Lupin Ltd ADR (LUPNY) CEO Vinita Gupta on Q4 2020 Results – Earnings Call Transcript

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Lupin Ltd ADR (OTC:LUPNY) Q4 2020 Earnings Conference Call May 29, 2020 8:00 AM ET

Company Participants

Kamal Sharma – Vice Chairman

Nilesh Gupta – MD & Executive Director

Vinita Gupta – CEO & Executive Director

Ramesh Swaminathan – Executive Director, Global CFO & Head Corporate Affairs

Conference Call Participants

Prakash Agarwal – Axis Capital

Aditya Podar – BDT Financial

Krishnendu Saha – Quantum Asset Management

Tushar Manudhane – Motilal Oswal Securities Limited

Nithya Balasubramaniam – Bernstein

Anubhav Aggarwal – Credit Suisse

Neha Manpuria – JPMorgan

Hari Belawat – Techfin Consultant

Vishal Manchanda – Nirmal Bang

Sameer Baisiwala – Morgan Stanley

Darshit Shah – Nirvana Capital

Surya Patra – PhillipCapital

Nimish Mehta – ResearchDelta Advisors

Operator

Ladies and gentlemen, good day, and welcome to the Lupin Limited Quarter Four and Financial Year 2020 Earnings Conference Call. 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 the Lupin management. Thank you, and over to you.

Kamal Sharma

Thank you. Good afternoon, everyone. Welcome to this earnings call of Lupin. My name is Kamal Sharma. With me, I have Vinita Gupta, Nilesh, Ramesh Swaminathan, Arvind Bothra and Rajiv Pillai. You already have the results in your hands, and you see that this has been a good quarter if you look at sequentially. There has been a growth in sales. There has also been improvement in EBITDA margin by 5.3%.

On a year-on-year basis also the revenue line has gone up by 6%, although, at the EBITDA level we are down by about 1.5%. This has also been a year of settling a lot of overhangs which had been there in our system. And therefore, we have a much stronger position to take the company ahead now.

In order to take you through the financial details, I will hand this over to Ramesh. And then we’ll open the floor for question-and-answers. Thank you and over to Ramesh.

Ramesh Swaminathan

Thank you, Dr. Sharma. And friends, it’s good to be back, interacting with you all after a hiatus of 18 months. So very happy to be back with the Lupin family.

In terms of the financials, results are already with you. But let me take you through this again. Sales at INR3,791 crores for quarter four as compared to INR3,716 crores for the previous quarter, what actually represents a 2% growth, but it’s flat as compared to Q4 of 2019.

U.S., our most important market, grew 13% sequentially, $212 million as compared to $186 million in the previous quarter. Though, of course, there has been a decline vis-à-vis Q4 of last year, and that you have to recognize is essentially because of Etanercept [ph].

The India region saw a growth of 15.2% vis-à-vis last year, though, of course, you would also recognize that Q4 is weaker, is always the weakest quarter in the year. And that’s why you found a decline vis-à-vis Q3.

EMEA, of course, did very well. It grew at least 25% vis-à-vis in fact Q3. And this compared to the previous year, it was about 7.5% growth. Growth was particularly strong in South Africa. In terms of the full year itself, U.S. sales were close to $800 million vis-à-vis $777 million in FY19, a growth of about 3%. EMEA region grew about 12.7% in terms of – the full year that is.

In terms of gross margins for this particular quarter, it was 62.9% vis-à-vis the previous quarter of 63.4%. Management recognizes that this is essentially a sales mix issue. In terms of the comparison with the previous year, it’s down from 68.9%, but that you would also recognize essentially because last year we had a large component coming in from Ranolazine sales in the base itself.

This quarter of course there was favorable impact of the U.S. dollar gains vis-à-vis the rupee, but unfortunately, it’s been negated by ForEx in South Africa and Brazil. In terms of EBITDA margins, we delivered improvement of operational profitability on a sequential basis, which is 19.4%, which is 530 basis points increase vis-à-vis the previous quarter. We closed the full year at an EBIDTA margin of 18.7%, which is within the expected range of 18% to 20%. Vis à vis Q3 it is higher because of lower R&D, and of course, the sales promotion spends. And there’s of course something to be said about the ForEx also.

In terms of EPS we’ve done fairly well. Though of course for the full year, it’s still hovering around the 40% mark. But going forward you would expect it to certainly go down. And this is actually evident even in this particular quarter. For the full year next year I think it should be around the 31% mark.

This year we did a lot of things in terms of the balance sheet restructuring. We undertook significant measures in terms of optimizing our capital allocation and worked towards normalizing our ETR, which for various reasons has been higher than the standard. We divested our Japanese operations and undertook an impairment of the Gavis acquisition to strengthen our balance sheet. And we believe that all of this would certainly result in better ratios over time. We of course used the divestiture of Kyowa to repay a large portion of the debt. And certainly overall debt-equity ratio is very favorable standing at around 0.12.

I think we’re very well-positioned for better performance in the quarters to come. But for sure there is of course this overhang of COVID at least in the first quarter. But over to the team and to you for further discussions on the various issues relating to the past year, as well as the future.

Kamal Sharma

Yes. We can go ahead and have questions now.

Vinita Gupta

Yeah, we can go on take questions.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Yes. Thanks for the opportunity, and congratulations on getting out many facilities in the last quarter. I just wanted to understand what’s the update for this element [ph] of important facilities for Goa and Indore? Where are we in terms of submitting the top up line? And what is your estimation that by end of this year or financial year, what is the estimation for the resolution?

