Ladies and gentlemen, good day and welcome to the Alkem Laboratories Q2 FY2023 earnings conference call hosted by Motilal Oswal Financial Services. As a reminder, all participants' lines will be in the listen-only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane. Thank you and over to you, sir. Thank you, Mike. Welcome to 2Q FY2023 earnings call of Alkem Laboratories. From the management side we have Mr. Sandip Singh, Managing Director, Mr. Rajesh Dubey, Chief Financial Officer, Mr. Amit Ghare, President, International Business, Mr. Yogesh Kaushal, President, Chronic Division, and Amit Kumar Khandelia, AVP Finance. Over to you, Amit, for the opening remarks. Thank you, Tushar. Good evening, everyone, and thank you for joining us today for Alkem Laboratories Q2 FY2023 earnings call. Earlier during the day, we have released our financial results and investor presentation, and the same are also posted on our website. Hope you had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements and the same may be viewed in conjunction with the risks that our business faces. At the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, Sandeep. Hi, Amit. Good evening, everyone. Since we have shared all the results, I'll keep my talk very short and spend more time on Q&A. During the Q2, our India business delivered a strong growth of 13% year-on-year. While the U.S. business was impacted by significant price erosion and reported a year-on-year decline of 0.9% in rupee terms. However, our year-on-year growth in U.S. market was impacted by significant contribution in base business from Abilify and Samsca. A point to note is on sequential basis, U.S. business reported a growth of 8.5%. Our domestic franchise outperformed the Indian pharmaceutical market by 500 basis points, thereby increasing market share across all acute therapies. Our growth in anti-diabetic segment is 4 times the market growth rate on the back of new launches. I must share with you that we have had a remarkable execution on sitagliptin launch on which Yogesh Kaushal can happily take questions later. We want to carry out this outperformance of domestic franchise to the next, in the next half of the financial year. To achieve this outperformance, a lot of cost optimization projects are underway in our organization, which will play out in the next six months to two years. Also, during the quarter, we have generated cash of INR 400 crore, taking our cash position to about INR 1,350 crore as on end of September 2022. Thank you. With this, we'd like to open the floor for Q&A. Thank you. We will now begin the question answer session. Participants who wish to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have the first question from the line of Saion Mukherjee from Nomura. Please go ahead. Yeah. Hey, thanks, and good evening. I would like you to talk about the cost pressures. The reason I mean, you mentioned last quarter how things have moved. It looks like the cost pressures are still very high. It is a seasonally strong quarter and the EBITDA margin that that was recorded is probably the lowest we have seen in the past many years for the Q2. I just want to understand, is there a cyclical component here or there are structurally these costs are higher? How should we think about margin? In that context, the guidance that you've given for the EBITDA margin for the full year where do we stand? Thanks. Yeah. Thanks, Saion. I'll just answer some part of it, and I'll give to Mr. Dubey, our CFO, for some putting more details on it. I think first things first, Saion, I think you're right. The guidance which we gave of, I think, close to 16% for this financial year might be challenging looking at the scenarios. I think there are multiple reasons for compressed gross margin. I think one of them is that input price is high. One of the reasons are also the price erosions we have in U.S. I think cost is not going up further. It has stabilized. I will let Mr. Dubey throw some more light on that. Thank you, Sandip. Sai, I think you want me to stick to Q2 or you want me to have YTD figures. In fact, I will start with quarter, and as Managing Director, he rightly said, yes, of course, impact of material cost is there, but that is well compensated by our favorable mix. Actual hit in our gross margin, which is 4.7% in the quarter, more or less it has come totally from price erosion what we have in U.S. Market. Price erosion impact on gross margin is to the tune of 4.8%. As Managing Director, he already told you our guidance of 16.5%, 16%-16.5%. We feel if this situation is going to continue, then it will be difficult for us to be there and there could be minus side to the extent of 100 basis points or something like that. Sir, just if I can ask for some elaboration. You were mentioning price erosion in the U.S. If you look at your domestic business, how has the profitability or margin for the domestic business moved?, is there a pressure in the domestic business as well? Sandip, I'm taking this. Yes. Actually, in domestic business, on overall basis, if you see, there is no pressure on the margin. There we have a higher material cost, which is having impact somewhere close to 1.7%-1.8%. That is well compensated by better product mix. That gets compensated. In fact, there is no negative impact on our domestic