Sun Pharmaceuticals Industries Ltd. ADR (OTCPK:SMPQY) Q2 2023 Earnings Conference Call November 1, 2022 9:00 AM ET
Company Participants
Nimish Desai – Head of Investor Relations
Dilip Shanghvi – Managing Director
C.S. Muralidharan – Chief Financial Officer
Kirti Ganorkar – Chief Executive Officer of India Business
Abhay Gandhi – Chief Executive Officer of North America
Conference Call Participants
Tushar Manudhane – Motilal Oswal Financial Services
Prakash Agarwal – Axis Capital Limited
Neha Manpuria – Bank of America
Sameer Baisiwala – Morgan Stanley
Tarang Agrawal – Old Bridge Capital
Vivek Agrawal – Citigroup
Krish Mehta – Enam Holdings
Damayanti Kerai – HSBC
Nithya Balasubramanian – Bernstein
Kunal Dhamesha – Macquarie Group
Sayantan Maji – Credit Suisse
Surya Patra – PhillipCapital
Harith Ahamed – Spark Capital
Ritwik Sheth – One-Up Financial
Operator
Ladies and gentlemen, good day, and welcome to the Q2 FY 2023 Earnings Conference Call of Sun Pharmaceuticals Industries Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nimish Desai. Thank you, and over to you, sir.
Nimish Desai
Thank you. Good evening and a warm welcome to our second quarter FY 2023 earnings call. I’m Nimish from the Sun Pharma Investor Relations team. We hope you’ve received the Q2 financials and the press release that was sent out earlier in the day. These are also available on our website.
We have with us Mr. Dilip Shanghvi, Managing Director; Mr. C.S. Muralidharan, CFO; Mr. Abhay Gandhi, CEO of North America; and Mr. Kirti Ganorkar, CEO of India Business. Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for the ease of discussion, we will look at consolidated financials. Just as a reminder, this call is being recorded and a replay will be available for the next few days. The call transcript will also be put up on our website shortly.
The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risks that our business faces. You are requested to ask two questions in the initial round. If you have more questions, you are requested to rejoin the queue. I also request all of you to kindly send in your questions that may remain unanswered today.
I will now hand over the call to Mr. Shanghvi.
Dilip Shanghvi
Thank you, Nimish. Welcome and thanks for joining us for this earnings call after the announcement of financial results of the second quarter FY 2023. Let me discuss some of the key highlights.
Consolidated sales for the quarter were at INR 108,092 million, up 13.1% year-on-year. Most of our businesses witnessed good growth, led by global specialty business, India and emerging markets.
For Q2, our global specialty revenues were up 27.5% year-on-year to about US$201 million. Ilumya, Cequa and Winlevi were the growth drivers for the quarter. Abhay will give you more details on the specialty business later.
I will now hand over the call to Murali for a discussion of the Q2 financial performance.
C.S. Muralidharan
Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q2 financials are already with you. As usual, we will look at key consolidated financials. Gross sales for Q2 are at INR 108,092 million, up by 13.1% year-on-year. Material cost as a percentage of sales was 25.1% lower than Q2 last year due to higher specialty sales.
Staff cost stands at 18% of sales, while staff cost in percentage sale was lower over Q2 last year, the increase in absolute value is attributable towards merit increase, consolidation of the Alchemee, business and expansion of the sales force in India.
Other expenditure stands at 28.1% of sales, higher than Q2 of last year. The increase in other expenditure is attributed towards higher selling and distribution expenses and consolidation of the Alchemee business.
As indicated in our past earnings call, the expense of our sale is increasing trend across all the markets as we reach full normalization. ForEx loss for the quarter was INR 2,415 million, compared to a loss of INR 764 million for Q2 last year. This was driven by adverse movement across various currency paths during the quarter. EBITDA for Q2 was at INR 29,563 million, including other operating revenues, up by 12.4% over Q2 last year, with EBITDA margin at 27%. We have reported strong margins despite rising expenses. Reported net profit for Q2 was at INR 2,622 million, up 10.5% year-on-year compared to Q2 last year. Reported EPS for the quarter was at INR 9.40 per share.
Let me discuss the key movements versus Q1 FY ’23. Our consolidated gross sales were higher by about 1.6% quarter-on-quarter at INR 108,092 million. Material cost at 25.1% of sales were lower than Q1, mainly due to product mix. Staff costs at 18% of sales and other expenses or 28.9% of sales were also lower compared to Q1 FY 2023.
EBITDA for Q2 at INR 29,565 million was higher by 2.5% compared to Q1, mainly impacted the ForEx loss of INR 2,415 million in Q2 compared to ForEx gain of INR 1,457 million in Q1. EBITDA margin for Q2 was 27% compared to 26.8% for Q1. Reported net profit for Q2 at INR 22,622 million was higher on the net profit of Q1 by about 10%.
Now, we will discuss the half yearly performance. For the first half, gross sales stood at INR 214,532 million, a growth of 11.6% over first half last year. Material cost by H1 was at 26.1% of sales lower than H1 last year, mainly due to higher specialty sales. Staff costs stands at 19% of sales, higher than H1 last year on account of annual metit increase, consolidation of the Alchemee business and expansion of sales force and ADR.
