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Edited Transcript of CADI.NS earnings conference call or presentation 19-Jun-20 9:30am GMT

Q4 2020 Cadila Healthcare Ltd Earnings Call

Ahmedabad Jun 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Cadila Healthcare Ltd earnings conference call or presentation Friday, June 19, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ganesh Narayan Nayak

Cadila Healthcare Limited - COO & Executive Director

* Harish Sadana

* Nitin D. Parekh

Cadila Healthcare Limited - CFO

* Sharvil Pankajbhai Patel

Cadila Healthcare Limited - MD & Executive Director

* Vishal Gor

Cadila Healthcare Limited - Vice President of Corporate Finance at Zydus Cadila

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Conference Call Participants

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* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Kunal Mehta

Vallum Capital Advisors - Research Analyst

* Kunal Dhamesha

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Surya Narayan Patra

PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

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Presentation

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [1]

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Good evening, ladies and gentlemen. Welcome to our post results teleconference for the Quarter and the year ended March 31, 2020. I do wish that you and your family are safe and healthy during these unprecedented times.

For today's call, we have with us Dr. Sharvil Patel, Managing Director; Mr. Nitin Parekh, Chief Financial Officer; Mr. Harish Sadana, Chief Strategy Officer; and Vishal Gor, Senior Vice President, Corporate Finance.

Unabated spread of COVID-19 and the resultant lockdown imposed by the governments across the globe since the beginning of the current calendar year has brought a lot of uncertainties to the business operations, not just for us but for organizations across different sectors. Therefore, before moving on to the highlights of the operations for the quarter and the year gone by, let me give you an overview of the actions taken by us to manage our operations in the current scenario and the role played by us to extend the support to the government and the communities at large during these challenging times.

In today's trying times for the world, our focus is on ensuring the safety of our employees and all other stakeholders while we ensure that our business operations are run with minimal interruptions as setting up the lives and protecting the livelihood both are of utmost importance to us. We have taken several steps aimed at ensuring the safety of our employees, which include remote working across all the locations; physical distancing at workplaces; mandated use of protective gear; sanitization of our office premises, plant locations and company vehicles; and thermal screening of employees working at our sites. We have created a group of senior management team to monitor the events happening in the external environment and take suitable preventive and corrective measures to ensure continued safety of the employees and continuity of our business.

The team has implemented a business continuity plan across the functions to ensure that the operations continue right through the pandemic situation. We have also established a liquidity management office for monitoring of the cash flows with the objectives of managing and controlling costs, preserving liquidity and sustain the business operations.

I'm pleased to inform you that our teams across the functions, namely manufacturing, quality, regulatory, supply chain, marketing, R&D and other support functions, have put in strong collaborative efforts to navigate the business amidst these testing times. All our manufacturing facilities were operating at reasonable capacity utilization even during the lockdown, and we have strengthened our supply chain to ensure continued and timely delivery of our products to our customers. There were some logistics-related challenges towards the end of March and during the month of April, especially on our India operations. However, the situation has now stabilized to a large extent.

I'm happy to inform you that we have been doing whatever is possible in this fight against COVID-19. This includes, amongst others, supplying HCQ tablets to the government, hydroxychloroquine sulfate to the government of India and other customers across several countries at very reasonable prices; manufacturing COVID testing kits for the ICMR; partnering with Gilead Sciences for the manufacture of Remdesivir for the Indian market; exploring the biologics route to treat the disease with our long-acting biological therapy, pegylated interferon alfa-2b; and working on the development of a vaccine for the virus.

With that, let me take you through the financial numbers for the quarter and the year gone by. During the fourth quarter of FY '20, we posted a consolidated revenue of INR 37.5 billion, up by 3% over INR 36.4 billion reported in the preceding quarter. While the performance of overall business was in line with the expectations during the first 2 months of the quarter, businesses in India and the emerging markets were impacted during the second half of March on account of the spread of the virus and the consequent lockdown imposed by the government of India and other countries across the globe, which resulted into disruption of supply -- of our supply chain and the nonavailability of channel partners in the initial days of the lockdown.

In the U.S., while the pandemic didn't have any adverse impact on the business, our sales during the quarter did not have any material positive impact of panic buying from the customers. Excluding the impact of COVID-19-related disruptions, consolidated revenues would have grown by 10% on a quarter-on-quarter basis. Consolidated EBITDA grew to INR 7.91 billion, up 13% on a sequential basis, adding a delta of INR 935 million over the previous quarter.

Overall, we expanded our EBITDA margin by 190 basis points to 21.1% against the 19.2% registered in Q3 FY '20. Volume expansion across the portfolio in the U.S. led to the improvement in the EBITDA margins.

Consolidated PAT for the quarter, excluding the exceptional items, was INR 4.3 billion, up 14% on a sequential basis.

Our India geography, comprising of human health, consumer wellness and animal health, has grown by 6% on a year-on-year basis, registering a revenue of INR 15.02 billion during the quarter. Excluding the impact of COVID-19 on our business operations and adjusting the base of our consumer wellness business for Q4 FY '19 on a comparable basis, our business in India -- the Indian geography would have grown by 11% on a year-on-year basis during the quarter as the business lost revenues of approximately INR 2.2 billion on account of COVID-19-related disruptions.

The U.S. geography, comprising of generics and our specialty portfolio, registered a revenue of INR 17.6 billion during the quarter, up 5% on a sequential basis. Our rest of the world business, comprising of multiple emerging markets, would have grown by 6% during the quarter on a year-on-year basis after adjusting for the COVID-related impact.

On a full year basis, we posted a consolidated revenue of INR 142.5 billion, up 8% on a year-on-year basis. Consolidated EBITDA for the year was INR 27.8 billion, down by 7% on a year-on-year basis. EBITDA margin for the year stood at 19.5% for the year. Consolidated tax for the year, adjusted for exceptional items, was INR 14.6 billion, down 21%.