Nilesh Gupta

Sure. Hi, Prakash, this is Nilesh here. As far as Goa is concerned, we completed our final updates about three, four months ago. So the idea that you – as we shared earlier, March, April we were going to go back to FDA for a reinspection. There are still some activities and some additional enhancements that we’ve been implementing at the site. But the plan is basically in the next couple of months to go back to FDA that we’re ready for a reinspection. Pithampur will follow very shortly after that. Even Pithampur there was a much more detailed implementation. We did implement the program that we call Quality First.

And we have seen very good progress with that. I feel really good about it. We’re still been receiving updates, but I think in the next couple of months, Goa and very shortly after that Pithampur. Probably even before Goa, would be in Somerset.

Prakash Agarwal

So when you say a couple of months, is completion of the top up line?

Nilesh Gupta

So for Goa, we are done, Somerset we are done as well. There are certain additional enhancements that we’ve been doing, which we would like to complete, for which we have interactions with the FDA. Again in Pithampur while we’re done with the specifics, but there are still certain additional work that we want to complete in the next two, three months before we go back.

Prakash Agarwal

Okay. So by next couple of months we’ll be done with our entire work that we planned to do and request the FDA for a reinspection?

Nilesh Gupta

Yes, in a phased manner, likely Somerset followed by Goa and then Pithampur.

Prakash Agarwal

Understood. Okay. Fair enough. And my second question is on the U.S. business. So we saw good Q-on-Q improvement. I understand there could be some legal impact which might have improved. But would there have been any COVID-related stopping? If you could just highlight how is the movement or how much of it is sustainable? And what are the expectations on healthy progress? Thank you.

Vinita Gupta

So we’ve some impact of COVID-related stopping in March, in particular the upper part. But a big part of the ramp up was really Levothyroxine as well, and it went from Q3 where we had 5% share to 13% share in Q4. So that is – that ramp up is starting to show. And we also had ramp up in other products. We had some of the few products went up. Plus, we have a couple of recent launches, we launched a novel authorized genetics in the quarter. That is a very nice launch for us. Recently launched Apriso, authorized generic of Bausch. So another good launch for us, building through fiscal year ’21.

So some impact of COVID like in March, and we are seeing some adjustments in May. So we certainly will see the impact of COVID in Q1, but the COVID impact aside we feel really good about our growth drivers for fiscal year ’21, apart from Levothyroxine pretty solid base business. Base business actually has been very stable through fiscal year ’20 and we’ve been able to really – really a minor price erosion. We’ve been able to offset that, more than offset that, through the volumes change.

So a combination of strong base business plus the legal [ph] continued ramp up. Some of these new product launches that we’ve had in the tail end of fiscal year ’20 that will really by – will impact in fiscal year ’21.

And then we are very hopeful to get albuterol approval soon. We have had some interaction with the agency, especially the last couple of months and hope to bring it to market a little bit sooner than we had stated in the past. So that should be able to resolve those launch.

Prakash Agarwal

Any timeline that you are attributing to albuterol movement for this quarter, next quarter?

Vinita Gupta

So Prakash we had said that we would launch in the second half of the fiscal year, hopefully even be a little bit sooner.

Prakash Agarwal

Okay. Perfect, great and all the best. Thank you.

Operator

Thank you. The next question is from the line of Aditya Podar from BDT Financial. Please go ahead.

Aditya Podar

Yes, hi. I want to ask you question on ProAir, but it will – you said that it’s going to be launched in a bit before the second half, when the approval for Goa and Indore will be given. I just want to know the debt, what is current plan [ph] to bring down the debt. And any other non-core, I mean any other non-core businesses or assets to be sold off?

Ramesh Swaminathan

The debt is down, because we’ve repaid a huge chunk of it. So right now, even after in fact the yearend we actually paid off about $267 million, which was not obviously reflects in the figures because it’s as of 31, March. The debt-equity ratio stands at around 0.12x [ph]. But there’s something we said about the fact that the overall working capital has gone up between December and March. But we will do what it takes to bring it down to more acceptable levels in next few weeks, next few quarters.

Aditya Podar

All right. That’s it.

Vinita Gupta

Another factor is we took a pretty hard look at all of our different subsidiaries and have determined that we wanted to divest Japan, but we don’t have any other non-core actually at this point in time we are very firmly focused on building not only our two major regions India and the U.S., but also the other markets.

Aditya Podar

All right. Thanks a lot.

Operator

Thank you. The next question is from the line of Krishnendu Saha from Quantum Asset Management. Please go ahead.

Krishnendu Saha

Thank you. Hi, Ramesh. Good to hear from you. Hope to see you soon. I just got a couple of questions. Is this a new norm this quarter with Japan out of the revenue stream and all? Is this EBITDA margin the new norm? So with 19.4% with the other income and 40% without other income.

And the second question is in Japan, is any contract for us to supply anything for the next one or two years with them? And the third question is what could the effective tax rate this year [ph] likely? Thank you. And how do you see the EBITDA margin going ahead.

Ramesh Swaminathan

Well, several questions in the same breath. But I’ll take the effective tax rate which was the third question that you asked. You recognize this quarter – this year has been close to about the 40% mark. But going forward, we have done a lot to actually to restructure the business, and of course do what it takes to bring down the effective tax rate. We do believe that we will be closer to the mid-30s, 34%, 35% range. And progressively, it will certainly come down.

