Sun Pharmaceutical Industries Limited (SMPQY) Q4 2021 Results - Earnings Call Transcript

Sun Pharmaceutical Industries Limited (OTCPK:SMPQY) Q4 2021 Results Conference Call May 27, 2021 9:00 AM ET

Company Participants

Nimish Desai - Head, IR

Dilip Shanghvi - Managing Director

C.S. Muralidharan - CFO

Abhay Gandhi - CEO, North America

Kirti Ganorkar - CEO, India Business

Conference Call Participants

Neha Manpuria - JP Morgan

Nithya Balasubramanian - Bernstein Research

Prakash Agarwal - Axis Capital

Sameer Baisiwala - Morgan Stanley

Damayanti Kerai - HSBC Securities and Capital Markets

Surya Patra - PhillipCapital

Tushar Manudhane - Motilal Oswal Financial Services

Shyam Srinivasan - Goldman Sachs

Krishnendu Saha - Quantum AMC

Nitin Agarwal - DAM Capital

Kunal Randeria - Edelweiss

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY21 Earnings Conference Call of Sun Pharmaceutical Industries Ltd. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I’ll now hand the conference over to Mr. Nimish Desai, Head of Investor Relations team. Thank you, and over to you, sir.

Nimish Desai

Thank you. Good evening, and a warm welcome to our fourth quarter FY21 earnings call. I am Nimish from the Sun Pharma Investor Relations team.

We hope you received the Q4 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Managing Director; Mr. C.S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO of North America and Mr. Kirti Ganorkar, CEO of India Business.

Today, the team will discuss performance highlights updates on strategies and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at the consolidated financials. Just as a reminder, the call is being recorded and the replay will be available in the -- for the next few days. Call transcript will also be put up on the website shortly.

The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risk that our business faces. You are requested to ask two questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.

I will now hand over the call to Mr. Shanghvi.

Dilip Shanghvi

Thank you, Nimish. Welcome and thank you for joining us for this earnings call after the announcement of financial results for the fourth quarter and full year of FY21. I hope you and your family are safe and healthy.

Let me discuss some of the key highlights.

Consolidated sales for the quarter were at INR 84,314 million, recording a growth of about 4.4% year-on-year, and a decline of 4% quarter-on-quarter. Most of our businesses have done well over Q4 last year with India, Emerging Markets and the Rest of the World businesses as the key growth drivers.

We continue to focus on growth, operational efficiencies and business continuity. For the full year FY21 sales were INR 331,392 million, recording a growth of about 2.5%. All of you will remember that last year sales included a one-time special business in the U.S., which is not reflected this year.

All our businesses have recorded growth for the full year, despite the challenges related to global COVID-19 pandemic. The major impact of the pandemic was sales in the first half of the year as many countries imposed their lockdown to counter the spread of COVID-19. Second half witnessed a gradual recovery as most countries gradually lifted the lockdown restrictions in a phased manner.

For Sun Pharma, the sales in the second half were higher by 8% compared to the first half, EBITDA was up by almost 13%, and adjusted net profit was up by approximately 17%.

Let me now update you on our global specialty business. For fourth quarter, our global specialty revenue was approximately $139 million across all markets. Specialty R&D accounted for approximately 23% of our total R&D spend for the quarter. For the full year FY21, global Ilumya sales were at $143 million, up by about 51% over last year. We’ve recorded a good growth, despite the closure of doctors’ clinics in the U.S. in the first half of the year, but supported by gradual recovery in the second half. Abhay will give you more details on the specialty business later.

I will now hand over the call to Murali for discussion of the fourth quarter financial performance.

C.S. Muralidharan

Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you.

Our Q4 financials are already with you. As usual, we will look at the key consolidated financials.

Q4 sales are at INR 84,314 million, up by 4.4% over Q4 last year. Material cost as a percentage of sales was 26.6%, lower than Q4 last year due to product mix and other efficiencies. Other expenditure was at 30.2% of sales, lower than Q4 last year, mainly due to lower selling and promotion expenses in U.S. As indicated in our past earnings call, these expenses will see an increasing trend in future once the market situation reaches full normalization.

ForEx loss for the quarter was INR 107.8 million compared to a loss of INR 1,420.7 million for Q4 last year.

As a result of above, EBITDA for Q4 was at INR 19,568 million, up by 55.8% year-on-year, with resulting EBITDA margin at 23.2% compared to 15.5% for Q4 last year.

Let me know briefly discuss the exceptional items for Q4. Taro has made $80 million additional provision related to its ongoing multi-jurisdiction civil antitrust matters. Further in Q4, the Court of Justice to the European Union issued a final judgment and upheld the European Commission’s decision dated June 19, 2013 that a settlement agreement between Ranbaxy UK Limited and Ranbaxy Laboratories Limited, with Lundbeck relating to citalopram was anti-competitive. Ranbaxy had made a provisional payment to the tune of €10.3 million on 20th September 2013. Since there are no further rights of appeal, this amount of INR 895.6 million has been debited to the profit and loss account in Q4. There is no cash also related to this as the amount was already paid. Exceptional tax for the quarter is on account of recognition of deferred tax assets amounting to INR 1,212.3 million arising out of the Taro settlement.

