Welcome to Zydus Lifesciences Limited Quarter One FY 2023 Earnings Conference Call. Please note all participants' line will be in the listen-only mode, and there will be an opportunity for you to ask questions after the opening remarks. Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh Nayak, Executive Director of Zydus Lifesciences. Thank you, and over to you, sir. Good evening, ladies and gentlemen. Welcome to our post-results teleconference for the quarter ended June 30, 2022. For today's call, we have with us Dr. Sharvil Patel, Managing Director, Mr. Nitin Parekh, Chief Financial Officer, Mr. Arvind Bothra, Senior Vice President, Investor Relations, and Mr. Alok Garg, Senior Vice President from the Managing Director's Office. I hope you would have gone through the quarterly results, investor presentation, and the press release, which are available on our website and also filed with the stock exchanges. First of all, let me quickly run you through the Q1 FY23 consolidated financial performance. We registered revenues of INR 40.7 billion, up 2% year-on-year. Excluding COVID-related revenues, the growth was 11% on a year-on-year basis. EBITDA for the quarter stood at INR 8.33 billion, down 14% year-on-year. EBITDA margin for the quarter stood at 20.5%. Net profit for the quarter was INR 5.18 billion, down 12% year-on-year. We remain vigilant on managing our costs well and improving efficiencies across the value chain to meet our aspirations of achieving 20%+ EBITDA margin for FY 2023, as we aim to grow across all our key businesses. Before I dwell into the operational highlights, I would like to draw your attention to key points related to our two key geographies, namely India and the U.S. Our India geography, which comprises of the formulations and the consumer wellness businesses, now accounts for 46% of the total revenues and grew 12% year-on-year, adjusted for COVID-related revenues in the formulations business last year. Our U.S. Formulations business, which accounted for 40% of the total revenues, grew double-digit on a sequential basis, aided by volume expansion in existing products and new launches. Now let me take you through the operating highlights for the first quarter of FY 2023 for each of our business lines. Starting with the formulations business in the India geography, the branded business grew by 9% year-on-year, excluding revenues from COVID-related products, generics portfolio, and divested products. Overall, the business recorded revenues of INR 11.3 billion, down 17% year-on-year on a high base. Secondary sales growth remained robust for the period, signifying healthy demand trend. We gained market share and improved ranking in our core therapies in the cardiovascular, gynecology, respiratory, and pain management therapeutic areas during the quarter on a year-on-year basis. Lipaglyn is now ranked as the 66th largest brand in the Indian pharmaceutical market during the Q1 FY 2023, improving by 13 positions versus Q4 FY 2022. Lipaglyn is our first indigenous new chemical entity launched in the market. We continue to retain our leadership position in the nephrology segment, while in oncology we gained multiple ranks and are now among the top two players in India. Our consumer wellness business recorded revenues of INR 6.9 billion, up 18% year-on-year. Timely onset of summer and improved distribution reach helped us recruit the consumers for summer-heavy brands like Glucon-D and Nycil. This helped us achieve double-digit growth in these two marquee brands. Now let me take you through the performance of our U.S. formulations business. We recorded revenues of INR 15.6 billion with a 10% growth on a sequential basis. Price erosion during the quarter was almost entirely neutralized by volume share gains in the base portfolio and launch of new products. We received seven new product approvals, including one tentative approval, and launched eight new products during the quarter. Approvals for the quarter include one first cycle approval. We filed eight ANDAs during the quarter, including three filings which are designated as CGT, which is competitive generic therapies. On the emerging markets front, the business maintained its growth momentum and recorded double-digit growth. Overall, the business posted revenues of INR 3.2 billion, up 14% year-on-year. The growth was broad-based across most of the geographies. The U.S. FDA inspected our Moraiya formulations facility between the twenty-sixth of July and the fifth of August 2022, which concluded with four Form 483 observations. None of the observations were related to data integrity. The company will submit its response to the regulator within the stipulated time. We have put up a new oral solid dosage facility in the Ahmedabad SEZ two, to cater to the requirements of the U.S. market. During the quarter, we successfully completed the qualification and took the first exhibit batch from the facility. Now this concludes the business review. I would now request Dr. Sharvil Patel to take you through the key drivers across businesses and initiatives in our innovation program. Dr. Sharvil Patel. Thank you, Mr. Nayak. Good evening, ladies and gentlemen. It is a pleasure to have you all on the call today. As we continue to evolve as an innovation-driven life sciences company, our focus remains on building businesses with sustainable growth on a long-term basis. We continue to invest resources organically and inorganically in their pursuit, and endeavor to enhance shareholder value in the process. Let me share with you the strategic direction for two of our large businesses, which is India geography and the U.S. geography. As mentioned earlier, our branded formulations business in India grew by 9% year-on-year. In the near term, we aim to grow in line with the market. In the medium term to long term, we intend to outperform the industry growth substantially. This will be achieved by expanding our presence in chronic therapies, introducing new molecules in focus therapies, expanding the presence in institutional segment, and