Apotex Health (TSX:APTX) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
Apotex Health reported a 5% revenue increase to $853 million excluding volume-limited licensed products, driven by 14% growth in Canada and strong performance in recent launches.
Adjusted EBITDA grew by 19%, with margins expanding to 33%, leading to improved full-year guidance with expected revenue growth between 9-10% and adjusted EBITDA margin around 31%.
Operational highlights include completion of key FDA and Health Canada inspections, the launch of over 60 products and continued expansion in biosimilars and complex generics.
Apotex Health’s pipeline is translating into commercial results, with 70% of launches being first-to-market, notably semaglutide contributing to significant market share in Canada.
The company completed its inaugural bond offering, raising $1.25 billion, and maintains a strong balance sheet with a net leverage ratio of 2.3x, supporting future growth initiatives.
Full Transcript
OPERATOR
Good morning and welcome to the Apotex Health second quarter fiscal 2027 earnings conference call. At this time all lines are in a listen-only mode. After the presentation there will be a question-and-answer session. Should you require any operator assistance, you may press star zero. Please note this event is being recorded. I would now like to turn the conference call over to Kevin Mannix, Investor Relations. Please go ahead. Thank you.
Kevin Mannix (Investor Relations)
Operator, and good morning everyone. Our press release for the company’s second quarter financial results and business update became available at 6:00 a.m. Eastern Time this morning and can be found on the Investor and News section of our website and SEDAR+. Before we start, we’d like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and future-oriented financial information regarding Apotex Health and its business. These statements are made as of the date hereof and Apotex Health assumes no obligation to update or revise them except as required by applicable securities laws. These statements are based on certain assumptions and involve significant risks and uncertainties and are not a guarantee of future performance or results.
Please refer to risk factors in the forward-looking information sections of the company’s public filings, which include without limitation Apotex Health’s MD&A, its earnings press release issued today, and its IPO prospectus for additional information. During this call we will reference certain non-IFRS financial measures. Please see our earnings press release and MD&A for a description of these measures and reconciliations to the most directly comparable IFRS measures.
On today’s call we are joined by Jeff Watson, Apotex Health’s President and Chief Executive Officer, and Brian McClellan, Chief Financial Officer. Also joining us for the Q&A portion of today’s call are Christine Bader, President of Apotex Health USA and LATAM, and Martin Aris, President of Apotex Health Canada and Rest of World. Jeff will spend the next few minutes providing you with key highlights from the quarter and a progress update on our strategic initiatives.
Brian will then walk you through the financial performance and outlook for the business and then we’ll get into the Q&A. With that, I’ll hand the call over to our CEO, Jeff Watson.
Jeff Watson (President and Chief Executive Officer)
Thank you, Kevin, and good morning everyone. Thank you all for participating in our call today. The journey of health remains our North Star and the results we delivered in the second quarter are another example of the strategy working. We continue to expand margins with adjusted EBITDA growing 19% and adjusted EBITDA margin expanding nearly 400 basis points to 33%. Through launch execution, productivity and improved portfolio mix, our revenue increased 5% excluding our volume-limited licensed product, led by 14% growth in Canada where we grew our share of the generic market to 24%.
As a result of our strong first half performance and outlook for the remainder of the year, we are raising our fiscal 27 guidance. With our launch momentum continuing and the Nalotic comparison now behind us, we expect double-digit revenue growth in the second half and we now see full-year revenue growth of 9% to 10%. We are also upgrading our adjusted EBITDA margin outlook to approximately 31%, reflecting the strength of our first half performance.
Operationally, we continue to make good progress across the business. Our productivity program remains on track to deliver more than 100 million of savings this year. Richmond Hill remediation activities are on track, and during the quarter we successfully completed two important inspections with compliant outcomes: an FDA inspection at our Signet facility and a Health Canada inspection at Richmond Hill. During the first half we launched over 60 products across our markets and continued to build our future growth pipeline through business development, which I’ll discuss shortly.