Now let me take you through the operating highlights for the financial year '19-'20 for each of our business lines. Starting with our human health business in the India geography. The business started to show signs of improvement from the beginning of the financial year on the back of the multiple strategic initiatives undertaken to bring back the growth in the business. During the year, we restructured the portfolio of our 100% subsidiary, Zydus Healthcare Limited, which contributes to over 80% of the human health formulations business of the group in India by bifurcating it into 2 clusters, namely mass and specialty so as to drive the marketing and promotional efforts in a focused manner.

In the case of a mass cluster, the focus will be to improve market penetration by expanding the reach of the products. And in case of our specialty cluster, the focus will be on intensified engagement efforts with the key opinion leaders. Efforts were made to create a strategic synergy within the divisions and clusters by reorganizing the brand portfolio to consolidate, sustain and build the existing brands.

During the year, we successfully completed the nationwide implementation of the new sales force effectiveness initiative, which has been developed for second-line sales managers and above. The focus of the initiative is on demand generation by improving the sales planning cycle and also improve the quality of interactions between field business officers and business managers. A new model was implemented for improving the forecast accuracy through consensus planning.

Now while the performance of the business showed gradual improvement during the first 3 quarters of the financial year on the back of various strategic initiatives and the performance during the first 2 months of the last quarter of the financial, which was also as per the expectations, the business was impacted in the second half of March 2020 on account of the spread of the virus and the consequent nationwide lockdown imposed by the government of India in the middle part of March. Overall, the performance of our branded human health business remained flat on a year-on-year basis during the fourth quarter, while for the full year, the business grew by 6.6%. Excluding the impact of COVID-related disruptions, our branded business would have grown by 11% during the fourth quarter and by 10% during the year.

As per the [AVX] data, our business -- I mean, the business grew by 11.9% during the year '19-'20, outperforming the overall Indian pharma market's growth of 9.8%. In terms of performance of different therapies, our gynecological, gastrointestinal and pain management portfolios grew better than the market. Specifically speaking, our gynecs portfolio grew by 12.5% versus the market growth of 6.1%, almost twice. The GI, gastrointestinal, portfolio registered a growth of 8.6% versus the market growth of 7.9%, while the growth in the pain management portfolio was 12.4% against the market growth of 9.3%.

On the brand front, our pillar brands are having annual sales in excess of INR 500 million each and which constitute to 32% of our branded formulations, the sales grew there by 9% during the year, while the mid-sized brands having annual sales between INR 250 million and INR 500 million and which constitute 24% of our branded formulation sales grew in double digits with 14% growth during the year.

The financial year gone by was the first full year of transformation for our consumer wellness business as we completed end-to-end integration of the acquired business of Heinz India Private Limited. And we are happy to inform you that the integration progressed better than what we had planned or envisaged at the beginning of the year. We continued our thrust on marketing initiatives to grow the categories and increase the market shares of the brands.

Overall, Zydus Wellness posted a sales of INR 4.9 billion during the fourth quarter with a growth of 22% on a year-on-year basis, while for the year, it posted sales of INR 17.4 billion, up by 115%. Financial numbers of the current and previous years are not comparable as the previous year's numbers include the acquired entities' numbers for 2 months. Excluding the impact of COVID-19 related disruptions and adjusting the base of the previous year on account of the Heinz acquisition, the business would have grown by 11% during the quarter and 10% during the year.

During the year, we restructured our Animal Health business by transferring the entire business, including India, U.S. and the rest of the world from the parent company, Cadila Healthcare Limited, to its subsidiary, Zydus Animal Health and Investments Limited, on a slump exchange basis to achieve better focus and explore newer strategic opportunities.

Overall, our Animal Health business posted sales of INR 1.2 billion during the quarter -- fourth quarter and INR 5.15 billion during the year. Excluding the impact of COVID-related disruptions, the business would have grown by 16% during the fourth quarter on a year-on-year basis, while the growth for the year would have been 5%. A delayed monsoon and drought-like situation in some parts of the country during the first and the second quarter impacted the annual growth.

Now let me take you through the performance of our U.S. formulations business. During the year gone by, the U.S. was the largest contributor to our consolidated revenues with a 45% share. Despite the increased competition and pricing pressure, our U.S. business -- generics business grew by 7% during the year on a higher base of the previous year on the back of increase in volume share of existing products and the launch of new products. We are now ranked fourth amongst the U.S. generic companies based on prescriptions with a gain of 3 positions from the previous year. As mentioned earlier, the overall business grew by 5% during the fourth quarter on a sequential basis. The growth was driven by increase in volumes, increase in the sales of oseltamivir on account of the flu season and the launch of 6 new products during the quarter. Excluding the specialty portfolio of Sentynl, the business grew by 6% on a Q-on-Q basis.

We launched 30 new products in the U.S. generics market during the year. New launches include our rivastigmine transdermal patch, which is a first transdermal patch launched from our own pipeline. During the year, we filed 30 additional ANDAs with the USFDA, taking the cumulative number of our filings to 390, and we have received final approvals for 23 new products and tentative approval for 5 new products from the USFDA, taking our cumulative number of approvals to 282.

Coming to the emerging markets, we continued to perform well in some of the key geographies of Asia Pacific and Africa regions, driven by volume expansions of our pillar brands. However, performance in some of the countries was impacted on account of increase in the generic competition, rapid price decline in institutional business and some uncertainty -- uncertain regulatory environment leading to significant delays in new product approvals.

In order to leverage the market opportunities in the emerging markets, we strengthened the business development efforts with a strong focus on in-licensing and out-licensing activities during the year. We filed 21 new product dossiers from the new manufacturing site at our Myanmar facility for various countries of the Asia Pacific region during the year so as to strengthen the local presence and pursue the regional opportunities in the Asia Pacific region.

Overall, our emerging markets formulations business posted sales of INR 1.71 billion during the fourth quarter, down 17%, while for the year, the business grew by 5% with a sale of INR 8.75 billion. Excluding the impact of COVID-related disruptions, the business would have grown by 5% during the quarter and by 11% during the year as the business lost revenues of approximately INR 470 million on account of COVID-related disruptions.

On the biologics portfolio, which presently gets clubbed in India and other geographies, it continued its momentum and recorded a sale of INR 2,779 million during the year, up 19%.