margins. As I said, this complete 4.7% downside we see in gross margin is on account of price erosion in USA. Right. What you're saying, sir, is that it seems to be structural here., we are sort of guiding towards somewhat lower margins in the years to come. Is that right? No. I'll come in here, Sandipji. Hi. Sai, no, this is only for this financial year., we have identified some good cost-cutting parameters, which I think I briefly just kind of touched upon in my opening speech, which we will implement over the next one year, a large part of it, if not all of it. We see that our EBITDA margins will go up next year. And from a- There are some very concrete steps, Sai., some of the things that it's too early to say, but in the next two, three months itself you'll hear them. Some networking optimization, some things to do with the plant restructuring and things like that. Very concrete steps. We're very, very close to kind of triggering it. The only reason we are not kind of elaborating is because it's not happened yet. We understand and we acknowledge that our margins have to improve, and we are very close to kind of implementing it. Yeah. You want to quantify that number, Sandip, in terms of the We have identified around INR 200-250 crores of cost savings which are doable. Okay. Thank you. Which are doable in the next 12 months. Yeah. Okay. Thanks. I'll join that. Thanks. Thanks. Thank you, sir. Thank you. We have the next question from the line of Kunal Randeria from Nomura. Please go ahead. Hi. Good evening, everyone. Sandip, U.S. has been a big drag now for a business that is 25% of revenue. I mean, it's having havoc on gross margins. It seems that the new launches aren't compensating for price erosion. I mean, what's going wrong over here? Aren't you getting approvals on time, or it's just that even the approvals that you are getting are highly competitive? How do you sort of plan to have you enough ammunition in your pipeline for the next 6-12 months to at least stop this kind of erosion? I think Amitji will come on the details, but I'll just quickly say that, see, I think next 6-12 months, I mean, don't go by this 30% price erosion this quarter, which we had for some reasons. The same wouldn't happen every quarter. Amit can fill you on that. That's point number one. Second, honestly, next 6-12 months, we don't see anything dramatically changing that something can kind of turn the tables. It's not got to do with approvals. It's just the market condition. It's just what it's playing for most of the guys. Amit, do you wanna comment, please? Yes. Actually, two points I'd like to broadly. But really, the fact here is from the revenue perspective, as you can see, year-over-year, our growth is 1%. Even in this quarter, our price erosion has been. Sorry to interrupt, sir. Your audio is not coming very clear. If you come closer to the mic once. Okay. Are you able to hear me clearly now? Or it's still bad? It's still muffled, sir. Again, can you hear me? Okay. Just one minute. Are you able to hear me now? Yes, this is much better, sir. Okay. What I'm saying is that while the overall market for Europe has been 1% annual growth, despite the last price erosion, we've been able to compensate the revenue side effects through new markets or market share increases. Obviously, there is effect on gross margin. Given that this is reality, we are doing all the cost-cutting measures that we are trying to do. We obviously hope that the business or the price erosion will recede, and business will grow and the margin will grow as well in the U.S. side. Fair enough. I can, I mean, understand this theoretically, but the thing is, I mean, other companies haven't faced this kind of price erosion on a consistent basis, right? It's just that for a lot of companies with new products that come in and tend to just help and cover up whatever has been happening in the base portfolio. I mean, my question is maybe there were some approvals you would have penciled in, are they not coming or if the competition hasn't expected? Maybe just some more color on the kind of, let's say, pipeline that you have in the next 12 months or so. The pipeline I don't want to comment on. obviously each company always looks upon new things to come through, and we are no different. We hope that some of those things will come through for us, which will then obviously help us going forward. You're absolutely right. In a way, we have to see how our pipeline does. Do we get our approvals on time? Do we get our launches on time? If we do, that certainly helps overall, without a doubt. Sure. My second question is on the domestic business., maybe if you can just highlight on how different divisions have performed in the quarter. I mean, has Stage Generic done exceptionally well, or all three divisions have grown in double digits? Some color would be helpful. Mr. Yogesh, if you can take this, it'll be great. Okay. Yeah., particularly some of the divisions in acute front, which are gastro dependent because in acute COVID last year extended till almost previously COVID, then Omicron, and then dengue., last year, if you see, there was very heavy sales of anti-infectives, pain and multivitamins, and those are muted. Those divisions which has these portfolio in acute, they did reasonably okay. They have just sustained