Overall, we are pleased with the momentum we are seeing across the organization and remain focused on disciplined execution as we continue to build a more diversified, resilient, and profitable global health company. Now let’s look at the progress we’ve made in executing our strategy, beginning with our geographic and business mix. From a geographic perspective, Canada has continued to lead growth in the quarter, increasing 14% year over year and representing 49% of revenue. Canada’s increased contributions reflect the strong launch execution and broad-based strength in performance. The United States represented 43%, and while revenue was down 3% excluding VLLP, the results were above expectations, and Brian will get into the drivers in a few moments.
Our product mix this quarter reflected the timing of our launch calendar, with a greater contribution from recent conventional generic launches. The market and product mix will continue to evolve in the direction we outlined during the IPO. Canada continues to represent a larger share over time, while our product mix increasingly reflects growth from higher-value business lines. As many of you will recall from our IPO process, we highlighted our pipeline as one of the key drivers of future growth. What we’re seeing today is that pipeline translating into commercial results. Launch execution continues to be one of the strengths of Apotex Health. Roughly 70% of our U.S. and Canadian launches this year were first to market, giving us the ability to establish market positions ahead of peers. Collectively, our launches contributed approximately 12% of our revenue in the first half of fiscal 27.
These included first-to-market opportunities such as semaglutide in Canada as well as sitagliptin and Infuvite in the U.S. We expect this momentum to continue in the second half driven by upcoming launches such as axitinib, a generic version of Inlyta, expected to enter the U.S. market in a few days. Another important aspect of this performance is the role of our partnership model. More than half the launches executed during the first half were sourced through external partnerships, demonstrating how our business development activities continue to expand the opportunity set available to Apotex Health.
Overall, we’re pleased with the contribution launches are making across the business and remain confident in our ability to sustain this momentum through the remainder of the year. Semaglutide continues to be a compelling growth opportunity in our portfolio. When we launched in the first quarter, we expected demand would be strong. What we did not anticipate was becoming the only supplier serving the growing semaglutide market in Canada for an extended period of time. We know that sole supplier position is temporary and we expect competitive conditions to normalize over time. Importantly, the overall semaglutide market has expanded 19% on a year-over-year basis since our launch, and our semaglutide product reached 21% share of the total market as of September.
Against this backdrop, demand for Apo-Semaglutide injection has exceeded our expectations and our focus continues to be on maximizing available supply and pursuing opportunities to expand production capacity. At the same time, we remain very encouraged by the long-term opportunity. Genericization is making these therapies more accessible, bringing new patients into the market and supporting continued category growth. Looking ahead, we’re preparing for the launch of CEBMIA, our generic version of Wegovy in Canada, and view the GLP-1 category as an important contributor to our future growth.
Business development continues to be an important driver of our growth strategy and a key differentiator for Apotex Health. We are leveraging our position as a partner of choice to secure and accelerate access to higher value products. That approach continues to produce strong results. During the first half of fiscal 27, we signed 28 products with estimated peak sales potential exceeding 500 million. These agreements further strengthen our future launch profile and support our efforts to continue diversifying the business over time.
One example is the addition of pertuzumab for the Canadian market, which further expands our biosimilars portfolio and reinforces our leadership position in oncology biosimilars. We have already submitted the product to Health Canada and look forward to advancing the opportunity through the regulatory process. In addition, we have signed two agreements for two more biosimilar products, one in oncology and one in ophthalmology, and are working toward regulatory submissions for both.
These products will further strengthen our portfolio in two key therapeutic areas. Looking at the broader picture, over the past four and a half years since fiscal 23, we have signed approximately 160 products with peak sales potential of more than 3 billion. With less than a third of those products launched to date, the majority remain ahead of us and represent future growth opportunities within our pipeline. We continue to see a healthy environment for partnering activity and remain focused on opportunities that support future growth and strengthen our pipeline.
With that, I’ll turn the call over to Brian to review our second quarter financial performance in more detail.
Brian McClellan (Chief Financial Officer)
Thank you, Jeff. We delivered strong financial results in the quarter with growth across all key metrics. Revenue excluding the VLLP increased 5% to $853 million, driven by continued strength in Canada, contributions from recent launches, and growth across our higher-value product categories. That top-line performance translated into even stronger profitability. Gross profit increased 11% to 445 million and gross margin improved 300 basis points to 52%.
