective, building durable competitive advantages while steadily improving capital productivity.
Speaker #3: We believe Aurobindo is steadily transforming into a more differentiated pharmaceutical company, with multiple levers: higher quality earnings and stronger free cash flows and sustained ROCE.
Speaker #3: As we look ahead, we are encouraged by the strength of our underlying business and believe we are well positioned to deliver the next phase of profitable growth, driven by our focus on complex respiratory product portfolio, significant number of products, including DPIs and MDIs, with multiple near-term filings, thereby improving visibility across both revenue and earnings.
Speaker #3: We continue to retreat our FY27 guidance to double-digit revenue growth, with EBITDA margin north of 21% and absolute EBITDA in excess of 8,000. With potential upside driven by positive outperformance in our high-value strategic business area.
Speaker #3: We now look forward to taking your questions. Our senior leadership team is very happy to provide you further insight, more details, clarification, wherever required.
Speaker #3: Thank you. Over to you, Vandeep.
Speaker #2: Thank you, sir. We will now open the call for Q&A session. We will wait for a few minutes until the queue assembles. We request participants to restrict two questions and then return to the queue for more questions.
Speaker #2: Please raise your hand from the participant tab on the screen to ask the question. The first question is from Surya Patra. Hi, Surya. Can you hear us?
Speaker #2: Okay, we'll come back to you. The next question is from Tosif Sheikh.
Speaker #4: Good morning and thanks for the opportunity. My first question is related to the growth markets. We have shown a strong growth this quarter. Can you help us understand what is leading this growth?
Speaker #4: Are there any specific countries which are driving this growth?
Speaker #2: You're asking overall or any particular geography?
Speaker #4: About growth markets.
Speaker #2: Our growth markets are all the growth market countries are driving growth. In line with the normal response, there is no specific country which is growing extraordinarily like that.
Speaker #2: That is the thing. See, we are also getting into new markets like we have gone into Indonesia, we have gone into China, we have gone into I mean, Canada is doing well.
Speaker #2: So every country is doing well. There is no specific country which is doing an extraordinary performance like that.
Speaker #4: That's helpful, sir. My second question is related to Lanet, with now the acquisition being complete. Can you tell us what are the key products in the pipeline for the near term and specifically, can you talk about our partnership with the respirant pharma for the inhalers?
Speaker #4: Where do you stand currently in terms of adware and Spiriva? I think we have received approval for adware as well.
Speaker #1: Yeah. Hi, Tosif. This is Swami Iyer from Aurobindo USA. Now, with regard to Lanet, your as regards the pipeline, we are going to launch adware anytime in the month of August.
Speaker #1: And the rest of the product, I can't really tell you, share with you on what are the products we are going to launch. That's confidential.
Speaker #1: But we do have a fair amount of products in the pipeline staggered over a period of time. It is a question you wanted?
Speaker #4: Sir, any reason for the delay of launch of adware? I guess we have received approval earlier this year.
Speaker #1: Sir, it's not delay. It's just that the product had to be ready and then it had to be positioned because when you get a certain market share, it should be ready with the inventory.
Speaker #1: So it takes a little time for buildup of the inventory before you launch.
Speaker #4: That's helpful. I'll get back in the queue.
Speaker #1: Yeah.
Speaker #2: Thank you. The next question is from Damianthi Khere.
Speaker #5: Hello. Good morning and thank you for the opportunity. My question is continuing on Lanet. So besides the respiratory portfolio, which is building up well for you, can you also update on the existing portfolio if you see a headroom to grow it further, especially in the controls of stents product?
Speaker #5: And if so, what kind of upside we can see from current level as well?
Speaker #1: So as far as the existing products are concerned, there are a few. We call them the crown jewels, because they grow well, they grow decently, and fortunately, Lanet has been able to get a fair amount of quotas.
Speaker #1: For the controls options, we see some growth there. But controls options, you should be knowing that there is overall limit on how much quota is available.
Speaker #1: If it's 10,000 kgs, 10,000 kgs for the entire US, and it's allocated between different suppliers, so Lanet happens to be one of the suppliers.
Speaker #1: So we should not expect any sudden jump unless somebody defaults. If some other supplier defaults, others will get it. So Lanet had the opportunity.
Speaker #1: They have ramped up a bit. They continue to do that. That's all I can say for now as far as the ramp-up is concerned, as far as the increases are concerned.
Speaker #1: The market, when it expands, the quota will expand. It's not like we other products. The quotas are very limited. They are very careful because these are all controls options.
Speaker #5: Got it. So it's fair to assume the incremental sales for Lanet portfolio will be driven by the new launches, especially in the respiratory, right?
Speaker #1: Yes, it will be driven by new launches, I would say. Respiratory is one of them. That certainly I agree. And it's not as though the controls options will not go up.
Speaker #1: When we have an opportunity, it will go up. It has done in the recent past.
Speaker #5: Sure. My second question is, if you can update us on the Benji plant supplies and whether you have got any clarity from the government on PLI benefits for this year.