the base or have grown by a single digit. The divisions in acute, which are based on orthopedics or gastrointestinal, they have delivered a very healthy double-digit growth. This is on acute front. On chronic front our barring cardiology, almost all divisions, this I'm telling you internal number, not IQVIA number. Barring our cardiology, diabetology, dermatology, CNS and uro, all have delivered a very healthy double-digit growth in the first and the Q2 both. Overall, as a chronic, there's a reason we are showing around 19%-20% growth. This is how the division-wise summary or therapy-wise summary. That's helpful. Just one more, if I can. On the trade generics market several of your peers have now started to enter this space. What is it about this market at this stage that people are so interested in expanding their presence here? Sandip? Yeah, Yogesh, you can take that, sir. See, we have been consistently saying this for a couple of quarters and enforced by Mr. Sandeep Singh as well, our Managing Director. See, there are certain core competencies in generic business as well., whether it is distribution relationship, team penetration and various other competencies which are required. While some of the new entrants will come, but those core competencies we have, we are very confident that, the traditionally the way generic has delivered, they will continue to do so. This year you are seeing slightly muted growth. This is because of very heavy base of last year. Yogesh. Yes. The question was why are other people coming in? What's in that market that's driving it? I'm sorry, I misunderstood the question. See, the generic will see now with so many stores coming up and being promoted by government, so there may be those purchase pattern which are changing, and there are options being given to patients that they can change the brands and ask chemist to give a cheaper version. That is one way. That is one reason. Second, of course, is generic generally you'll see operates in those market where the branded either are not reachable or there's no overlap of branded, particularly in our organization. Generic also reach in those class tier three or tier four towns where the branded business may not go. There's a reason that many players now, or not many, quite a few, are now strengthening their generic business. These are the two major reasons. Thank you very much and all the best. Thank you. Participants are requested to kindly restrict your questions to two per participant. We have the next question on the line of Prakash Agrawal from Axis Capital. Please go ahead. Yeah, thanks, good evening to all. Just trying to understand again this better. Our India share went up. Last time we had said that the price hike benefit will flow through from Q2 onwards. It is not flown fully in Q1. We had some one-off expenses, which was launch expenses relating to sitagliptin. Plus there were Forex one-off Forex, which was unlikely to recur. All these four, five things have they still played out? Obviously we have seen margin improvement, but not to that extent which was expected. Are these launch expenses continuing and Forex expenses continuing? Mr. Dubey, you can take that. Yeah, Prakash, actually, yes. We discussed in our quarter one's call, and there we did not see complete impact of our price increase in Q1. You are very right. If you see Q2, our growth NRV component is 5.3% out of our total growth of 10% growth we have shown. That is biggest component. It is clear indication impact of price increase is definitely coming in. I think all these three levers NRV, new launches and volume, it's a reasonably good number in Q2. We have very clear indication impact of price increase is coming in. Yes, as far as material cost impact is there, obviously we discussed in our Q1 call also. Some of the material we already consumed in Q1 and something is going to follow in Q2, and that's exactly happened. That is the reason impacting our gross margin. I'm not very clear about your second question, Prakash. Launch expenses, which was related to sitagliptin. If you see Q1, there was a spike in cost. I think it was mentioned that it was due to new launches in Indian market. If that kind of cost would have continued, is what I'm asking. There was a Forex element also. Is there a Forex element sitting in other expenses for this quarter also? Forex losses actually, that was mainly from Chile, but it's unlike Q1. Q1, it was bigger component. It is small in Q2. As far as launch expenses, you referred, I think that is going as per our business plan only, nothing abnormal, so that's already factored in our estimate and nothing abnormal we have noticed. Okay. With respect to input prices that you mentioned, so since our 40% of the business is anti-infective, antibiotics, et cetera, so penicillin prices remain pretty elevated levels. This is one of the few things which have not come down. Is that a direct correlation with our raw material prices or is there more to it? Yeah. You are very right. Actually, most of the anti-infective, we have not seen pre-COVID level of pricing coming to that level. You are very right, more or less all anti-infective prices, yeah, it's unlike November, December of last year, but it has not come back. Whatever material we procured in November, December and January, sale