leveraging our innovation pipeline, including the IP-protected novel molecules and biosimilars. We will leverage digital technologies to improve our decision-making and to optimally utilize our resources to expand reach and availability, thereby improving the health outcomes for our patients. The consumer wellness business regained its growth momentum driven by strong traction seen in its marquee brands. We aim to consolidate our position and sustain the momentum by expanding the distribution network, launch of new variants to meet consumer preferences, and in turn emerge as a formidable consumer wellness company. The U.S. formulations business witnessed healthy rebound, highlighting our strength in execution. We look forward to commercialization of our differentiated pipeline, supported by our business development efforts. Our specialty portfolio is likely to scale up over the medium to long term, and we want it to become a niche and a sustainable growth pillar. Our philosophy to invest in people to build the businesses has received external validation as well. We received two noteworthy recognitions recently. The first being the most preferred workplaces by Team Marksmen in association with The Economic Times in India Today, and the second being amongst the best workplaces in the biotech and pharmaceutical industry 2022 by the Great Place to Work. With this, let me talk to you about the material developments on the innovation front. On the NCE research front, as you are aware, our phase II-B/phase III global clinical trials for Saroglitazar Magnesium to evaluate its efficacy and safety in patients with primary biliary cholangitis, which is PBC, and its phase II-B global clinical trial of the molecule for the NASH fibrosis indication are currently going on for the U.S. market. During the quarter, we completed the hepatic impairment studies in NASH and normal PBC patients, the results of which will be submitted in the near term. Clinical trials of Saroglitazar Magnesium in the U.S. are ongoing for indications of PCOS and NAFLD also. We completed the phase I-B trial for desidustat in the United States for chemotherapy-induced anemia in cancer patients. The pre-IND meeting with the U.S. FDA is scheduled in the current quarter to seek for further guidance. During the quarter, we completed recruitment of patients for our phase II clinical trials of ZYIL1. The molecule is targeted at cryopyrin-associated periodic syndrome, which is CAPS, a rare indication. We are planning to initiate a global pivotal clinical trial for this molecule in the near term. This marks our third NCE in our global development. On the biotech space, we received market approvals for the drug substance of biosimilar adalimumab from the Russian regulatory authority. We continue to file new products in many of our emerging markets and want to enter new markets through partnerships to ensure long-term sustainable growth for this business. On the specialty front, our wholly owned subsidiary, Sentynl Therapeutics, Inc., commenced commercial supply of Nulibry during the quarter. Recently, Nulibry received positive opinion from the Committee for Medical Products for Human Use, the CHMP, for the treatment of Nulibry for the treatment of patients with molybdenum cofactor deficiency type A. The brand also received Industry Innovation Award 2022 from the National Organization for Rare Disorders in the U.S. Sentynl continues to run various programs to expand awareness and early diagnosis of the molybdenum cofactor deficiency type A and Menkes disease, both of which are life-threatening pediatric genetic disorders. Thank you. Now we will start with the Q&A session. Over to the coordinator for the Q&A. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may raise your hand from the Participants tab on your screen. Participants are requested to use headphone or earphone while asking the question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from Neha. Neha, please unmute yourself. Yeah, thank you for taking my question. My first question is on the U.S. business. We saw a very strong growth quarter-over-quarter. I know in the opening remarks you mentioned you know volume reasons you know new launches. If you could give us a little more color on you know what we are seeing in Asacol and you know in terms of the volume expansion, you know, are there any one-off product supplies that we have seen, or is this a sustainable base that we should grow on? We don't have any one-offs in these overall numbers. We did see a sequential growth on the business because we continued to gain volume share on the base portfolio and also the new launches helped. Despite pricing pressures that do continue in the U.S. because of base volume growth and new product introductions, we were able to deliver on this growth. Going forward, I think we are at a currently sustainable base which we hope to grow forward. Is it fair to assume, sir, that the Asacol pressure that we were seeing through last year, that is stabilized now? There was no pressure on Asacol. It was just a inventory, I mean, the inventories would have been high during COVID, which could have normalized, but Asacol has been steady in terms of its share. Understood. My second question is on the cost. If I were to look at our, you know, employee cost, or even SG&A ex R&D, there seem to be a fair bit of increase, quarter-on-quarter. Not so much on the SG&A, but more on the employee cost. You know, I'm assuming there's some amount of increment there, or is this the base that we should be looking at? And on the SG&A, you know, has our SG&A spend, sales and promotion spend in India fully normalized? On the employee cost, Neha, basically, Q-on-Q will not make a lot of sense. Possibly year-on-year will make sense because in April we give the increments and incentives, including you know one-time performance rewards. About 8% impact is on account of increments and performance bonuses only. About 2.5% impact is because in the last quarter that is Q4 of 2022 we had actual gain because on a yearly