Aurobindo Pharma Ltd. ADR (OTC:ARBQY) Q3 2023 Earnings Conference Call February 10, 2023 10:00 PM ET
Company Representatives
Dr. Satakarni Makkapati – CEO, Aurobindo Biosimilars, Vaccines and Peptides businesses
Yugandhar Puvvala – CEO, Eugia Pharma Specialties Limited
Sanjeev Dani – CEO & Head-Formulations, Aurobindo Pharma Limited
Swami Iyer – CEO Aurobindo Pharma USA
S Subramanian – CFO
Deepti Thakur – Investor Relations
Conference Call Participants
Tarang Agarwal – Old Bridge Capital
Shyam Srinivasan – Goldman Sachs
Operator
Welcome to Aurobindo Pharma, Q3 FY’23 Earning Call. Please note that all participants lines will be in-listen only mode, and there will be an opportunity for you to ask questions after the opening remarks. Please note that this conference is being recorded.
I now hand the conference over to management for opening remarks. Thank you, and over to you.
Deepti Thakur
Thank you, Vandan. Good morning and a warm welcome to our third quarter FY’23 earnings call. I am Deepti Thakur from the Investor Relations. We hope you have received the quarterly FY’23 financials and the press release that was sent out yesterday. These are also available on our website.
I would like to introduce my senior management team today on the call with us, represented by Dr. Satakarni Makkapati, CEO of Aurobindo Biosimilars, Vaccines and Peptides businesses; Mr. Yugandhar Puvvala, CEO of Eugia Pharma Specialties Limited; Mr. Sanjeev Dani, CEO & Head-Formulations, Aurobindo Pharma Limited; Mr. Swami Iyer, CEO Aurobindo Pharma USA; and Mr. S Subramanian, CFO.
We will begin the call with some of the highlights from the management, followed by an interactive Q&A session. Please note that some of the matters we will discuss today are forward-looking including and without limitation, statements relating to the implementation of the strategic actions and other affirmations on our future business, business development and commercial performance.
While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual development and results to vary materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect in the future events or circumstances.
With that, I will hand over the call to Mr. S. Subramanian for the highlights. Over to you, sir.
S Subramanian
Good morning everyone. I wish you all a very happy and prosperous New Year. We are here to discuss the results for the third quarter of the fiscal year FY’23 declared by the company. For Q3 FY’23 the company registered a revenue of INR 6,407 crores, an increase of 6.7% over Q3 of last year and 11.6% over the previous quarter. The EBITDA before FOREX and other income stood at INR 954 crores. EBITDA margin for the quarter was 14.9% and improvement of 30 bips over the previous quarter.
The margins improved on a quarter-on-quarter, despite increased R&D spend during this quarter by INR 140 crores over previous quarter. The additional R&D spend amount to 1.7 on the EBITDA margin. The net profit stood at INR 491 crores, increased by 19% over the previous quarter.
In terms of the business breakdown, Formulation business in Q3 FY’23 witnessed a growth of 9.2% year-on-year to INR 5,452 crores and 14.3% quarter-on-quarter and contributed around 85% of the total revenue. The API business contributed around 15% and clocked a revenue of INR 955 crores for the quarter. For the quarter the revenue from U.S, market has improved by 9.3% year-on-year to INR 3001.2 crores.
On a constant currency business, U.S. revenue are flat year-on-year and improved by 10.3% quarter on quarter to $366 million. We have received final approval for 15 ANDA’s and launched 11 products in the quarter under review. We have filed 11 ANDA’s, including six Injectables during the quarter.
Revenue for Aurobindo Pharma USA, the company making oral products in the U.S. has increased to 2.5%, year-on-year for the quarter in [inaudible]. Revenue for U.S. Specialty business in the U.S. increased by 6.1% year-on-year, to INR 501.5 crores for the quarter. Including the direct sale, the overall oral sales amount to USD $252 million against the USD $230 million of previous quarter, i.e., a growth of 9.5%.
The company as of 31st December ’22 has filed 767 ANDAs on a cumulative basis, of which 542 has a final approval and 38 having tentative approval, including eight ANDAs which are tentatively approved under the preferred and the balance 187 ANDAs under review.
For the quarter European Formulation revenue clocked INR 1,701 crores, marginal increase of 4% year-on-year growth, and increase of 12.2% quarter-on-quarter. On a constant currency basis, Europe revenue touches EUR 203 million against EUR 189 million of last quarter.
For the quarter, the growth market witnessed a growth of 26% to INR 499 crores. The quarter performance was led by a strong growth in Brazil and Canada business. For the quarter ARV business stood at INR 251 crores, growth of 61% year-on-year, growth in dollar terms, the growth was 47%.
R&D expenditure is at INR 415 crores during the quarter, which is 6.5% of the revenue against 4.8% of the previous quarter. Net organic CapEx during the quarter is USD $82 million. This includes normal CapEx of USD $43 million, Penicillin G project USD $23 million and third party development expenditure around USD $16 million. The cumulative Pen G capital expenditure is USD $89 million against estimated expenditure of USD $250 million as of 31 December.
The average FOREX rate was 82.1075 in December ’22 against 79.6123 in September ’22. Net cash including investments at the end of September was USD $203 million. The average finance costed 4%, mainly due to earning multiple currency loan and with the increase in the Fed rate, the interest costs have gone up.
Against the total finance cost of USD $45 million, we earned INR 42 crores as investment income from our investment. So net-net our net finance costs is around INR 3 crores. Gross debt remains at USD $495 million. The gross cash reduced from USD $831 million to USD $700 million at the end of quarter.
This is all from our end and we are happy to take your questions now. Thank you.
Question-and-Answer Session
Operator
Thank you very much. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from [inaudible].
Unidentified Analyst
Hi! Good morning. I hope I’m audible?
Swami Iyer
Yeah.