Adjusted net income excluding the VLLP increased by 19% to 140 million and net income increased 22% to 101 million. Importantly, the second quarter continued the strong momentum we saw in the first quarter. Through the first half of fiscal 27, revenue and adjusted EBITDA have exceeded our expectations, reflecting the strength of our underlying business and supporting our decision to increase Guidance for the year. Adjusted EBITDA excluding the VLLP increased 19% to 280 million, while adjusted EBITDA margin on the same basis expanded nearly 400 basis points to 33%. Our strong operational performance was the largest driver of adjusted EBITDA growth, reflecting product launches, favorable competitive conditions, productivity savings and stronger portfolio mix. These benefits more than offset the planned headwind from the nilotinib launch in the prior year and normal course-based business erosion.
We also benefited from foreign exchange, largely reflecting a prior year loss on the settlement of working capital that did not repeat in fiscal 27. Finally, while spending was higher in the quarter, overall expenses remained below our plan. Some of this spending is now expected to shift into the fourth quarter. Additionally, we expect the favorable competitive conditions for certain products, which was a benefit in our first half, to normalize by the fourth quarter.
Looking at revenue in more detail, Canada remained our strongest market with Q2 revenue increasing 14% year over year. Growth was driven by the continued success of recent first-to-market launches, strong demand for our APO semaglutide injection product, double-digit growth across our biosimilars portfolio and ongoing momentum in our branded women’s health products. In the United States, revenue declined 3%, largely reflecting factors we had discussed previously although performance came in above our expectations.
These include the prior year contribution from nilotinib which benefited from first-to-market exclusivity and will no longer affect year-over-year comparisons going forward, as well as the planned impact of paused ophthalmic sales as we complete our remediation at Richmond Hill. Importantly, those impacts were partially offset by contributions from recent launches including products benefiting from shared exclusivity arrangements as well as growth from the Cumberland portfolio expansion transaction.
International revenue declined 1% year over year. Lower sales in GCC markets due to ongoing geopolitical conflict were largely offset by growth in Europe as we enter target markets with new products. Overall, we’re encouraged by our growth across the business with strong execution in Canada, good launch performance and contributions from higher value products which have more than offset the anticipated headwinds in the U.S. market. We also continue to make progress in diversifying the portfolio and increasing exposure to higher value product categories. Brands and Biosimilars was our fastest-growing business line in the quarter, increasing 18% year over year.
Growth was driven by the inclusion of the Cumberland transaction, uptake of Aflavue in Canada and continued momentum across our women’s health portfolio. Specialty generics revenue declined 8% compared to a particularly strong prior-year quarter that benefited from the nilotinib exclusivity in the U.S. Also impacting performance in the quarter was the temporary impact of paused ophthalmic sales. Importantly, the decline was partially offset by continued strength in generic semaglutide and other first-to-market launches.
Conventional generics increased 11%, reflecting the continued success of recent first-to-market launches across both Canada and the United States. Taken together, these results demonstrate the progress we are making towards a more diversified portfolio with specialty generics and Brands and Biosimilars continuing to play an important role in our long-term growth and margin profile. With respect to our balance sheet, we continue to maintain a strong and disciplined financial profile. At quarter end, net debt was approximately 2.3 billion and our net leverage ratio remained at approximately 2.3x, broadly consistent with the prior quarter. This is a reflection of our strong cash generation as we funded both the Cumberland transaction and the contingent consideration payment in the quarter. In early October, we successfully completed our inaugural bond offering, raising 1.25 billion in the Canadian debt capital markets.
The proceeds were used to refinance existing debt, further strengthening our capital structure, extending maturities and enhancing financial flexibility. We were particularly pleased with the strong demand for the offering, which reflected investor confidence in the business, our financial profile and our long-term strategy. Operating free cash flow was 115 million in the quarter, even after funding approximately 180 million of cash outflows related to the Cumberland transaction and other business development activities during the period. Overall, we believe our balance sheet remains a significant strength for Apotex Health. Combined with strong cash flow generation and disciplined leverage, it provides the flexibility to continue investing in organic growth opportunities, business development initiatives and future pipeline expansion.