basis the exercise done and or twice in a year also. In September again it will be done. That is the reason about 2.2% change occur because of that. About 1.5% is due to new recruitments also. Understood. These new recruitments would be in India, sir? Yeah, largely in India. Got it. My last question on the India business. You know, I know there was COVID base, but you know, our decline seemed to be higher than some of what our peers have reported. In the ex-COVID base, are we seeing improved traction from the initiatives that we have taken in India? If you could give some color there. I think for us, as we have also stated, last year corresponding quarter, we had significant sale of COVID related portfolio, which obviously largely driven by Remdesivir. Without that we have had a 9% year-on-year growth. If you look at the latest IQVIA data also for July and all, we are tracking better than market. I think we are on track to grow as per market in terms of our current efforts. The key drivers from whatever work we have done in terms of our earlier initiatives continues. We are seeing some traction there. As we go forward, our efforts on institutional business, our efforts on the chronic segments that we want to leverage, and more importantly, our strong IP protected business that we are trying to create will all drive sustainable growth for the domestic business for us. Got it. Thank you so much. Thank you. Next question is from Surya Patra. Thank you for this. Sir, first question on the gross margins. Mr. Surya, sorry, your voice is not clear. Is it audible now? Yeah, you can go ahead. On the gross margin front, I just wanted to address something. What has led to a kind of sequential 70% kind of? Is it, while the domestic branded business has performed well sequentially, is it that the volume growth in the U.S. market to some extent were impacted along with the price erosion? Is that the real- Surya, voice is not clear. We are not able to get that. Surya? Your voice is not clear to us. Can you try to get back on the line? There's some disturbance in the line that we are not able to hear properly. Yeah, I think, sir, I think he has disconnected. Next question is from Prakash Agarwal. Am I audible? Hi. Yes. Yeah, hi. Thanks for the opportunity. I just missed one comment on the U.S. business. There is a sequential improvement. Is it like volume has improved or we had some good launches? If you could elaborate that's my first question. The growth in the U.S. is both. We had a base business volume, growth and a new product, growth also. It's a combined effort. Anything you want to call out in terms of any new product which would have contributed because most of the other companies have reported a you know sequential decline with double-digit erosion in the base business. Did we experience that? And if not, what is our base business erosion and what are the key new launches we had which contributed? Ex-Mesalamine, you know, we saw an overall growth of 8% quarter-on-quarter on our U.S. revenue, and this was mainly driven by volume growth. There was a price erosion, the impact of 2.5%, which was offset by new launches. Okay, fair enough. How do you see the remaining nine months, for us on the U.S. side? Our current best estimate, we believe, is that our base business is currently on track, and we believe we can grow from that. We will improve on the run rate as we continue forward in the coming quarters. We do have some important launches that are also phase I or two quarters. Second question is on the complex injectables. In the past we have spoken that, you know, the second half of fiscal 2023, 2024 we should start seeing this. What is the update on that? How many filings we have, and when do we start seeing the monetization? Yeah. I think when I'm talking about the U.S. business, which we believe can continue to grow, it is also backed by our launches on the complex injectable side. In terms of very complex large complex injectable, the process of approvals and launch will be obviously much later on. With the current portfolio we are seeing, still good traction in terms of growth. Sharvil, question was on complex injectables. Are we still under like development and due for filing by end of this year? Or what is the update there? No, we are still filing. We continue to file complex injectables every year, and we have a pipeline of at least another five to six molecules which are highly complex, which we still hope to file. We are filing one to two complex injectables every year. Okay, fair enough. Lastly, on the margin front, I mean, I understand there's been an inflation, you know, freight and everything is very high. Is there an outlook you are sharing on the margins? Adjusted margin are 18.5%. We already talked about 20%+ margin for the year. %?I think last time I had given an idea that we would believe that we will be 20%+ margins. We hope to sustain these margins for FY 2023 by optimizing all our efforts that we are doing. Also between quarter-on-quarter, obviously it's a question of product mix, business mix that happens. We are still confident that our 20.20%+ EBITDA margins we should be able to deliver for FY 2023. This is core margins, like, to like today is 20.5% or 18.5% as per you? 20.5%? 