Unidentified Analyst
Okay. Hi, everyone. So thank you for the opportunity. My first question is on U.S. So quarter-on-quarter, you have seen good recovery. So how should we see U.S. trending ahead, and which are your focus segments. So we understand injectable is one which is picking up well, but if you can just talk about U.S. outlook in coming quarters or so.
Swami Iyer
Thank you, Daviti [ph]. So this has been a good quarter. For us, we witnessed a relative better quarter on all major parameters like demand, volume, net sales, and we had stable pricing. There have been higher demand for some of the product, partly due to seasonal factors. We also anticipate that the present trend would continue going into the next quarter and next fiscal year.
Unidentified Analyst
Okay, you mentioned stable pricing. So this is for your portfolio or you are observing in general a similar trend for the industry?
Swami Iyer
We can talk about our portfolio because that is something we have first-hand acknowledge. We really can’t say beyond that. Some of our products – see this is on a net basis. We have some prices. There’s always some price which goes down, some prices which goes up. We have seen in the past that mostly it has been going down. But now we see, if you ask in net-net I think we are pretty neutral.
Unidentified Analyst
Okay. And my second question is in your R&D. So obviously, I understand due to some progress in clinical trials, etc. we have seen sharp jump. But in general how should we again look at this part moving ahead?
S Subramanian
So the overall already costs, we had INR 415 crores for the quarter, against INR 275 crores in the previous quarter. The main constraints of the R&D cost is the CuraTeQ’s biosimilar. I suggest Satakarni, can you – like to elaborate on the biosimilar.
Satakarni Makkapati,
Thanks Subu. So Daviti [ph] Subu has mentioned the contribution towards the R&D expenditure primarily is because of the advancing Phase 3 portfolio of our programs. As we talked now, we have three products in Phase 3 clinical trials. One of them reaching the closure of the clinical trial and two of them actually in clinical trials now, with about 30%, 40% of the recruitment done.
So we forecast the clinical expenditure to continue for at least another six to seven quarters time from Biosimilars, because the pipeline is maturing, which is good news for the organization. So yeah, that’s my guidance on the subject.
Unidentified Analyst
Okay, and my last question. The last quarter, we obviously heard a lot of, I think issues due to what we saw on the – like what was there with the management team, etc. So in terms of governments improvement, what steps you have taken so far compared to previous few quarters.
S Subramanian
So in terms of what is that you said, in terms of?
Unidentified Analyst
So like previous quarter obviously I think we had seen some development related to… [Cross Talk]
S Subramanian
Okay, you are talking about that. In terms of during the quarter, what we have done is based on the discussion which was going on with the investors in the last one year, etc. We have increased our independent, I mean directorate by about one number and we have appointed, the Board of Directors have appointed Mr. Shantanu Mukherjee who was the ex-Managing Director of State Bank, one of the subsidiaries of State Bank of India. As an Independent Director he came with a rich experience of about 30 plus years and this is one significant step which we have taken. And he will be forming part of the governor’s board for the company. That is a very significant step we are taken.
Unidentified Analyst
Okay sir. [Cross Talk]
S Subramanian
Yeah please.
Unidentified Analyst
So this, we have plus one like Independent Director now and you think like this is a major improvement?
S Subramanian
Now the number of Independent Directors in our company is five out of 10.
Unidentified Analyst
So almost 50% are now Independent.
S Subramanian
Yeah, 50% is Independent Director, and we have four Executive Directors, and one – I mean, I’m sorry three Executive Directors and two Promoter Directors.
Unidentified Analyst
Okay. Thank you.
Operator
Thank you. The next question is from Raunak [ph]. Raunak, please unmute.
Unidentified Analyst
Yeah, hello. Hi! Good morning. I just want to understand, recently you got a U.S. FDA approval for linaclotide, so can you just throw some light on that, that what the expected revenue were and the service for the next few quarters.
Swami Iyer
Not in Injectables product, which product are you referring to Raunak.
Dr. Satakarni Makkapati
I can take that, I can take that.
Swami Iyer
Go ahead.
Dr. Satakarni Makkapati
Subu, shall I go ahead.
S Subramanian
Yeah, yeah, please.
Dr. Satakarni Makkapati
Okay. So we got a recent approval, but the issue there is we’ve also got a settlement on that, and we are not able to launch it now. I think you are talking about linaclotide capsules, yeah. So that we can’t do the – I mean, we can’t commercialize it, because we have a settlement on it. It’s sometime beyond the immediate future.
Unidentified Analyst
Okay. Thank you.
Operator
Thank you. The next question is from N. Jayakumar [ph].
Unidentified Analyst
Hi! Good morning. Can you hear me?
Dr. Satakarni Makkapati
Yeah very much. Good morning, Jayakumar.
Unidentified Analyst
Yeah, good morning. In line with shareholder value and everything else, I think governance you addressed. But one of the things that you know for a company that’s trading at 5x, 5.5x EBITDA, you know almost single digit P multiples. It’s almost logical when you have net cash to look at buyback as a way of rewarding shareholders and reducing the undervaluation if you will, especially in comparison with other peer group, pharma players.
Any steps towards that, because I noticed certain changes in articles that you’ve talked about, anything to do with this, that you can throw some light on.
Dr. Satakarni Makkapati
Yeah, I’ll address it in two parts. The first part is, this question came up in the last quarter itself, and we have addressed it. This buyback, this will be addressed in the May Board Meeting. If at all it will be addressed, it will be addressed in the May Board Meeting. Because we have taken a very huge task of accelerating the Penicillin G project, which is one of the future potential for the company and that involves quite a significant money to the tune of around USD $250 million. So we said we will be addressing that.
And in terms of the second part of the question, which you said Article. Yes, you are right to some extent because the articles which you are having is a pretty old one, and it is not in full complaints with the Company Act. So what we have done is, we have reviewed the entire clauses and we are replaced wherever it is not in concurrence with the Table F Schedule 1 of the Company’s Act. We have replaced it, which involves the buyback provisions also, apart from the other provisions.