Excluding the impact of exceptional items and deferred tax, the adjusted net profit for the quarter was at INR 13,430.7 million, up 103% over adjusted net profit of Q4 last year. Reported net profit for Q4 was at INR 8,941.5 million, up 124% year-on-year while reported EPS for the quarter was INR 3.73.

Let me now discuss the key moments versus Q3 FY21. Our consolidated sales were lower by 4% quarter-on-quarter at INR 84,314 million. Material costs and staff costs at 26.6% and 19.9% of sales respectively are flat over Q3 FY21. Other expenses at 30.2% of sales are higher than Q3, mainly due to increase in SG&A across markets. We had a ForEx loss of about INR 107.8 million for Q4 as against ForEx gain of about INR 716.3 million in Q3.

As a result of the above, EBITDA for Q4 at INR 19,568 million was lower by 16.8% compared to Q3. EBITDA margin for Q4 was at 23.2% compared to 26.8% for Q3. Adjusted net profit for Q4 stands at INR 13,430 million was lower with a net profit Q3 by about 27.5%.

Now, we’ll discuss the full year performance. The full year FY21 sales were at INR 331,392 million, a growth of 2.5% over FY20. Despite the nearly 10% sales de-growth recorded in Q1 due to the global pandemic, we have been able to recover sales growth in subsequent quarters and have achieved an overall positive growth for the full year.

Also, as indicated in the past, the full year of last year included contribution from a non-recurring special business in the U.S. and hence the year-over-year sales numbers are not strictly comparable. Excluding this one-time sales contribution during the last year, the year-on-year sales growth would have been higher.

Material cost as a percentage of sales was 26.2%, which was lower than the same period last year, mainly due to product mix and efficiency initiatives. Staff costs at 20.7% of sales were higher than last year, mainly due to annual merit increase, additional field force in India, impact from other regions and include some currency impacts. Other expenses were 28.6% of sales, lower than the same period last year, mainly driven by reduced marketing, selling and distribution, and traveling expenses across markets.

As a result of the above, the EBITDA for the full year was at INR 81,324 million, the growth of 25.5% over the same period last year, with resulting EBITDA margin of 24.5% versus 20% of last year.

Excluding the exceptional items for both FY21 and FY20 and the non-recurring tax credit for FY21, the adjusted net profit for FY21 was at INR 59,317.8 million, up 47.4% year-on-year, with resulting net profit margin at 17.9%. Reported net profit for FY21 was at INR 29,038.2 million with reported EPS at INR 12.1. The Company has repaid debt of about $580 million in FY21, the benefit of which is visible in the reduction in finance cost. As of 31, March ‘21, the ex-Taro net debt stands approximately $179 million.

Let me now briefly discuss Taro’s performance. Taro posted Q4 FY21 sales of $148 million and adjusted net profit of $31 million. On a year-on-year basis, sales for Q4 FY21 were lower by 15.3%, while the adjusted net profit was lower by 42.6%. For the full year FY21, sales were at $549 million and the adjusted net profit was at $141 million.

I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India Business.

Kirti Ganorkar

Thank you, Murali. Let me take you through the performance of our India Business.

For Q4, sales of branded formulation in India were INR 26,709 million, recording a growth of 12.9% over Q4 last year. India Business accounted for about 32% of consolidated sales for Q4. For Q4, while the chronic segment continued to show steady growth, the sub-chronic segment witnessed a recovery. The acute segment is still facing some challenges due to lower incidence of infection and less patient flow to the doctors’ clinic.

For most part of Q4, we saw a normalizing trade and pharmaceutical companies had started spending on traveling, branding and promotion. Travel costs for MRs increased in Q4. However, there is some uncertainty now, given the significant increases [Technical Difficulty] on account of second wave and the lockdown in many [Technical Difficulty] country. For Q4, we launched 31 new products in the Indian market.

Let me now discuss our response to the COVID-19 pandemic. [Technical Difficulty] the pandemic. [Technical Difficulty] include ensuring continuous supply of medicines to the patients. Supply of multiple therapeutic use in the treatment of COVID-19 like remdesivir, favipiravir, tocilizumab, ivermectin, methylprednisolone. We also ramped up production of Liposomal Amphotericin B, which is used in the treatment of black fungus for post-COVID complication observed in patients. And [Technical Difficulty] Company to develop generic liposomal products in India.

We have donated [Technical Difficulty] medicines and many other items like PPE kit, masks, sanitizers, gloves, et cetera. At the same time, we have entered into two different licensing agreements, one with Eli Lilly for baricitinib and another with MSD for a drug called Molnupiravir to help alleviate the burden of COVID-19 in India.

Sun Pharma is the largest pharmaceutical company in India, holds approximately 8.2% market share in the domestic market as per March 2021 AIOCD AWACS MAT report. For Q4, our market share was at 8.3% as per AIOCD-AWACS. We also continue to remain the partner of choice for in-licensing of products, number one position in many therapy areas, including therapies for the treatment of COVID infection coupled with our large distribution network.