20.5%. Okay, this is reported margins you are saying? Okay. Yes. Yeah. Yeah. Okay, perfect. Great. Thank you and all the best. Thank you. Next question is from Kashish Thakur. Kashish, please unmute yourself. Okay, Yeah. Kashish? Hi. Can you hear me? This is Binu. Okay, Binu. Yeah. You can go ahead. Just an update on a couple of questions. Couple of products in the U.S. Any further update on Revlimid launch? You already have a tentative approval. Are you looking forward to launch in the coming quarter? Yes. Okay, good. We are looking forward. Okay, thanks. Second, I believe you have a settlement to launch generic Trokendi in coming January. Is that correct? Are you looking forward to launching that? I think every product, but when we come closer to that, we will talk about those launches because I think it will be little too early. I think, I mean, not good to talk about them right now. Great. No issues. You got a final approval for Jardiance, I guess a couple of weeks back or a week back. Would you confirm if you have a first-to-file exclusivity in there? Is it shared? What is the outlook there? I don't have the immediate update, but I can get back to you whether we have any exclusivity or not. Okay, great. One final, if I can, add that. You know, in Moraiya facility, you know, in the other facility you got an approval, although you had some Form 483 observations without a re-inspection. Would you think you will get an approval, for Moraiya without re-inspection despite these three, four observations that you have got now? I think linking observations to a re-audit is not the right thing. I think in Moraiya when we had our observations that were there for Liva that were addressed in an appropriate manner in a stipulated time and the facility was found to be acceptable and we continue to get our approvals. Moraiya we will respond in the stipulated time that we have with the agency and work with the agency for whatever will be the next steps. I think to link observations to a re-audit is not the right way to look at it. Okay, got it. Perfect. Thank you. I'll join back. Thank you. Thank you. Next question is from Vishal Manchanda. Thanks for the opportunity. On your Adalimumab biosimilar approval in Russia, could you share what's the market size there and some color on the competition? We are the first. I mean, on competition part, we will be, I think, either the one or second generic in that market, so there will be one more generic maybe. In terms of size, I don't have it with me, so maybe we can give you once we find out because the data is. We don't have all that data, but we'll come back to you with what is the market opportunities, the size in for Adalimumab. Okay. Would this be a tender opportunity or, you would need this, you would need to promote it and hence you would need a partner in Russia? No, it would be sort of a tender opportunity. Okay. Do you think it's going to be meaningful? Yes. From our emerging markets business point of view, yes. Okay. Any other geographies where you would be expecting biosimilar approvals on the emerging market front? I think our next big market opportunity we're looking is for the Latin American market, where we believe the opportunities could be sizable, and there we are also expecting two to three approvals. Is Brazil one of them, or you would look at Mexico or Colombia and other markets? On the immediate basis, Mexico, Colombia, Venezuela markets. Okay. Just one on Lipaglyn. Is the growth on Lipaglyn primarily on account of the liver indication approval that you got last year? I think that has added to the growth. We have two indications, but yeah, the liver, the NAFLD indication will be the strong growth driver going forward. There is still large headroom there in that indication? Yes. Yes. It's a very large INR 4,500 crore+ market, so great. It's a good opportunity. Okay. Any color that you would like to share on Decitabine launch in India, if that has happened? Yeah. The launch has already happened, and as for these type of products, we are tracking prescription and patients to make sure that we are able to provide the treatment options that they desire and follow through with them. The initial beginning is good, but it's still very early days. The interest from the medical community is very good because this is a replacement of an injectable product with which can tremendously benefit in terms of both patients on dialysis or not on dialysis. Would you also be able to target the Iron Sucrose market, with this product, desidustat or just the Erythropoietin? It's mostly the Erythropoietin. Okay. Thank you. Thank you. Next question is from Sriman. I think they will have to unmute Sriman. Yeah. Sriman, please unmute yourself. Yeah. Hello, Dr. Sharvil Patel. Can you hear me? Yes. Yeah. Dr. Sharvil Patel, I just want to know, we had an agreement with a Korean company, Enzychem Lifesciences Corporation. Are we getting any revenue on the technology that you have transferred to them? We aren't getting any revenue. We are in the phase of tech transfer, which then will be followed by a regulatory inspection in their facilities and then potentially launch in the markets that they are targeting. Okay. Initially it was told that 80 million doses will be manufactured somewhere in 2022. Are we still in the process of transferring the technology only? The technology transfer has happened, but it will have to go through a WHO approval process. Once that happens, I think on the immediate basis, I doubt if they'll be able to produce so many doses this year. Okay. Once they are through with some of the other regulatory approvals, maybe they can, but it's a very fluid situation, but at least they are continuing with the regulatory status filing. Okay. The revenue, whatever the revenue that we are going to get is only based upon the production or irrespective of the production? No, based on the production and sales. I see. Okay. Thank you, doctor. That's been my question. That's it, yeah. Thank you. Thank you. We request everyone, before asking the question, please introduce your firm name. Next question is from Sameer Baisiwala. Hi. Thank you. This is Sameer from Morgan Stanley. I dialed in five minutes late, so I may have missed it. Sharvil, any thoughts on the potential Asacol HD competition? I think again, it's always difficult to predict, but as per our latest understanding, or estimate, we believe the competition may not be there before quarter four of this calendar year. That will be our best estimate. Okay. In the context of Revlimid, you said that you are set to launch next quarter. Are you referring to 2Q fiscal or 3Q fiscal? We will be launching as and when the approval is there. We have a tentative. We will be obviously waiting for a final approval and then we will launch in the next wave that is planned for. Exact dates and months