Other expenses were at 28.4% of sales, higher than H1 of last year, on account of higher selling and distribution expenses and consolidation of the Alchemee business. ForEx loss for H1 was INR 958 million compared to a gain of INR 35 million for the previous period. EBITDA for the first half was at INR 58,409 million, a growth of 7.2% over the first half last year, with resulting EBITDA margin of 26.9%.
Net profit for H1 was at INR 43,231 million, up 7.4% over adjusted net profit of H1 last year. As of 30th September 22, net cash was US$1.6 billion at consolidated level and about US$398 million at the ex-Taro level. Debt [ph] of Q3 compared to 31st March 2022 as we had a temporary borrowing to fund the settlement of Ranbaxy Antitrust Litigation, which was announced in March 22.
Let me now briefly discuss Taro’s performance. Taro posted Q2 FY 2023 sales of US$130 million, marginally lower over Q2 last year, and net loss of US$2.8 million. For the first half, sales were at US$287 million, up by 2.9% over H1 last year. Net profit for H1 FY 2023 was US$11.3 million, compared to US$4.6 million in HY, FY ’22. Taro’s financials include the consolidation of the Alchemee business.
I will now hand over to Kirti Ganorkar, who will share the performance of our India Business.
Kirti Ganorkar
Thank you, Murali. Let me take you through the performance of our India Business. For Q2, the sales of formulations in India were at INR34,600 million, up by 10.9% on like-to-like basis, excluding COVID product sales of Q2 last year. On reported basis, the growth is 8.5% over Q2 last year.
For the first half, the sales were INR68,471 million, up 11.9% on a like-to-like basis, excluding COVID product sales of H1 last year. India formulation sales accounted for about 32% of the total consolidated sales. There were no COVID product sales in Q2, FY 2023.
In terms of core business growth, we continue to witness good growth across multiple therapy areas in chronic and the subchronic segment for quarter. For Q2, the therapies, which did well for us includes CNS, gastro gynecology, urology, respiratory and ophthalmology.
We continue to outperform the average industry growth, which has led to increase in our overall market share. As per AIOCD AWACS, September 22 MAT data, we are ranked number one in India, and our market share has improved by about 0.5% over the last one year to approximately 8.6%. As per SMSRC MAT August 22 report, we are number one ranked by prescription share, though some being a specialty company with limited coverage with GPs, we have become number one in terms of prescription share.
In addition, Sun has a leadership position across 12 doctor specialties. For Q2, we have launched 32 new products in Indian market. We continue to increase our reach and access we’re also focused on continuously increasing our share across key therapy areas and improving overall productivity.
I will now hand over the call to Abhay.
Abhay Gandhi
Thank you, Kirti. I will briefly discuss the performance highlights of our US businesses. For Q2, our overall sales in the US grew by about 14.1% over Q2 last year to US$412 million. The main driver of growth was a specialty business driven by Ilumya, Cequa and Winlevi. US accounted for over 30% of consolidated sales for the quarter. Specialty sales have also grown compared to June 2022 quarter, with new indications expected in the future, the current growth trajectory of Ilumya would be sustained.
With improving access, coupled with geographical expansion into other markets, we expect Winlevi to continue to grow. Our rep activities and doctor visits in the US have reached pre-COVID levels. Globally, in all the new geographies where we have launched our specialty products, we have received good response and have done well.
Let me now update you on our US generics business. While the US generics business continues to be competitive as ever, the Sun ex-Taro generics business has recorded growth on a year-on-year basis. This growth is driven by a combination of new launches market share gains for existing products and better supply chain management.
For quarter two, we launched three new generic products in the US market. I will now hand over the call to Mr. Shanghvi
Dilip Shanghvi
Thank you, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our formulation sales in emerging markets were at US$259 million for Q2, up by about 6.7% year-on-year. There has been a significant volatility in various emerging market currencies, which has impacted our reported growth.
The underlying growth in constant currency terms was about 13%. Emerging markets accounted for about 19% of total sales for Q2. Formulation sales in rest of the world markets, excluding US and emerging markets, were US$181 million in Q2, lower by around 3.8% over Q2 last year. Growth was impacted by adverse currency movements.
RoW markets accounted for about 13% of consolidated Q2 revenues. API sales were for Q2 were at — I mean US$4,730 million, up by about 8.5% over Q2 last year. We continue to invest in building our R&D pipeline for both the global generics and specialty business.
R&D efforts are ongoing for the US emerging markets, RoW markets and for India. Consolidated investments towards R&D for Q1 FY 2023 was US$4,608 million, 4.3% to sales while for Q2 FY 2023, it stands at US$5,710 million, 5.3% to sales, and this compares to US$5,364 million, 5.6% of sales for Q2 last year. We expect the R&D spend to gain momentum in coming quarters. This quarter, the total R&D spend for specialty product was 22% of our total R&D spend.