I will now hand over the call to Abhay.

Abhay Gandhi

Thank you, Kirti.

I will briefly discuss the performance highlights of our U.S. businesses. For Q4, our overall sales in the U.S. de-grew by 1.3% over Q4 last year to $370 million, mainly due to decline in Taro sales as the market has not yet fully normalized. U.S. accounted for about 32% of consolidated sales for the quarter. Our specialty revenues in the U.S. have grown over Q4 last year, mainly driven by Ilumya, Cequa and Absorica LD.

For the full year FY21, the specialty business has grown over previous year, despite the sharp reduction of sales in Q1 on account of the global pandemic. Growth drivers include Ilumya, Cequa, Absorica LD and Yonsa. As you may be aware, the generic of Absorica has entered the market in April and simultaneously we have also launched our authorized generic.

Doctors’ clinics have been opened during the quarter, although the situation is yet to fully normalize. However, compared to the first nine months of the year, the travel and branding and promotional costs increased in Q4.

Let me now update you on our U.S. generics business. As you have all seen, the U.S. generic business continues to be competitive. The Sun’s ex-Taro generic business has recorded year-on-year growth driven by a combination of new launches, better supply chain management and incremental upsides from shortages.

I will now hand over the call to Mr. Shanghvi.

Dilip Shanghvi

Thank you, Abhay.

I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives.

Our sales in Emerging Markets were $192 million for Q4, up by about 2.7% year-on-year. The underlying growth in constant currency terms was higher at 5.3%. Emerging Markets accounted for about 17% of total sales for Q4.

Formulation sales in Rest of the World Markets, excluding U.S. Emerging Markets were $163 million in Q4, up by about 5.5% over Q4 last year. Rest of the World Markets accounted for approximately 14% of consolidated Q4 revenues.

API sales for Q4 were at INR 4,357 million, down by about 9.9% over Q4 last year. Our R&D efforts spans across both specialty and generic businesses, and we continue to invest in building the pipeline for various markets, including the U.S. Emerging Markets, Rest of the World Markets and for India.

Consolidated R&D investment for Q4 was at INR 5,571 million, accounting for 6.6% of sales. For the full year, R&D investment was INR 21,499 accounting for about 6.5% of sales.

Our current generic pipeline for the U.S. markets includes 94 ANDAs and 9 NDAs awaiting approval with the U.S. FDA. In addition, we are evaluating development for some biosimilars, which can be classified amongst the third wave of biosimilars.

The Board has proposed a final dividend of INR 2 per share for the year FY21 in addition to the interim dividend of INR 5.5 per equity share declared on January 29, 2021.

And lastly, on the guidance for FY22, given the uncertainties of the pandemic in the near term, we are refraining from giving a guidance for FY22. However, all our businesses are well-positioned and our endeavor will be to grow all of these businesses notwithstanding the near-term uncertainties related to COVID-19.

With this, I would like to leave floor open for questions. Thank you.

Question-and-Answer Session

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Neha Manpuria from JP Morgan. Please go ahead.

Neha Manpuria

Thank you for taking my question. On the specialty revenue in the quarter, there seems to be a moderation on a quarter-on-quarter basis, even more data [Technical Difficulty] So, some color on [Technical Difficulty]?

Dilip Shanghvi

I think it’s a combination of three factors, like I said on my last call. December, which is the end of the financial year in the U.S. context, there is a higher buying. Also in Jan, a lot of insurance sets in and -- or resets rather. Patients change either the provider or the kind of insurance they have and then the verification process takes a little more time and it goes into effect before really sales normalize. And the third I think, which is also important for us to remember is that during the period of [Technical Difficulty] pandemic situation in the U.S. [Technical Difficulty] to what we see today, really new cases over 300,000 [Technical Difficulty] that we have well poised to deliver on overall basis.

Neha Manpuria

[Technical Difficulty] question on specialty. If I look at Cequa, that seems to be -- the market trend seems to have stabilized over the last few weeks and months. Is there any specific -- anything specific that you’re seeing there now that [Technical Difficulty] Are you now seeing enough traction on Cequa?

Dilip Shanghvi

So, I think Cequa will really continue to grow. And my personal sense is that doctors have accepted the product. The team is also now able to make a lot more face to face calls and participating in live conferences, which for a new company I think is important to be able to maintain by your customers. So, I think that will help us. So, the initial phase for a new product to be able to do this all in a virtual environment was a challenge. But it’s gradually improving in the U.S. So I feel pretty good about the product.

Neha Manpuria

Okay. So, do you expect continued momentum on the market share front?

Dilip Shanghvi

We certainly hope so.

Operator

The next question is from the line of Nithya Balasubramanian from Bernstein Research. Please go ahead.

Nithya Balasubramanian

Hi. Thank you. So, my question is also on the U.S. portfolio. So, the first one is on Taro. So, we’re seeing that for the last several quarters, it’s continuing to contract, both at the top line and the bottom line level. So just want to understand what is the outlook for the business? How do you see the shaping overall of let’s say the [Technical Difficulty]?