Unidentified Analyst
Could you be more specific? I’ve not understood the…
Dr. Satakarni Makkapati
Yeah, because our existing articles of association will not permit for the Board directly to approve any buyback, if it is less than 10% of the network, right, we need to go to shareholder, which means another 15 days. So what we have done is, first, we want to amend the articles in line with the Company’s Act Table F of Schedule 1. That is what we have done, which means the Board will be at liberty as and when they decide to move ahead with the buyback, it can be implemented quite fast.
Unidentified Analyst
Understood. I have in fact a second question, which is I don’t know if I missed this things and it has been addressed earlier, which is the pricing pressures in the U.S. and logistics costs. I understand from other listings that the logistics costs in general have come down, which has been the cause of some margin compression in earlier quarters. Is that the case with us as well in terms of logistics – and in terms of pricing pressures at the EU significantly?
Swami Iyer
Yeah, so the – as the logistics costs comes under, Subu can corroborate this, because India sends the product to us. We have seen better pricing in terms of logistics, that’s number one. As far as the U.S. pricing on our products is concerned, I’d mentioned earlier that we see some kind of stability. There will always be some price changes, there will be some downs and there will be ups. In the past few quarters, it has been mostly down. So now we see a fairly stable prices, that’s what I would like to say.
S Subramanian
In terms of price cost which Swami has mentioned, we are seeing a significant price freight cost direction between last quarter – I mean Q2 as well as Q3, right. Overall, there has been an improved freight cost. I mean reduced freight cost, between last quarter to this quarter. I’m sorry, Q1 to Q2 as well as Q2 to Q3. Does it answer your query?
Unidentified Analyst
Yeah. Thank you. Thank you very much and all the best. Thank you.
Operator
Thank you. The next question is from Ishwaria.
Dr. Satakarni Makkapati
Ishwaria, you have to unmute yourself I think. Yeah, you can speak now.
Operator
I think some mic issues. The next question is from Neelam. We’ll take next as Nitin Agarwal.
Nitin Agarwal
Thanks for talking the question. I’ve got two, three questions. One is (A) on the U.S. business, have you started to see a pickup in new business orders again, you know given the fact there have been a recent round of FDA regulatory action on certain companies, and that has led to an increase in NGOs in the past. Have you seen the trend happening all over again?
Dr. Satakarni Makkapati
Swami?
Swami Iyer
Sorry about that, okay. So, we have seen better demand, better volume growth in this quarter, and we believe that this will sustain. This could be various factors, one was seasonal, the other could be some other competitor or some other company not being able to supply, whatever. We have seen definitely better a growth, and we are confident that this will sustain going forward.
Nitin Agarwal
And Swami, just on that, you now through the last maybe three or four months we’ve been through such examples, October to January and now. Have you seen this trend improving or it’s been sort of steady? How would call it, such that?
Swami Iyer
I’m sorry what is it? Differing what?
Nitin Agarwal
I mean the demand trend or the volume growth trend has been improving through the months, over the last three or four months. Is it getting better?
Swami Iyer
I would believe so. You see part of this could be seasonal, but I think on an overall basis, even other than the antibiotics and seasonal products, we have seen some amount of surge, yeah.
Nitin Agarwal
And then secondly on the U.S. business, apart from the base, now in terms of the new product launches, what can we look forward to? How many launches and how many potential launches that in your assessment could be more than USD $20 million plus for the year.
Swami Iyer
In the last quarterly earnings call we had mentioned that we are looking at some new ANDAs being commercialized over the next 12 months. I think we talked about 40 ANDAs being commercialized. We still hold that view. In fact, we have got some approvals, and we are in the process of launching in the current quarter.
In terms of top line, I would say that conservatively we would expect about USD $50 million on an annual basis, maybe a little higher, but that’s what we would expect. Obviously, it’s not going to happen next quarter, next month. It’s going to be over a period of time. I’m talking over the next 12 months, we would see some kind of increase.
Nitin Agarwal
And, just again on that, Mr. Yugandhar on the injectable business, we’ve seen a pretty strong recovery. This is probably one of the better quarters you’ve had with the injectable business in some time. How should we look at this business now on a next few quarter basis?
Yugandhar Puvvala
We are quite positive Nitin in terms of the way we have weathered the storm and the past two quarters were not great, but third quarter we have seen stable pricing and increased volumes, and with the new products – I’m sorry, like we are launching almost five new products every quarter and some of the new products and the sustainable pricing and volume recovery.
We feel like going forward into quarter four and quarter one of next year, we do feel it could be a double digit growth quarter-on-quarter. That’s what we feel and we already launched Amphotericin B in January, and we do have some interestingly launches coming forward.
Nitin Agarwal
Yeah just to reconfirm, you said you were about USD $74 million this quarter. Are your talking about Q growth in Q4 and Q1 on this number?
Yugandhar Puvvala
That’s right.
Nitin Agarwal
Thanks, that’s very helpful. And lastly on the U.S., you know in terms of the non-oral presentations, non-orals, non-injectables, we’ve had some filings for [inaudible] and some of the other new presentation formats. Any of those do you see getting commercialized this year?
Swami Iyer
When you say this year, by March no, we don’t see that happening.
Nitin Agarwal
No, no, March ’24 I meant, FY24 sorry.
Swami Iyer
So, I think that would be a really aggressive time frame. It could possibly a little later, but we have got an oral solution now from one of the facility. So obviously we are looking forward to other introductions. This could take a while.
Nitin Agarwal
Just given one last one, Subu sir on the Pen G project, if you can give us some sense on the project size, the commissioning time and what can it really entail in terms of possible revenues at the current levels of Pen G prices.