Speaker #5: And also, in terms of progress for external sales of Benji, from your side.
Speaker #2: Sir, the Benji plant, we have been continuously achieving a capacity of around more than 800 tons to 900 tons is the range we have been producing.
Speaker #2: The India market, if you really see, it is around 800 to 900 tons, and we have been producing that. And which has been effectively converted into 6 APA and ultimately converted into Amoxi.
Speaker #2: We have been doing very well on the Amoxi in the last two, three months. And we have been able to produce 6 APA also effectively, and we got the our yield is also coming out very nicely in line with our expectations.
Speaker #2: And we have been the regarding the PLI incentive, government, we have filed the application and they will make the payment in the month of September or March, whatever be the policy of the government, they will pay it.
Speaker #2: There is no issue on that.
Speaker #5: And regarding supply to the external suppliers.
Speaker #2: We have been supplying external whoever is hosting, we have been supplying Benji, we have been supplying external party. We have been supplying to some of the big corporates in India.
Speaker #2: Right? And 6 APA also, we have been supplying. Wherever they have been hosting us, we have been supplying. And if you really see the import data also, the level of imports of 6 APA has come down very I mean, very drastically compared to what it used to be in October to December.
Speaker #2: And these are all mostly on account of the advanced supply mechanism. I mean, re-exporting or exporting, whatever may be the word. That is the main thing.
Speaker #2: So there is no issue and we have been going on. Yeah.
Speaker #5: Also, suppose sir, this year we have this minimum import price benefit, which is in place. But when we look at beyond this, what kind of clarity we have on the pricing part, which can safeguard against the cheaper import?
Speaker #5: If say.
Speaker #2: What?
Speaker #5: You're up. Yeah.
Speaker #2: Yeah. What we are trying to do is irrespective of the MIP or the PLI incentive, we have been working towards achieving the self-reliance on the cost structure and ensuring that we are making profit irrespective of the price, et cetera.
Speaker #2: That is what we have been working on. The MIP or I mean, we are not achieved. We will be reaching very soon. Maybe by end of the year, we'll achieve that status.
Speaker #2: And if MIP and the PLI comes, that will be seen at that particular point of time with respect to the market prices.
Speaker #5: Okay. Thank you. I'll get back in the queue.
Speaker #2: Yeah. Okay.
Speaker #1: Thank you. The next question is from Neha Manpuriya.
Speaker #5: Yeah. Thanks for taking my question. Swami, sir, on Lanet, from what I understand, you know, there's a facility in the US which is operating at fairly low utilizations.
Speaker #5: So given that there is not as much scope to improve let's say increase market share in control substances, how do we plan to essentially improve utilization in that plant?
Speaker #5: That's the first question. And second question, you know, to Subbu sir, for Lanet, what sort of synergies should we look at in terms of timing of synergies?
Speaker #5: Let's say over the next two years. And you know, what would you think, you know, does Lanet get to where our US business margins are?
Speaker #2: Both will be answered by Swami. Swami? Swami?
Speaker #1: Sorry, I was unmute. Sorry. Yeah. So thanks, Neha. So let me take both the questions. First and foremost, Lanet has fair amount of unutilized capacity.
Speaker #1: Which we think is a big plus. Because we can use this capacity to bring in products in the US that we could not do earlier.
Speaker #1: One is the control substances. Itself, some of the products that we can bring in. Plus, it opens up a lot of markets for us, including the government market.
Speaker #1: We have also made a plan for the next 12 months. We have created a strategic plan. I can't share too much of details on that.
Speaker #1: But essentially, what we are doing is we are trying to bring in products from our portfolio as side transfer. That we are either not commercialized or we have not been able to ramp up.
Speaker #1: Or which is required for the government business in the US. So there's a plan for it. People already working on it. The integration is in full you know, it's in full speed.
Speaker #1: It's going on. So we think that some of these products would be transferred. And that would enhance the capacity. We have got a staggered approach in 12 months.
Speaker #1: What kind of numbers we are going to have in terms of monthly output and over three-year period, what we are going to do. We feel very optimistic about it, having seen this opportunity.
Speaker #1: The team is very good. They have well-trained manpower. They have very good missionary. So we think we are in good shape there. And there's a synergy.
Speaker #1: Yeah.
Speaker #5: Sorry, sorry. Go ahead, sir.
Speaker #1: So you also talked about the synergies. So there are a number of synergies that we can talk about. I can talk about it for the whole call.
Speaker #1: But let's talk about the top ones. You see, first, let's talk about the SGA synergies. SG&A, rationalization. So when we bought Lanet, prior to 29th of June, that's the date we closed, prior to that date, they had X number of employees on 29 June, it was X minus probably 40 or 30 employees.
Speaker #1: You know, the idea was to reduce the manpower where we have got overlap, especially where it's very expensive. So we had substantial you know, we foresee substantial savings in that.
Speaker #1: Apart from that, there are a number of other advantages that we get. One is when we start using the facility, there's an operational leverage by better spread of overheads.