has happened against that consumption. That is another reason. I think going forward, this 2% impact on gross margin, it is going to come down. Definitely it is going to come down. Then NRV positive, we are going to continue going forward. We are going to have advantage there. Okay. Lastly, for Sandeep, on sitagliptin, I mean, among the top 5 players, so congratulations there. What is the growth plan ahead in terms of diabetes franchise? Are we going for more molecules in similar way? We did top 3 in one of the CNS products, now sitagliptin. What is the growth plan here? Yeah., growth plan things have to go off patent for us to launch because we are not the top in licensor for a lot of reasons, and we can get into it. Our growth plan will be linked with expiry of innovative brands. Without taking names, we know there's one big one coming up in January, February. It's not diabetes, but it's cardiovascular. I think we'd have to play the game. Ultimately, we're a generic company, so we are bound by whenever drugs go generic. I would. Maybe Yogesh wants to come in there. I think we are the number one or two in generics if you forget Sun Pharma and the innovator. What do you think, Yogesh? Are we top five or are we better? No, sir, you are perfectly right, Sandeep. In generic market, we are number one. We have outperformed all the top diabetes player in the industry. For last three months, we are sustaining number one position in both the SKUs of sitagliptin. Yeah. In volume, I guess you're good. Yeah. Yeah. Just to be clear to them so that they. No, no. Both Sandeep. Okay, wonderful. Because in both we are leading the market among generic players. Okay, got it. Prakash, we are driven by the market fundamentals. I mean, we don't have anything out of the blue which would go,. We execute better and we'll have to fight it out. Understood. Lastly, on the M&A side given the cash generation is still very strong. I keep on asking this, but are you seeing actively some of the acquisition which is strategically fit into your portfolio or you are? I think you have been consistently asking, and my answer also remains consistently the same. Not much, Prakash. We will do things organically. Even if we do something, it'll be very kind of small compared to what others are doing. Okay. Thank you. At least for the next, possible future. Understood. Thank you, sir. Thank you, Prakash. Okay. Thank you. All the best. Thank you. We have the next question on the line of Sumit Gupta from Motilal Oswal. Please go ahead. Hey. Hi. Thank you for the opportunity. Yes, I have just one question on, like, higher, other expenses which are going at a much higher rate than the revenue growth. If you can comment on this? Yeah, Mr. Dubey, please take it. I think you are, Sumit, looking for our comment on other expenses. Yes, sir. Yeah. Other expenses, as, it includes everything. If you take marketing expenses, plant expenses, corporate overheads, and most of the R&D expenses, everything it goes in other expenses. I think you'd like to know why our other expenses they are on higher side. Last year's Q2, it was 22.3%, and now it is 24.3%. Actually, some of the marketing expenses it was on higher side. Then last year it was very close to COVID era and traveling they were not normalized. 80%-85% only traveling it has happened. This time since environment is clear and all marketing activities are happening, so both these marketing expenses as well as traveling expenses, these are on higher side. So that's why it is 24.3%. Generally, our other expenses is in the range of 23.5%-24%, Sumeet. So we are not very far off. Yes, if you compare with last year's Q2, definitely, it will look little bit on higher side, but it is within range. Okay, sir. Going forward also it will be maintained in this range, 23.5%-24%? Yeah. Generally, it is 23%-24% kind of. Cool. Okay. Thank you, sir. Thank you. We have the next question on the line of Pujan Shah from Congruent Advisors. Please go ahead. Sir, my three questions. Can we just get a sales bifurcation for specific therapies, like, for chronic and acute? Could we just get this possible? Sorry, what is it? Uh, uh, the- Q2, you are asking? The bifurcation for chronic and acute, both. This is, see, we are 84-16, so our acute is 84% and chronic is 16. Okay. Sir, could you just get us the gross margin for different geographies? You mean to say the in domestic business or in all? No, no. I'm talking about all geographies like India, Australia, U.S. and yeah, so Australia and U.S. Please- Yeah, I understood, Pujan. Actually, in fact, we are not talking gross margin on geography-wise, but definitely each business is different, so gross margin has to be different to respective geographies. Okay. Okay. Got it. Thank you, sir. Thank you. We have the next question on the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead. My first question is on procurement. What is the dependence on Chinese companies for raw material procurement? What is the percentage looking like today? Mr. Dubey, you can take that, sir. Yeah. Nikhil, our direct import from China or Chinese supplier, it is not much. It is in the tune of 10%-12%. Yes, whatever API we purchase, our API suppliers, they have intermediate dependency on Chinese suppliers. Indirectly, if you see somewhere around 65%-70% of