S Subramanian
So regarding the Pen G project, the size of the project we are working is surrounded USD $250 million plus or minus 5% contingency, right, and so far we have spent around USD $89 million. The D-date for Pen G project is 1 April ‘24, while the D-Date is 1 April ‘24, it is always our endeavor to advance it, that’s what we are working on.
As on date the installation is expected to be over by September, October of this year, and we will be doing the pilot batches between November, December and – I mean, till the time it succeeds we will do it, but in any case it will not be later than March. And if the pilot succeeded in the first iteration itself, it can be advanced also.
In terms of the execution, etc., a lot of people working and things are going up pretty far, and we are looking forward to this project really speaking. And I think – I’m sure the government being the major sponsor for the project by way of the PLA incentive system, they are also looking at it and every one of us are looking forward for that.
Nitin Agarwal
Okay sir. Thank you for that.
Operator
Thank you. The next question is from [Inaudible].
Unidentified Analyst
Hi! Good morning to all of you. Subu, could you please explain a bit on this sale of non-antibiotic API and business to the subsidiary, what’s the fashion or what’s the thought process?
S Subramanian
So the thought process is API business today we are having around – including antibiotic and non-antibiotic, etc. we are having around ten units. And what we are planning to do is bring all the regulatory units under one, all regulatory API units under one – wherever the major contribution is regulatory in nature, we will try to bring it under one number lot. This is to have – ensure that the mitigate the risk factors like regulatory lift, margins lift, everything.
We want to bring it under and give a massive focus into the overall value creation for the stakeholders that is the whole idea. And this also will help in terms of improving the operational efficiency. And today if you release the regulatory units, what we have been majorly around there. More than 75% is applying internally and about 20% external. So by creating under one umbrella with a new management, can we able to focus more on the external also? Like that we are looking to all possible options, by which we can create value for the shareholders that is the overall idea.
And at the end of the day, if we can have any strategic higher principle, we can always look into that. Like what we have been trying to do for Eugia, we will try to bring under a separate professional management, all these things we are trying to do that.
Unidentified Analyst
Oh! Does this have any tax implication?
S Subramanian
There is no tax implication. It is a 100% subsidiary. Any 100% subsidiary, you know it is exempted under the – I mean no transfer, no tax on the transfer of the assets. It is exempted as per the income tax law, not an issue.
Unidentified Analyst
Understood. My last question on generic rev limit now that the market has formed, a lot of your competitors have entered and you also have a settlement, will you be able to give some timeline about your launch or would it be FY’24 or FY’25?
Dr. Satakarni Makkapati
It’s Q3 FY’24.
Unidentified Analyst
Oh, great. Thank you. Thank you very much.
Operator
Thank you. The next question is from Tushar.
Dr. Satakarni Makkapati
Tushar? Looks like he’s not there.
Operator
We’ll move to the next. The next question is from Ishwarya [ph].
Unidentified Analyst
Hey guys, can you hear me?
Dr. Satakarni Makkapati
Yeah, Ishwarya.
Unidentified Analyst
Yeah, thank you very much. Sir, I have two three questions. One is that, how we should see the compliance, especially when you guided that there should be increase in the revenue number by USD $50 million in the next 12 months. So we kind of see two, three plants we can associate with this revenue growth and how the compliance they deliver there in terms of FDA inspection and any 483 resolutions.
S Subramanian
Yeah, I should have discussed in these two parts, right no. One is relating to the increase, which Swami can address. In terms of the compliance, I think today if you really see the formulation, all the units are under VI and apart from that a couple of units – I mean, one unit has been inspected recently or two units, JPL [ph] and care of unit one and three that has been inspected, and that is also we have informed to the exchanges if you have noticed.
So as on that in the formulation business, we don’t have any issue in terms of the regulatory compliance. In terms of capacity, there is enough capacity to augment the supplies etc., In terms of the growth percentage, Swami can explain that.
Swami Iyer
Yeah, in terms of you know – with regard to the what guidance we are saying, about forty products that’s like they come over the next 12 months, we have factored in any compliance issue that could be there as – but it’s known as on date, if an API plant has a problem. We can consider those factors while deciding what are these 40 odd products that we are going to commercialize. So we believe at this point of time this is realistic. Going forward obviously if there is any inspection we need to see the outcome of it, but you know we have factored in this compliance matter.
Unidentified Analyst
Thank you, sir. And one more question from my side is, how we should see the free cash flow generation going forward in the next two years? Where we need to factor in how much you spend on R&D, how much is [inaudible].
Dr. Satakarni Makkapati
So I should have to put it, with this maximum we have achieved INR 415 crores per quarter is the maximum R&D spend we are done in any quarter, to the best of my memory, right? Even if you continue with that, and I don’t think we’ll be continuing INR 415 crores, probably it may be slightly lower, right. And with the Pen G project and some of the projects going to take place next year, this will – we will be able to achieve the good free cash flow coming from the project. Even the buyer also has sub-committed, they have already said in the past meeting, earnings calls, etc.
We have filed two products. One more product also we are going to file it, etc. This is expected to generate cash flow starting FY’25 onward. So I can clearly see FY’25 Pen G project will generate cash and you are – our biosimilars will generate cash, plus the various projects are in the process of commissioning, etc.
If one or two of them have been successfully commissioned, apart from what I mentioned, that also will generate in the cash flow. I think going forward I can see very clearly cash flow generation will be very good starting FY’25 onward.
Unidentified Analyst
And how about ‘24, sir.
A – Dr. Satakarni Makkapati
‘24 also, I think you should be able to generate the cash flow, because apart from the existing, we have not undertaken any new project. No new project, except the one which we have announced recently, that biosimilar, one CMO facility we are thinking of putting it. Other than that, I don’t see any new major greenfield projects are being thought of. If any decision taken at the time, we will be informing in the normal earnings call.
Unidentified Analyst
Sure sir.