Speaker #1: Then if you talk about the procurement synergy, you know, Arbindo is a fairly large player, globally. We get vendor synergy. Vendor procurement benefits. So you get synergy through that.
Speaker #1: This will enhance our margins overall. Plus, we see a lot of other benefits. In terms of, you know, cost saving, in terms of expanded markets, and very important, which is not been highlighted much so far, is the strategic partnerships that we get.
Speaker #1: We do get a number of partnerships. And this is a good, you know, this is a good opportunity for us to enhance that kind of partnership.
Speaker #5: And Swami, sir, by what time do you think Lanet gets to Aurobindo margins? You know, would that be would that require this facility ramp up that you're talking about?
Speaker #5: So would that take like two years, three years?
Speaker #1: I think it may not require that kind of time frame. I told you that we already had a fair amount of SG&A synergies in dollar terms.
Speaker #1: It was a decent value. And we are also looking at some of the procurements that is going to be additional benefit. Plus, we'll immediately see some amount of increase in the capacity utilization.
Speaker #1: So that will also add up. I think we will see some benefit going forward in the next nine months also.
Speaker #5: Okay. And sorry, sir, what is the utilization currently at Lanet? And how much do we plan to take it to, let's say, in the 12-month strategic plan that you have?
Speaker #1: So we have about 40% utilization. And then we plan to take it to a decent level. Unfortunately, I think I would not like to disclose the percentage, but we are taking it up to a decent level.
Speaker #1: You know, in the next few months.
Speaker #5: Okay. Thank you so much, sir.
Speaker #1: This is a 12-month plan. Yeah.
Speaker #5: This is very helpful. Thank you so much.
Speaker #2: Thank you. The next question is from Surya Patra. Hi, Surya. Requesting you to connect your audio and ask questions. We'll move to the next.
Speaker #2: The next question is from Bino.
Speaker #6: Hi. Good morning. Can I have an update on the biosimilar pipeline, especially biosimilar solar US?
Speaker #1: Hello, Bino. So the on the US side of biosimilar filing, we are continuing to engage with the FDA on our planned first three filings this year.
Speaker #1: Which underpins the at least three product in the US aspiration that I laid out in some of the previous earnings calls by 2030. So the US filing this year is imminent.
Speaker #1: One quarter here and there, we expect the first filings to happen. And we are actively engaging with the agency. To answer your part one of the question on the updates, this quarter we completed a successful ENVISA inspection.
Speaker #1: Securing GMP certification for both our drug substations and drug product facilities. The timing of the certification is particularly meaningful because the currently have a couple of oncology biosimilars under active review with ENVISA in Brazil.
Speaker #1: I think one of them is under expedited review by a new task force initiative, launched by ENVISA. So the GMP certification is therefore a key input to the ENVISA's marketing authorization process.
Speaker #1: But having said that, as I mentioned in the last quarter, we already have a head start in the latter market with commercial supplies of three of our oncology biosimilars already underway in Mexico.
Speaker #1: So I think we are already getting some traction there. With respect to other updates, we filed mentioned in the last quarter, we are gearing up to file a couple of products Denosumab, both Silvesi, a biosimilar to Prolia, and Fugivi, a biosimilar to Xgeva.
Speaker #1: Both of them have been filed with CHMP or the European Medicines Agency. This will position us to address both osteoporosis and oncology supportive care segments.
Speaker #1: Likewise, I also gave guidance last quarter about Omalizumab. Omalizumab filing is on track. We announced a successful phase three results some time back. The filing is on track for Q3 with European Medicines Agency.
Speaker #1: The US filing may happen a quarter and a quarter here and there. So broadly, to summarize this, broadly, my guidance for a broader seven to eight product EU, UK, Canada base by 28, 29 is on track with four approvals already received.
Speaker #1: On the US side, the two or three product filings this year is imminent. Which means that the guidance that I provided earlier about at least three products in the US by 2030, we are truly on track.
Speaker #1: On track with it. I hope that answers your question.
Speaker #6: Yes, very much. Thank you very much. And a second question is around the bios biologic manufacturing. With Merck, do you still would you be able to give some sense of the kind of revenue ramp up we can expect in FY 28, 29, two years?
Speaker #1: I would give you some color about where we are right now. So as you know, with our disclosure, unit one was inaugurated on 3 June 2026.
Speaker #1: And we remain on track to begin qualification activities of the facility and the equipment by November 2026. So that is in line with the guidance I have been providing over a couple of quarters.
Speaker #1: The validation batches for the customer for the anchor product in unit one of Theranin are scheduled in 2027. After which, the customer will file the product from this site in the target markets.
Speaker #1: So I expect steady revenue stream beginning 2028 as I anticipate some stockpiling requirements to be built ahead of the launch for the customer. Now, we have milestone payments or the revenues that we that we generate.
Speaker #1: So 2027, when we conclude our validation batches, we do our engineering and validation batches, there will be a flow of revenues. But I see a steady state revenue flow to happen once the customer starts to stockpile the product.
Speaker #1: And to be honest, I see that to be from 2028. So in a nutshell, you can expect a steady revenue stream from 2028, depending on the stockpiling efforts of the customer.