Based on our strong first-half performance and continued confidence in the business, we are increasing our fiscal 27 guidance. We now expect revenue growth of 9 to 10% excluding the VLLP and adjusted EBITDA margin of approximately 31%, up from our previous outlook of upper mid-single-digit revenue growth and adjusted EBITDA margin of approximately 30%. The updated guidance reflects continued execution across the business, driven by successful launches, productivity savings and favorable portfolio mix.
Looking ahead, we continue to expect strong launch activity, including products with exclusivity, and additional benefits from our productivity initiatives. Our updated guidance continues to assume double-digit revenue growth in the second half of the year, supported by ongoing launch momentum and the first-half comparison impact from last year’s 180-day exclusivity period now behind us. The increase in our full-year margin outlook reflects the strength of performance that we have delivered through the first half of the year, including strong launch execution, productivity savings and favorable portfolio mix. However, a portion of the margin outperformance in the second quarter reflects lower operating spending and more favorable competitive conditions for certain products than was originally anticipated. We now expect some of that spending to occur in the fourth quarter alongside some normalization of the competitive landscape for certain products.
As a result, while our confidence in the full-year outlook has increased, investors should not extrapolate the margin profile achieved in the second quarter across the balance of the year. With that, I’ll turn it back to Jeff for closing comments.
Jeff Watson (President and Chief Executive Officer)
Thank you, Brian. Before we open the call for questions, I’d like to step back and leave you with a few key thoughts. Six months ago, during our IPO process, we outlined a clear strategy centered on our Journey of Health. We spoke about building a more diversified business, strengthening our pipeline, expanding into higher value product categories, and improving the quality of our earnings. While there is still significant work ahead of us, we believe our first-half results demonstrate that strategy is working and we are delivering on the commitments we made during our IPO.
We delivered strong performance in the quarter with continued strength in our earnings that led us to increase our fiscal 27 guidance. We continue to execute launches, successfully advance the pipeline with new business development opportunities, and further strengthen our financial position by refinancing debt with our inaugural 1.25 billion bond offering. Most importantly, we believe the actions we are taking today continue to strengthen our ability to deliver sustainable growth over the long term.
With that, operator, we’d be happy to open the line for questions.
OPERATOR
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key. Also, kindly limit yourself to one question and one follow-up. Your first question is from Evan Sigerman from BMO.
Your line is now open. Evan. Hello Evan, your line is now open. We can come back. Kevin, next question. Yes, the next one is from Dazmim from RBC. Your line is now open.
Doug Miehm (Analyst at RBC Capital Markets)
Yeah, thanks very much. My first question just has to do with semaglutide, what looked like very strong numbers. Maybe just you could tell us if it represented more than 5% of overall revenues. I know that was something that you’ve talked about in the past. And then how do you see the dynamic with respect to this one unfolding as we see Dr. Reddy’s and the related companies plus Sandoz coming in. So for example, are you seeing any early signs of share pressure in the provincial formulary tenders?
Steph
Thanks, Doug. Steph here. We’re quite pleased with the semaglutide. We’ve had certainly strong tail. We’ve seen, as mentioned, the market expand to 19% with our share growing to 21%. We have also seen, as we move through the year into the remainder at the end of this calendar year, strong results coming out of our supply chain. We continue to build inventory and that, by the way, will continue into the new year. So we feel very good about the semaglutide opportunity.
While we know there’ll be competition coming, it certainly has provided a really strong momentum on that. Perhaps I’ll pass it over to Brian and give you a little more detail as we double click down on it.
Brian McClellan (Chief Financial Officer)
Hi Doug, Brian. With respect to your question about the size and scale of semaglutide, as you heard from Jeff, we’re quite pleased with the performance of this product. We’re still building the business in Canada at this point in time. It is not representing more than 5% of our sales as no other products represent more than 5% of our sales. We are quite encouraged by not only our progress, but the market growth that we’re seeing on this product too, and look forward to seeing this business building even further as we enter into the next year.
Doug Miehm (Analyst at RBC Capital Markets)
Okay, great, Doug. Yeah, the follow-up just has to do with the pacing. So the guide, and I think you’ve touched on this fairly well. But it sounds like both revenues and, you know, with the upcoming launch in the U.S. plus the continued strength of semaglutide in Canada, that Q3 could be your stronger quarter out of the two from both a revenue and a margin perspective. And I just want to add there that there were some tariff recoveries during this latest quarter, and I’m wondering if those are going to be repeated or if that’s something that we should remove as we think about margins, et cetera, et cetera.