Dilip Shanghvi

So, today in this call Sun Taro had actually been speaking for this. The only thing which I am reluctant, so on Taro I will not get into. But, I can see that overall in the dermatology portfolio and market, there is definitely lesser patient growth even up to the end of the year. Taro of course has a lot of products, which are either number one or number two with the positive high market share. And therefore, the pressure to hold on to its market share is higher. So, I think, it’s a combination of all this. But, we recognize your point. And I think for us and for the company is to find ways to grow the Taro business as well.

Nithya Balasubramanian

So, I think all of us are hoping that things will hop back to normal at some point of time. And I think you also commented that clinics have started operating. So, if COVID is not a factor anymore, do you continue to see this as a business will continue to shrink, because [Technical Difficulty] because the commentary we heard from Taro as well the study enrollment is not big. Do you see that resolving at some point of time?

Dilip Shanghvi

So, I will speak to the dermatology segment. Even today, there is different reports and different reports obviously [Technical Difficulty] numbers. But I think the maximum number that I see of patient footfalls recurring to doctors’ clinic in turn is around 70%. So, that is the addressable market now in terms of patient visits to doctors in the derm space. So, that’s a challenge that businesses will continue to face. And we hope going ahead, the situation will improve, because of the higher rate of vaccination in the U.S. and certainly loosening up of social distancing norms, which are now taking place, but that’s ahead of us.

Nithya Balasubramanian

Can we also assume that as -- I think Levulan has a bit of a drag in FY21 for the same reasons. So now that again, volumes are picking and patients are further increasing, if that’s likely to become a meaningful contributor, again?

Dilip Shanghvi

So, I gave little bit of an update in the fourth quarter, as compared to the previous quarters. And going ahead, of course, if the situation normalizes in terms of elective surgeries and procedures, then I think Levulan should happen. But, will it happen, I think is anybody’s guess. And the situation is fluid, not just in the U.S., but I think globally.

Nithya Balasubramanian

Got it. Thank you so much. I had one last one on biosimilars. It is briefly mentioned in the opening remarks. So, if you can throw some color on what you meant by third wave? Are you looking at it more as a portfolio which is a supportive specialty portfolio, or is it a standalone business that you’re trying to develop?

Dilip Shanghvi

I think we’re looking at products which have significant future expiry dates, so that we can be amongst the first approvals. That’s the focus and priority. And that’s not the only. There are multiple priorities, and also finding a way by which we can leverage our presence in market, so that we can successfully build biosimilars portfolio.

Nithya Balasubramanian

Understood. Can we take that to mean it’s beyond 2028, 2030 timeframe? That’s the kind of launch dates you’re looking at?

Dilip Shanghvi

That’s correct.

Operator

The next question is from the line of the Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Yes. Thanks for the opportunity. I just wanted to understand the scale up in R&D from here, given that we have started the additional trials. So, how do we think the R&D and other expenses going forward for the year ‘22 and ‘23?

C.S. Muralidharan

So, they will gradually go up. Two things will happen. One is, total R&D expenses will go up and within that the percentage of the money spent on innovative R&D also is likely to go up. So, I think, we’re not -- because since we’re not giving any specific guidance, but generally we’ve tried to keep our R&D spend between let’s say 8% to 9% of our turnover. This year, because of the significant disruption in the clinical studies, the clinical trials spend this year was much more subdued than what we would have liked it to be.

Prakash Agarwal

Do you have some color on other expenses in terms of the scale-up is largely done under specialty, or when we see the impact of lockdown and pandemic going down, it will again come up?

C.S. Muralidharan

So, general guidance is that what you see as a significant reduction in the marketing spend in all markets is likely to go up. We will try and see that we don’t go back to the previous percentage spent, but in some markets that may not be possible. For the U.S., maybe Abhay can respond.

Prakash Agarwal

And second question on Absorica. So, how do you see in terms of -- as you said, April, we have started to see competition. I mean, is it -- since it’s a single player entry, have you seen a bigger impact or marginal impact?

Dilip Shanghvi

So, we don’t have clarity, because this was launched only in -- towards the end of April. May has not closed for me. So, difficult to assess impact, fingers crossed and watchful for what is likely to happen. However, having said that, we also launched our own authorized generic and we have locked up a few customers and we have targeted for our share of the market.

Prakash Agarwal

You just gave the comment on guidance earlier [Technical Difficulty] grow across business segment, so you improved specificity as well. That’s it.

Dilip Shanghvi

Yes. Abhay, would you like to respond?

Abhay Gandhi

I’m not clear what the question was at the end…

Prakash Agarwal

Sorry, despite the competition in Absorica and AV coming in, which I assume would be in your big business, U.S. big business. The question was since we made a comment on guidance, well positioned to grow across…

Abhay Gandhi

I missed you again, sorry. I lost you again. The question was, can you repeat please?

Prakash Agarwal

Am I audible now, sir?

Abhay Gandhi

Yes, much better. Thank you.