Speaker #1: That's with the Theranin unit one. Theranin unit two, which is part of the prior scheduled three that I announced in April, where we are going to set up a pure play drug substations manufacturing facility, which we call it as Theranin unit two.
Speaker #1: That would be commissioned by end 2029, provided, I get, all the statutory clearances and environmental clearance to begin construction this October. So 2029 end will be when the facility will be available for qualification.
Speaker #1: Means a two-year horizon, 20 2030 will be the PPQ batches, the validation batches. Revenues will start. But again, 2031, I expect after the filings, the customer to build the stockpiling effort to happen for the commercial launch.
Speaker #1: Which means 2031 will be when the unit two will start to generate the revenue. So in a nutshell, the structure for Theranin is designed specifically to de-risk the capex ramp, with contracted volumes from unit one providing revenue visibility, from 28 onwards, before the full capital cycle of unit two completes.
Speaker #1: And unit two will start generating revenues from 2031. I hope that answers your question.
Speaker #6: Yes. Very much. Thank you. Thank you very much for the explanation.
Speaker #1: Thank you.
Speaker #6: Thank you. The next question is from Srikant Akolita.
Speaker #7: Hi. Good morning. And thanks for the opportunity. I have a question on the CRO business. So we have recently acquired a small CRO business.
Speaker #7: Can you provide some thoughts that led to this acquisition? And how much of the scalability that you can bring in this business?
Speaker #6: Srikant, see, we recently bought this Yvonne Biochem. Yvonne Biochem, as of date, is having a turnover of around 100 crores. Right? See, the Yvonne Biochem started their journey in the year 2015.
Speaker #6: So in 10 years, they established the entire credibility and their developed the business, everything. It's only a CRO. Now they have a capacity limitation to enhance further.
Speaker #6: That's the reason why they joined us. And we are already having enough experience in the API and what we thought is by acquiring the CRO and along with our existing plant et cetera, which we can organize it, we can make it into an integrated CRDM.
Speaker #6: And that is what we are working. And the Yvonne Biochem is already having customers more than 50 customers. And their executed more than 800 projects in the last 12 years.
Speaker #6: So these are all some of the things which will complement the which our capabilities will complement with the existing CRO capabilities. This will do.
Speaker #6: And third thing is it also comes with the attractive valuation. And we expected the access to capabilities compared to the greenfield investment. If we take a greenfield investment to come to this level, I think to start up, it will take five years.
Speaker #6: Now we are hired by five years in the whole process. Now having said that, now it's our job to take it forward with the accelerate the entire process.
Speaker #6: That's what we are working on. The closing has not happened. Closing is expected to happen in the next one or two months time. After that, we will start looking into what to do next.
Speaker #6: On this.
Speaker #7: Understood. Answer that 100 crore revenue, do you think there is meaningful upside to that going forward?
Speaker #6: I think at least see, the existing promoters, it is going to be the CEO of the new company. And he has a very big vision of taking it to at least three to five x in over a period of three to five years.
Speaker #7: Understood. Sir, and second question we have presented in Canada and China. So we can talk about what's our plan in the Canadian market, which seems to have turned kind of attractive.
Speaker #7: And in China, where we have a formulation play and a facility. So if you can update on that.
Speaker #6: Sir, the China plant, we are having a capacity of more than 2 billion tablets. And last year, we did around something like 500 million plus.
Speaker #6: And already we are seeing in this quarter, we have already doubled that. So our objective is to go beyond 2 billion, probably by end of the year or mid of the next year.
Speaker #6: That is what our plan is like. And we are also having in Canada also, we have got a I mean, we have been supplying material like what we have been doing it for Europe.
Speaker #6: Wherein we reduce the third-party dependency to own captive supply of material to Europe, which has helped us in improving the overall revenue for the Europe.
Speaker #6: Like that, we are also trying to do for Canada.
Speaker #7: Okay. And sir, last question. Landit had two products respiratory products, Spiriva and Flovent. Under development of US back. Is there any development on those two filings so far?
Speaker #6: I think they are working. Yeah. Tommy. No, no. Please go ahead, Tommy.
Speaker #1: Yeah. So it's still ongoing? It's an ongoing development.
Speaker #7: Okay. Okay. Thank you so much for your response. Yeah.
Speaker #6: Thank you. The next question is from Abdul Qadir.
Speaker #7: Yeah. Hi sir. Thank you for the opportunity. My first question is to sir, sir just wanted to understand, you know, with the three products what we have in Europe and one in UK, how was our experience been in terms of grabbing market share and, you know, how has the overall competitive landscape been into this particular geography?
Speaker #1: Hey. So this is a push to quarters of commercial supplies and commercial stage operations. So I would describe our progress as a modest steady and a measured start, which is exactly how we intend to approach the transition from a development and clinical stage biosimilars company to a commercial one.
Speaker #1: Rather than trying to scale across every market simultaneously. But having said that, on direct commercialization, we have begun catering to the UK and EU through our own Aurobindo Europe well-oiled infrastructure there.