Now coming to the operations and compliance front, we continue to take all the remediation measures necessary to address the observations raised by the USFDA in the warning letter issued to Moraiya. And we also submit -- have been submitting specific updates to brief them about the actions which have been taken by us against the commitments made.

Recently, in this month itself, in the month of June, we gave the fifth update to the USFDA with respect to the corrective and preventive actions taken, mentioning about completion of a majority of the commitments made. And we have requested the FDA for a conference call to discuss the way forward and a desktop audit. As shared with you earlier, we have already initiated site transfers of all injectable products from Moraiya to Liva. In fact, we have launched the first site-transferred product from Liva in the month of May, last month.

During the year, our oral solid dosage formulations manufacturing facility located at Ahmedabad SEZ received the EIR from the USFDA with voluntary action indicated classification for the facility. The EIR, followed by the inspection conducted by the FDA from the 25th of March to the 3rd of April, which concluded with 1 observation.

We continue to maintain our successful track record of regulatory compliance at our other facilities as we successfully completed 6 USFDA inspections without any observations in each of these inspections. The facilities which were inspected by USFDA during the year are: the Baddi formulations twice, our oncology injectable facility of Alidac Pharma and the Ahmedabad SEZ, the topical formulations facility near Changodar and the API manufacturing facilities, both at Ankleshwar and Dabhasa. We have also received the EIRs for the inspections done at the Baddi formulations facility, topical formulations facility and the API manufacturing facilities at Ankleshwar and Dabhasa.

Coming to the inspections done by other regulatory authorities, our biologics fill and finish manufacturing facility located at the Zydus Biotech Park in Ahmedabad successfully completed the audits by the regulatory authorities of Sri Lanka, Russia and Mexico, while the vaccines manufacturing facility at our Vaccines Technology Center successfully completed the joint inspection by the DCGI and CDL Kasauli India.

Now this concludes the business review. I would now request Dr. Sharvil Patel to take you through the progress and initiatives in our innovation program. Thank you. Over to Dr. Sharvil Patel.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [2]

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Okay. Thank you, Nayak. Happy to inform you that the year gone by has turned out to be a very important and encouraging year for us in perspective of the initiatives taken in the space of innovation.

Talking about the progress made on our NCE research first. In the month of March 2020, we received the approval from the DCGI for the new drug application for our lead compound, saroglitazar magnesium for the treatment of NASH in India. The drug has become the first-ever drug approved anywhere in the world for the treatment of nonalcoholic steatohepatitis. We also received the approval from DCGI for the use of saroglitazar magnesium in the treatment of type 2 diabetes mellitus as an add-on therapy with metformin during the year.

In the month of October 2019, we successfully completed EVIDENCE IV Phase II clinical trial for saroglitazar in U.S. in the patients with NAFLD and NASH, and the molecule achieved the primary efficacy endpoints. A statistically significant 44.39% reduction in ALT was observed in patients treated with saroglitazar. EVIDENCE IV NASH trial was randomized, double-blinded, placebo-controlled study that enrolled 106 patients in NAFLD, including NASH across 20 clinical sites in the United States of America, and had very good safety and tolerability.

In the month of November 2019, we made a presentation for saroglitazar in NAFLD at the American Association for the Study of Liver Diseases in Boston, and the paper was addressed as a list of NAFLD/NASH debrief given by the AASLD.

We have also initiated enrollment of patients across several clinical sites in the U.S. and Mexico for an EVIDENCE VII Phase II clinical trial for evaluation of saroglitazar in the treatment of NAFLD in women with polycystic ovary syndrome, which is PCOS, during the year. Additionally, we also have an approval from the USFDA to conduct saroglitazar trials in hepatic impairment, 100-patients, and renal impairment, 32-patient, indications. These studies will help us understand the pharmacokinetics of saroglitazar in mild, moderate and severe hepatic impairment patients and severe renal impairment patients. Saroglitazar has shown a 40% reduction in alkaline phosphatase and a 63% reduction in gamma (inaudible) 50 days, in 6 completed PBT patients. This study was an open-label study conducted in Mexico.

Recently, on June 9, 2020, Nature, which is a world-leading multidisciplinary science journal, published an article on our lead molecule, saroglitazar, highlighting that the PPAR alpha/gamma agonist improves insulin resistance and steatohepatitis in a diet-induced animal model of nonalcoholic fatty liver disease.

Coming to our other molecules in our NCE pipeline, Desidustat. We initiated Phase III clinical trials in India, targeting anemia, both in dialysis and nondialysis-dependent CKD patients. Additionally, Desidustat a HIF-PHD2 inhibitor is also being filed in U.S. for myelodysplastic anemia. This is the most prominent feature of a large bone marrow disorder called myelodysplastic syndrome. The disorder affects how bone marrow stem cells produce and release new blood cells. 16,000 patients in U.S.A. and 14,000 patients in Japan are living with this disease.

Desidustat is also being pursued in U.S.A. for chemotherapy-induced anemia. Chemotherapy-induced anemia occurs frequently in patients receiving myelosuppressive chemotherapy. And this inhibits growth by maintaining increasing levels of hemoglobin oxygen carrying capacity, ion regulation as well as reducing inflammation in these groups of patients.

Desidustat is also being evaluated in moderate COVID patients. The attack with the novel corona, pneumonia, COVID-19 will cause less and less hemoglobin that can carry oxygen and carbon dioxide. The lung cells have extreme intent poisoning and inflammation due to the inability to exchange CO2 and oxygen frequently, which eventually results in a round-like lung images. Ion disregulation is also noticed in subjects with COVID-19. Desidustat regulates it, which, in turn, results in increasing EPO and inhibition of oxygen, thereby relieving the symptoms in COVID patients.

In February 2020, we have out-licensed the rights of Desidustat in China to CMS, China Medical Systems. This will boost our overall commercializing strategy for anemia drug, Desigustat, being developed for chronic CKD patients. The deal provides us access to markets in Greater China, Mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan, which have significant number of CKD patients.

We have also received an approval from DCGI to initiate a Phase I clinical trial for our new molecule, ZYBK2, and another investigational drug for treating rheumatoid arthritis.