our API is getting influenced because of China. Right. I mean, we are not fully sure how things are panning out in China when the lockdowns will open. Are you in touch with your vendors on a de-risking kind of a strategy? Are they also equally focused on trying to have multiple sources? Are you seeing on the ground that there are many other chemical companies based in India who are setting up investments into intermediates that are relevant for your portfolio? Yes, I think that is happening., it takes time to set up CapEx. It already started happening last year. It will take a lot of time, and there will always be Chinese dependency. We'll never be out of it, very honestly. Okay. We will get better. Okay. Nothing disruptive. Things will steadily improve, but it's just not gonna change a hell lot in next one or two years. Yeah, I think so., these are very and we can't ponder much about it. We don't know honestly the answer. Okay. Okay. Thank you. Thank you. Sure. Second question. Can you help me, what is the total MR strength today, and how many MRs have been added in the most recent quarter? They are less in the last Q2. Yogesh, you can take that, sir. Net additions, please, if you can. Yeah. We have around 11,000 representatives across the company, and we have added around 1,000 this year as well. Last months 1,000. Not this financial year, but last 12 months. Thousand. Okay. Sir, can you also help me with what is the fully loaded cost of a medical rep today looking like? I mean, including both fixed and variable payouts. Is it more like INR 12 lakhs, INR 14 lakhs, INR 15 lakhs or much lower than that? Can you give some indication there? Yeah. Yogesh. Yogesh. Yogesh Kaushal., generally a loaded cost means if I include only the CTC of a representative plus his operational cost, I exclude the marketing cost with the rep sales. CTC plus his operational cost, tools and all, would be average. I would say it will be roughly around INR 6.5-INR 7 lakh. INR 6.5 lakh-INR 7 lakh. Okay. We are looking at a INR 70 crores kind of a drag, versus the recent MR addition, which obviously, they will be given at some point, and then they will start contributing. Is that the right way of looking at it? Can you repeat? Because your voice is patchy still. I'm not able to hear you properly. Can you repeat? Is my voice clear now? Just go ahead. I will try to understand your question. Yeah. It is not so clear, but please repeat. Okay. My question is that, whatever these MRs have been added last six months or so, last one year or so. Yeah. They wouldn't have broken even by now, right? I mean, it takes a bit of time, one and a half, two years. To that extent, that is the level of cost side that is still sitting in the P&L in the last couple of quarters at least. Yeah. It will. because to reach us, normally what we do in the business is whenever we hire such large teams, we don't give them completely new brands. There is product rationalization also which happens. Of course this break-even takes time,. Any reps which we add, 1,000-odd reps, will take at least two and a half-three years to reach a break-even. Understood. Sir, are there any competitive forces at play which is pushing up the medical rep cost as well? Because when we hear from many of your peers, almost, I mean, most of the companies are in a field force expansion mode after almost one and a half-two years. Is that also dragging the profitability a bit? Very few. On a case-to-case basis, we do address, but generally we stick to the broad guidelines in the company of hiring. Very rare cases where we succumb to those requirements. Once- Okay. We stick to guidelines of the organization. Sure. Sir, one final question, if I may. What is the mix between metros and non-metro cities in Alkem's commercial business today? What was it, let's say four years, five years back? Are we in a situation where new age molecules, especially in diabetes, which are going off patent, a company like Alkem which might be having lesser share of metro, more share in non-metros, be possibly in a better position to commercialize such products in a pan-India level, irrespective of whether there is legacy chronic presence or not. See, acute will always have a high salience towards non-metro towns because of antibiotics being written by largely C-class GPs and non-MBBS. They will always have a bigger field salience in non-metros. Our metro coverage by acute also is at par with competition. There's no less, but yes, because of our demographics, we'll always have more reps in acute working in non-metro towns. Coming to chronic, by strategy, we have chosen to strengthen metro and class one towns. We have a very niche marketing approach to the specialists. Metro and class one in chronic, I don't have accurate data, but roughly around 60-65% team would be in a metro, in class one towns. Sir. Your third question. Yeah, please. Yeah. Tell me. Basically what I'm trying to understand is that, is there a market still, is a market being formed for products like sitagliptin and all in the non-metros as well or, for the market formation for these products in these markets, it will take some time? See to penetrate the SGLT2 and all current molecules largely are sold up to class one town only, or maybe class two. We don't know. See, diabetes has, there's no study