Krishnendu Saha

Right, the EBITDA margin for the quarter is this a base number we’re looking at? Is this like, this is the number without Japan, right? So or – so is this –

Ramesh Swaminathan

So I’ll take the question. So as you recognize the EBITDA margin is actually a function of several things, in terms of the realization that we have on products and of course, the kind of measures that we take to contain the cost and of course, the kind of R&D spend. And of course, we spoke about the fact that there is arbitrage, which is a possibility in the course of this year. But that’s – we think that apart.

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Overall I think, EBITDA would certainly be between 19% and 20% range and business without taking into account the COVID impact in the first quarter. As you would know there are several moving parts there across various geographies. India, for example has been impacted in this particular month. And for all practical purposes, we believe that it would indeed be the case when it comes to next month as well. There has been an increase in expenses because of trade costs going up. There could be some increases, because again raw material prices up and this is something that’s not been quantified as yet.

There is of course the impact in America itself. And Vinita will certainly take us through that story. It’s going to be certainly impacting our business in the first quarter for sure. But if you would take that all apart and if we maintain kind of status quo, we do believe that there is a lot of – there is certainly improvement going around between 19% to 20%. And this is without taking into account the ForEx impact. Does that make sense?

Krishnendu Saha

Sure. Yeah, it does, fair enough. And just on Japan, do we have any contracts to supply anymore for the next year or so or this is just sort of business is off [ph]?

Ramesh Swaminathan

We had shared this in the past as well, there is a multiyear agreement to supply products that we were supplying out of India. And in fact there is couple of more products that is getting added to that as well. So that part of the business will continue. So obviously that we will continue.

Krishnendu Saha

Nilesh, where would that line item be coming in from in the revenue item? Where would we see it?

Nilesh Gupta

It will be in the regular revenue line, it’s essentially phased right because you’re billing to Japan, you’re third party, it is going to be coming in the other third party sales. Of course, albeit at a lower margin though.

Krishnendu Saha

Okay, it will be in APAC or Australia, in fact – so it will be – okay, fair enough. I’ll take it offline. Thank you.

Nilesh Gupta

To answer that part we would club that into the APAC number.

Krishnendu Saha

Sure. Thank you. Thank you very much. Thanks.

Operator

Thank you. The next question is from line of Tushar from Motilal Oswal Securities Limited. Please go ahead.

Tushar Manudhane

Sir, thanks for the opportunity. Just a clarity on albuterol. So are there any queries pending now with respect to pending the US FDA –

Vinita Gupta

Yes, we have responded to all the queries. And like I mentioned, we’ve had interaction – some interaction with them in the last few weeks, and have responded to all the queries.

Tushar Manudhane

That’s great to know. And just on the R&D spend we had this fourth quarter with 9%, 9.1% so any outlook for FY21?

Ramesh Swaminathan

If you want me to answer [Multiple Speakers] – sorry, go ahead Vinita.

Vinita Gupta

Go ahead, Ramesh.

Ramesh Swaminathan

Yes, R&D spend will be kind of the same level as last year about the INR1,500 crore range on a full year basis that is.

Tushar Manudhane

Got it. Okay. And just lastly any MR additions on the domestic formulation side this year?

Nilesh Gupta

So pre-COVID we had a plan to add a few hundred MRs. Some of them will still get added, which is the [technical difficulty] pharmaceutical division [technical difficulty]. Yeah, there is a lot of disturbance on the line. I think [indiscernible] we’ve spun out three divisions last year, but materially there’ll be no additions and obviously in places where we feel that we don’t want to fill up in the near term we’ll see what to do.

But there won’t be material additions especially given that we have seen a slowdown in May mostly more so than up to April. Obviously, we watch the spend lines very closely as we hope to see that growth coming back in India.

Tushar Manudhane

Good, good. And just lastly Levothyroxine, if you can just help us with the market share currently and what kind of capacity utilization we stand at?

Vinita Gupta

Yes, the market share, as I mentioned it ramped up [indiscernible]. We are now at the 5% level in Q3, to double digits to the 13% in Q4. And we are well positioned from a capacity standpoint to take like 20%, 20%-25% share if we have the opportunity to.

Tushar Manudhane

Thanks. Thanks a lot. That’s it.

Operator

Thank you. The next question is from the line of Nithya Balasubramaniam from Bernstein. Please go ahead.

Nithya Balasubramaniam

Yes, thank you. So my first on your biosimilars pipeline progress, if you can update us on where you are on pegfilgrastim for the U.S. and ranibizumab?

Nilesh Gupta

Sure. So on pegfilgrastim, we actually are at a very good position. We just completed the PK study successfully. Now it’s a question of ramping up the product and filing. Some of it will still take a little bit of time, but before the end of this fiscal, we expect to file, and then obviously we would look for a quick approval. We are very excited with the fact that we’ve been able to cross all the hurdles that were there in being – in developing the products. On ranibizumab, we have started the India-centric trial and the plan is in Q3 to start a global clinical trial.

Nithya Balasubramaniam

So are you planning on filing without a Phase III in peg?

Nilesh Gupta

You know, I wouldn’t be comfortable sharing our strategy. It is a complicated strategy as far as filing is concerned. But we have, like I was saying, we have been able to complete whatever clinical development plans were required to be able to file the product.

Nithya Balasubramaniam

Okay, understood. Thank you. And my second one was on Solosec, what sort of an impact have you seen, because of COVID. Obviously, clinics are shut and within acute pain we did notice a sharp downturn in the prescription share. Do you see that – are you seeing that coming back up and do you see like the COVID impact has put a spanner in the work?