Our current generic pipeline for the US market includes 92 ANDAs and 13 NDAs, awaiting approval with the US FDA. Our specialty R&D pipeline includes four molecules undergoing clinical trials. Our R&D investments have increased compared to Q1, and we expect continued ramp-up of the same. R&D investments are likely to increase both for our specialty and generic businesses.
With this, I would like to leave the floor open for questions. Thank you.
Question-and-Answer Session
Operator
Thank you very much. [Operator Instructions] First question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Tushar Manudhane
Yes, thanks for the opportunity. Sir, just on the US generics business first, the pace of ANDA approval as well as filing has kind of reduced over the past couple of quarters. And despite that and even excluding specialty portfolio as well as Taro sales, the US generic sales packing well in USD terms. So, how sustainable is this growth momentum given that the price erosion is very much ongoing and our pace of approval/filing is kind of slowing down? That is first question.
Dilip Shanghvi
I would not say the pace of approvals is going down. I think in the last two, three years, we have made a very conscious effort to look at the R&D portfolio and focus on only certain large opportunities of products, we feel that we can hold on to a certain sensible level of pricing over the medium term if not the long-term. So, I think it is a strategic decision to focus on what products we wish to launch rather than focus on just sheer number of products. It’s a conscious call that we took.
Tushar Manudhane
Sir. Just on Revlimid, do you want that settlement is in place? Any queries pending at our end?
Dilip Shanghvi
I think we are on track to meet our obligations and launch.
Tushar Manudhane
Great. And sir, just lastly on the India business, the pace of launches has been put aggressive over the past few quarters 1Q and 3Q — 2Q 2020 about in 1Q, so is there any rating in terms of shift of takers from top brands to more broad based approach?
Dilip Shanghvi
Launching new products is one of our growth levers. So, what we are focusing is that how do we increase the contribution of new products overall India business. And as you rightly pointed in Q1, Q2, you have seen the large number of new product introduction because we have launched many antidiabetic products and their combinations. So, that is also helping us to grow the CBD business.
Tushar Manudhane
All right. Thank you.
Operator
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go our ahead.
Prakash Agarwal
Yes. Hi, this is Prakash. Good evening, all. Hope I’m audible.
Dilip Shanghvi
You’re very clear, Prakash.
Prakash Agarwal
Yes. Thank you. Sir, first question on one of the core assets on Ilumya, first on I think psoriasis arteritis, the primary endpoint showing March 23 given the R&D run rate has been slower than expected? Are we on track for the primary endpoints for psoriasis arteritis?
Dilip Shanghvi
So, — can you repeat the question I missed some?
Prakash Agarwal
Sure, sir. So I’m asking as for clinical trial data, your primary endpoints for psoriasis osteoarthritis clinical trial that has been done, that is expected to end by March 2023. So, question was that within the run rate of R&D is it lower than expected versus guidance also, are we on track to achieve that primary endpoint. Is there is an update to that?
Dilip Shanghvi
I’ m confused about your use of the terminology primary endpoints? Basically, what you’re asking is whether we’ll meet time lines or not, is what you’re saying?
Prakash Agarwal
That is right.
Dilip Shanghvi
Because in context of clinical trial, primary endpoint means whether I will achieve the therapeutic efficacy based on which we will achieve the approval of market. So, I think we’ve, in the past, also indicated that there has been some challenges for us in the recruitment, especially in some of the geographies which are disturbed because of the political uncertainty. So, we haven’t worked out. We are in the process of working out the new schedule and timeline with the CRM.
Prakash Agarwal
And what is the size of the trial sir, the recruitment, et cetera?
Dilip Shanghvi
So I think the trial size and everything, I don’t have the detail, but that wherever you got the details about the clinical trial that would have the number of subjects and broad clinical trial design.
Prakash Agarwal
It does. So, it say, 472 patients enrolled. So, I’m just trying to understand what is the target that you have as if like 3x higher, which yet to achieve, or is it nearing our target or…?
Dilip Shanghvi
No, I explained to you that we are in the process of working out the new time lines. So I don’t want to respond to the question with incomplete information and create unnecessary expectation.
Prakash Agarwal
No worries, sir. Okay, understood. And second is, again, related. So, as you were, again, mentioned that R&D is expected to scale up, while in the last few quarters, we have seen that R&D because of obviously external reasons you mentioned, how do you see margins playing out once the R&D starts coming up? Is there any color to that, given — especially the scale-up in specialty has been feeling solid, so would those scale-up would be able to offset the R&D increase in cost, or — so how — just some color on margins would help on that context?
Dilip Shanghvi
So generally, we don’t guide for what you call EBITDA and margins. But, broad guidance is that our focus would be to find a way to improve our overall profitability. And you would have seen over the last few quarters, so that we are consistently improving our overall profitability and EBITDA and that effort will continue. We see opportunities to be able to do that.
Prakash Agarwal
Okay. And lastly, just to squeeze in. seasonally, Q3, Q4 are stronger for the specialty business. Is that understanding correct?
Dilip Shanghvi
It depends on the product. So, if you look at some of the derm indications, your understanding is correct, but if I — but we also have products, which are non-dermatology…
Prakash Agarwal
It was, yes.
Dilip Shanghvi
So there, it does not.