Prakash Agarwal

Sir, question is on the growth guidance well-positioned to grow across business segments on the backdrop of the Absorica generic competition coming in.

Abhay Gandhi

So, I mean if you are talking about -- if I understand you correctly, think that will be [Technical Difficulty] business growth despite the competition we have in Absorica. Is that the question?

Prakash Agarwal

Yes.

Abhay Gandhi

I think we will be -- that's the idea, that's the plan and that's how we are approaching the whole issue. ABSORICA is one of the products that we had in this specialty business. There are avenues and opportunities for us to find ways to grow in other products. And of course as an organization you also have to be always looking at another big opportunity. So that we will continuously evaluate and keep our eyes [Technical Difficulty] opportunity that comes our way.

Operator

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

Sameer Baisiwala

First question is on ILUMYA. Can you shed some color on the repeat prescribers and repeat patients in this, how is the underlying dynamic?

Dilip Shanghvi

It’s a great question, Sameer, to be honest, but I really do not have that kind of granular details because it is not as simple to get that data. And even if we get, it's quite expensive. So in the recent past, internally, we have tried to do our own kind of modeling and rate assumptions and trying to come to a certain picture. Even now to be honest, Sameer, it’s quite sketchy as far as I'm concerned, and a lot of assumptions go into it. So for me to give you an answer would never really be correct. So I'm not trying to sidestep your question, Sameer, but I really do not have -- I wish I had that would have made my life much easier, but I don't. That's the fact.

Sameer Baisiwala

What will get you to next $100 million, incremental $100 million on this product in the US? I'm thinking that is it the mining of the current prescribers, or do you think you still need to go out and get more and more doctors in the fold?

Dilip Shanghvi

As far as I am concerned, it will be a combination of three things, and I think one of the most important things is not mining of customers but mining of data that we have on the product and be able to continuously communicating something new to the customers, which keeps the interest alive as far as they are concerned in our conversations with them. So I think that's the first and most important thing as far as I'm concerned. The second is continuous involvement of key opinion leaders to give us time and speak favorably on the products. And third of course is a combination of both mining of existing customers as well as expanding the prescriber base. So think it’s all of these put together and therefore, I think, execution by the team on all these fronts becomes so much important.

Sameer Baisiwala

One last question from my side. And Dilip, can you just update us on Halol, any tentative timelines over there and how should we think about new launches until Halol opens up?

Dilip Shanghvi

So I think as we have shared with you in the past, I think we are waiting for the agency to inspect. We have requested for an inspection. Now I think it's up to them to run and inspect the facility. And hopefully this time we should be able to clear it successfully that's the focus. I think, we are -- as I said in the beginning that we expect all our businesses to do and grow. So we are also expecting to generate business in the US also to grow. And that's based on that recently to that we have approvals that we can expect. So in case if when Halol gets approved during the year and if we get new approvals that would potentially add to our planned approvals.

Operator

The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.

Damayanti Kerai

My question is ILUMYA kind for another indication for arthritis. So we understand COVID has disrupted the progress. But can you provide where we are in that indication studies? And when we are expecting to complete the Phase 3 and do filing?

Dilip Shanghvi

I think we got affected at two levels. One is because the patient footfall in the clinics, which we had already started as a clinical trial site had come down, so their ability to recruit patients had come down. And second was the CRO ability to start multiple new sites and that also got affected. Hopefully, we've seen some pick up in starting news sites in last few weeks and hopefully that should help us during the year that in this uncertainty related to the recruitment, it’s difficulty to give you any kind of specific timeline for completion of the enrollment, because I think you have to first enroll the subjects and then this subject we have to monitor for a year.

Damayanti Kerai

My second question is on specialty spend, so some clarification there. So in earlier communication you have indicated that we have broadly optimized DTC and other marketing costs for key specialty bands and you also commented with US market opening up we expect these costs to go up. So how should we look at the specialty spend over next few quarters?

Abhay Gandhi

The answer would be I think sort of, Dilip said, a while ago. If I look at current trends, I think with more and more doctors allowing clinical visits and some of these virtual conferences going back to being face to face and like, cost will increase. However we’ll make every attempt to see that we don't go back to the original level but in a fluid pandemic situation that we as a company and as a team we need to be constantly agile and nimble to be able to make changing decisions very rapidly if we have to.

Operator

The next question is from the line of Surya Patra from PhillipCapital.

Surya Patra

My first question is on the US. Is it fair to be for US portfolio to be kind of profitable growth in FY '22, driven by at least two factors. One is that kind of a steady progress what we have been facing on the speciality front and the second part will be possibly bottoming out of the operating underperformance, or bottoming out of the TARO's operating performance, what we have already seen in the recent calls. Because what you mentioned of course is it correct that the prescription trend seems like almost down 29%, 30% in last entire one year period due to COVID in the derma side in the US. But we think that TARO has significantly outperformed that because that is kind of a prescription trend. So is my understanding is correct that we could see driven by this pool large component of the US trends, TARO as well as the speciality, we see a kind of profitable progress on the US consumer front?