Vinita Gupta

Yes, so there was a significant impact of COVID on the OTC, and specialty per se, as well as on Solosec. We saw really the business division [ph] come down to 20% level pre-COVID and only for critical condition. So we saw significant disruption with Solosec in Q3. We started to see a good backup into Q4 in January and then in February we started to see the COVID impact and which impacted the scripts which we have seen down to almost 45% pre-COVID level and below it.

So in the last four weeks we have started to see this stabilize. In April, we saw the script levels hit the bottom and since then we’ve seen that grow slowly. However we have taken some measures, significant measures actually to optimize that business.

We had realized that Solosec is going to be a slower build. And it was – had consistent growth but still at a slower level. And pre-COVID we just saw a strong reception to what you virtual calls, and doctor coverages, to telehealth and taking virtual calls as opposed to the face to face interaction. So we have really restructured our operating model, going forward to a higher level of virtual investment, and very significantly reduced our operating spend and burn rate nearly by 50% [ph]. We downside, really [indiscernible] in the last couple of weeks to be able to really reduce that burn.

So now having restructured that team, plus having the same focus on a different mix of virtual versus face to face interactions, are starting to see a quick ramp up from the low of April, and the recent wins that we had through the Solosec was put on preferred position by ESI couple of weeks ago. We also had very positive readout of trichomoniasis study to expand the use of Solosec. So we feel pretty good about growing the business at a burn rate that we can sustain while Solosec grows.

Nithya Balasubramaniam

If I may ask you a follow-up, now with the measures in place, when do you see your specialty business breaking even?

Vinita Gupta

So much sooner than what it was last quarter, I would say. It should be pretty soon, I would hope in fiscal year ’22.

Nithya Balasubramaniam

Thank you so much.

Operator

Thank you. The next question is from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead.

Anubhav Aggarwal

Yes. Thank you. Vinita, one question on albuterol first. Just want to check, why is this product still in the shortage when IQVIA volume shows that now that shortage – which was there is no longer there. Why is FDA still putting this under shortage item?

Vinita Gupta

Hi, Anubhav. So actually the demand for albuterol went up significantly due to COVID. Being a rescue inhaler, we saw a significant jump, I want to say something like 30%, 40% through April – March as well as April. Since then it is stabilized, but still at a level well above the pre-COVID level.

Let’s say that just given the rest of the distress, I mean albuterol is a critical medicine required for treatment of COVID. So it is – the demand has gone up, and from a supply perspective, we know that Perrigo launched in February but had very limited share so far. And Cipla launched recently, but again stated that they’re going to make product available over the next few months. So we do think there is short supply.

Anubhav Aggarwal

Okay. And just I know data may not be available on this, but roughly Teva mentioned before the generic came in at 40% of market was prescribed by generic, what would that number be right now, very approximately?

Vinita Gupta

Sorry?

Anubhav Aggarwal

So let’s say what percentage of albuterol market is prescribed by physicians as a generic prescription right now. For example, Teva mentioned before that generics came in, that it was 40%. What would that number look like currently?

Vinita Gupta

So right now, I think generic’s at over 60%.

Anubhav Aggarwal

Yes. But no – I was asking…

Vinita Gupta

Because we have all the babies put together.

Anubhav Aggarwal

Okay, sure. And just one question on famotidine also. I wanted to check how sticky is the volumes that we gained. Our product is a suspension product. Do you think there could be shift away to tablet or to – let’s say, move away to oral molecule at a certain point of time or this is what we called as very sticky right now?

Vinita Gupta

I mean, it seems like it is sticky, right now after the relative [ph] launch the backhaul [ph]. And we saw a good amount of share in the commodities. And obviously, we are in a very good position to leverage that.

Anubhav Aggarwal

But is it a supply shortage issue on that oral solid side, which is benefiting us, and once that is back we may have – I’m just thinking from a customer perspective, patient perspective, would the preference be higher for an oral molecule versus the suspension one or patient is indifferent?

Vinita Gupta

Sorry?

Anubhav Aggarwal

I’m saying on the famotidine side, is the patient indifferent between the suspension form?

Vinita Gupta

Yes. So maybe we can take this question offline. I don’t have the mix of oral solid versus what it was prior to this famotidine change and we’ll take it offline.

Anubhav Aggarwal

Sure. And just my last question was on Solosec. I just wanted to check after the Expert Script preferred supplier, will net pricing, which is a combination of the rebate to Express Scripts and the coupon that we – coupon strategy we have, will there in the short term net pricing be down and hopefully till the volumes come up, can we see a dip in Solosec sales and ultimately getting the benefit out of it? Will it follow that kind of curve?

Vinita Gupta

Actually it’s a very good question. The list pricing has actually improved quarter-on-quarter. This – given the other measures we took, we changed our co-pay from 25 to 75, ramped it up through the last six months. So that in itself had a positive impact on net pricing. And with Express Scripts now, the net price will increase even further.

Anubhav Aggarwal

Okay, so that co-pay is benefiting. Okay, thank you very much.

Operator

Thank you. Next question is from the line of Neha Manpuria from JPMorgan. Please go ahead.

Neha Manpuria

Thank you for taking my question. Vinita on Solosec, I remember you mentioning in one of the calls that the cost for Solosec was somewhere around $12 million to $13 million a quarter. Is that number right pre-COVID or with the 60% reduction that you mentioned is essentially on this $50 million cost base. Is that the way to look at it?

Vinita Gupta

Yeah, roughly. Yeah.