I can't give you, but it is in the near term. Okay, wonderful. Sharvil, you mentioned that there are some more high-value launches in the second half. Anything that you can share on that? I think it's difficult to give a product-wise detail. It is a combination of products that we want to launch, which will be important for in terms of our new product launches other than Revlimid. Okay. Finally, you know, how does fiscal 2024 look like for U.S. pipeline? We continue to file 30+ to 35+ ANDAs in the U.S. We believe we have a pipeline through which we will launch 30-35 new launches every year. We are still very from a current expectation point of view, still very buoyant about the next couple of years for U.S. launches. We have also obviously factored in the incremental competition that will come with Asacol. With what we have planned, we hope that we'll be able to grow our business despite that in FY 2024. You'll grow your business despite the Asacol competition in fiscal year 2023. Fiscal 2024. Fiscal- 2023 also, but fiscal 2024. Okay, which is then the full year impact would be there. Okay, got it. Yeah. Thank you so much. Thank you. Next question is from Devang Shah. Devang, please unmute yourself. Yeah. Hi, sir. Good evening. I'm from DD Enterprise. It's my private firm. I'm the shareholder in the company. Sir, my first question is the recent U.S. FDA visit was there. Was it a surprise visit or was it invited by the company? The second one is, like, now the observations are there. If we remark the observations within a stipulated time, after then, once again a visit is going to be there or, there, like, they can approve and the Moraiya facility can get a full clean sheet on the U.S. FDA? From the latest updates with the U.S. FDA, most of the inspections that do occur now are surprise. That's the stated way the audits have happened. These are not planned audits, but surprise audits that happen for all plants in India and globally. Beyond that, I think what I had said that from our observations point of view, we will respond in the stipulated time given to us. Because the site is under way, we believe we would have some discussion before which, before that we will be very difficult to, for us to say what would be the next steps, but we do believe that we can respond to these observations in the stipulated time. Okay. Sir, the other question was, like, are we fully on track for achieving the 18% or the 20% margin for the current year also? The second question, like, here in the U.S., many other pharma companies got the sales or the margins pressures due to the price decrease in the U.S. Does we got impacted on that basis or not? We have stated that for FY 2023 we will have 20%+ margins from whatever we are seeing for ourselves. In terms of U.S., yes, there has been price erosion for us also. Because of volume expansion as well as new product launches, we have been able to still grow quarter-on-quarter. Okay, sir. That's all from my side. Thanks a lot. Thank you. Anyone who wishes to ask a question may raise your hand from the Participants tab on your screen. Next question is from Naveen. Naveen, please unmute yourself. Okay, we'll go to the next one. Next question is from Prakash Agarwal. Hello. Hello. Yes, Mr. Prakash. Yeah. Can I go ahead? Yeah. Yeah, just one on the, you know, the presentation that you have put in, talks about, you know, Forex. Just trying to understand how sitting in other operating income to the extent of INR 108 crore. Could you elaborate? Sorry if you've already done that. I joined a bit late. No, because that refers to the sales that, on the sales when we book the sales, we book at, you know, going rate on a particular date when we realize, obviously, the rate is changed. That is a part of the sales only, and that is why that is classified as other operating income. Okay. In terms of hedges, do we carry any hedges and at what rates? We have some forward contracts that we have entered into, where one is for the loan that we have given to our own subsidiary. It was more in terms of you know, trying to get the arbitrage opportunity between rupee interest rate and the forward cover rate. They were you know, more certain in terms of the gains. Otherwise we don't have any kind of forwards. Okay. Everything is natural hedge, basically the cost and the. Yes. Yes. Okay. Second question is on for Sharvil. On the R&D side, with two large programs, in the U.S., when do we see the inflection point in terms of cost increasing or we will have a fine balance in terms of R&D budget of 7%-8% that we are having? For us, we expect that R&D investments to remain on an average of around 8% of revenue over the next three years. There could be some lumpiness, but the best guidance for us would be that around 8% of revenue over the next three years. Okay. Lastly, on the India business, I think you mentioned ex of COVID sales is 6% and/or 9%. Are we over that hump now, going into Q2? It's 9%. Domestic formulations. Yes. Ex-COVID, it's 9% year-on-year growth. Okay. Moving forward for this quarter on a like-to-like basis, reported basis, we see a normalized growth, right? I think we would have had some sales in July, but by and large it would be a normalized growth. Okay, which we expect for the remaining nine months to be double digit plus mid-teens or something. I think we'll grow as per market is our best estimate right now. Okay. Lovely. Great. Thank you. Thank you. Next question is from Harith Kamal. Hi. Thanks for the opportunity. My first question is on biosimilars. When I look at our peers, most of them have one or two assets at least at various stages of development in the regulated markets, while our focus so far seems to be on the emerging markets. Can you elaborate a bit on your thought process and the different strategy that we are adopting when it comes to biosimilars in regulated markets? Yeah. Today, from our point of view, our strategy we believe is, currently we have a pipeline of 13 marketed products in India, and nine biosimilars that are under development. From