Abhay Gandhi

So TARO standalone when you see the results there already you’re profitable business. And as far as some is concerned, we haven't given business line wise profitability numbers, so difficult to answer your question. But broadly, of course, yes, I mean, you are in business at the end of the day to be running a profitable business and that's the objective for any given business.

Surya Patra

And my point basically was that, obviously, we'll see basically to volume growth resulting of the US market. But will that be along with the margin expansion in that market? So basically that understanding I wanted to add by the word profitable focus…

Abhay Gandhi

So I mean I think my answer remains the same. I mean that's the objective to increase your margins as you go along. But specific business wise we don't break up. So that's the most I can do on this call.

Surya Patra

So just kind of additional point on this, generally more people understood that but specialty spend was elevated obviously in the initial period of the launches and having seen kind of ramp up. So we believe this possibly has to contain the DTC kind of activities for ILUMYA, although, there was a kind of additional DTC activity for CEQUA. But generally it was understood that the overall speciality spend should see a gradual correction from elevated level of let's say FY20. So are we on that front seeing a kind of declining trend, although, we will see some kind of [normalization] in the overall SG&A cost front…

Abhay Gandhi

No I understand. So I've said this in my earlier calls as well that we are now more or less optimized what we need to spend for each product group or a BU. And I think we are comfortable with where we are and with the expansion of the APs and the top line, therefore, I think margin should definitely improve.

Surya Patra

The second question on this. Dilip, can you just respond on the COVID side? Do you see COVID this is an kind of opportunity in any manner for Sun Pharma?

Dilip Shanghvi

So in the sense of there is short term critical response faster but there is a short term increase in the business for products, which are specifically used in COVID. And some today I think we're not in vaccine manufacturing or distribution business and we haven't announced anything as well. So I think Kirti maybe you can respond.

Kirti Ganorkar

We can [Technical Difficulty] for us and as I said in my opening remarks, [Technical Difficulty] [catch] products in our portfolio.

Abhay Gandhi

Kirti, you're not audible to me.

Dilip Shanghvi

Kirtim you are not audible, you are breaking.

Kirti Ganorkar

But you can hear me or…

Abhay Gandhi

Much better now…

Kirti Ganorkar

What I was saying is we have launched couple of new products for the treatment of COVID, which includes product like Remdesivir, Itolizumab and [Technical Difficulty]. And last year by the time we launched the product in the first wave of almost by the month of November and December number of cases were reduced. And then in the second wave from March and April, the number of cases has been increased, so we will get some short-term benefits in this next financial year. But at the same time, we have a good number of COVID portfolio products, which are being uses off label and they're doing well in coming quarters. So there are products which will give us some benefit but it would be a short term and we don't know how long this second wave will last.

Operator

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Tushar Manudhane

Just would like to understand on the biosimilar front, what kind of investment are we resurging over the next three to four years on the product development side and subsequently on the manufacturing front?

Dilip Shanghvi

I don't think we'll crystallize this in specifics to be able to respond. But as I shared our overall R&D spend for us to be able to take care of biosimilars both in R&D as well as both annual CapEx for upgradation, more capacity and down to create additional capacity for biosimilars. So it shouldn't be a big drain either on our cash flow or probability.

Tushar Manudhane

So previously you were refraining from getting into biosimilars because of the regulatory or lack of clarity on the regulatory front. Now that is there but at the same time we have seen experiences of other companies like biosimilars also having considerable price erosion despite in addition to spending significant amount on the development as well as on the manufacturing front. So still do you see this as a good opportunity over next four to five years?

Dilip Shanghvi

Yes, I think so. Because depending again on the product and when you enter the markets, and I am expecting that overtime with similarity and confidence that doctors will develop on the biosimilars, we will see increasing percentage of patients being treated with biosimilars.

Operator

The next question is from the line of [Technical Difficulty] Investments.

Unidentified Analyst

Just wanted to understand, we recently invested in this company called ABCD Technologies along with a few other companies. So can you just give us a thought process on this investment and what do we intent to do with this, that's the first question. And secondly, if you could just elaborate our effort on ESG and what we have done -- how we -- the company has supported the community during this second wave?

Dilip Shanghvi

So Kirti, maybe you can…

Kirti Ganorkar

That’s why I’ve indicated in our announcement regarding developments, one of the large pharma companies have come together to form ABCD Technologies, which will further invest in digitalization to make the distribution of pharma product more efficient, that is the objective. Over a period of time, it will result in a better inventory management and ensuring that the pharma products are available to patient at the right time and at right place.

Unidentified Analyst

Will this be some sort of competitor positioning compared to some of the online pharmacies, is that something -- is that the intent, or is it just earlier to go back and optimization?

Kirti Ganorkar

Its more to make the supply chain more efficient.

Dilip Shanghvi

On the ESG related front, we are working on both the sustainability on the ESG, which of course cover the energy, water and other related aspects of the GRI Standards. And we will be coming off of the first edition of our initiatives and the report [Technical Difficulty] issue along with our Annual Report in this financial year, both on the sustainability, the detailed report will be done by us.