Dr. Satakarni Makkapati
Most of the projects are either 40%, 50% completed. Like biosimilar CapEx is over, so only the clinical trial, which is forming part of the R&D cost, which is being factored as part of the P&L. Then if you really see the U.S. CapEx, most of the projects have been completed. They are waiting for the exhibit batches and the final approval.
You take China plant, China plant the installation is over and we are doing the exhibit back shared and like that, so and so. So we don’t see a major stress on the cash flow on account of the project, and the business is also doing well and we expect to do a good cash flow.
Unidentified Analyst
And sir, like we know that the U.S. business is finding it a bit more difficult because of the competition. So with that into consideration, we have less control on the revenue side. Anyway we are doing extremely well despite that. We don’t see very meaningful growth coming on the top line. So the levers left out, how to control the cost side or the CapEx side. So do you see any levers which are visible inside ’24, ‘25 which have not been discussed so far.
Dr. Satakarni Makkapati
Yes actually, if you really see the annual report dated 31 March ’22, we have identified the five leavers and one is the biosimilars, and the second is the API and Pen G plant. Third is the API business, and the fourth is the Eugia, which in the earnings call in the last time it was – even though we have given a clear road map for the Eugia business and fifth is like India business. India business because of the other priorities is going – I mean, not taken out, but other things have taken out when going in an accelerated pace.
Unidentified Analyst
As talking more on the, I mean absolute numbers in terms of cost side or the CapEx side, which probably will be you know… [Cross Talk]
Dr. Satakarni Makkapati
One of the significant – you are right. One of the significant steps which I taken is carving out the API business to achieve the operating efficiency to improve the capacity utilization and serving the market. We are already carving out, and we are in the process of doing, and this will take you around first year, well we are working on that and that also will contribute. We can see an improved performance from the API business, which means this is the main cost base for the entire company. You can see an improved performance.
On the antibiotics side you know Pen G is coming, which is another major cost favor, because we have been buying all the later case and the intermediates, etc. So these are all the steps being taken by the company.
Unidentified Analyst
Sure sir. I’ll connect to you offline. Thank you very much for these details.
Operator
Thank you. The next question is from Nikhil [ph].
Unidentified Analyst
Yeah, hi! I’m audible?
A – S Subramanian
Yes Nikhil, please go ahead.
Unidentified Analyst
Sure. Sir, I wanted to first check on the R&D side. Now there’s a pretty sharp jump on a quarter-on-quarter basis. I understand that there are a few clinical trials that are ongoing, but I also wanted to check, is there some change on the R&D front, strategy front that has happened in the last quarter or so. Is it that the U.S. also seems a bit improved and because of that there is a step jump in the R&D spend, ex of biosimilars as well.
A – S Subramanian
Not ours. I think the key contributor to the R&D spend this quarter is the biosimilar. Compared to INR 75 crores expenditure of last quarter, this is INR 180 crores this quarter. We explained in the last quarter itself, our R&D spend for the year will be somewhere within 6% and 6.5%. The first half has not taken place and we’ll be focusing – we’ll be entering more costs because of the timing of the clinical trial, etc. also required, etc. and because of that, these two quarters there will be a good R&D spend that will happen, which has been already informed with the earnings call, last earnings call.
Unidentified Analyst
Okay, so this quarter the R&D to sales at around 6.5%. Do you see a gradual moderation in this number in the coming quarters or year?
S Subramanian
Ideally we should take around 6% to 6.25%. 6.5% will be a outer limit, but I am talking from an absolute amount. It is a function of the turnover. So 6% to 6.25% on the existing turnover, I mean, achieved turnover is the non-invasive which we are looking at.
Unidentified Analyst
Okay. So if the revenue goes up, this number will come down, because you are starting…
A – S Subramanian
Yeah, because we are talking about the absolute number only.
Unidentified Analyst
Current, okay understood. And also Subu sir, I just wanted to revisit the CWIP number. I think at around September this was INR 3,200 odd crore. So what is the capital work in progress today?
A – S Subramanian
So the capital working progress today is something like it’s around INR 4,000 crores. It is around – the exact amount if you really see, it is INR 4,200 crores and even the intangible is around INR 800 crores, right. The major CapEx is the China plant, which more or less has completed INR 600 crores. As I told you its installation is over. Unit type we have already incurred the cost. It is a percent of the clinical trials only which I explained, right, and we are putting one Eugia manufacturing plant in Vizag. So that is – the expenditure is still going on. Like that, some of the project, either it has been installation level which is more or less 90% over or it may be in the process of 40%, 50% is over. As I said, these are all expected to start commissioning by 31/3/24 onwards.
Unidentified Analyst
Okay, so it will take us still another year for the expensing out of this CWIP will happen.
A – S Subramanian
No, this this will get capitalized on or before – I mean at least some of them will get capitalized on or before 31 March ’24.
Unidentified Analyst
Okay, understood. And also the – and the CWIP number, how much is the pre-operating expenses that has been capitalized, whether R&D or whether other plant they need expenses?
A – S Subramanian
It is getting – I will get that data separately Nikhil. I don’t have it right now with me. I have the overall number only.
Unidentified Analyst
But is it a sizeable number, because I mean that directly impacted…
A – S Subramanian
[Cross Talk] Any project, if I’m talking 4,200 crores is the tangible no, you can take something like 10% will be the pre-operating including all, and that is a guess, but I will get the exact number later.
Unidentified Analyst
Okay, understood. Also sir, I mean revisiting the PLI project as well, so UDS $90 dollars incurred out of budgeted USD $250 million. The timeline seems pretty tight. I mean you have only five, six months to incur the remainder CapEx. So I wanted to understand, is the entire USD $250 million needs to be spent to commence the project or you can commence the project partly as well, maybe I mean…
A – S Subramanian
You know I’ll say Nikhil, what we need to look at it, in the case of the projects, it is the – when we said USD $90 million is a cash spend, it doesn’t mean we are going to start some of the work now. We have issued the purchase orders long time back. So this, all of the projects will have a gestation time in terms of completing the work and then installation, and the payments will be successful implementation of successful dispatch of the material.