During the pandemic of COVID-19, various nations and organizations are exploring novel drugs, molecular entities for treatment of COVID-19. Although there is a huge interest in repurposed drug (inaudible) for the usage in treatment of COVID-19. We have also followed similar approaches and have taken a multi-faceted initiative of tackling (inaudible) health care organizations. We have initiatives across the spectrum from prevention to treatment of COVID-19 using a diverse set of capabilities in small molecule therapeutics, biologics, vaccines and even use a range of wellness products for sanitization and (inaudible) enhancements.

Now I'm talking about the biologics front and ability to provide placement actions against novel coronavirus. We have explored multiple options from our portfolio of biological products, and based on available evidence, have selected the long-acting biological therapy of pegylated interferon alfa-2b as an adamant product for treatment of COVID-19. The treatment has emerged after recent research conducted in the U.S., which shows that interferon alfa significantly reduces novel coronavirus titles in, in vitro. A clinical study in China shows shortened duration of viral shedding in the patients. The DCGI has approved a clinical trial study proposal for usage of pegylated interferon alfa-2b in treatment of moderate cases of COVID-19.

(inaudible) to go ahead with the study of this product in moderate cases of COVID-19 in Mexico where we are now awaiting COFEPRIS approval. We are also working with the USFDA to open an IND for pegylated interferon alfa-2b in mild cases of COVID-19. Overall, we hope peg interferon alfa-2b proves to be an important biological for the treatment of COVID-19 patients and could provide a hope in the current pandemic.

On the biological front, we achieved significant milestone as we received the first marketing authorization in India for -- from DCGI for our novel biological ABMs. The product will be launched under the brand name Twinrab in the month of June and is indicated in combination with rabies vaccine for rabies post exposure prophylaxis. This product has also highlighted our commitment to bring forward novel entities and novel biologics from lab to market to meet the unmet medical needs. Also, this product very well complements our rabies vaccine.

On the international front, Rabimabs has received an orphan drug designation from the USFDA in the year in May 2019. Also, we are in advanced stages of discussion with one of the largest Chinese players for an arrangement of commercialization of this product in...

(technical difficulty)

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Operator [3]

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I'm so sorry to interrupt, Mr. -- Dr. Sharvil Patel, but your audio is not audible.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [4]

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Are you able to hear me now?

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Operator [5]

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Yes, we can year you. Please allow me a minute, sir. You may please go ahead, Dr. Sharvil Patel.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [6]

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Yes. Sorry for the interruption. As I was saying, on the international front, Rabimabs has got orphan drug designation from the USFDA during the year in May 19 -- May 2019. Also, we are in advanced stages of discussion with one of the largest Chinese players for an arrangement of commercializing this product in China due to the large unmet medical needs in treatment of rabies. We have also initiated a preclinical trial for our antibody drug conjugate and trastuzumab during the year.

And coming to the biosimilar candidates, we have 7 products under early stage of development, of which we have completed preclinical toxicity for 1 and initiated another preclinical for 1 more product during the year.

On the emerging markets front, we continue to file our biosimilar products in all of these markets with 5 new doses during the year. Also, we expect an array of approvals for our biological products in emerging markets in the coming year. In Russia, we're expecting approval of 2 key products by the 2020 year end.

Talking about vaccines. In the vaccine space, we have an organization that has been on the forefront of development of key vaccines like Vaxiflu, which is the first influenza and -- sorry, H1N1 vaccine. We have been pioneers in the vaccine space with multiple vaccines for diseases like rabies, hep B, measles, mumps, rubella, varicella, influenza and typhoid. Now in the current pandemic, we have initiated a fast-track research program with multiple teams in India and Europe for developing a vaccine for COVID-19.

The first approach deals with the DNA vaccine against a major virus membrane protein responsible for entry of the virus into the cell. The immunodensity potential of this DNA vaccine has been evaluated in suitable animal models in broad-ranging study using different formulations, and it's found to be -- elicit strong immune response. At present, preclinical toxicological study in animals is underway to ensure safety of the vaccine. Hopefully, by next month, we plan to initiate an adaptive clinical trial for the DNA vaccine candidate. And we are working closely with the Indian regulators to fast-track this one model to use novel and adaptive approaches in clinical trial to speed up the approval process of the vaccine program, and we hope to achieve rapid breakthrough on the same -- at par with other COVID-19 developers across the world. This would enable us to serve the Indian population at the earliest and provide hope and respite from the current crisis of the COVID-19. We also have a second approach where we are working on as a follow-on approach.

We successfully also completed Phase II/III clinical trial for our pentavalent vaccine and are awaiting market authorization. Also, our hep B vaccine has received market authorization. And we are initiating our Phase II/III clinical trial for a (inaudible) vaccine very soon. We have also completed Phase I trial for (inaudible) hep A vaccine and a Phase I clinical trial for a recombinant hep C vaccine.

From the business perspective, vaccine is going to be an integral growth driver for us with a diverse portfolio of vaccines in the development pipeline. For a couple of vaccine candidates in our portfolio, we are also in process of applying for prequalification to WHO so that we can expand and establish our presence for supply of these vaccines through procurement agencies like (inaudible).

Coming to the 505(b)(2) and in-licensing initiatives, we have developed a portfolio of innovation within 505(b)(2) products. The portfolio comprises of novel concepts offering incremental innovation and fulfilling existing unmet medical needs. Our focus is to enhance patients' ease and offer better treatment options to physicians. During the year, we submitted 3 pre-INDs with the USFDA for our in-house 505(b)(2) program.

We are also exploring potential strategical operations and licensing opportunities to grow our tech business through an inorganic route. At the global level, business environment remains increasingly challenging on account of pandemic and the measures taken by the countries to contain its spread. We are finding newer ways of managing our business and have been working on changes in the business model, including increased use of digital technology. We have to adapt ourselves to the new norm imposed on us by all -- all of us by the pandemic. We hope fully -- we remain hopeful to continue to grow amidst these testing times and remain a very strong player.

Thank you, and now we can start the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take the first question on the line from Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [2]

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Congrats on good numbers. Sir, first question is just an understanding that India and emerging market has been a little weak due to the COVID situation. And U.S., you mentioned, that you have seen a volume uptick, which has led to better gross margins. Is that a correct statement?