Operator

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Shyam Srinivasan

Just the first one on the India business. If you can just tell us about the field force as it stand today in terms of the number, as well as the productivity that you are listing that? I think you put it out in the presentation. So just wanted an update on this from a fiscal '21 perspective?

Abhay Gandhi

In terms of -- you are saying number of field force or…

Shyam Srinivasan

Yes, number of field force, maybe the [PCC] that they are currently today and where you think this time actually trend going ahead?

Abhay Gandhi

As we discussed in our last call during the last Jan to March, we have expanded our field force and we have added about 1,000 people in the field, which includes medical reps and managers. So now we are in excess of about 10,000 people, which includes everyone in the field, right, from medical rep to all the managers put together. So since we have added the field force last year and then we entered into pandemic on quarter one and quarter two, the performance in the first two quarters was not up to the mark. And the field force was also new. They were to visit to the doctors and that could not happen. But up from quarter three and quarter four, this new field force could visit the doctors and develop certain relationships. So generally, we don't do our PMPM. But what I can say, our PMPM due to expansion was almost flat or slightly lower than what it was in the last financial year. But more importantly now the field force is well settled so in the coming financial year '21, '22, we think that we will get a benefit of our expansion and our reach to the doctors and we'll also see the improvement in PMPM and productivity.

Shyam Srinivasan

Second question is on capital allocation priorities. This year looks like we have used some of it towards reducing our debt level, if I picked up the number right ex-TARO makes like 170 million or so. So how should we look at fiscal '22 in terms of capital allocation? And also a related question on what is the CapEx for fiscal '21 that was reported and what are we looking at for next year?

Dilip Shanghvi

Murali, would you respond?

C.S. Muralidharan

So in terms of the capital allocation, as we have mentioned in our previous earnings call, our endeavor will be also to become debt gross level ex-TARO. So the 179 million, what we talked about, which is standing the net debt overall gross level, what we have by March 22, we'll continue to wind down the debt. At the same time with the cash what we have the leverage we have definitely for the growth of the business, we will be open to investments if any opportunities or attractive for growth for business.

Dilip Shanghvi

Also CapEx, he wants information on CapEx.

C.S. Muralidharan

CapEx for the FY '22?

Shyam Srinivasan

Yes.

C.S. Muralidharan

Average in terms of each year, overall CapEx in there around about, we'll do about 200 million plus across various geographies. But this year, we have worked out -- almost below number, it will not be much really high.

Operator

The next question is from the line of Krishnendu Saha from Quantum AMC.

Krishnendu Saha

I just had a couple of questions. We talked about the [quarter], you talked about R&D but we don't talk about the [Technical Difficulty] family, the [ISAL] and Alora [Technical Difficulty] call it wrong. Are they not enough, clinically enough or we don't spend much of marketing spend behind them? What is the thought there? How do you see that piece of the fourth quarter, have we talked -- you don't talk about anything about [Technical Difficulty] launch but they are mentioned in other reports. So just wondering how to think about there, please?

Dilip Shanghvi

It's a niche segment and the idea of having this look at a very specific niche area of -- and especially within that patients who have this, so none of the products individually will be very, very big products. Our dream should be a decent meaningful range when everything comes to market and we were coming in trends in phases, so not everything at one time. So it's a small part of our business but it's an interesting area to be in because we are generally doing something which is needed by the patients in the long term care centers and those who cannot swallow their medication. So it's -- I personally like that segment not for the dollar value but because of what it does for elderly patients.

Krishnendu Saha

But do we have [Technical Difficulty]…

Dilip Shanghvi

Can you just repeat?

Krishnendu Saha

Do you promote it or…

Dilip Shanghvi

Yes, we promote it and doctors who visited clinics, promoted…

Krishnendu Saha

And one more question. We have this GLP on that [Technical Difficulty] normal scheme of the specialty product, how does this fit in? We should have -- step another for via derma, via up for additional [Technical Difficulty] opportunity. So where does this fit in the after phase in our trials another two years out is comes out quite and see the data was up in the capitalization. So how do we see at this rate going ahead?

Kirti Ganorkar

Clearly, in India and emerging markets, we have presence in diabetology and cardiologists, obviously, interesting. For large markets like US, Europe, as well as other regulated markets, we will look at options for licensing it to somebody because it's a product that will require a large field force in excess of 1,000 people and that's not the plan for us to. So our objective would be to develop it to top tier level and then look for a licensing partner. I can only say that readout that we are getting in the clinical trial in terms of everything, in terms of weight loss, in terms of triglyceride reduction, as well as in terms of potential effect on HbA1c, but it's very limited because these are all healthy subsets. So we are quite excited with the profile that the product has demonstrated.

Krishnendu Saha

And just one last clarification. The reason I ask is because we launched ILUMYA in Japan. The [ROW] dollar term revenue has been going down, has that affecting meaningfully or it is because of other reasons that ROW will take some more time than the last time, you did speak about it will take a couple of more months or a year to get the whole hospital business in Japan done. So [Technical Difficulty] throw some light couple with the fact that ROW revenue [Technical Difficulty] is going down and maybe just thought process.