Prakash Agarwal
Okay. Got it, sir. Thank you so much and all the best.
Operator
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Neha Manpuria
Yeah. Thanks for taking my question. Abhay, my first question is on ILUMYA. I think in the opening comments, you mentioned that the current growth trajectory for ILUMYA can be maintained with addition of new indications. But given the delay in psoriatic arthritis trial, how confident are we of growth in ILUMYA just for psoriasis till the time this additional indication we get approval for that and launch it?
Abhay Gandhi
Neha, we see a significant opportunity and headroom to continue to grow even in the existing indications so.
Neha Manpuria
Okay. So, even without psoriatic arthritis, we should be able to maintain the growth?
Abhay Gandhi
That’s correct.
Neha Manpuria
Okay. And my second question is on Winlevi. If I were to look at the prescription data, it does show moderation in the prescription trends in the last few weeks in Winlevi. Just tying it up with the comment that you mentioned on increasing coverage, how are you reading that? Are you seeing that the promotion new laws traction picking up with doctors? Any color there would be helpful.
Dilip Shanghvi
Neha wait for one more quarter, and we will see that this is just uplift that is not to be expected to go into the future.
Neha Manpuria
Understood. Okay. So I shouldn’t read too much in the slowdown that we are seeing.
Dilip Shanghvi
I’m personally not reading too much into it.
Neha Manpuria
All right, sir. And last on gross margins. There seem to be a fair bit of expansion quarter-on-quarter. And what drove this? I mean, product – was it any specific regions where we saw improvement in the margins? What’s contributing to this?
Dilip Shanghvi
Neha, we’ve already said that, it is driven by the highest specialty revenues also product mix to some extent.
Neha Manpuria
On a quarter-on-quarter basis, sir, also, sir?
Dilip Shanghvi
Yes, yes.
Neha Manpuria
Okay. So then is it fair to assume that this level of gross margin is sustainable as specialty continues to grow?
Dilip Shanghvi
We work continue to maintain the efficiency in the business to maintain the margins. That’s what we said and we have been consistently maintaining our EBITDA margin in the last quarter so.
Neha Manpuria
Understood. Thank you so much, sir.
Operator
Thank you. Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Sameer Baisiwala
Thank you very much. Good evening, everyone. Sir, any update on Halol, especially given that FDA gave OAI status in August?
Dilip Shanghvi
I mean, my understanding broadly Sameer, is that if you get an OAI, then depending on the FDA’s expectation, we will continue to address all the observations and remediation effort. But most of the time, they will read this facility before it becomes a reality.
Sameer Baisiwala
Okay. Okay. So that means potentially, it can take a bit more longer than what we had thought?
Dilip Shanghvi
That’s correct. I think with OAI, it would take longer than what we had thought, yes.
Sameer Baisiwala
Okay. Sir, second question is on Revlimid. Again, Abhay, I got your comment, but is that – the launch is expected in the current fiscal year, if you can clarify on that?
Abhay Gandhi
There are many ways to skin the cat. You are trying one more
Sameer Baisiwala
You know, it’s a fact Abhay, that you know, there’s already been market formation in the second wave, and we’ve not seen some there, and hence the question.
Abhay Gandhi
No, yes. No. I mean, all I will say is what I said earlier, we are on track as per whatever we have agreed to with the innovator and seeing this cost.
Sameer Baisiwala
Okay. Great. Yes. And final question is on Winlevi. I mean, how is the progress with the reimbursement coverage? And — for such products, I know it takes time, but if you were to see one, two years ahead. What’s the kind of peak coverage that you can achieve?
Abhay Gandhi
Sameer, frankly, I don’t even know how to define peak coverage. You know, what constitutes big coverage, I don’t know. But definitely, you’re right. I mean, it takes a little bit of time for the payers to start covering the product. We will see improvement. We are seeing improvement. And it’s always work in progress. So I’m pretty confident that more payers will see the value that the prescriptions written by doctors are generating for them, and help us to get the product on their formulary.
Sameer Baisiwala
Okay. Maybe, I guess, you say it’s not peak, but say a more mature, I mean, do such products hit 80-90 or do they…
Abhay Gandhi
No. You really should not even be expecting. It is not realistic, Sameer.
Sameer Baisiwala
Okay. Not sure that. Got it. Thank you so much.
Operator
Thank you. The next question is from the line of Tausif [ph] from BNP Paribas. Please go ahead.
Q – Unidentified Analyst
Yes, it’s Sriram [ph] here. So firstly, on R&D spend that we are guiding for around 8%, kind of, R&Ds to happen in the future. Currently, we are at more close to 5%. So do we have visibility on the R&D activities that, in absolute amount, it can go up by almost 50% from year on? Just wanted clarity because I mean, we have been guiding for this number, but this continues to be around 5% for all products now?
Abhay Gandhi
Yes, I think, you’re right. Even though in absolute terms, it is going up in percentage terms, it’s not in as per the guidance. I think we have guided that we expect the R&D spend in the next two quarters to go up.