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [3]

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Yes, yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [4]

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So I mean, you are attributing the better gross margins to largely the U.S. business, which has done better volumes?

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [5]

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Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [6]

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Okay. Can you share outlook for the U.S. business for next year? And did we have any COVID-related supply opportunity in the Q4 or in the upcoming quarters?

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [7]

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No. We do not have any opportunity. In fact, we made sure that we were not forced to do that. And as far as the guidance is concerned, under these circumstances, we don't feel it appropriate to do so.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [8]

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But from what you just said and Mr. Nayak said, we have no significant sales because of COVID. It's normal sales that we have for the quarter, and our trajectory looks good for the U.S.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [9]

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Okay. And second one is on the cash flow, free cash flow done for the year. And I see there is a net debt reduction of about INR 400 crores. Would that number be correct? And what's the outlook for '21 for net debt reduction, please?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [10]

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Yes, Nitin will.

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [11]

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So Prakash, actually, the net debt reduction would have been even higher in March, but we paid an interim dividend of about INR 450 crores, including the dividend distribution tax. Had that not been there, our net debt reduction would have been even higher by INR 450 crores. So for FY '21, I mean, subject to COVID-related impact on business margins and cash flows, our plan is to reduce the net debt by about INR 800 crore to INR 1,000 crore.

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Operator [12]

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We take the next question from the line of Kunal Dhamesha from Systematix Shares.

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Kunal Dhamesha, [13]

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So the first question is on India business. Now that we have segmented our India business into mass and specialty, would you provide some color in terms of revenue contribution from both, and the proportion of sales force that we have in each of those?

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Operator [14]

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Sir Kunal Dhamesha?

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Kunal Dhamesha, [15]

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Yes. Am I not audible?

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Operator [16]

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Yes. You are audible.

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [17]

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Can you repeat your question, please?

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Kunal Dhamesha, [18]

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So now that we have segmented our India business, India formulation business into mass and specialty, could you provide some color in terms of revenues of mass segment versus specialty segment and the kind of field force we have in both of those?

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [19]

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Yes. It's 55% broadly on the mass, and 45% on the specialty.

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Kunal Dhamesha, [20]

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And on sales force, similar proportion?

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [21]

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Sales force...

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Harish Sadana, [22]

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Sales force would be around 60% to 65% on mass and specialty would have lower sales force, around 35%, 40%.

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [23]

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But the exact numbers, Vishal will give later on. But broadly, it should be what Harish just mentioned.

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Kunal Dhamesha, [24]

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Okay. And so going forward, what would be your focus? Let's say, are we planning to hire more sales force into specialty? Or the focus would be mass? Some outlook in terms of India formulation from next 2- to 3-year perspective?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [25]

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No. We don't have...

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [26]

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There have been quite a few -- sorry, Sharvil bhai, okay.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [27]

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No. You may go ahead, please.

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [28]

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Yes. See, there have been quite a few learnings in the last 3 months because of this COVID thing. And one is in terms of total manpower, we'll have to really think twice, we are talking about an increase. But obviously, the focus is going to be more on the chronic segment.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [29]

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So let me also explain to whatever they said. So one is a mass with the appropriate people. We have -- we feel we have enough penetration possible in terms of reach, so that will help us in terms of gaining more prescriptions. And on the specialty front, it is going to be more focused and driven largely by scientific medical detailing and new launches. So I think both will -- don't require any sales force for the foreseeable future.

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Kunal Dhamesha, [30]

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Okay. And secondly, on the saroglitazar, what is our plan forward for U.S.? Now that we have Phase II trial, have we started Phase III trial? Or are we partnering?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [31]

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We're finalizing the protocol for Phase III, and we will be going to the FDA. We were hoping to do so in quarter 1, but maybe it will be now quarter 2 where we will reach the FDA for a Phase III protocol.

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Kunal Dhamesha, [32]

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Okay. And then commercialization, will we be doing it on our own or we'll be partnering?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [33]

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So that is too early to decide, but we will look at all options right now.

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Kunal Dhamesha, [34]

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And the cost of the client, how much it would be?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [35]

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We haven't got an estimate yet.

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Operator [36]

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The next question comes from the line of Anubhav Aggarwal from Credit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [37]

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I hope I'm audible. One question that you mentioned that in this quarter, we lost about -- if everything was normal, we would have grown 10% sequentially. So that gives out roughly, we had lost about INR 250 crores sales in this quarter. I just wanted to understand if that sales would have come, how much EBITDA would have extra come in? Because on the total margins that we reported, it does not look like a large part of, let's say, the -- so what I'm trying to say is that on the cost side, so some of the sales has not come in. Is it that some of the costs also has not been booked yet? If the INR 250 crores to INR 260 crores sales would have come in, what kind of EBITDA would have come in?

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [38]

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So in that case, our EBITDA would have been about -- would have been higher by about maybe INR 80 crores to INR 100 crores.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [39]

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INR 80 crores to INR 100 crores, okay. And second question I had about the U.S. market. How are you seeing the market right now? Are the -- some of the global companies, because of social distancing norms, still facing production issues. So are there significant amount of opportunities in the market to gain market share on the volume for the regular products? Or are you not taking them because you're not sure on the COVID situation right now on the production side? What's the scenario right now?

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [40]

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Sharvil bhai?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [41]

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Yes. So for the -- as we already spoke about earlier, for the financial year, we have had volume gains that have happened. And we continue to see those opportunities in our -- on our base business to increase volume. I don't think it is because of only COVID, it is multiple reasons in the supply chain, higher risk of supply from intermediates and APIs from certain regions, issues related to plant and the compliances and also supply chain efficiencies. All of them have led to our ability to garner more share, and we are still seeing opportunities to gain more share with new things happening all the time. So the NDA issue happened with the whole patent family. You hear similar things happening with ranitidine now here, similar things now with metformin. And so far, we have -- so we are capitalizing on all of these opportunities, and also seeing opportunities on products because many of our products we do are very difficult to manufacture. So we are seeing volume gains there as well through onetime buys also.