which says that it will restrict only to metro and non-metros. It will go below everywhere. Yes, for doctors, specialists are largely in metros and class one towns. If you go below, there are more generalists, so they will still continue to write older anti-diabetic drugs. Metro and class one will shift to the current guidelines, ADA guidelines, which talk about dapagliflozin and sitagliptin. This will become core in these at least these towns, up to class one towns. Sure, sir. Thank you so much for answering my questions and all the best. Sure. Thank you. Participants, I request you to kindly restrict your questions to one per participant as there are a number of members in the queue. We have the next question on the line of Prashant Nayak from Ambit Capital. Please go ahead. Yeah, good evening. Can you give us a sense of what is the quarterly spend on your biosimilars initiative? Is it likely to increase from here, or would this be the current steady state for some time? Mr. Dubey, you can take that. Yes, sir. Yeah. Biosimilar, I think you are more interested in biosimilar R&D or complex? Composite. If you could just give a sense of, Yeah. Annually, we have total budget for biosimilar somewhere in the range of INR 100 crores-INR 240 crores total OPEX. Revenue somewhere close to INR 160 crores kind of. Out of that R&D is somewhere close to INR 100 crores. Okay. Is this likely to be the range going forward as well, or do you see some pickup, if you- It is as per our business plan only. No, going forward they're asking. Going forward, no, it will be steady. Not picking up. All right., a question on the cost reduction initiatives you mentioned earlier., just if you could give us a sense whether these costs that you're reducing would relate to any specific business like the U.S., or would it be at an overall corporate level? How do we think about it? Yeah, I'll talk about it. Mr. Dubey, you can please add on if I forget something. These are for international business as well as overall corporate. Some of, I think levers are in the procurement. Some of the levers are in supply chain, let's say inventory days reduction. Some of, a large part of it is also in savings in plant overheads and R&D expenditure. Pretty much touching base everywhere. Okay, great. Thanks a lot. That's it from me. Thank you. Thank you. We have the next question from the line of Sonal Gupta from L&T Mutual Fund. Please go ahead. Hi. Sorry, good afternoon, good evening, and thanks for taking my question. Just on, I mean, like just trying to understand, right? Like on the U.S. business, given the, I mean, what is your longer term outlook? I understand that you're still optimistic, but I mean, clearly some of these cost cutting measures that you've outlined seem to pertain to that as well. I mean, like, is this just trying to understand what is the longer term strategy. Is it going to be a calibrated investment based on the sort of revenue throughput, or how are you looking at it? Sure. I'll take this. Amit, you can add on to this if I miss some points. You're right. I mean, most of the cost initiatives are, let's say, for international. When I said R&D and things like that, we are calibrating investments to U.S. We are kind of controlling the capital allocation we do there. Hoping that this can become slightly better in couple of years. Longer term outlook, again, to be honest, no one knows. This is going through, like, real tough times for the entire industry. If things don't improve in some time, then of course we could again discuss what needs to be done. But as of now we are going aggressive on cost-cutting and allocation, allocating lesser capital. Even at this, does this mean that even at current level of revenue, do you expect that your U.S. profitability will improve by next year? It will improve. It will certainly improve. But is it like kind of justify how much capital you put in is a bigger question. But certainly it will improve because I think it would sound funny in hindsight, but we do think we have hit rock bottom. I hope I'm correct. It will certainly improve from now, but could it get worse? We don't know. Got it. Just related to that, so what is the R&D spend you're looking at now for this year and next year? I think same as we said last time in terms of kind of percentage., so because we have biosimilars and all that as well. Even if we are controlling it at the same percentage, means we are cutting back on traditional U.S. investments, right? Generics. Yeah. Got it. It will remain, I think, in the 5%-6% range. Is that? Yes. Correct. Yeah, that's a safe estimate. Absolutely. Got it. Great. Thanks. I'll turn back again. Thank you. We have the next question on the line of Bino Pathiparampil from InCred Capital. Please go ahead. Hi. Just two questions. You launched generic Pradaxa with exclusivity in the U.S. Did it benefit in any material way in the U.S. business this quarter? Amit, can you take that, please? Sure. We haven't had any exclusive launch in the U.S. this quarter. We've had a shared exclusivity launch. Right. Any launch which is either in the exclusivity period, of course if you're exclusive, the only generic in market, it will definitely help. Even those where you are within the 180 days and you've launched, which is a shared exclusivity with other