Q – Unidentified Analyst
Okay. Okay. Got it. And secondly, on specialty, like at $200 million sales, I mean, is it popular to share that we are EBITDA positive or getting now? Given the R&D spend..
Abhay Gandhi
We don’t break down profitability by business. So
Q – Unidentified Analyst
Okay. Because R&D spend is like less than 10% of specialty sales. So any indication would be helpful like whether we are making positive EBITDA or not definitely.
Abhay Gandhi
No, I mean, I wish to help you. I think — and that’s why we are trying to give you as much information so that you can reconstruct. I think that you said that reason why cost of goods has gone down is because of the increase in the specialty business. So I think, we’re trying to help you understand without giving specific guidance.
Q – Unidentified Analyst
Okay. Got it. That’s helpful. Thank you, sir.
Abhay Gandhi
Thank you.
Operator
Thank you. The next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Tarang Agrawal
Hello, good evening. Three questions from me. One, if you could split the H1 FY 2023 India growth in volume, price and new introductions? That’s one. The rest questions related to specialty business. In specialty, just wanted to understand what is the kind of front-end infrastructure that the business has created, maybe in terms of number of reps, in terms of division is — some sense on that? And in terms of the target addressable prescribers, where are we, have we probably reached 40%, 50%, some shade on that would be helpful for us to understand the business better. So yes, I mean, these actually are the two questions from me.
Dilip Shanghvi
On the lighter side, I think Kirti will respond, but maybe it will help me if you can do this review from next quarter, Kirti will respond.
Kirti Ganorkar
Okay. I think you’re asking for a level of detailing information that we generally won’t share, because this information is not only for investors also potentially for competitors.
Tarang Agrawal
Okay. In both the questions? I’m talking specific to India business yeah.
Dilip Shanghvi
I think the same really applies to the specialty business. We haven’t really given anything number of free forces and all that.
Kirti Ganorkar
Support organization for organization.
Dilip Shanghvi
Support organization. So we really can’t answer that question.
Tarang Agrawal
Okay. Yeah, that’s it for me.
Dilip Shanghvi
Thank you.
Operator
Thank you. The next question is from the line of Vivek Agrawal from Citigroup. Please go ahead.
Vivek Agrawal
Yeah. Many thanks for the opportunity. I have a question on the US psoriasis biologics market. And there are two parts of the question. The first is what percentage of the population that is on the biologics required to get the drug administered in the medical setting or the sales administration is not a viable option for this patient population. Any qualitative color will be helpful here. And the second part is, when there are a lot of sales administered drug in the market, like majority of the IL-23 IL-17 inhibitor. And what are the factors for the regions that are driving the patients to go for the drug administered in clinical for the medical sitting? Thank you.
Dilip Shanghvi
I mean the first part of the question, if you’re asking about the epidemiology, then I really don’t know what percentage of the population is on medically administered biologic. I don’t have that data. The second part is easier for me to answer because there are specific doctors who prefer to inject in the clinic, so that the second dose or the third dose of the patient also happens in of their eyes. And they’re able to see whether the drug has any impact or not. So there are many self administered drugs, no doubt, but there is a certain value prop that a drug like ILUMYA brings in, which doctors appreciate like and therefore, they use it.
Vivek Agrawal
Okay. So understood basically. So even the self administered drugs are being injected or administered by the doctor in the medical setting. Is it the right understanding product?
Dilip Shanghvi
Because most of the self-administered drugs will have in-house or at-home usage. It is possible that during the first visit, maybe a nurse administrator, or somebody in the doctor’s chamber may teach the patient how to self inject. But subsequently, it will be at home use.
Vivek Agrawal
Okay. Thank you sir. This is really helpful. Thank you.
Dilip Shanghvi
Thank you.
Operator
Thank you. The next question is from the line of Krish Mehta from Enam Holdings. Please go ahead.
Krish Mehta
Hi. Congratulation on a great set numbers and thank you for taking my questions. The first question I had was just if you could provide a broad directional view on Taro and the US generics business in terms of ex-US business bottoming out, how we can view this going forward in the next one to three years? So how do you think about this business trajectory going forward?
Dilip Shanghvi
So Taro beyond — what Taro declares, I mean on the Sun calls, we really don’t take any Taro questions.
Krish Mehta
So would it be possible to provide, I guess, a broader commentary on the US generics market in that sense in terms of if you see pricing bottoming out?
Dilip Shanghvi
Sure. I mean overall, generic market, I think it’s been a few years since I’m hoping to see the bottom. I have not. And I keep hoping, but now is becoming like a faint hope.
Krish Mehta
Okay. Thank you for that. And my second question is on the specialty R&D. Given that it’s come down, say, in the last one quarter from 26% to around 22% of your total R&D, what is the reason we kind of assume on a steady state on specialty R&D as a percent of total R&D?
Dilip Shanghvi
We will share with investors every quarter about how much is spend. In the past, I think we’ve indicated that one of the reason why spend has been lower is that clinical trial costs, which were planned, we were unable to execute on those plans. So I think the idea is to find a way to increase and that’s also possibly the reason for the delta between our guidance and our actual spend.
Krish Mehta
Okay. Thank you so much and good luck.