Speaker #1: While the Nordics and Baltics are being served through our partner Orion, who also have started to pick our product. So there is a distinct commercial channel in these territories.
Speaker #1: What is also an important development for you to note, Abdul would be our startup partnership is about to open a further commercialization channel in Europe.
Speaker #1: We expect a duplicate marketing authorization for an oncology product to be approved very soon. After which, we will see commercialization running through Strada as well in its designated territories alongside our own Aurobindo Europe presence.
Speaker #1: So in the nutshell, very early stage around two quarters of supplies so across the UK, EU, Nordics, and Baltics, we will effectively have three commercial routes to market running in parallel.
Speaker #1: Ours is directly and through Orion and Strada in their respective territories. What is also worth noting is that most oncology biosimilars this is answering your part two of the question.
Speaker #1: Most oncology biosimilars in Europe are sold through tenders rather than the open retail channels. And only my next two products, Denosumab and Omalizumab, are primarily retail products.
Speaker #1: But the products that have been approved so far are tender-based products. And what you must also know is the tender participation doesn't translate into supply on the same timeline.
Speaker #1: So there is a natural lag between entering a tender cycle and actually shipping a product. So I expect all of these to tie in very well after three to at least two to three quarters from now.
Speaker #1: We already see our own Aurobindo Europe picking up the product likewise, I see our partners picking up the product. So two to three quarters time, we will see how the European presence is shaping up.
Speaker #1: Right now, it's slightly early for me, but I try to give you color of what I think my commercial channels will be in Europe going forward, Abdul.
Speaker #7: Sure. So very clear. Thank you. And next one on UGR. So sir, I mean, if you can highlight, you know, how the injectable revenue trajectory has been and, you know, one final one, if I may, and you know, with China and now Landit coming in, understand we have a guidance, but, you know, there has been a subsequent OPEX rise as well.
Speaker #7: So at the China plant and Landit, what are the kind of margins we are kind of building in when we are talking about the guidance which we have just given on the call?
Speaker #7: Thank you.
Speaker #6: Let me take the UGR part. This year has been a steady growth, but it is not going to be double digit. It will be single digit.
Speaker #6: Because of lack of new approvals. Both from unit mainly from unit three. And we are working with various consultants to do the remediation of unit three.
Speaker #6: So it is a this year we expect that the single digit growth will continue. And we will clock around 500 million plus revenue for the year.
Speaker #7: Got it. And so if part two of the question on the margin front from China and Landit.
Speaker #6: Sir, the margin front from China, last year we had a loss of around 7 million EBITDA. This year we should be doing better than I mean, we should be doing positive.
Speaker #6: That's what I can tell at this stage.
Speaker #7: All right, sir. Thank you.
Speaker #6: Thank you. The next question is from Shyam Srinivasan.
Speaker #8: Good morning. Thank you for taking my question. Just on Europe, you know, again, a pretty good set of performance constant currency 11%. So if you could just outline what's happening in the Europe business and, you know, is there any updated guidance for fiscal 27?
Speaker #1: Yeah. Good morning, Shyam and all. Thank you for your complimentary words. Yeah. Yes. The Q1 has been a very strong start for us for the financial year.
Speaker #1: And as we have taken up as a mission to grow our base business of 1 billion, which we grossed last year, obviously we wanted to do a double digit growth.
Speaker #1: And we are tracking to the extent. And upcoming quarters, I do see further growth based on the new launches that are happening, some of them are loss of exclusivity launches, some of them are new turbine late to launch products.
Speaker #1: So this will augment our further revenue growth ambition. And FA27 definitely we are expecting to close with double digit growth over the previous year.
Speaker #1: And on the EBITDA side also, we are increasing our position.
Speaker #8: Sir, we have reached 20% or not of 20% for Europe EBITDA?
Speaker #1: Yes, we have.
Speaker #6: Yes.
Speaker #1: Maybe Subbu can add color.
Speaker #6: Yeah, yeah. We have achieved 20%. If you recollect, Shyam, we have been single digit some three, four years back and morally and the team as well as the accelerated captive supply and other things cost reduction programs et cetera done by the team.
Speaker #6: We have achieved 20%.
Speaker #8: Got it. Sir, second question on Landit, if you could break it down from a quarterly perspective. Should I assume 60 million quarterly revenue before the launches start kicking in at some point of time and 10% EBITDA?
Speaker #8: I'm just throwing it in there.
Speaker #1: No. EBITDA will be much higher. Your earlier EBITDA was higher. The net sales 60 million, that's what we would like to see at least without the other product.
Speaker #1: We feel a little upbeat about this, but, you know, there's a process that's ongoing. We have to rationalize something. We'll have to add something.
Speaker #1: At the end of the day, we have to get value. We believe sooner or later we'll get there. In a medium term, get there and do better than that.
Speaker #8: Helpful. Sir, just if I can squeeze in my last question to Dr. Sadkarni. Dr. Sadkarni, are commercialization of the CDMO, CMO project is later?