So most of the material will start coming between April to June, and it will get its commission – I mean installed. Not – commission is not the right word. Installed between July to September, so that’s the way you have to look at it. But as and when they start dispatching no, we need to make the payment or based on the successful assembly that we pay, something like that, you got it?
Unidentified Analyst
So civil works have been done?
S Subramanian
Civil works and more or less I would say around 75%, 80% is already completed. Even the mechanical and the electrical is also purchase orders are being – purchase orders are being issued more than INR 1,500 crores already. I think in the last earnings called if I’m right, we have issued more than INR 1,500 crores purchase order. Probably by this time they would have issued the balance also It could be another INR 200 crores, INR 300 crores.
Unidentified Analyst
Right. And then also finally on this one, 15,000 tons was the planned capacity and there was a captive and a merchant share. Can you also again share those numbers please?
S Subramanian
No, no, no. 15,000 tons is the total Pen G capacity, and as we said in the, some of the previous calls, our captive consumption equivalent in Pen G is something like 6,000, around 7,000 tons, right, that is the thing and the balance will be for on – it will be for external sales.
Unidentified Analyst
Okay, and sir what is the pricing scenario today? I mean when the project was envisaged versus now, how has the prices moved?
A – S Subramanian
I don’t think, today the prices are very high because of various reasons, but we will not guess anything now because the project is at least one year away, and I don’t like to guess any number right now.
Unidentified Analyst
But, with China opening up, I mean, my limited understanding of what’s happening in other commodities, I think normalization can happen. So do you think that or would you mind sharing some ballpark sensitivities around – if pricing despite this much percentage, you will still be making good economic value. Can you…
S Subramanian
Yeah. We will make economic value, that much I can say. But I will not like – even with all your contacts and the interaction with the international we are limited, so we don’t know that much of interaction with anybody. But can say one thing, even if the price goes to pre-COVID levels, etc. also, we will be well within the selling price. Our cost will be well within the selling price.
Unidentified Analyst
Okay, understood. And so one final question on the Biosimilars front, can you share some quantitative guidance on what absolute sales you are targeting for Biosimilars in two years, three years time frame. And also in the U.S. how many field force enter form the Spectrum acquisition, and would that be leveraged to commercialize the initial Biosimilars. So would there be any incremental spend required initially to commercialize the Biosimilars, especially in the U.S.
Dr. Satakarni Makkapati
Yeah Satakarni.
Dr. Satakarni Makkapati
Yeah, so I will answer your question in two parts Nikhil. With respect to Biosimilars, for the next two years, as you know that we have two products filed right now with EMEA. We have filed one or two antibody in oncology with MHRA. With the antibody and oncology segment, we have completed the necessary regulatory procedure with MHRA with one major pending action, which is the GMP inspection.
The required on-site inspection is hindered by the availability of inspectors at this time, and our regulatory team is continuing to work with MHRA on this subject. At this time, the agency and we have agreed to take a clock stop until April, and I was hoping to have GMP inspection announced with each time frame. So once that happens, then I probably think we’ll have at least one quarter of sales in this year, provided I will be able to obtain an approval for this antibody by Q2 of the next fiscal.
With the Biosimilar filed with the European Medicine Agency, I have provided an extensive guidance in the last earnings call, but owing to the COVID-19 workload and positive of inspectors, we are struck at the 180 of the clock. And on the advice of European Medicines Agency, we have taken a clock stop until the June of 2023.
Now the agency has mentioned that the satiation will change as and when inspectors become available to travel and audit us. At this point I’m pleased to state that auditors have indicated, end March are the dates for onsite GMP inspection. So in the last week of March, we are having the GMP inspection announced.
So with this development, we are reasonably confident that the post audit regulatory process will conclude at least for one of these products, and we shall be able to initiate the commercial activities in EMEA or the European region for at least one product before the end of next fiscal, and for the second product probably in the first quarter or the second quarter of the next fiscal. So I am hoping for a continuing engagement with the agency and taking the free regulatory formalities at this point of time.
Additionally, we have also stated filing with Health Canada and Health Canada also had acknowledged the receipt of our file and started the review procedure. We had an audit announced with Health Canada in the first week of May. So I believe if things go well, we would also have the commercial sales begin either in Q4 of the next fiscal or at least Q1 of the following fiscal, which is FY’25 in Canada as well.
So I think overall, we are looking at least two Biosimilars to be commercialized in EMEA, Health Canada, and MHRA and importantly as you know that we have concluded, we are concluding the large metastatic cancer trail in 690 subjects. We will start the filing process of this antibody in India and emerging markets in July of the next fiscal and by September we will file it with European Medicines Agency, and by December it is our intent to file with the U.S. FDA.
Now, I’m optimistic that in ’25 we will have this product approved in EMEA and also hopefully things go well, we’ll also be approved with the FDA. So I see ‘25 as an inception point with this antibody kicking in, in the commercial markets, both in EMEA and FDA. I expect at least one quarter of sales in the antibody in India to start within the next fiscal, with EMEA being ’24, ’25. So that’s the guidance on biosimilars, which is part one of your question.
The second one is about the Spectrum or the commercial field force that we have in the U.S. with Acrotech Pharma. We have our presence in oncology segment. We are going to leverage the commercial front sales team or the team that we have with Acrotech, who will also be the front end for Biosimilars in U.S. We expect the first Biosimilars in the U.S. to be approved in 2025 and we will leverage on the field force that we have with Acrotech Biopharma to take this product into the market.
We are also planning to bring an immunology Biosimilars by ’25, ’26 in the U.S. which his used in dermatology indication. Again, as we see if you have followed Acrotech Biopharma, they’re investing in dermatology products and brands. So essentially, the idea is that Acrotech Biopharma will position our Biosimilars brands in the U.S. market.