Dilip Shanghvi
Yeah. Thank you.
Operator
Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.
Damayanti Kerai
Hi. Thank you for the opportunity. My question is on other specialty brands, Odomzo, LEVULAN, Cequa, et cetera. So can you update us how these products are performing in terms of having better marketed sales, or could pick up et cetera?
Dilip Shanghvi
Product price, we haven’t given much of details in advance. But for Cequa, I think I must mention that despite the launch of extensive generics, we’re very happy that we’ve been able to hold our own and actually grow the products in the current setting. After Ilumya, that would be our biggest product. And, therefore, I think that commentary I’m sure would be useful to everybody on this call.
Damayanti Kerai
So I would just asking from these product performance versus pre-COVID level like are these products broadly back to what we had before the finalist, just like some qualitative color would be helpful.
Dilip Shanghvi
So all three products have grown year-on-year, whichever period you look at year-on-year or half year-to-half year or quarter-on-quarter. All three products that you mentioned have grown.
Damayanti Kerai
Okay. Perfect. Thank you. My second question is, your operating costs. So except R&D, which you mentioned would likely catch-up with progressing clinical trials or some products. How should we look at other pieces for the operating expenses?
Because now you mentioned, we have actually costs included there when most of SM costs are back to three times at this level. So should we assume that 2Q numbers are broadly now the new cost base, or …
Dilip Shanghvi
So our expenses in Q2 is somewhat a level at which we are today. However, as you said that we are not giving any specific ideas about expenses or margins. Since now we depend upon the overall ramp-up we have in the various markets as these markets are normally increased.
Damayanti Kerai
Okay. And my last question is, are you done with Phase 3 expansion for India Business, or it is still going on?
Dilip Shanghvi
Yeah, yeah, we have done the expansion.
Damayanti Kerai
Okay. So whatever target you had setting is now in place and now focusing on ramping up your productivity?
Dilip Shanghvi
Correct.
Damayanti Kerai
Okay. That makes sense. Thank you.
Operator
Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.
Nithya Balasubramanian
Thank you. I have two questions on specialty. The first one anaemia, how much of a threat do you believe are Ilumya and Stelara biosimilar which is expected to hit the market in 2022 and 2023 most potentially.
Second one is on Winlevi. I think you on comments make brief that the drop to let its quite high. So will do you see that improving next year? How should we think about that?
Dilip Shanghvi
Sorry, I couldn’t get the second question. I mean extremely sorry [indiscernible].
Nithya Balasubramanian
The gross price to net price difference is quite high. So in the past …
Dilip Shanghvi
Nithya, we have spoken about the gross net, so I don’t know how you got that number from.
Nithya Balasubramanian
Yeah, last years, there was a comments on their last earnings call is actually helpful in doing some basic calculation, and that makes you believe that gross to net is low. So do you see that improving? And — some color on that would be helpful.
Dilip Shanghvi
I mean if the — I mean what they have said really, I’m not conveyed. So I think I would defer it to them. As far as I’m concerned, I mean we had a certain business case, which we are trying to meet and lead. And I think we are on track to do that.
As far as the first part of your question on I think the biosimilar, I think it’s too soon for me to comment. I mean we have done our own modeling, looked at various scenarios of what can and cannot impact.
But things in the U.S., unlike in Europe are pretty fluid when it comes to the uptake of biosimilars. And it has clearly not been as quick as what you saw in Europe and the ramp it. So how these things will pan out.
I mean there is a certain lack of clarity, even on my part and part of the overall branded industry as such. So we have to always keep watching and keep recalibrating our own strategies to meet those challenges differently in their ends.
Nithya Balasubramanian
Thank you.
Dilip Shanghvi
Yeah.
Operator
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie Group. Please go ahead.
Kunal Dhamesha
Hi. Thank you for taking my questions. A couple of housekeeping questions. Is there any PLI-related benefit in the quarter for us?
Dilip Shanghvi
Yes, it has been considered in the quarter. Yes.
Kunal Dhamesha
Can you quantify?
Dilip Shanghvi
We normally don’t quantify such items.
Kunal Dhamesha
But would it be material or…
Dilip Shanghvi
An overall scheme of revenue, I don’t think that way from operations, that’s a material.
Kunal Dhamesha
Okay. And secondly, if I see the cash flow statement, that is on the provision side, we have some big outflow. Is it related to the Valcyte [ph] cycle settlement that you did in the quarter?
Dilip Shanghvi
Yes. That is — you’re right. That’s the settlement amount has been settled as far as the downward.
Kunal Dhamesha
Okay. And our trade receivable has also gone higher is March. Any particular reason for that? Any particular geography from where it is coming?
C.S. Muralidharan
No, on the top line and overall business grow, which you’ve seen in the growth. From a value perspective, I do agree that the increase and decreases overall. And some number of pairs of increase at the group level, which we are looking at to further optimize.
Kunal Dhamesha
Sure. And the second question is on Ilumya. So we have been saying that it’s currently in the growth phase. But is it primarily because of the way the economics of certain channels in the US market quarter where we are benefiting?