Speaker #8: But if you could just comment without on the industry because we have seen a big uptick in quarterly trajectory for some of the CDMO companies this quarter.
Speaker #8: So maybe from a more a customer angle or from a what you're picking up from the marketplace, is there something that is changing on the ground?
Speaker #1: How do I answer that question, Shyam? You always come up with some very interesting questions. So see, first thing that first thing that I wanted to reiterate from my last call on the previous call is that Terranim is not a CDMO.
Speaker #1: Terranim is a pure play contract manufacturing organization. Do I want to be a CDMO after a while? Probably yes. But today it is a CMO.
Speaker #1: Now, why there is an uptick in CDMO businesses now? Because there is a realization in the Indian industry that the biologic CDMOs are probably a way to differentiate going forward.
Speaker #1: So you see most of them entering into antibody drug conjugates offering contract development at a very early level. Et cetera. Where Terranim differentiates itself or where we try to differentiate Terranim is that we wanted to get into the global supply chain of an anchor company like MST that serves the human health right from day one, which means that I want to be part of the commercial supply chain.
Speaker #1: And that's a big ask because that's a big leap getting into commercial supplies of the products that are already in the market means the credibility is going to be very high for the CMO.
Speaker #1: Once we achieve that, then for me to backward integrate the CMO into contract development where technically the margins will be also slightly higher in contract development than in contract manufacturing is going to be easy.
Speaker #1: The current uptick in the market that you are seeing is a is something different to what I am doing, which is primarily contract development.
Speaker #1: I don't think there are any peers in India who do contract manufacturing of a commercial human health product into regulated markets. So I am very careful of my words.
Speaker #1: Most of them are technically contract development and maybe early stage contract manufacturing companies. So what we are doing is slightly different. But you will see you will see a lot more emphasis on biologics and biologics associated products like the antibody drug conjugates, et cetera, a more investment into contract development and contract development organizations in India going forward, Shyam.
Speaker #1: That's a trend that I'm also picking, but I don't I don't know why, but that's a trend that I'm picking.
Speaker #8: Thank you. Thank you and all the best.
Speaker #6: Thank you. The next question is from Kunal Damesha.
Speaker #7: Hey, hi. Thank you for taking my question. First question on R&D expenses. It seems considerably lower below 300 crore for this quarter. Usual average is around 350 crore plus.
Speaker #7: So is there a lumpiness and you know what's the overall guidance for FY27 for R&D?
Speaker #6: So the R&D expenditure, if you take for Q1 FY26, it was 367 crores.
Speaker #7: Yes.
Speaker #6: 365 crores or something. Right? And the R&D expenditure for this quarter is around 344 crores. So there is a drop of around 20 crores.
Speaker #6: Which is because some of the clinical phase three clinical has been completed, which is Sadkarni has explained earlier also. And this year it will be somewhere around 1450 to 1500.
Speaker #6: That's the maximum we are seeing. Because most of the products he has completed and he is in the piling and then implementation stage.
Speaker #1: So just to add more color on that, Kunal, that if you remember Subbu's guidance a year ago, around 35, 36 percent of the R&D expenditure of entire Aurobindo was into biosimilars.
Speaker #1: And majority of it was to support the phase three comparative efficacy studies. Now with all the seven wave one programs that we started in 21, 22, all of them I mean most of them have completed their phase three studies with the exception of one product that will complete next year.
Speaker #1: So naturally the expenditure in R&D towards the towards the comparative efficacy studies towards the clinical studies has come down. And that's the delta that you are seeing.
Speaker #7: Hello. Can you hear me?
Speaker #6: Yeah. Yeah.
Speaker #7: Yeah. Yeah. Subbu sir, I can't you know just you know reconciliate the numbers. You have press releases saying that EBITDA before R&D of around 2204 crore.
Speaker #7: And EBITDA post R&D of 920 1924 crore. So there so it shows around 284 crore of R&D, right? So is there the other amount of capitalized?
Speaker #6: No, no, no, no. It is you are not taken that 43 crores you are adding. Because you are seeing it from the total you know after you have to take the operating EBITDA.
Speaker #6: Which is equal to 12 1924.
Speaker #7: Which is what I have taken, right? So EBITDA before R&D is.
Speaker #6: Yeah. I will help you. I will help you after the call. I'll help you the working. Okay?
Speaker #7: Okay. Sure. Sure. And second question on Penji. Last quarter also you know we were at more or less 800 to 900 ton kind of production.
Speaker #7: Right. So what is kind of you know stopping us from ramping up more? And I assume that 45 percent of that 15,000 ton was our internal requirement which would mean that currently of 800 to 970 80 percent is being utilized for ourselves.
Speaker #7: Is it true understanding?
Speaker #6: So one there are two three actions you know. One as I told you know the imports during the period of October to December or January was very high.
Speaker #6: That is getting consumed. So we'll be able to supply more material. That is one point. Second point is if you really see the Indian demand Indian demand is somewhere around 9,000 to 10,000 ton.