Dilip Shanghvi

You're talking of sales going down in Japan?

Krishnendu Saha

No, I'm talking about -- the reason I ask Japan is because the ROW market, the dollar revenue was going down from 178 to 173, 153 in spite of us launching product in Japan. So is it going to take us more time or has the product not picked up in Japan? I’m just trying to understand a couple of the ROW numbers, if I'm thinking of correctly.

Dilip Shanghvi

No, I think introduction of a product like ILUMYA in Japan will not be a huge impact in the first initial period of launch. So you should not look at the first quarter impact of the product in terms of sales. We believe that over time it will become important and meaningful part of our business in Japan, and that's the focus. The overall rest of the world market, Japan is an important component but there are many other geographies, which are also important in terms of sales.

Operator

The next question is from the line of Nitin Agarwal from DAM Capital.

Nitin Agarwal

On the US business, two parts, one is on the generic side. If you take two to three years, we will broadly seek is, is the large end of our growth and I use largely contingent upon the approval that we get from Halol or there are other drivers in the business possible?

Abhay Gandhi

Nitin, your question has more to do with new product introduction, right?

Nitin Agarwal

What I’m just trying to understand in terms of when you look at the generic business, what is going to be the driver, if it's going to be new product launches, is it largely going to be the Halol driven portfolio…

Abhay Gandhi

I think new product launches clearly are important to be able to continue to find ways to grow the business. And if you see despite Halol not having been inspected, in the financial year, we were able to launch around 18 products, 18 new products. And also a few relaunches. So there are different us by which we will be able to bring out new products from different facilities. It's not only Halol dependent.

Nitin Agarwal

And secondly, Abhay, on the US specialty business, again, will take your 60 bps same broad brush, two to three year view. Is it fair to say that the current portfolio of products that we have will largely continue to drive growth for us or there are possibilities of product portfolio additions meaningfully contributing over this time frame?

Abhay Gandhi

So first of all, I think the current portfolio that we have, we can still optimize and do better. And there is clearly headroom for us to grow with the current portfolio. And in addition to that, as I said earlier in response to one of the questions, I mean it is -- any company which wants to grow in the long term will continue to look at opportunities to develop its business and look at any inorganic way of growing the business. So it's a combination of both. But clearly, the products that we have in the basket today have a lot more headroom to continue to grow.

Nitin Agarwal

And lastly, you mentioned about the vaccine, we don’t do anything on the vaccines currently. But just from a capability perspective, do we have capabilities to do drug substance manufacturing, or do we finish given the rate sensitive manufacturing as well, are there capabilities inherent in our network to work on this?

Abhay Gandhi

I think our preliminary assessment indicates that vaccines will require a dedicated manufacturing facility. And it cannot be produced in a facility where we are making multiple other products in addition to the specific different design for those facilities, depending on the type of vaccine that we are producing. So that's broadly our understanding. So we currently don't own any facility, which we are looking at for producing vaccines.

Operator

The next question is from the line of Kunal Randeria from Edelweiss.

Kunal Randeria

So first I think CEQUA that there could be a likelihood that there might be [Technical Difficulty] maybe later this calendar year. So I'm wondering if you could share thoughts on how this potentially could affect CEQUA aspect?

Abhay Gandhi

So we still have no visibility on when the generic. So we could have been launched over year and half, two years ago also but we haven't seen. And so to put a timeline to it and therefore, look at a preemptive situation is pointless, because we don't know when it's going to get launched.

Kunal Randeria

My second question is on ABSORICA, so with this product now going generic and obviously, it’s price there has been becoming cheaper. Do you see that ABSORICA market, including Generis, could show higher volumes maybe at the cost of some brands of [Technical Difficulty]?

Abhay Gandhi

What do you want me to -- so what did you say…

Kunal Randeria

So I was saying, your ABSORICA going generic now and obviously becoming cheaper. Do you see this market expanding at the cost of Teva and Mylan’s brands and still…

Abhay Gandhi

Personally, I don't believe so because ISO [Technical Difficulty] moderate to CVS. First, generally, we use other options before they go into ISO [Technical Difficulty] duration of ABSORICA, I don't think the market really will expand. That's my view, though.

Dilip Shanghvi

Abhay, what I understand he's asking is that whether the overall share of ABSORICA or ABSORICA generic in the ISO market.

Abhay Gandhi

So my answer was in the same length, Dilip. If I look at TRx, forget the value of the TRX, whether it's a brand use or a generic use, will the number of TRx for ISO [Technical Difficulty] increase because there are generics available, I don't really believe so.

Operator

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Nimish Desai for closing comments.

Nimish Desai

Yes, thank you, everybody, for taking time out to join this call. If any of your questions have remained unanswered, please do send them across and we will have them answered. Thank you, and have a good day.

Dilip Shanghvi

Thank you.

Abhay Gandhi

Thank you.

Operator

On behalf of Sun Pharmaceutical Industries Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.