And I’ll leave it there. Thank you.
Brian McClellan (Chief Financial Officer)
Yeah, perhaps I’ll take that one. It’s Brian again, Doug. As we look at our momentum from new product launches and now that we have the year-over-year comparison of nilotinib behind us, we’re encouraged and excited about our performance in the back half of the year. We’ll see double-digit growth in both quarters from a top-line perspective. We actually expect the fourth quarter to be a little bit stronger than the third quarter, although both will be nice double-digit growth.
With respect to the margins and moving forward, as I mentioned in our opening statements, our Q2 results were strong, but there was an impact from lower spending and favorable competitive conditions that we expect to normalize in the fourth quarter. Overall, we believe that 31% margins on the year is a good indication of the performance that we’ve seen in the first half and what we believe to be stable for the full year. And we’ll be building on that, as we told you when we shared our mid-term projections at the time of the IPO, as we would be building our margins over time.
Doug Miehm (Analyst at RBC Capital Markets)
Okay, excellent. Thank you.
OPERATOR
Thank you. Your next question is from Louise Chen from Scotiabank. Your line is now open.
Hannah (Analyst at Scotiabank)
Hi, this is Hannah on for Louise. So we had a question about Richmond Hill. So you said that preparations for the FDA reinspection remain on track. What are the remaining steps before you can restart production for the US ophthalmology market? And then once FDA clearance is received, how quickly could that translate into commercial shipments and revenue contribution.
Jeff Watson (President and Chief Executive Officer)
Yeah, thanks for the question. We actually are on track with the remediation progress at Richmond Hill as we mentioned through the first quarter. So nothing really major outstanding, just work that is being completed. So by the end of calendar year, this calendar year will be in a position to ask FDA to come back for a reinspection and at that point in time we’ll be on their calendar waiting for them to reenter and inspect the site. And there’s plans as we complete the installation of an avatar plan as well of our OPFA 3 which is how, which is what will be launching our ophthalmic products franchise back into the US market.
And that will happen later in 2018. But once again everything starts to pivot off of FDA. So if we can get them to the site ready we will be able to advance our timelines to introduce products back into the US market. Next question.
OPERATOR
The next one is from Erin Kyle from CIBC. Erin is now open.
Erin Kyle (Analyst at CIBC Capital Markets)
Hi, good morning. Thanks for taking the questions. I just wanted to follow up on semaglutide in Canada in the quarter. Obviously notwithstanding the unexpected position you found yourself in this quarter being the only one on the market and I know you commented on the growth of demand year over year, up 19%, but maybe you can expand a little bit in terms of what you were seeing versus your ability to actually service that market being the sole provider.
I believe Health Canada was reporting a shortage of some semaglutide products as of mid September.
Jeff Watson (President and Chief Executive Officer)
Yeah, thanks, Erin. Yeah, so we, as you mentioned, we did not expect to be there alone and, given the nature of this sterile injectable product, it’s a multi-step process to manufacture it. So it took a little bit of time for us to respond to that absent demand or the demand that was exceeding that we were faced with. But nonetheless we’re very encouraged in response with our partners in building inventory. And that has been building through the year.
It is hard to say. So we’ve seen the market share climb to almost 20% in terms of the overall macro market. So more patients getting pens. We will continue to see that demand continue to rise certainly as more pens become available. It’s hard to peg where we see that and we do anticipate of course that the business will normalize over time with competitors coming back in. That said, on our production plan to build inventory through the end of this year into next year, we feel we’re going to be in a good position to meet new demand and continue to compete when competitors do roll back into the market.
Erin Kyle (Analyst at CIBC Capital Markets)
That’s helpful. Thank you. And then maybe just on the margin side, on the guidance on your comments on some of the spending in Q2 being pushed into Q4, can you just expand a little bit on what that relates to and then maybe provide just some color on where you are on the productivity savings target year to date? Thank you.