Neha Manpuria

In that case, how should we look at the entire – leveraging this cost base? Because, we have been looking at in licensing deals to leverage the cost that we have for Solosec. Do you think that COVID slows our ability to augment our hospitality portfolio in the U.S.?

Vinita Gupta

Actually COVID potentially makes other opportunities available. But it’s really helped us get to breakeven sooner just on Solosec. And we still have some of our legacy products market like the Rasagiline conjugate to the top and bottom line. Antara contributes to the top and bottom line.

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So we believe that with the current burn and Solosec dose that we have planned, plus we continue to look for opportunities. In fact, we are seeing more and more companies that are struggling through COVID and I would think they are having discussions about trying to find synergies.

Neha Manpuria

Okay, understood. So the specialty investment continues to be a priority for us as we look ahead from a medium term perspective?

Vinita Gupta

Sorry?

Neha Manpuria

Specialty investment continues to be a priority for us in the medium term, that hasn’t changed?

Vinita Gupta

Yes, it is. It is important to us. We just determined that based on the fact that Solosec is going to be a slow build it makes sense to do it at a different operating burn.

Neha Manpuria

Understood. On the U.S. – on the generic business in the U.S. if you look beyond the Levo ramp up and albuterol, how should we look at the growth from that base, because you’d have two large products in our base by then [ph]?

Vinita Gupta

Yes. I think we have a very rich pipeline, Neha. Look beyond fiscal year ’21 we have on the inhalation front, Spiriva that we hope will get approved for this calendar, in fiscal year, but will be launched in the next couple of years. We have other certified products that come to market. We have – Levo certainly will continue to be as a premium product going forward.

As we look at it, albuterol as well, you look at it as a material opportunity, but looking at the Spiriva and other pipeline products coming in, we have also invested further into our inhalation pipeline. We – recently with Fostair, we filed Dulera as well. We extended our pipeline. And then have injectable products as well that we will file with Fostair again, three injectable products filed, and multiple products to file.

Neha Manpuria

Understood, and my last question, on Fostair, what is the timeline for launch in Europe and how material can this opportunity be for us? So we – in terms of a launch later this calendar year in Europe, third quarter fiscal. Okay. Would this be a pretty good launch? Is this – how material would this product be for us. I’m assuming, it will take some time to ramp up.

Neha Manpuria

That’s right, it will take time to ramp up. It’s not going to be overnight. But in the next two to three year, we look at it as a huge opportunity for our Europe business and per se and our inhalation business in Europe.

Neha Manpuria

Understood. Thank you so much Vinita.

Operator

Thank you. The next question is from the line of Hari Belawat from Techfin Consultant. Please go ahead.

Hari Belawat

Good evening everybody. This is regarding your financial results which are released every quarterly and yearly. This exceptional item is appearing for last many quarters continuously. And in fact, if we see FY20 and FY19, these are affecting on the bottom line also. So what is this exceptional item particular impairment of intangible assets IP? If you can throw light on this please?

Ramesh Swaminathan

Yeah, so this has been appearing last couple of years. This year, for example, we made a huge profit when it comes to impact the sale of Kyowa itself. Apart from that we actually had a loss when it comes to sale of KCC and also took some provisions when it comes to – in Texas settlement that we had in America.

And on Gavis impairment we took again a knock. So all of this actually comes in the full year results. Well it’s exceptional, and that’s why it’s coming in at the line that it does. And this is in line with the accounting principles.

Hari Belawat

I agree, sir. But like this IP is impairment of IPs. What is that other this investment we understand, profit or loss is okay, what happens to these IPs? We have acquired at certain cost and we are not using these IPs anymore so that you have provided in your accounting.

Ramesh Swaminathan

Yes. The reason is because that any asset that we purchase is supposed to be bringing in certain cash flows. If the cash flows are not in line with what we projected, there is obviously a need for an impairment of that particular carrying value, and that is what is reflected in terms of this impairment.

Hari Belawat

Actually bottom line, these exceptions have converted your bottom line in the red in fact, FY20 and even a FY19 also reduced. Anyway, if that is the practice, we expect it. So yeah, another one is discontinued operations you have shown a profit of INR130 crore during this year, how is discontinued operations are giving profit to us, PAT?

Ramesh Swaminathan

It was actually reclassifications to financials, the way the accounting standards warrant it. This is essentially earmarked for our Goa operations – Japanese operations to the extent that it’s not been continuing for the full year that is.

Hari Belawat

Anyway, these are all accounting practices but they do serve a picture a different picture of the company’s performance overall. Yes. Just last question. Anything we are doing on – for Corona drugs or vaccine. We are a big company R&D expenditure also is very large. What are we – any steps you’re taken for any new vaccine?

Vinita Gupta

We have multiple drugs that were relevant for – to benefit for this crisis. There are two maybe, one that is short term, hydroxychloroquine. But the other [technical difficulty] is azithromycin, that ramped up significantly. And we have significant shares of azithromycin, 40% share in the U.S. market. We ramped up our supply significantly to serve the need through the COVID crisis.

The other major drug from our existing portfolio is albuterol, as I mentioned earlier. The demand for albuterol went up significantly, but we are hoping to be able to get that approval and participate in the market soon with that product. Beyond that, we have explored our anti-microbials. We have pretty good pipeline of anti-infective, anti-viral products that are still being explored to see if any of that work for COVID.

Hari Belawat

And other things greatly during this FY21, I understand.

Vinita Gupta

Yes.

Hari Belawat

Okay. Thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bang. Please go ahead.

Vishal Manchanda

Thanks for the opportunity. Could you share CapEx guidance for FY21 and FY22?