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Operator [42]

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The next question is from the Surya Patra from PhillipCapital.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [43]

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Yes. Am I audible?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [44]

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Yes.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [45]

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Yes. So just on the -- this -- on the innovations program front, since it is a full year, can you just give some clarity that, say, some -- the -- all se efforts, whether we talked about NCE or vaccine or biosimilar, all put together, what would be our global revenue, let's say? And against that, what would be the cost that we would be incurring annually on that front? And if you can share how this structure, both revenue and the cost wise, towards this innovation program can change in the current year, FY '21?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [46]

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So I think for the -- let me explain to you the product cost part of it. So we have our guidance that we are comfortable between 7% to 8% of our spend on R&D from our revenues, and that's what is our guidance going forward. And that includes small molecule R&D, biologics, vaccines and formulations R&D as well and (inaudible). If you look at it, half of it goes into U.S. formulations first, and the rest of it is into the biological vaccines and NCE. So that's how the breakup of our spends are.

In respect to outlook on -- these are all proprietary new chemical entities. If you look at our biosimilars business, we have (inaudible) part of the business. So we see that scaling up in the future. Vaccines is also -- we have a large pipeline of vaccines coming up. So our major peaks or good commercialization and value creation will happen in the year '22, '23, and that's where you will see large-scale revenues from all of these products.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [47]

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Whether you have mentioned the specific revenue number for the entire...

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [48]

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No. We have not given specific guidance, but these are -- we will give it when we are nearer to those financial years.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [49]

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Okay. So any revenue that we are currently making, sir, I just wanted to have that. Since it is a full year closing, so are you sharing any specific revenue number out of this entire effort?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [50]

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So I already gave you on the biologics front.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [51]

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I missed it. So it is not audible. So can you please repeat, sir?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [52]

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Can you hear me?

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [53]

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Yes, yes. Yes.

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [54]

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Today, it was INR 278 crore for biologics. And vaccines, as of now, is less than INR 50 crores.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [55]

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Okay. That is useful.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [56]

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I think there's saroglitazar also, but that is still very soon.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [57]

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And now, sir, on the -- obviously, we have -- because of the strategic initiative that we have taken on the domestic formulation side by splitting the business into mass and brand efforts, and so what is the key objective that we have been targeting before deciding about this policy? And after completing 1 year on this front, so what real estimates that we have witnessed for that particular initiative? That is one.

And secondly, also, if you can share something more on the consumer business? After first year of complete integration and on a like-to-like comparable basis, what growth -- that 21% that we are witnessing for this fourth quarter, that seems really interesting. So anything that you have seen? Any contribution meaningfully coming because of the Heinz acquisition? Or it is your internal portfolio that is really contributing to this 21% growth despite the COVID impact?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [58]

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So we have explained earlier that with respect to our India formulations business, we have created 2 different portfolios where they will have 2 different marketing strategies. One is to create reach and depth and also use the trade channel effectively and build our portfolio there. And then other is to create a specialization in different therapies and look at chronic long-term subscriptions good adherence and with very strong scientific marketing skills.

If you look at the businesses, what has happened for this is that if you see our focus on large brands and upcoming brands, we have had very strong growth on both of those lines. As part of the restructuring, we have discontinued a large number of SKUs, which has brought in clear focus on the brand, which has been shown in terms of 2/3 of our business having good growth going forward.

So that is just a broad strategy for this, and we have seen good traction till March, which then we had a problem post March 20, but things are recovering now.

In terms of our consumer business, the integration went up much better than we expected. We have improved our distribution (inaudible). We still have a long way to go. We have planned to double our distribution, and by the year-end, we should be able to do that. That is helping the brand. The right marketing approach for some of the brands as well. So it's not only Zydus Wellness, first of all. So it's brands like Sugar Free, Complan, Glucon D, Nycil have all done very well. And even in the difficult times right now, some of these brands are still doing extremely well.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [59]

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Okay. Just sir, if you can share, what was the mix of this mass and specialty in the domestic formulation in the previous year?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [60]

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That, I won't have data right now.

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Operator [61]

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We take the next question from the line of Damayanti Kerai from HSBC Securities.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [62]

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My question is regarding your CapEx budget. So sir, since last 3, 4 years, we are seeing a consistent spend of around INR 8 billion to INR 10 billion. So can you specify where our major CapEx is going? Like how much is rupee and where all we are spending? And what are we expecting for FY '21?

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [63]

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So large part of the CapEx has been on expansion of our existing facilities and setting up newer facilities, mainly for our U.S. market. About 80%, 85% will be for that, and remaining 10% to 15% will be maintenance CapEx. And we expect that in financial year '21, we will be spending about INR 600 crore to INR 700 crore kind of Capex.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [64]

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Okay. So we are adding on new plants as well as expanding capacity, mainly for the U.S. market in the last few years. That's what you mentioned, right?

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [65]

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Yes.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [66]

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Okay. My next question is regarding your status of Remdesivir with DCGI. When we are expecting any update to come there?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [67]

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So we have got the license. We are -- I think we are hoping that they can be ready with the product earliest July, but around July or August.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [68]

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Sir I just can't -- could not hear you. Can you please repeat yourself?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [69]

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Yes. So I think we will be ready (inaudible) well by end of July.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [70]

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Okay. And once we get the approval, we can immediately start supplies, right?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [71]

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Yes. But that approval will be probably by mid-July also.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [72]

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Okay. And though, like you mentioned, there were no COVID-specific supplies during fourth quarter, but how about the hydroxychloroquine supply? Like, haven't we seen anything incremental coming there? And what is the status right now?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [73]

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So in U.S., we have a very large market share around hydroxychloroquine. We almost control close to 40% share. And we continue to do well, and we have gained some customers in U.S. because of that. So that is a good part of it, but it's not very significant. And in India, we have done institutional sales to government authorities to the tune of about INR 8 crore sales.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [74]

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Sorry, INR 8 crores, you said? INR 8 crores sales we have done in India?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [75]

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Yes.

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Operator [76]

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We take the next question from the line of Sameer Baisiwala from Morgan Stanley.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [77]

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You mentioned your manufacturing capacity is now more normalized. Can you say pre-COVID to now, I mean, what percentage utilization are you, broadly speaking?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [78]

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Could you repeat your question?