I’ll stop here and ask if I have answered your query or if there is any further follow-up to this.
Unidentified Analyst
Yes, Dr. Satakarni, I think it’s very clear and I think it’s very helpful and all the best for this initiative for the company.
Dr. Satakarni Makkapati
Thanks Nitin.
Operator
Thank you. The next question is from Tarang.
Tarang Agarwal
Hi! Good morning. Am I audible?
Dr. Satakarni Makkapati
Yes, Tarang.
Tarang Agarwal
Yes, three questions from me. First, one is on Europe. I think it’s good to see that, you have come to a EUR 200 million quarterly run rate. The last time this happened if I recall was in March 20. But what I understand was there’s some bunch-up of sales that happened then. So from here on, is this a base that we can expect you to maintain? If you could give us some sense on what’s happening in Europe, and how should we look at it going forward from here.
Dr. Satakarni Makkapati
Yes, so we had a good partner in Europe in the third quarter, and you have seen that actually in a quarter two we were at a EUR 190 million and this quarter we have exceeded EUR 200 million. But quarter three is always the strongest for us, but on year-on-year we have a 7% growth and even on a quarter-and-quarter as I said, that is a seasonality, 2% growth.
But considering the discontinued business, then the quarter-on-quarter was a 5% growth. So I guess that about EUR 185 million to EUR 190 million is the base line. And actually based on the seasonality and some of the opportunities which come up, we may grow at a middle level of a single digit growth.
Tarang Agarwal
Okay. Thanks, that’s helpful. The second is for Yugandhar. When should we see the Vizag plant revenues starting in? My sense is you will commercialize it and the exhibit batches approval from the regulators. If you could just give us an updated timeline on this.
And second, you know last quarter at least the commentary that we received was that especially injectables there was heightened competitive intensity, which are showing up in your numbers and also in the numbers of your peers. And that seems to at least from a number basis for Eugia that seems to have reduced. So if you could just give us some sense on what’s happening in the injectables market space?
Yugandhar Puvvala
So the first thing is on the Vizag plant. We will be starting it with batches from this month onwards, and we already requested European authorities to inspect the plant in November for this calendar year, which is November ’23. And we expect that in the best case scenario, it might be a quarter four of FY’24 commercialization, on worst case it might be quarter one.
And we are also going to file some of the shortest products of U.S. to trigger an early audit for the plan, that’s on the Vizag plant. So you can take it as, FY’25 is the commercialization for Vizag plant, and in this entire fiscal year we’ll go into verifying the batches, inspections and all that stuff.
On the U.S. front, in terms of what we have seen. First two quarters, there was a significant pricing pressure for a variety of reasons, but quarter three and quarter four how we are observing is, the pricing has stabilized. The demand, the volumes are improving significantly, and also, I think probably regulatory actions on some of the other competitors is giving some minor tickling business at this point of time. But we will see, like how it goes, but what I’m very confident of and very hopeful of is my team can generate double digit growth going forward.
Tarang Agarwal
Okay. And how much was nine months FY’23 revenues for Eugia and what was the similar number for nine months FY’22?
Yugandhar Puvvala
It is flat, because we don’t give a separate listing in the panel, because it’s on a pro forma level. But as you can see it is just flat, FY’22, to FY’23.
Tarang Agarwal
Okay. That’s helpful, thank you. The next is on biosimilars. Dr. Satakarni you spoke about doing some filings in Canada. Is it one of the products that you’ve already filed in Europe on MHRA or is it a different product?
Dr. Satakarni Makkapati
Essentially the same product that we have filed in Europe and MHRA. They are – one of them is filed in Health Canada, and we are planning to file the second one with also the Health Canada.
Tarang Agarwal
Okay, that’s helpful. And second, I mean I noticed that in Q2 of FY’23 there is a biosimilar subsidiary that was incorporated. If you could give us some sense, what was the purpose. And the second, some update on what’s happening on vaccine? Specifically, you did get some regularly partnering in your PCV vaccine this quarter.
Dr. Satakarni Makkapati
Yeah Tarang. So on the vaccine trend, we are encouraged by the fact that the subject expert committee panel operating under the ages of CDSCO or DCGI has reviewed our Phase 3 pediatric data for the Pneumococcal 15-valenta vaccine. The data suggest that15-valenta Pneumococcal vaccine would be anticipated to help protect again the stereotypes covered by the [inaudible] and also expand coverage to include two additional Pneumococcal pseudo types causing potentially a serious disease in infant.
Thereby, how do we view at this SEC recommendation. The SEC recommendation should be viewed in front, but they have granted a recommendation for manufacturing and marketing of the PCV 15 vaccine to our JV company. So at this stage, we are going to the regulatory process of obtaining a manufacturing license, which is a normal course of regulatory process.
I am optimistic that this procedure will conclude in the next few weeks, probably around six to eight weeks’ time. Since the 15 stereotypes included in the vaccine, responsible for a good majority of global Pneumococcal disease cases, I’m excited by the potential, the broader coverage we can offer with the PCV 15 vaccine. I planned to commercialize it two quarters from now, provided I will – we will receive the manufacturing license in April, May. Then two quarters from now we would commercialize this PCV vaccine, so that’s part two of your question on the vaccine spent.
What was your past one of the question Tarang?
Tarang Agarwal
Is there a biosimilar subsidy, that’s been incorporated?
Dr. Satakarni Makkapati
Okay, so there is this subsidiary called Tyramine [ph] Biologics, which you are talking about, right.
Tarang Agarwal
Yes.
Dr. Satakarni Makkapati
That is incorporated, and we talked about it in the earnings call, I think the last quarter or the previous quarter. So the idea is to expand on the capacities to all to support any CMO opportunities in biologic space. At the same time, with our oncology biosimilar coming in, we would like to scale it up to an extent where we become extremely cost competitive in these low and middle income countries, so that’s the idea.