generics, generally the margins tend to be better. That's a very generic statement, but that's true. Any new launches generally come at a better gross margin than the existing business. The downside is they also go through a rapid price erosion. Understood. In this current quarter's number, is it a significant number? We launched. No, it's not a significant number from a revenue or from a margin perspective for that particular product. One just follow-up. There is generic Suprep which you have filed in the U.S. and the exclusivity is getting over in another 3-4 months. Are you in line to launch right after the exclusivity period? We are hoping, but I don't wanna comment anything more than that at this time. Okay. Thank you. Thank you. We have the next question on the line of Madhav Marda from Fidelity. Please go ahead. Hi, good evening. Thank you so much for your time. Just wanted to understand that given we are seem to be holding back on the capital allocation towards the U.S. business, would it be fair to say that earlier we were sort of expecting 10-12% growth? Given that price erosion is and us holding back on capital allocation there, like growth might not be that much and could be a bit slower. Is that a fair assumption to make at this point? Amit, you could take that, sir. Fair assumption obviously. If we hold back the R&D investments, it definitely will have some impact. Now our key task obviously is to see how we can do smarter investment so that we can still expect a revenue growth that we expected, and, margin growth as well. Understood. Okay. Thank you. Thank you. We have the next question on the line of Harith Ahamed from Spark Capital Advisors. Please go ahead. Hi. Thanks for the opportunity. On the generic Pradaxa launch again, given that it's a two generic player market currently, our market share that I can see is in single digits seems to be on the lower side and the innovator seems to be holding on to close to 80% market share there. Anything that is unique about this product or anything that is challenging about this particular launch that our market share hasn't really ramped up the way we expect in a two generic player market? Amit? I'm sorry, I didn't get the question. Was that for a particular product that you mean? Yes. It was about the generic version of Pradaxa, where we've been in the market for almost three months. The question is about- Right. The market reached. Sure. We have done sort of a limited launch on Pradaxa, dabigatran. To some extent it is because of our supply chain. We are not able to get our raw materials, and I don't want to elaborate anything further here. Whatever we are able to manufacture and supply, we are able to sell that in the market obviously. There are only two generics in the market, as. We're doing the best we can, and we are working on our supply chain. Got it. On our biosimilar denosumab, I see that we have a Phase I trial going on for this product. Will we be looking for a partner for this product before we get into Phase III? If you can share some timelines around this product, particularly from a U.S. standpoint? Yeah. I'll just take that and, if need be, Amit will come in. See, right now we're not looking for any partner. We believe by 2026, whatever requirements we have of field force and all that will go off in a way. We are not waiting to do Phase III to find a partner. We kind of have to run Phase III, Phase I both parallelly, and we are kind of doing that already. Okay. All right. Thanks for that. That's all from my side. Thank you. We have the next question on the line of Naushad Chaudhary from Aditya Birla. Please go ahead. Hi. Thanks for the opportunity. First clarification on the margin side, sir. You indicated, from the earlier guidance of 16.5%, you indicated a few basis points, 100 or 200 basis points down. For the full year you maintain that guidance, which comes to around 14.5%-15%. That implies around 17-18% kind of margin in H2 and despite H2 being seasonally weak for us. Can you clarify on that? Do we still maintain that 14.5% or 15%, or was that for H2? No, I think we mentioned for overall. Mr. Dubey, I think, what do you think? I think. Yeah. Yeah. Yeah. Yeah. For overall, on overall basis, we are going to be somewhere close to 15-15.5%. Obviously in H2 our EBITDA margin is going to be on higher side. If you see, H1 our EBITDA margin is 11.6%. For H2, we expect our EBITDA margin to be much more higher, which is ultimately going to land somewhere close to 15-15.5%. That much more higher is only because of that cost initiative we have taken, or is there something else which would lead to? Because, It's some overall basis. Actually, the complete impact of price increase we see in Q3. Then, material cost also we see some betterment there in our estimate is there. Besides this, in H2 we expect our sales intensity to be little bit on lower side compared to H1. Our accounting cutoff also. That also is another major factor which is going to come ultimately in Q3 and a major portion in Q4. All these are the factor which is going to give us additional EBITDA margin in H2. One quick one on the cost saving initiatives. Would there be any impact on the existing revenue base? I'm not very clear on your question. You said, cost saving initiative impact on revenue you want. Existing revenue