Ramesh Swaminathan

So last year was INR500 crores odd. And we believe that it will be around the same vicinity. Obviously, it really is linked in fact to our MTP and the way we expect that growth to take place. The kind of products that we bring to the market and so on. But it would be certainly in line with the – it’s not going to be very different from what we have spent in the past.

Nilesh Gupta

As Ramesh said, as we discussed it’s going to be slightly more than last year’s number. Last year’s number was a significant low. It’s going to be slightly more as we’re adding capacity for certain types of products. And will remain similar for the next fiscal as well.

Vishal Manchanda

Right. So that includes the maintenance CapEx. Is that right?

Ramesh Swaminathan

Yes.

Vishal Manchanda

And the depreciation expense was sharply lower on a quarter-over-quarter basis. So should we take this as the base number, going forward about INR210 crores on a quarterly basis? Is that the right number to look at?

Ramesh Swaminathan

It’s been reset because of the amortization, depreciation amortization come together because of the impairment that we’ve taken on our intangibles. And of course, the business that we have sold and so on. It gets decent. And yes, going forward, this particular quarter would be indication of things to come.

Vishal Manchanda

Okay. And could you kind of call out the net ForEx benefit during the quarter?

Ramesh Swaminathan

Yeah, we could. It’s close to about INR120 crores odd.

Vishal Manchanda

Okay, and just one final one. You have been talking about an approval for Fostair Inhaler in Europe. So is that due anytime now?

Vinita Gupta

Hopefully, we expect to launch it later in the year in Europe. But we are hoping in the next quarter, we should get the approval.

Vishal Manchanda

Would this be for the MDI version or the DPI version?

Vinita Gupta

For the MDI version.

Vishal Manchanda

And what is the sales for the MDI version in Europe?

Vinita Gupta

$500 million plus.

Vishal Manchanda

That’s for the MDI version only?

Vinita Gupta

That’s right.

Vishal Manchanda

Okay. Thanks very much.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala

Thanks. Good evening, everyone. And welcome back, Ramesh. So a few questions. So on albuterol, if you were to get approval on the timelines that you mentioned over next year whatever 3 months, would you be having a staggered launch or do you think your supply chain is good enough for a full blown launch?

Vinita Gupta

We have been preparing well, Sameer for this launch. So we will hope to maximize it.

Sameer Baisiwala

Okay, excellent. Vinita, on Solosec, for the new indication, trichomoniasis, is the drug presently being used for that indication off label? Or do you think getting the new indication approved would make or would give a good boost to sales?

Vinita Gupta

Yes. Hard to say for this [ph] you can get off label for trichomoniasis, but obviously positive top line results and getting the label will make a material difference, to really try to expand the use of the product. So at present, it’s still a little bit away before we can get into the label, but our medical team, the MSLs will start working on it.

Sameer Baisiwala

Okay, excellent. And Vinita, I missed you when you were talking about Spiriva, did you mention that you will get the approval in the current year?

Vinita Gupta

Yeah, we have had a pretty – we have a very strong file in place and we hope to get the approval soon. I mean, of course, we can’t launch for couple of years, but we hope to get approval this fiscal year.

Sameer Baisiwala

Great. So if I understand correctly, I think the key patent expires middle of 2022. So maybe that should be but what about the underlying IP court case?

Vinita Gupta

Yes, it will be likely get extended [ph].

Sameer Baisiwala

Sorry?

Vinita Gupta

We will like get extended term, the court case continues, so we will like get extended term.

Sameer Baisiwala

But how do you plan to take the IP part forward? I mean, would you hope for the first [Multiple Speakers]?

Vinita Gupta

And we’ll see based on how it unfolds, what makes sense. It’s a material opportunity for us so we will determine what the best way to maximize it.

Sameer Baisiwala

Okay, excellent. And just one final one on complex injectable portfolio. Can you update us and you mentioned something which was not very clear? So how many filings have you done and these are for the substantive big products that you’ve been talking in the past? And when do we start seeing the approval cycle?

Vinita Gupta

So I think to date, we probably have maybe 6 to 10 filings, if I’m not mistaken, not recalling that number for the past couple of years. But have no made progress on – we’ve not had any of the complex injectable filings as of yet, with the exception of Fosaprepitant, which continues to be a nice opportunity that we are trying to figure out how soon we can launch.

On the Depot [ph] products, on the [indiscernible] we’ve made significant progress in the pipeline. So it’s in the pipeline phase, but we have gone past proof-of-concept and have started working on the clinical study. So good progress on that platform.

Sameer Baisiwala

And the filing for these products will be current fiscal or from next fiscal?

Vinita Gupta

No, the next fiscal.

Sameer Baisiwala

Okay. Excellent.

Vinita Gupta

And they will be going for clinical trials now this year, a little bit delayed also because of COVID.

Sameer Baisiwala

Got it. Yes. Thank you.

Operator

Thank you. The next question is from the line of Darshit Shah from Nirvana Capital. Please go ahead.

Darshit Shah

Thanks for the opportunity. Sir, basically, I would like to know your assessment on the recent U.S. FDA move to kind of recall Metformin extended release tablets. So what kind of impact do you see? I mean would it be a kind of normal batch recall for few of the companies? Or you probably think it might be a national recall like it happened in other products like Ranitidine also?

Nilesh Gupta

So currently, we see it as not an across the board recall for Metformin. We see it for certain batches, certain kinds of formulations as well. So I think it’s still very piecemeal. We don’t see it in an across the board issue for metformin.