Speaker #6: The balance 5,000 tons is going towards the exports. So what we are trying to do is we are trying to supply to the Indian demand on the 6 API which we will do that.
Speaker #6: And after that also we will be supplying to the overseas market. So there is no question of production this one limitation. The production can be easily 15,000 and the yields are very good.
Speaker #6: What is the demand overall market which is expected to go around 11 to 12,000 tons.
Speaker #7: Sure. And you know lastly on this TADA agreement that we did for two biosimilars for Europe is there any upfront payment that we would have received?
Speaker #7: From SADA?
Speaker #1: Kunal, we haven't we haven't disclosed that. But the agreement is structured in a manner that all the regulatory costs of filing for a duplicate MA will be taken care of STADA.
Speaker #1: I will I will not be able to disclose beyond that, Kunal.
Speaker #7: And so let's say whatever that amount is how is that been accounted for? Like which one? The upfront payment we would have received from STADA?
Speaker #1: No, no. So once we file for a duplicate MA it will be reimbursed.
Speaker #7: Okay. So it's an end and that would be part of revenue?
Speaker #1: Subbu?
Speaker #6: It has not been received Kunal has and when it received we'll see the nature of the invoice the nature of the agreement etc. in consultation with our we are doing.
Speaker #6: But as on that it is not that in the June quarter.
Speaker #7: Sure. Thank you and all the best.
Speaker #6: Thank you.
Speaker #1: Thank you. The next question is from Taran Agarwal.
Speaker #7: Hi good morning. Am I audible? Okay. So I had three four questions. Starting with US onshoring you know given the policy narrative that's getting stated in the US just wanted to check how Aurobindo's position you know and as I understand you know unit economics basically CAPEX and conversion costs don't support a economic rationale to manufacture in US.
Speaker #7: Especially given the depressed generic pricing environment and the honorous working capital requirements to operate in the market. But even then it seems like it's going to be a requirement.
Speaker #7: So how are you looking at it and how will you navigate through this?
Speaker #1: Taran there are two questions in what you mentioned just now. First is how are we navigating it if this becomes mandatory for us to do it.
Speaker #1: I I believe that if somebody is prepared to handle it I mean those the one because we already have a manufacturing facility in the form of Lanet and that we can manufacture up to 350 million as is without too much of CAPEX.
Speaker #1: And we can probably go a little beyond that. Plus we also have the oral life unit which can be substantially higher than this 350 I'm talking about.
Speaker #1: So we would be able to make a significant portion of our demand through these two facilities if we have to do it. And of course we can do expansion.
Speaker #1: We have scope for it. Then we also have another facility in reserve that can be quickly brought into brought online for manufacture. So with this we can meet any exigencies that arises for any kind of product in the US.
Speaker #1: That's one part of it. Meeting the demand. Tomorrow if it is made come we are compelled to do it we can definitely do it.
Speaker #1: That's number one. Number two with regard to your question about costs effectiveness of doing it in the US this is going to be a level playing ground.
Speaker #1: If I have a product X and that has to be manufactured in the US my competitor also has to manufacture at US. Today it may be a dollar it may cost four dollars.
Speaker #1: If it costs four dollars there will not be supply unless you get that money plus whatever margins you have to get. So it's a level playing ground.
Speaker #1: Today if I do a product that's manufactured imported from India and I manufacture in the US I'll be out of the market because in India it will be a lot cheaper.
Speaker #1: It's simple math.
Speaker #7: Correct. Got it. And are are the regulators amenable to these kind of you know requirements or to include these requirements in the policy? Because what we understand while details are soft but what we understand is there's a blanket requirement.
Speaker #7: So just I mean if it's a level playing field it makes sense. But if it's not then how do you navigate?
Speaker #1: Look yeah if it is not level playing field how else can it be? You can't say that this medicines are to be made in US and the product which costs you two dollars has to be sold in sold at one dollar.
Speaker #1: Who would do it? It's a capitalist society. I mean anyone will do it if he requires the cost first the other one is he gets some margin.
Speaker #1: Otherwise nobody would do it. So the government is fully aware of it. Government will be whatever they want to do ultimately it's going to be more expensive.
Speaker #1: If they can give some form of subsidies they can give cheaper land. They can give you know a lot of other breaks. But that's all not going to make up for the cost of labor, cost of setting up the facility, the timelines it takes.
Speaker #1: It's going to it takes a very long time to set up a facility. That's why for us the Lanet acquisition we probably leapfrogged about five years in terms of capacities.
Speaker #1: Five years, seven years. So that's how it is. So the facility to set it up to get the regulatory authorities to approve it first of all to get a building permit it could take substantial amount of time.
Speaker #1: And then we talk about the FDA and if it's a DA product get DA approval. I mean we're talking about close to you know half a decade or more.
Speaker #7: Got it. That's quite helpful sir. Second on Europe as I understand and congratulations again for the 11% constant currency growth. But as I understand the flu season in Europe was quite weak in Q1.
Speaker #7: So given that Aurobindo has a broad basket and antibiotics has that impacted the business negatively or there has been limited impact?