base, is there anything which we want to discontinue and that would bring more cost saving? Anything like that? No. We are thinking purely on cost saving front, so having impact on revenue, I don't think, and we also don't have anything in our mind. All right. Thank you so much, and all the best. Thank you. Participants who wish to ask a question may press star and one on your touch-tone telephone. We have the next question on the line of Yash Tanna from Ithought PMS. Please go ahead. Yeah, good evening, and thank you for the opportunity. Can you share the MR productivity breakup for acute versus chronic, and how do we see the growth in chronic productivity, as chronic is scaling up well for us? You go, Yash. Yeah, sure, Sandip. Acute productivity is around INR 6.5 lakhs, and chronic is around INR 3.8-3.9 lakhs., so whatever growth we have taken for the year, accordingly the productivity will increase., so this is all. Right. Over, like, two-three years, do we, how do we see growth for this productivity and overall productivity? Yeah., as per our guidance, if I go by around 10%-12% growth for next three years, accordingly the productivity will grow. Yeah, in chronic, of course, we will try to drive faster growth, which is around 1.5%-2% of market. That will maybe slightly more than chronic in terms of absolute terms. Got it. Thanks for that. My second question is, we have reduced our guidance on margins for the current year. I think last quarter we had mentioned that next year maybe we'll get back to above 18% margins. Do we still hold that guidance? Sandipji, you want me to take this? Sorry. What was the question? Can you repeat, please? Yeah, sure. For this year we have reduced our guidance 100 basis points odd. I think last quarter you mentioned that, FY24 onwards we'll get back to 18% or 18%+. Do we hold that guidance? Yes, yes. Hold it. Oh, okay. All right. Thank you. One last question, if I may. Usually we have seen outperformance in all therapies from Alkem, but maybe there's a slight slip in this quarter in cardiac and a few other therapy. I think even on a half year basis, we've lost one rank in cardiac. How should we look into this, or is it something that we have to look into or is it just normal course of it? Yash, you can take that. In cardiology, if you look at our product portfolio, our major challenge has been through anticoagulant., we sold very well dabigatran during COVID time. Our first 6 months was doing very well for cardiology, and the focus was also more on dabigatran. But with the change in COVID and the change in approach of anticoagulant, where new anticoagulants are coming, that has impacted largely the business. We have changed our strategic approach. We will be certainly focusing on the molecules which has a large prescriber base, particularly antihypertensives and lipid management. These two will be our core focus in cardiology segment to drive the growth. Of course, we have launched a new anticoagulant which is challenging dabigatran, is apixaban. , in the first IQVIA, we are number one in units. This will give us some cover. But our large focus will be on antihypertensives. We have olmesartan and telmisartan. We will also focus on our lipid management, which is our rosuvastatin. This would be the growth driver for cardiology. Oh, all right. Got it. That's all. Of course, just to add what Sandip said in the beginning, we are launching sacubitril-valsartan for heart failure, and that can be another blockbuster in cardiology. All right. Thank you for that. That's helpful. That's all. Thank you. We have the next question on the line of Shrikant from Kotak. Please go ahead. Hi. This is Shrikant from Asian Markets Securities. Can you please highlight what was the price erosion during the quarter? Where do you think this will move in next six months to one year? You're talking about U.S., I assume. Yes, U.S. price erosion. Yes, Mr. Ganesh, you can take that. I'm sorry. Can you repeat the question, please? Yeah, sure. Just wanted to know what was the price erosion, U.S. price erosion during this quarter, and where do you see this moving in the next six months or one year time? Current quarter price erosion numbers are a little bit all over the place. I'm sorry about that, because of the way we have done some adjustments. But we certainly were higher in double digits. I mean, we are somewhere between 10%-15%, and probably more than 15%. Last quarter, if you remember, we had reported a very high number in the range of 20%. Q2 last year, we had launched a couple of products which were first to market, exclusives. Obviously, they have gone through a rapid price erosion. So long story short, yes, this particular Q2, we had a large price erosion. We can only hope that this doesn't stay. The initial signs are that the price erosion is still there, but not of the same nature. Specifically answering, I will be happy with a single-digit price erosion. Thank you. That was the last question due to time constraint. I would now like to hand over to Mr. Amit Khandelwal for closing comments. Thank you everyone for joining the call. If any of your queries are unanswered, please feel free to get in touch with me. Thank you. Have a great weekend. Thank you, guys. Have a great weekend. Bye-bye. Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.