Darshit Shah

And anything we heard from the U.S. FDA for our products in this regard?

Nilesh Gupta

So there is a discussion on one particular batch that we have been having with the FDA, which we would likely end up recalling.

Darshit Shah

Okay, Nilesh. Thank you, so much.

Operator

Thank you. The next question is from the line of Sarya Patra from PhillipCapital. Please go ahead.

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Surya Patra

Yes, thanks for this opportunity. Just if you can update on what is the revenue number for the branded segment for the quarter? And I’ll ask the second question then.

Vinita Gupta

Yeah, with similar levels last quarter around $4 million.

Surya Patra

Okay. Secondly, on the albuterol again, if we consider all the three brands are like interchangeable, and this is a kind of a billion dollar product opportunity, slightly more. And if that way if you consider then it is already a six-player market it has become. So you will be joining as a seventh player or so.

And so going ahead, what is the kind of expectation that you are having and what is the kind of level of competition and pricing scenario all that you are working for this product opportunity in U.S.

Vinita Gupta

Just can you repeat your question for albuterol? I couldn’t hear all of it.

Surya Patra

Yeah. So, if I say that, this all three brands in the albuterol, those are interchangeable, then already for these three brands put together there are six players in the market. And we will be joining the market as seventh player and possibly there could be more competition going in.

So generally I’m trying to assess that, okay what is your expectation about or assessment about the competition in this space and the pricing scenario. And your aspiration out of this product opportunity in the U.S.

Vinita Gupta

Yes. We believe that right now the way to look at it is that you have the key brand companies, increased ideally the spend with the brand. And we had said as the first two generic suppliers, another three generics and first [indiscernible] two of our generic players. But given the market conditions right now the way we look at it, it is a very attractive market from the pricing perspective. And we will be prudent in how we go check. We currently expect to get a fair share, a double digit share and have planned the capacity accordingly.

Surya Patra

Okay. And about the kind of R&D spend or anything on the cost rationalization trend going ahead, albuterol obviously, the kind of margin levels that we have been delivering or seeing since last sometimes. So, that is good [ph] as always, looks like because of the kind of aggressive spending things, spending size with R&D.

In the cost point do you really see some improvement going ahead because of some of the activities that is that will – may not be there going ahead. For example, your remediation expenses could be possibly continue to rationalize, or anything on the cost front that you can give us some indication with [indiscernible] business.

Ramesh Swaminathan

Yeah, Vinita you want me to take that question?

Vinita Gupta

Yes, please.

Ramesh Swaminathan

Yeah, the endeavor is constant. The early part of the discussion, I actually alluded to the fact that it’s actually a function of three things. The kind of products that we bring to the market, the kind of cost that you incur and of course the R&D expense and the like. I don’t want to talk more about in fact, these products which anyway would happen over time. And we are, as you would know, geared up for a lot of things.

We have our innovations portfolio, we have biosimilars, we have specialty and complex injectables and the like, but all of those will happen over time. But one thing that’s constant out there is, of course, trying to read out the boundaries when it comes to, in fact the – on the cost front. And this is obviously going to be across several lines. We’ve had a continuous engagement program with in fact leading consultants working on several lines.

So we have a program to implement on the procurement front, which is really the raw materials, alternate vendors and the like – the route synthesis and conversion. We are working on in fact SG&A, the R&D expense front and for sure on the overall workforce itself.

Yeah. So we have actually seen some good results impacting the course of this year, basically it’s not so visible to you because it’s actually camouflaged in several parts. And there are several moving parts there itself, amongst lines. So – but as we unfold and as we go into the future, I would imagine there would be significant visibility on that, towards the end of the fiscal – next fiscal, that is you would actually see a closing date which is certainly superior.

But all of this, of course, assuming that normalcy returns in terms of the business. As you would know, the first quarter has been impacted – would be impacted because of COVID across various parts of the globe. India, for sure, there are dark clouds. There are dark clouds in America. There is ForEx fluctuation in the emerging markets. And of course there is – business is down in certain other – in other parts also.

So those are again, some of the intangibles that we can’t actually talk about, but in a general sense, you would expect the cost to be – there is going to be tremendous focus on cost, and that would be contained.

Nilesh Gupta

Okay. I think maybe if I can just add. So one part is one of the things that we’ve had is challenges. Some of the cost optimization we’ve done, there’s actually a reduction in the realization as well, and that’s why it’s not getting reflected. But what Vinita shared as far as reducing the SG&A in the U.S. on the specialty front that was part of the overall rationalization as well. And that will reflect on the numbers.

Surya Patra

Okay, just one more question on the factory front. Ramesh sir, if you can just clarify this. 30%, 33% kind of a guidance what you are giving for the current year, it is just because of that divestment of Japan that is resulting in to?

Ramesh Swaminathan

No, we have done some significant restructure. So we have actually taken issues upfront in terms of trying to bring down the losses in various subsidiaries, some tax planning in terms of the way we actually positioned or domiciled our IP, then of course, so – and of course kind of products coming in from various parts in terms of the overall footprint, in terms of the clinical advantage of APZs and the like. So all of this will bear fruit and that’s why you would find a reduction in the ETR front 40% to much lower levels that I indicated.

Operator

Thank you. The next question is from the line of Nimish Mehta from ResearchDelta Advisors. Please go ahead.

Nimish Mehta

Yes, thanks for the opportunity. Most of the questions have been answered. Just one thought I would like to have from your side is, now that the lockdown related logistics issues are behind us. How do you see the migrant labor insurance-related issue impacting us and also in the industry, I mean, does it mean that the logistic issue will once again be a problem for us, and in that case, some smaller companies in Indian market may take over market? How do you see the situation? Thanks for taking question.