C.S. Muralidharan
I think doing well with the product in any geographies never dependent on one particular factor. I mean, it’s a combination of all things. Launching a product in the right manner, sales, marketing, market access, medical. So I think it’s not just one reason which makes a lot of difference. So I would give credit to every department and function working together within the organization to really make the product growth.
Kunal Dhamesha
Okay. And can you just help us understand, are data exclusivity on Ilumya, till what year it runs?
C.S. Muralidharan
Talking about the IP?
Kunal Dhamesha
Yes, the IP. Yes, yes.
C.S. Muralidharan
I mean, we don’t have exact number because there are many statements which we would have filed also, which are not publicly receivable. So we don’t wish to give us any specific guidance on up to which period we expect exclusivity. However, if the question is with the view to understand potential what you call competitive appreciations or things like that, and we still have a long time.
Kunal Dhamesha
Sure, sir. Thank you.
C.S. Muralidharan
Thank you
Operator
The next question is from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Hi. Good evening and thanks for taking my questions. Abhay, the first question again on Ilumya. The several clinical player that say that the prevalence of a patient with psoriasis, is much higher than what the previous what people had accepted. Assuming you do get approval in psoriatic arthritis setting, does it also — you expect the volumes to improve for psoriatic arthritis setting also?
Abhay Gandhi
It will have some halo effect. I won’t deny that, that there will be an increase because we’ll have new data to speak about that it still helps with doctors. So to that extent, I think the halo effect will help us both in the existing indication as well as in the new indications. So, I would agree with you.
Unidentified Analyst
Sure. Thanks. And secondly, while you have said that the US generic market remains challenging. On the other hand, on the specialty side, we have been doing fairly well and now we have a good infrastructure in place. So, from an R&D perspective, the fact that you are spending around 20% to 25% of R&D on specialty in the next 3 to 4 years, should we expect the specialty contribution in our net increase meaningfully?
C.S. Muralidharan
Yes. I think we’ve indicated that the specialty R&D even today, if we were able to execute on some of the studies would have been much higher than what it is today. So it will continue to be an important component of a future investment.
Unidentified Analyst
Sure. And just to clarify, and this assumes some maybe inorganic maybe move that you may make and acquire assets in Derma of that? Does it sort of in your calculations?
C.S. Muralidharan
So what is the question?
Unidentified Analyst
So my question for is that since you said that specialty even increase going forward, — so are you also assuming that maybe 3, 4 years down the line, you’ll have a lot more products by acquiring them?
C.S. Muralidharan
No. I think whatever that I speak about is for business that we have. What we don’t have, I can’t plan for.
Unidentified Analyst
Got it sir. Thanks a lot.
Operator
Thank you. The next question is from the line of Sayantan Maji from Credit Suisse. Please go ahead.
Sayantan Maji
Thank you for taking my question. My first question is on Winlevi. So what was temporarily blip in the prescriptions in 2Q? And what would basically reverse that kind aiding the growth going ahead? And maybe the second question is that what proportion of sales are we now getting from repeat customers in Winlevi?
C.S. Muralidharan
I was waiting for you to ask the first question anyway. So I mean as I said, it’s a continuous process. And I think it’s one quarter, there is not a significant growth in the number of TRx. I mean, I watch it as carefully as you do, I mean, more than you do actually because that’s the only thing I do. And I’m sure it’s only a temporary blip. I think next quarter onwards, we will see increase as we are used to that’s my personal sense.
To the second part of your question, I think we have typically around 1/3 of our customers who are regular users.
Sayantan Maji
Okay. That’s helpful. And my last question is on R&D. So we had given a guidance of 7% to 8% of sales, so after completion of half of the year, do we want to revise it down or do we still expect that based on the pickup in R&D in the second half, you will be closer to the guidance that we had given earlier?
C.S. Muralidharan
I think our guidance is 6% to 8%, and I think we’re not changing the guidance at this point.
Sayantan Maji
Sure. Thank you so much for taking my questions.
Dilip Shanghvi
Thank you.
Operator
Thank you. The next question is from the line of Surya from PhillipCapital. Please go ahead.
Surya Patra
Thank you for taking my questions and congrats on a great set of numbers, sir. Couple of quick questions, sir. So first is that —
Operator
Sorry to interrupt you, Mr. Surya. The audio is not clear from your line, sir. Please use the handset mode.
Surya Patra
Yes. Is it right? Am I audible?
Operator
Yes, sir.
Surya Patra
So a couple of quick questions, sir. First is that — on the — when we are talking about the psoriatic arthritis indication for Ilumya, so the target market would be for this indication will be similar to that of psoriasis or it is higher, bigger, some sense would be useful.
Dilip Shanghvi
When you say target market you are talking to referring to doctors?
Surya Patra
No. In fact, the potential of this indication in the US market, if I say, compared to the psoriasis indication.
Dilip Shanghvi
So psoriasis is definitely the larger indication. Now depending on what data you look at, in the psoriatic arthritis in the US I’m speaking, I do not know what other markets, can be something like — depending on what data you’re looking at, anywhere from 20% to 30% of the psoriasis market.