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [79]

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At what level of manufacturing utilization are you if you were to compare now versus pre-COVID, say Jan, Feb?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [80]

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We are at -- we are almost at same levels now. Better sometimes, actually.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [81]

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Okay. Great. And second question is, Sharvil, how do you think about a year-plus later when Asacol HD goes generic, and that would be sort of a big dent in the U.S. revenue? So looking on 1 to 2 years, how do you expect to make up for that? Or should we expect a Y-o-Y decline going forward?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [82]

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So we have -- one is the -- I said, we have a large portfolio of injectables coming through, which will more than make up for the gap of Asacol. And also, there are important oral solid launches. So with the large number of launches, important launches, with launches in transdermals also and injectable, which will be the largest part, it will be, I think, more than sufficient to cover up the deficit if there is competition. And also, we have had very successful in-licensing activity happening, which we feel confidently that we can also add more portfolio to beyond what we have been developing. And in the next 1 or 2 years, you will hear of some very critical launches there as well.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [83]

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Okay. That's great. And just talking about the U.S. market, what are you seeing on the pricing side? Because when there are supply chain disruption with the competition, one would get volume plus also pricing opportunities, are you seeing that?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [84]

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We are seeing volume opportunities. So it is case-to-case basis. There is still price erosion in the market, but it has come down to low single digits. But we are seeing opportunities in improving margins somewhere, and we are also seeing volume share gain. So yes, currently, we are seeing the situation as such that if you have the right product portfolio, you can gain share.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [85]

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Okay. Great. And one final question from my side, if I may. What's the outlook for HCQS for COVID use, both domestic as well as exports? Do you think you will be maintaining this momentum? Or it's sort of fading down as various agencies have various things to respond? And you mentioned that you're going to expand 3, 4 tonnes to about 20 tonnes a month. So where are you on that?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [86]

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So for April, May and June, we have produced 20 tonnes, and we have been consuming all of that. And we are still seeing traction on hydroxychloroquine for different markets. So one good part of it is that we have contracted business in the U.S., and we have gained additional contracts also on hydroxychloroquine. So we can see some stickiness to the business for the U.S. for -- which could almost be close to half of our overall volume. And the rest -- India still continues usage of hydroxychloroquine. And some markets -- in some countries, regulatory bodies still authorize and use HCQ, so that still is ongoing.

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Operator [87]

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We take the next question from the line of Neha Manpuria from JPMorgan.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [88]

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So on the India business, the $2.2 billion of -- INR 2.2 billion of lost sales in the fourth quarter, is it because the supply chain? Should we look at it as deferred sales, probably impact still coming into first quarter? Or you don't think that will happen?

And my second question is, obviously, April and May were weak, how are you seeing the domestic market trends going through now in June?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [89]

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So I think the loss of sale mostly was because we could not build our goods. So a lot of that would have -- will happen -- has happened in the next following months. But at the same time, we have seen demand erosion also in the pharmaceutical markets. And I guess, we all know the reasons for it. Less OPD, less practice leading to some of that. And so I think that -- so there is a whole mix of portfolio that has changed. You can see that in April, May, chronic still continues to do better, but it has slowed down in June as well. But some of the other therapies that was slowed down have picked up in June. So it's a mixed bag. But overall, there is a contraction in demand that has happened.

For (inaudible) what we have tried to do in these times, try to find new opportunities. So we have done a couple of new brand launches, which are doing well. And so I think we are finding opportunities where we can. And with some normalcy of field force working, we can see demand picking up again. But I would say it's still too early to say whether there is any recovery. I think maybe in July, we can give you a better idea. But so far, it has improved from April and May, but it's not come back to normal.

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Operator [90]

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We take the next question from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [91]

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Sir, on the biologics business, I mean, are we still -- when we're looking at the scale up coming through in FY '23, this is largely going to be a [ROW] market-driven business for us? Or how are you looking at the whole biologics piece over the next 3 to 5 years?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [92]

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It's only India and emerging markets, minus U.S., Europe.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [93]

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And then what kind of opportunity -- I mean, when you dimension the market, the opportunities are what? Are they -- what kind of a portfolio are we looking at? Are we looking at a portfolio of some 10 products or thereabouts across market? Or is there any broad way of how we're looking at this business?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [94]

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So we have filed about 9 to 10 products. And in the next 3 years, we would at least file another 4 products minimum. So if you look at -- if you take till 2023, you look at a market of between 12 to 15 molecules filed. And we are looking at -- from the India and emerging markets, creating a value of around INR 150 crore to INR 250 crores.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [95]

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Okay, sir. And sir, secondly, you mentioned about the in-licensing effort in the U.S. This is where? Towards the specialty business side -- specialty side of the business? Or this is also on the generic side from production touching in-licensing in the U.S.?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [96]

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Currently, the in-licensing is largely driven by generics and -- but more difficult to do generics. So very limited competition we have.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [97]

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So this is your partnership products. So the other developing -- other partners are developing products for you? Are you -- how does it directly work, sir?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [98]

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Jointly developing, or they have developed and we have partnered.

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Operator [99]

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We take the next question from the line of Tushar Manudhane from Motilal Oswal Securities.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [100]

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Sir, just on this biosimilar front, typically, as we have seen with the other companies, the focus is not just India and emerging, but as well as the developed market in terms of regulatory because the development work remains more or similar. So any particular reason why we are focusing as of now only on India and emerging market?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [101]

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So our view to this is for developed markets, I believe the risk is very high. The costs, the development costs in terms of clinic and all are very high, and the market formation is difficult because of the way the whole structuring happens in biosimilars. So I think our view has always been that unless we find a commercial partner who is strong enough to build that, we would not want to venture out on our own. So we would mostly look to see if we can partner our biosimilars business in these markets because you need a lot of capabilities to sell. And until we are able to do that, we don't want to partner for -- or have a program for U.S. and Europe as of now. That we will evaluate closely and see if in the second wave of products, if there is some stabilization and genericization of this, then we will look to nominate some programs.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [102]

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Got it, sir. Understood. And just secondly, if you could just also qualitatively help us understand the profitability in mass and specialty separately? Is it at a similar margins or further decrease?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [103]

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I don't have it off me, unless Harish or Vishal have it.