Ramesh Swaminathan

So I would say that the logistic issue, the biggest one biggest problem with the logistics issue was the fact that courier companies actually had switched off. And I think that was a big challenge. So I would say that – we have been able to – in fact, I think the bigger companies will feel better, and I would – going forward, I don’t see the logistics issues as an issue. Even in the current status with the red zone, green zones, we are able to make product available adequately.

I think the real challenge that we’re seeing in India at this point of time is demand. Specifically in May, we believe that the market, specifically for acute has significantly de-grown. Chronic also, there is not increase, because – while doctors are starting to open up, there isn’t adequate footfall. And I think May and June will go in that state of repair, and we really see the market taking off only after.

Nimish Mehta

But because of the migrant labor going back to the homeland, we don’t see any particular issue because of that. Is that a fair understanding?

Ramesh Swaminathan

Yes. Not specifically on that count.

Nimish Mehta

Okay, thanks, thank you very much.

Kamal Sharma

Maybe we will take the last question now.

Operator

Sure. We take the last question from the line of Prakash Agrawal from Axis Capital. Please go ahead.

Prakash Agrawal

Yeah. Thanks for opportunity. I had one clarification and one or two more questions. So one is on the press release you speak about your Florida inhalation facility inspection by U.S. FDA on – but done by UK MHRA. Can you clarify, would they come back when the things normalize or is it temporary EIR of how do we think about it?

Vinita Gupta

No, it was basically collaboration [ph] between the UK MHRA and the FDA. They – FDA inspected the site for Fostair that we have filed both from Coral Springs, as well as Pithampur. We now have approval at both sides to manufacturers Fostair to have the flexibility from both sides that we wanted to build to be able to ramp up both albuterol and Fostair effectively.

Nilesh Gupta

Basically FDA did it on behalf of MHRA, but it is permanent [ph] status of the site.

Vinita Gupta

And we are really thinking of leveraging it not right away, but we are thinking of leveraging it for some government business in the U.S.

Prakash Agrawal

Understood. Thank you for that. And I missed your comment on Levo. so you mentioned your mid-teens now 13% to 15% and fiscal ’21 you have expectation to go to 20%, 25%, is that right or 30%, 35%?

Vinita Gupta

Now, in terms of market share 30%, 35% would be a dream and it certainly would be tough right to command a rational share perspective. But we would be very happy to get to 20% plus.

Prakash Agrawal

20% plus, that’s fair. So – okay. And one more on metformin. So when FDA is talking about metformin and DMA issues, it captures even though the entire basket like the Glumetza of the world, including the Metformin generics?

Nilesh Gupta

Yes. So I think FDA has obviously been evaluating. So if the IR products, VR products which we [indiscernible], the Glumetzas, and yeah, there’s a whole bunch of products, glucophage, so there’s a whole bunch of products out there.

Prakash Agrawal

Okay. So it would be the entire basket. As of now, we have just heard or we are evaluating one recall is what you’re seeing?

Nilesh Gupta

Yes.

Prakash Agrawal

Okay, perfect. And last one from a demand perspective. What I understand is both India and U.S., because of obviously lockdown and patients not able to go to doctors, prescription levels have come down, but when you compare India and U.S. which business is seeing more impact on volume would it be U.S. or the India business?

Ramesh Swaminathan

The volume is obviously like…

Nilesh Gupta

In the U.S. from an overall perspective right. But I think in the U.S., I think while genetics continues and when there is some pressure right now in India on the branded generic right now obviously the impact is more.

Prakash Agrawal

Okay.

Vinita Gupta

[So the prescription, Prakash, overall – in the U.S. prescriptions are down 20% even now, when we compare it to the baseline pre-COVID, just because of many people have just not done doctor visits, so their prescriptions are pre-prescriptions. So this is improving week after week but it is still 20% down overall.

Ramesh Swaminathan

As you Nilesh India will be more, I understand because of the lockdown issue?

Nilesh Gupta

Yes. But I think in India, I think the good thing that we’ve seen is that in green zones, even in orange zones, there’s a fair bit of returning back to normal as well. So, obviously, there are – I think there is – India story is still panning out. But I think there’s parts where normalcy is coming and there is obviously the – particularly the red zones, which is also the biggest – in some ways, the biggest part of the market, which remains a big concern.

Prakash Agrawal

Okay. And the last one, like we have couple of licensing deals with AbbVie on the MALT1 inhibitor and going with the MEK inhibitor. But is there any progress there and are we expecting any milestones in ’21, ’22?

Nilesh Gupta

So, yes, as far as the deal is concerned, based on certain development we would expect a milestone, in FY22, there are clinical developments which have to be done and they have been basically delayed by a quarter, thanks to COVID. And AbbVie obviously, there are a bunch of future milestones as well, but that one in particular is more in the overall AbbVie the development portfolio. We feel very good about the compound. We believe that it will move ahead, but obviously, there is an assimilation process internally before they take it forward.

Prakash Agrawal

Okay, perfect, great and all the best.

Operator

Thank you. I now hand the conference over to management for closing comments.

Kamal Sharma

Yeah. Thank you for connecting on the call and hope you had reasonable answers to all your questions. I look forward to seeing you next quarter. And connect with you again for a chat. Thank you very much and all the best.

Operator

Thank you. Ladies and gentlemen, on behalf of Lupin Limited, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.