Right now, we are still discussing on how to shape up this project in the next fiscal year. So I’ll provide guidance as things evolve, but the idea is to become a CMO and also use the initial capacity to make it more cost effective for our biosimilars to go into low and middle income countries. That’s the vision behind this.
Tarang Agarwal
Got it. That’s very helpful. Thank you.
Dr. Satakarni Makkapati
Thank you.
Operator
Thank you. The next question is from Sriram. His line is not here.
The next question is from Abdul Kalam [Ph].
Unidentified Analyst
Hello!
Dr. Satakarni Makkapati
You are audible.
Unidentified Analyst
Sir, I just wanted to get a clarification on this one. You told that there is some process that is going on for making the buybacks easier for this one. Technically I did not understand what exactly that was, but I just wanted to know whether the management is seriously thinking about to buyback, at least in the near future and what would be the timeline for that?
S Subramanian
See, it is not ours to buyback, okay. So at the same time the buyback management, it is a decision of the Board keeping in mind and Board will decide, keeping in mind various financial commitments on various projects, and another thing, board will take the decision at the appropriate time.
Unidentified Analyst
Okay, so you can’t give any timeline for that. [Cross Talk]
Dr. Satakarni Makkapati
Management cannot give a timeline for that.
Unidentified Analyst
Okay. But there is a thought process that is going on there.
Dr. Satakarni Makkapati
There is a thought process going on. That’s the reason why we are being trying to make – commend the articles and other things.
Unidentified Analyst
Okay, so another – last thing sir. Because it is repeatedly, it will be coming in the social media, so that if the clarification come from your side, it will be helpful for the like shareholder. What is the formal relation between the Aurobindo Pharma and Aurobindo Realty if you can just enlighten on that concept.
Dr. Satakarni Makkapati
Aurobindo
Unidentified Analyst
Aurobindo Realty, sir.
Dr. Satakarni Makkapati
Aurobindo Pharma and Aurobindo Realty are totally independent. They are no way connected, except both are having a common promoter.
Unidentified Analyst
Okay, so there is no form…
Dr. Satakarni Makkapati
No connection between Aurobindo Realty and Aurobindo Pharma. The only – if at all there is a small connectivity is the galaxy building where we are spaced, wherein that is held by a company called Raidurgam Developers, where Aurobindo Pharma is having a 40 stake and the other promoter group is having 60%, but Aurobindo Reality is no way directly connected.
Unidentified Analyst
That is very helpful, sir, thank you.
Dr. Satakarni Makkapati
Okay.
Operator
Thank you. We will take the last question as Shyam Srinivasan.
Shyam Srinivasan
Hi! Good morning, and thank you for taking my question. Sub sir just on margins, just going back, I know R&D has gone up. But historically we used to be a 20% EBITDA margin company. So just want your thoughts on, when we can look forward to those kind of margins. We have now started growing and it’s looking from the commentary on this call, it seems to suggest that growth can be sustained. So just one some of the levers of say, reaching historical margins. So, is there any timeline or any specific product mix that you would like to highlight that will help us reach there, or is just ongoing growth.
S Subramanian
One is ongoing growth and second is one of the key thing which the management is speaking. Embarking on the action plan is to increase the capacity utilization. That is also one of the reason which you have said. We will bring more focus on the API, that’s the reason why we are carving out into their separate subsidiary company.
That 20% if you ask me, while we may not able to give you a guidance, but certainly with the Pen G project being successful, we might be able to reach that is my feeling at this point of time.
Shyam Srinivasan
So the Pen G project will start first April right, first April 2024.
S Subramanian
First April 2024. That is the thing because it will add some more top line, as well as it can reduce some cost like that. But this is – I mean, we don’t know to guess at this point of time. We nearer the date, probably in the November earnings call we may able to get clarity on this aspect.
Shyam Srinivasan
Just following up on this. So from a cost perspective, you talked about logistic cost. You also talked about input cost inflation. Those you are now having a better visibility, and the only thing that we.
S Subramanian
Yeah, we have been tracking all of the freight cost etc. We are trying to optimize all the cost from overall leveraging the capacity. The overall operational leverage we are doing, everything. Whatever possible we want to do, we have been doing that, and at the end of the day, all are a function of the top line, in which there is some improvement started taking place, which Swami has clearly explain with the new products coming, what is the new launches planning everything, Swami has clearly explained. With that hopefully, we will also move towards that go of 20%
Shyam Srinivasan
Got it, sir. Just my last question is on injectables again you know. I think USD $73 million, I’m just calculating it from the USD $366 million, at least for the U.S. business. But what is the global injectable size? I think Yugandhar mention it’s flat Y-o-Y, but is it closer to the 100 million still and what are our aspirations for USD $650 million. I think we pushed it out by a year, but just want to know if some of those aspirational targets can be reiterated, please. Thank you.
Yugandhar Puvvala
Yes Shyam, I think you said it right. We have USD $100 million plus for quarter, and we want to go towards USD $121 million, USD $125 million next financial year. And yeah, we are still quite hopeful that even after pushing by one year, like FY’25 we should be around the numbers what we indicated in the past.
Shyam Srinivasan
Got it, sir. Thank you and all the best.
Yugandhar Puvvala
Thanks.
Operator
Thank you, as there are no further questions from the participant. I now hand the conference over to the management for the closing remarks.
Deepti Thakur
Thank you all for joining us on the call today. If you have any of your questions unanswered, please feel free to keep in touch with the investor relations team. The transcript of this call will be uploaded on the website www.aurobindo.com in due course. Thank you, and have a good day!
Operator
On behalf of Aurobindo Pharma that concludes this conference. Thank you for joining us and you may now disconnect your lines and exit the webinar. Thank you.
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