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Vishal Gor, Cadila Healthcare Limited - Vice President of Corporate Finance at Zydus Cadila [104]

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Tushar, your question related to U.S. specialty?

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [105]

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No, no, no. Domestic formulation mass and specialty? Basically, is the margin...

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Vishal Gor, Cadila Healthcare Limited - Vice President of Corporate Finance at Zydus Cadila [106]

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Specialty margins are better than the mass margins.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [107]

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Okay. The gap is quite big. Is that safe to assume?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [108]

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No. It depends. You're talking about net margin or gross margin.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [109]

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Gross margin -- sorry, EBITDA margin.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [110]

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I think we can give it to you offline. We don't have it off hand, but my view is we can send it to you later.

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Operator [111]

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We take the next question from the line of Kunal Mehta from Vallum Capital.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [112]

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Sir, I have a single question. When I look at the investments, which we have been making in the last 2, 3, 4 years, so we have invested -- and rightly so, we have invested considerable amount in investing -- in building up our manufacturing capacities as well as different initiatives, which are going to feed our growth for the next few years. So I just wanted to understand, when you look at this year-end closing, what objectives do you have in terms of improving the return on capital, which at the present is a bit suppressed because of the capacities which are not being utilized? So how would you look at it from a return on capital improvement perspective?

Sir, am I audible?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [113]

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Yes, yes, yes. I can hear you. So some part I will add, and then Vishal can talk if needed more. I think what you have to -- on the return on capital employed, I think a couple of things that are important. One is for our oral formulation side, I think we have good capacity utilization. We had a new site in SEZ, which is now scaling up, so there is good utilization. We still have a whole block of unutilized assets, which is mostly to do with injectable, which is our Liva facility and Alidac facility. Now we also mentioned that we have a first approval from Liva, and we commercialized it. And we have seen good traction for the -- these injectables facilities to be operationalized in a significant manner, and then the return on capital employed will improve significantly for that.

In the coming year, our whole asset block on transdermal will improve, but not this year, but in the coming year. So there, you would see -- which are still unutilized assets, which need to get used. And with larger revenues from biologics and vaccines, that improvement we will see. So I believe in the existing investment that we have made, I think we are on track to see visibility for better return on capital employed with respect to this facility.

Are there -- maybe Vishal or Nitin, so if you want to add?

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Nitin D. Parekh, Cadila Healthcare Limited - CFO [114]

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Yes. That, plus, as we have mentioned, our CapEx going forward is to be lower than what we used to send in now. And with that, we expect the ROI be better compared to what we had in FY '20.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [115]

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And the second question I have is that the pre-COVID, we have -- pre-COVID we had a time line that till June, if we're able to get Moraiya cleared, we'll not have any problems with respect to supply -- supplying our products from this facility to the -- based on the commitments which we have. So how -- what is your view right now? Because for the next 6 months, it would be difficult to get our plant inspected and get it clear, unless remote inspections do so because it would be a concern with the guidance for that. So how would you look at the supply commitments which you have from Moraiya? And how are you going to satisfy those commitments?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [116]

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So first thing for Moraiya, for existing supply commitments for approved products, we don't have any concern on an ongoing basis at all, and it continues to do well. For -- as I said, we had already earlier communicated also that we would finish our remediation by end of June. And as -- and we have said today that majority of all our remediation is over, and we are going to request the FDA for a teleconference and request for a desktop audit or any form of audit. So that is our next plan. So what we earlier committed is we would try and finish our commitments by end of June and request for reaudit. And if everything goes well, by end of the year, for calendar year, we would see an audit and resolution of the same, and that is what we are building for.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [117]

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Sure, sir. So just -- if the clearance does not come till December, we are not subject to or vulnerable to any failure to supply problems, which we are going to -- which...

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [118]

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No, no.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [119]

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Okay. And the last question I have is on the injectable side. So for up to a good extent, improvement in the utilization of our assets is based on the launches, which we're going to do for the next 3 years in the injectable part -- injectable portfolio. So can you give us an understanding of, in the U.S. business, what is the present contribution of injectables at the present? And what are the launches in terms of number of launches which we're going to have over the next 3 years?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [120]

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So the current contribution is negligible. So it's not significant. We -- do you have the number of filed products, Vishal? Hello?

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Vishal Gor, Cadila Healthcare Limited - Vice President of Corporate Finance at Zydus Cadila [121]

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Sir, the total number of filings are 32.

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [122]

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So I think we will have -- and we have some in-licensing portfolio as well. So over the next 3 years, we will have at least around 50 launches.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [123]

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Sir, 5-0, 50?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [124]

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Yes.

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Kunal Mehta, Vallum Capital Advisors - Research Analyst [125]

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Okay. On injectables?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [126]

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Yes. I'm only talking injectables.

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Operator [127]

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We take the next question from the line of Kunal Dhamesha from Systematix Shares.

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Kunal Dhamesha, [128]

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I think my questions have been answered.

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Operator [129]

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We take the next question from the line of [Viva Ravi] from (inaudible).

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Unidentified Analyst, [130]

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I just have one question. So do you see an opportunity for the company from dexamethasone on the line for test CQ?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [131]

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We -- what we can say is we have -- as we had to execute a good supply chain and we contribute a large part of Indian formulations market, and we are geared up to supply if the use is accepted by the authority, both India and outside as well.

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Unidentified Analyst, [132]

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Yes. So exports right now are a pretty small component, right?

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Sharvil Pankajbhai Patel, Cadila Healthcare Limited - MD & Executive Director [133]

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Yes. It's only India right now.

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Operator [134]

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Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ganesh Nayak for his closing comments. Over to you, sir.

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Ganesh Narayan Nayak, Cadila Healthcare Limited - COO & Executive Director [135]

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Thank you very much, and have a nice evening, and look forward to interacting with you during our next telecom -- quarterly telecom.

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Operator [136]

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Thank you. On behalf of Cadila Healthcare Limited, that concludes this conference. Thank you for joining. You may now disconnect your lines.