the commercial standpoint, we are currently wanting to be a strong, meaningful player in India. Followed by that, a good presence in some of the key emerging markets which we want to build for. For the developed markets, the outlay on the clinical spend and the regulatory timelines, including the IP timelines and all, are very long. For that, we have decided that for some of these we will be looking at much later launch timelines of, you know, maybe 2027, 2028 and beyond. Currently our immediate focus is only India and emerging markets. Meaningfully, we are developing one or two products from the global development point of view, including developed markets, but they are far later in terms of the horizon. Got it. One question on your guidance of 20% margins for FY 2023. You also talked about a generic Revlimid launch in the near term. You also talked about your expectation of further competition in Asacol HD only towards the end of the year. With the generic Revlimid contributing for almost half the year, you know, looking at our 1Q margins of already at 20%, don't you think there is upside to this guidance of 20%? No. If all of those things work out as planned, yes, there is definitely an upside. I think looking risk-adjusted to whatever we believe in terms of the business mix and also the volatility that exists, I think we believe that to sustain 20%+ margins is comfortable. Obviously there could be upsides depending on if market dynamics or competition changes. Last one on this segment, which you classify as alliances in your segmented breakup revenues. What exactly is the nature of this business? Who are the partners here and which are the geographies to which we supply? Under this? These are long-standing joint ventures or partnerships that we have had. One is with Pfizer, and it's a manufacturing partnership for some exclusive products for Pfizer to commercialize for them in the different markets, which has been a long-standing partnership. Okay. The other one is the partnership with Takeda, which is for intermediates and APIs for their global requirements for the off-patent molecules and for their patented molecules. The Takeda partnership is part of revenue. It's not. Yeah. accounted as an associate. It's included as part of our revenues. We are a 50/50 joint venture there. 50%. 50%. Okay. All right. Thanks for taking my question. Thank you. Next question is from Damayanti. Hi. Am I audible? Yes. Okay. Hi, this is Damayanti from HSBC Securities. My first question is, now, Moraiya has seen FDA inspection. Can you update us on your transdermal opportunities? How should we look at them, whether you need to redo your some of studies which you have done earlier? Or when like, when we should be expecting first launch post Moraiya clearance? In Moraiya, we have five products that we have filed for transdermals. Four out of the five products are being held for approval because of the warning letter. Which means that all other product-related queries and regulatory queries have been resolved. Once we are able to, you know, clear our regulatory compliance on Moraiya, we believe that we can have approvals for about four products. An exact timeline would be very difficult to give because first we need to clear our regulatory hurdle and then go through the product clearance phase. Just for one verification, alliance is actually referred to certain out-licensing deals and global contract manufacturing, because we don't include our sales of the JVs. That sort of thing. Only due to profits. Only profits. Okay. Dr. Sharvil Patel, out of five, you are confident that once the warning letter is lifted for the facility, you should be getting approval for those products in reasonable timeframe? Yeah, because most of the it is only stuck for cGMP clearance. Once we get that clearance, we believe they can move into the clearance phase. Exact timelines is not yet able to be. I can't predict that yet. Sure. My second question is, few quarters back, we used to discuss opportunities from vaccine. Can you update on that segment, please? On the vaccines front, we have two. Currently we believe there are three important vaccines which we have already commercialized and have good value to be created. One is the rabies vaccine, which we already are in market for multiple years. Then we have the typhoid conjugate vaccine and the quadrivalent flu vaccine. These are vaccines where we want to build for business. Also recently, with our approvals on the MR vaccine also, we believe that between typhoid conjugate and the MR vaccine, this will be the critically large opportunities for us for both India and the other. Once WHO prequalified for the other global tenders that come out for these two vaccines. Followed by that, I think there are niche vaccines like the varicella vaccine, hepatitis E vaccines, which are much longer term in nature, but those are also important vaccines for our development. On the private market side, the quadrivalent flu vaccine is a good vaccine because we are only Indian generic on that, so it helps us in terms of differentiating. Sure. Any number in terms of sales expectation which you would like to share, like two, three years down the line, how big this business can grow if everything goes as per the plan? We expect significant contribution from this vertical around three years down the line, when a couple of vaccines like the TCV and MR are WHO pre-qualified and we are able to participate in the global tenders. Any number, which you'd like to put? No, we aim for a 10%-15% market share to be taken in these vaccines, but the number is not estimatable right now because it'll depend on the timing and the pricing and the quantities. Sure. Thank you. I'll get back in the queue. All the best. Thank you. Next question is from Anubhav Sahu. Thanks for the opportunity. Anubhav, we are not able to hear you. Can you please? Hello. Is it better now? Yeah, it's better, but it's still not clear. Okay. In India. Hello, can you come back again, fixing this audio? Okay, sir. Yeah. Till that time, we'll