Speaker #1: Yeah Taran let me take this Murli here again. Yeah because Q1 you know we have seen a very you know hot spell months over here but the flu season or the antibiotic season by itself is more prevalent or more defined during the upcoming months.
Speaker #1: September, October onwards. And of course we we do have our range of antibiotics and including four EMA we are one of the trusted partners.
Speaker #1: We do have regular calls with them. They expect us to stock hold this product or even supply to some of the Aurobindo known footprint countries.
Speaker #1: And which we have readily responded to. So to answer your question the upcoming months we'll see higher sales for antibiotics but as you are able to see in the Q1 net revenue itself based on our broad portfolio of products being effectively commercialized we are already demonstrating this double digit growth.
Speaker #7: Got it. And the last question on biosimilars. So can you sir you know we see addition of you know BP582725 in your presentation and then there is a host of products in the following page.
Speaker #7: How should we see the development of these products? Because unlike your current strategy which is largely centered around you know second or even third wave molecules barrings all air the upcoming list seems to be you know a host of products which are more closer in the first wave.
Speaker #7: So just trying to understand how should we see the development of these products especially you know you've got a portfolio of products where a large part of or a reasonable part of R&D spends is behind you you are in the process of monetization monetizing those products over the next two three years.
Speaker #7: So just trying to understand but you know waiting too much to monetize would probably then lead you to fall behind on on on the list of products that you're looking to develop.
Speaker #7: So how should we look at it? Thanks.
Speaker #1: Hey Taran. So our next wave product are in active development Taran. So there is there is nothing called a wait and watch approach. In fact you will see one product moving into clinical clinical studies pivotal clinical studies which are now only phase one PKPD studies.
Speaker #1: Towards the end of this year and with one more also a post 2030 asset also entering into clinical studies early next year. So the next wave products are are being developed.
Speaker #1: But what what needs to be noted is there are two shifts that are happening in parallel across biologics right now. And we are positioning for both.
Speaker #1: For example some of them may not be new products per se the next product that goes into clinical study is a subcutaneous formulation. So you can see of an existing product the originator biologics right now are moving from IV to subcutaneous administration to cut infusion chair time and improve patient convenience.
Speaker #1: So the BP58 is a trastuzumab SC which is the clearest oncology precedent for a subcutaneous route of administration and it is on track to enter clinical studies in 2026.
Speaker #1: Much ahead of the patent cliff I think the patent cliff if I remember it right is 2029. So some of our next wave products are those with the device combination because that is one major ship that is happening the other one is subcutaneous and also a combination of new products which will go off the patent from 2032 onwards.
Speaker #1: So to answer your question I we hope to be in in wave one for the next wave products especially with the regulatory landscape now changing that we are getting waivers on some of the phase three efficacy studies in in Europe in US it is still a draft guideline but we managed to position our case for one of our products recently and and got a phase three waiver.
Speaker #1: So there is no wait and watch. Some of these products that we have selected at least four of them that you will see them progressing in the next one and a half years into clinical studies and into the filing phase.
Speaker #1: Hoping to become part of the first wave. The first wave is very subjective. Any biosimilar that you pick today there are eight to ten players.
Speaker #1: So let's see how it evolves. But the intent is that Taran.
Speaker #7: Okay. Thanks. Thank you sir.
Speaker #3: Thank you. The next question is from Jigarwalia.
Speaker #4: Good morning. Thank you. My first question is for Dr. Magapatti. Sir we are struggling to put numbers to our CDMO business sales and margin.
Speaker #4: So if you can just spare a minute of your time and help us understand where does the revenue start and and you know how the full scale numbers look like.
Speaker #4: Say in FY 28 29 or 30 and you know what margins kind of some color you give a lot of qualitative aspects but you know just if you can help us.
Speaker #1: So as I told you the the the unit one revenues will begin from 28 if the stockpiling is what the customer wants. And likewise 2031 from from unit two.
Speaker #1: So put together unit one and unit two 2032 you should be looking at around 150 to 200 million US dollars as a as a good case for the contract manufacturing business between unit one and unit two.
Speaker #1: And the margins in this business typically are around the EBITDA margins will be around 35 to 50 percent. Now this depends again on the product mix that we are going to work towards and and and importantly we still don't know which sort of products will go into unit two.
Speaker #1: Unit one we have fairly good visibility. Unit two is still three years away. But in all I expect it to be a 150 200 million dollar revenue guidance from 2032 onwards between both unit one and unit two if that helps you.
Speaker #4: Very helpful sir. Thank you. My second question is for Subbu sir congratulations on the great numbers and should we start clocking 2200 crores a quarter run rate from next quarter I mean 12.
Speaker #3: I think we should be looking at it but let's wait how the geopolitical situation in the Middle East is getting over but that is what our objective and that is what our target is actually.
Speaker #4: Got it. Congratulations and thank you once again.
Speaker #3: Thank you. Thank you. Thank you very much to the Aurobindo's management team ladies and gentlemen on behalf of Aurobindo Pharma that concludes today's conference.