Surya Patra
Okay, okay. Thanks for that. And second question is on the overall — the margins and although, sir you have commented something on this. But here, I’m trying to understand this that, this quarter, sequentially, whatever the improvement that we have witnessed is obviously led by the study specialty performance despite of the Taro’s underperformance, what we have seen.
And believing that this specialty performance is likely to remain steady and improving only. And we would also, obviously, believing some improvement in the Taro going ahead. And on the top of this Revlimid opportunity free factor, then I think the margin visibility, it looks really robust, much beyond 30% kind of margin profile. So any commentary on that, sir? How do you see — is this understanding is right?
Dilip Shanghvi
So as we said earlier, we are not giving any guidance on [indiscernible]. But based on what you said, we should all take — go on long holiday, so that business will take care of itself.
Surya Patra
Obviously, not. So then, sir, in the other expenses front, to some extent, if I try to understand then, is Q2, there is a decline, despite that there is a normalcy in the overall operation, of course, well, post-COVID. There is Alchemee addition. And also the expanded operation generally is that we have seen. So despite that, we have seen a sequential reduction in the other expenses. So how should we read this?
Dilip Shanghvi
To see the equation of expenditure, I don’t think we see any material. I will not read much in that.
Surya Patra
Okay. Okay. And just a quick one. Even — so since last few quarters that we have been seeing a kind of steady reduction in the debt level. In this quarter, there is a kind of a rise to the tune of around INR 350. Any specific reason or looking for that?
Dilip Shanghvi
So, we have said we have taken a temporary borrowing of the settlement of the litigation readout.
Surya Patra
Okay. Sorry, I didn’t hear that. Thank you for answering my questions.
Nimish Desai
Thank you.
Operator
Thank you. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Harith Ahamed
Good evening, everyone. Thanks for the opportunity. So sir, my first question is on Alchemee, the business we acquired of ex-Taro. So when we made the acquisitions, we had disclosed annualized revenue of around $165 million for the business in calendar ’21. So, I’m trying to understand, if you are still tracking at those levels on a like basis. And I think that more of the growth rates have declined prior to acquisition, trying to understand if the business is stabilized.
C.S. Muralidharan
So I think, unfortunately, we can’t share anything beyond what Taro has shared. But — and also, I don’t think Taro has specifically shared the revenue numbers that we are there in and came in before they acquired. I mean, we’ll not be able to respond to specific questions, which is beyond what Taro has shared in the press release.
Harith Ahamed
Okay. So, next one is in, we have an operating income for the quarter, which is around INR 140 crores which you know step up in the run rate there. Is it related to the PMI steel approvals that we’ve been booking this step-up in other operating income versus FY 2022 run rate?
C.S. Muralidharan
So the other operating revenue in first half is mainly the PLI. We have recognized the PLI approval.
Harith Ahamed
Okay. And last one, when I think about the further product additions to our specialty business, can you comment a bit on the availability of potential licensing candidates in our chosen specialty business. By now I know Sun Pharma [ph] only. And are we pursuing some of those licensing opportunity if they are available. And then how should we expect the level of product additions to come through our organic R&D effects in the specialty business?
C.S. Muralidharan
No, I think as everybody would inform you that there is a potential opportunity to license or acquire product or companies, but there is a fair bit of competition to acquire these assets. So — and we need to feel comfortable with the potential value that we might have to – to acquire these assets, but we will continue to look at those investment opportunities with a view to strengthen our portfolio.
Harith Ahamed
Thanks for taking my questions.
C.S. Muralidharan
Thank you.
Operator
Thank you. The next question is from the line of Ritwik Sheth from One-Up Financial. Please go ahead.
Ritwik Sheth
Yes, hi, good evening, sir and thanks for the opportunity. I just have one question
Nimish Desai
Mr. Sheth, sorry to interrupt you. The volume is very low from your line. Sir, please increase
Ritwik Sheth
Yes, is this better?
Nimish Desai
Yes, sir. Thank you.
Ritwik Sheth
Sir, my question is on the tax rate. First half tax rate is about 7%, so what should be going forward the tax rate for second half in FY 2024 onwards?
Dilip Shanghvi
We have always said that please, look at the tax on a full-year basis. And as our internal working, we also expect it to go up as we move forward.
Ritwik Sheth
Okay. So it should be in the range of last year, full year rate, right?
Dilip Shanghvi
We are saying that compared to last fiscal full year.
Ritwik Sheth
Okay, fine. Thank you
Operator
Ladies and gentlemen, due to time constraint, we will leave that as a last question. I now hand the conference over to Mr. Nimish Desai for closing comments.
End of Q&A
Nimish Desai
Yes, thank you. A small update from our side before we end the call. Abhishek has joined us as Head of Investor Relations and will be taking over the IR responsibility from the next quarter onwards. For the next few months, both of us will work together for a smooth transition. And it has been an absolute pleasure interacting with all of you. I’m extremely grateful to all of you for the support that you all have given to me for the past 10 years. Thank you, and have a good day.
Operator
Thank you.
Dilip Shanghvi
Thank you.
Operator
Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your line.
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