take the next question from Surya Patra. Yes, Mr. Surya, please unmute yourself. Sir, thank you for this opportunity. The first question is on the domestic U.S. Business. The sequential as well as YOY growth what we have witnessed, is it by any chance led by the volume pulls at the cost of realizations? No. Okay. Because what I'm trying to understand here is that the sequential correction in the gross margin while the consumer business. For consumer business it is a strong season, and for the domestic formulation business, as you mentioned, that the branded business has done well. U.S. is also progressing, right? What would have impacted the gross margin so more than 250 basis points sequentially? I think one, before Nitin right gives you an answer on the gross margin, in the U.S., our business model that we have been strictly following is that we don't sell products at losses or at very low margins. We are very clear. Every product has a clear P&L, and we are driven by making sure that every product P&L is healthy or at least profitable. I don't think we make those compromises on product by product by looking at portfolio. That is just the clarification in terms of we don't do business in that manner for volume. Other than that, the overall mix point of view, Nitin right will take that. Surya, there are three things. One is that domestic formulation business in reported terms in this quarter is a degrowth of 17%, which obviously is a high gross margin business. Yeah. The proportion of business aspects, that is one part. Secondly, you talk of Zydus Wellness. Zydus Wellness obviously has a much higher growth in this quarter being seasonal. Mm-hmm. Zydus Wellness on a business portfolio basis also has a lower GM than my overall GM. Third is that especially business like Zydus Wellness is affected by input cost also like milk prices and palm oil prices, apart from some other cost increases including, let's say, you know, freight inward cost. Okay, sir, is it possible to give some color to what kind of outlook that one should have on the GM side, gross margin side? I think we can give an EBITDA kind of outlook, which we have clearly said that we'll be 20% plus for FY 2023. I think gross margin is a question of product mix and business mix, which gives weight. Yeah. Gross margins to net margins also vary, so I don't think- Mm-hmm. I think that is the best way to assume the current next 2-3 quarters. Sure, sir. Second question is on the domestic formulation business. Obviously we are seeing a kind of general trend of moderation for the industry from the high rates of COVID now. Simultaneously, we have seen many of the leading Indian peers are either expanding or field force or kind of building something like that on the field force side. If this is a kind of a trend, then there is an enhanced competition likely to be. Given that scenario, what is the general outlook for the industry as well as for you for the domestic business that you are anticipating, sir? I agree to that extent that Indian branded generic has always been very competitive. There is a high degree of competition in the category, and I think every company has a strategy in terms of what they try to follow. For us, I think on the short-term side, we want to grow as per market because there is so much volatility that exists. But in the midterm, our plans from our investments that we are making, we believe we want, we will grow better than market in the coming years. And that's mainly driven by, obviously our differentiated portfolio that we have, both on the small molecule side, which are IP protected, as well as the, biosimilars. Our entry into first two first-in-India launches for off-patent molecules, which has happened in the diabetes and cardiovascular space, which has allowed us to gain good traction in these two therapies. A continued effort on some of the therapies like, you know, the respiratory, women's health and others, where we are trying to reinforce our position where we are there. We are also utilizing capabilities on the digital side to expand our reach, both in terms of the patient doctor reach as well as the distribution reach, for many of our established brands. Also building onto the growing organized sectors in terms of hospitals, the tenders that are there, also the e-commerce players who are able to take some share in the segment. All of that will lead to our plans for the growth or the growth drivers for the domestic business. Okay. Just one more question on this finance cost side. Having seen the de-leveraging throughout last year, still the finance cost seems flat. It has not corrected. Anything on that side, whether it is because of the consumer business contributing a significant chunk in this quarter, that is why the number looks elevated or this is a kind of a run rate. Basically, the benefit of the financial de-leveraging, that is not visible. Surya, what has happened that only towards the end of the quarter we have repaid some debt, but that is what you'll be able to see in a gross debt position between two dates, two quarter ends. Otherwise, you know, we were using that as a treasury, so there is an increase in other income that you can see. Mm-hmm. which is largely related to interest income and some profit on sale of investment like mutual funds investment. On the net basis, because we found that we were having a low interest regime. Mm-hmm. It made sense for us rather than to repay the debt to use that as a treasury income, because on overall terms we found that as a beneficial position. Now obviously things are now going to change with increase in interest rates. Yeah. Okay. Sure. Just last one single, sir. On the Moraiya side, what is the current utilization of that facility, sir? Moraiya, it's a very well-utilized facility. As I'd always said, other than transdermals, we do have launches but not too many launches now planned out of Moraiya. Most of our future launches are out of our other facilities in SEZ and our future SEZ 2 facility. Moraiya is a high, well utilized facility, I mean, about 65%-70%, but it varies depending on the, you know, the products. If the U.S. thing happens then, in terms of the profitability, whether it will have a kind of meaningful say. I think the transdermals is the only one which was meaningful for us. Okay. Beyond that, it is business as usual. Okay. Sure, sir. Yeah. Thank you. Wish you all the best. Thank you. Next question is from Saion Mukherjee. Yeah. Am I audible? Yes. Yeah, I have a few questions. Firstly, on the U.S. business, can you share, like, what has been the price erosion year-on-year for your portfolio? And have you seen or have you discontinued any product? Have you come to a stage where the profitability has corrected so much that, you know, you've decided to discontinue? If you can throw some light as to how many of such products you've discontinued. I won't have each product idea, but definitely if the products are becoming unviable, we are leaving the market, if we do not see any price improvement. We have done that consistently. In fact, I mean, historically, I can talk, we had left the Atenolol market, we had left Losartan, we had left Hydroxychloroquine, and the markets turned. Whenever the markets changed favorably, we were able to quickly enter these markets. I think, as I said earlier, we run our each U.S. business with each product as a P&L on its own and not as a portfolio. We do get out of markets or don't go for any share if the margins are very low. That's my overall view. On the, I can tell you quarter-on-quarter we have had a price erosion of 2.5%. Okay. Dr. Sharvil, on the specialty efforts that you're making in the U.S., before Saroglitazar gets approved over some time, how should we think about the scale of this business? You have couple of rare disease assets. Do you think you need to add more to sort of make it sustainable? Any thoughts on the scale and profitability of this business from the next, say, two, three years perspective? From the investment point of view, there would be further investments over the next two to three years. Currently, we have two assets in the ultra-rare disease front, which is the Nulibry and the ZYCUBO assets. These are important assets for the company in terms of creating a place in terms of a pediatric orphan exclusive kind of products that we want to build towards. Which will mean that we would continue to further license more products in this space. You know, we first had done CUTX-101, which was ZYCUBO. Immediately in the next few quarters, we were able to get Nulibry. I think we have become a good partner in this field because this is a very niche, unique field to be in, where you have to actually go and, you know, find patients. I think for future opportunities in this, we would look to be an active licensing partner and then slowly scale this business up. None of these molecules on its own will become very large, but I think we can build a optimum business on the super specialty front through this Sentynl engine. For the Saroglitazar, I think our estimates currently, we believe that we are at a 2024 late filing and a 2025 launch. We are building towards that. Our this year phase II-B result will be out by end of this year, which will, where we'll be able to then see how aggressively we can push for a faster phase III and also the opportunity that we can. Mm-hmm. Yes. Thanks, Dr. Sharvil. On the, you know, the ultra-rare disease, what is the optimal number of products you think you should have on this? You currently have two. Is it like four or five and other opportunities you're seeing in the market? Do you see a good possibility of adding more products, you know, over the course of the next year or so? We are seeing one or two opportunities right now, and we are evaluating them in the pediatric space. There are opportunities that are there. There is a lot of impetus globally on pushing for medicines for these ultra-rare diseases. I think those will continue. In the short term, we are seeing about one to two opportunities that we are actively looking at. Okay. Finally, one last question on the domestic market. I know you have a trade generics presence. Some of the peers are talking quite positively about this. What are your thoughts? You're not pursuing this as an opportunity. If you can share your thoughts on trade generics in India. No. We trade generic, we are, as you rightly said, present in trade generics. Trade generics definitely will be one avenue of growth, which has a completely different, you know, distribution kind of network that exists. We do believe that as the market shifts or grows, we will also be able to capture growth there. Some of the very legacy old brands, which don't require a lot of sales promotion anymore, are potential for being also driven by the trade generic side, either on the SKU level or the brand level. All of those are things that we continue to evaluate. We believe it'll become a good business. It will account for 8%-10% of our overall revenue, and we potentially can grow. We will remain present in this category. Okay. How large is it today currently? It's about seven, around 7%. Okay. 7% of the India formulations sales. Yeah. Okay. Thank you. Thanks. Thanks a lot. Thank you. We will take the last question from Naveen. Can you hear me, sir? Yeah. Yeah. I just wanted to know what is the revenue outlook from your new Ahmedabad SEZ plant? The new Ahmedabad SEZ plant has just started taking exhibit batches, which will then go for a U.S. FDA audit when possible and then launch commercialization. There's no revenue driven out of that facility, and it will be at least three years out before we see substantial manufacturing happening. Okay, sir. Thank you. Thank you. I now hand the conference over to the management for the closing comments. Thank you very much, and we look forward to interacting with you again in the month of November with our quarter two results. Thank you, and have a nice evening. Thank you. On behalf of Zydus Lifesciences Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line and exit the webinar.