Brian McClellan (Chief Financial Officer)
Sure. Good morning. It’s Brian again. As we look at the spending in the second quarter, I would call this normal course of business and timing, largely in IT projects, some of our legal spending that we planned over the course of the year, which are subject to changes in timing depending on execution and work with outside parties. We feel like we’re on track for the spend for the year, but this will see it a little bit later. And I would say in the grand scheme of things, it’s not a material amount of a shift in total, but just a little bit of spending moving from the second quarter into the fourth quarter.
With respect to productivity, we’re very encouraged and confident in the momentum that we’ve seen this year. We’re tracking right in line with what we expect to deliver so far through the first half and we’ll be delivering over $100 million on the full year. The focus areas of our productivity remain the same areas with savings in procurement, savings in some in manufacturing and network optimization, and optimization of our active pharmaceutical ingredients to deliver those results.
Erin Kyle (Analyst at CIBC Capital Markets)
Thank you.
OPERATOR
Thank you. Your next question is from Evan Sigerman from BMO. Your line is now open.
Evan Sigerman (Analyst at BMO Capital Markets)
Hi, guys. Thank you for taking my question. Sorry for the technical difficulty. You know, as you think about looking kind of next in the business development, what are some areas of interest? I know there’s been a lot of discussion on semaglutide on this call. That’s very important for kind of growth. But what other areas do you think could be as impactful to the business, recognizing that you don’t want revenue concentration and kind of any one product to be more than 5% of your kind of P&L? Thank you.
Jeff Watson (President and Chief Executive Officer)
Yeah, thanks. We’re continuing to build out, as mentioned earlier on, that biosimilar portfolio for Canada. So if we think about it in our journey of how think of that higher value, more durable product lines with brand biosimilars and continuing to work through that on our, you know, on our complex generics, which we will refer to as specialty generics. So there are key items there. So we’ll continue to build out on platforms like Cumberland, where we just closed that deal back in July.
We’ll continue to build up that branded set product platform. In the US we see opportunities in the institutional space, both through Cumberland, but also also in Canada in the injectable and complex injectable lines of products. So moving up those lines. And then I would say just if we think about our base business selectively, from time to time we’ll look at conventional, not necessarily the ones we’re developing, if there are opportunities there. But our priorities really are in the more durable, higher value products and continue to build it up, build up, as we’ve seen with the biosimilar inclusions this quarter.
Evan Sigerman (Analyst at BMO Capital Markets)
This is a follow up. Are there any therapeutic areas kind of in the biosimilars or, you know, complex specialty generics that are more attractive than others? You know, I know you’ve had some, you know, you do some in ophthalmology, you know, you’ve had obviously kind of some in oncology. But are there any, you know, in this day and age that you think are better suited for your portfolio than other therapeutic areas?
Jeff Watson (President and Chief Executive Officer)
I’ll turn it over to Christine and we’ll dive into that.
Christine Bader (President of Apotex Health USA and LATAM)
Yeah, Evan, thanks for the question. We continue to be very focused on the areas where we already have strength and we can lead. That would be oncology, both north and south of the border. We have a very strong presence. We, as Jeff mentioned, we’re very dedicated to that hospital acute care type of setting and seeing what we can find there that’s meaningful and, specific to biosimilars, immunology is actually where we think there’s the most overlap with oncology as well as gastroenterology.
I know you can think right off the top of your head of a list of products and that would be very attractive targets for that space.
Evan Sigerman (Analyst at BMO Capital Markets)
Awesome. Super helpful. Thank you.
OPERATOR
Thank you. Your next question is from Mike Nadolkovich from TD Cowen. Your line is now open.
Mike Nadolkovich (Analyst at TD Cowen)
Hi. Thanks for the questions. I have three, if that’s okay. My first question relates to the brands and biosimilars segment, at least relative to our estimates, while specialty generics outperformed and brands and biosimilars lagged. So could you tell us what are the drivers in that segment over the next 12 months or so? That’s my first question. My second question relates to semaglutide. Can you remind us of the status of the 2.4 milligram dose? And when your competitors come to market in Canada, do you expect that they will launch a 2.4 milligram dose or not? And then I have a third question, but maybe I can pause and ask it if there’s time.
Brian McClellan (Chief Financial Officer)
Hi Mike, good morning, it’s Brian. I’ll take the first question about brands and biosimilars. Brands and biosimilars actually grew 18% for us in the quarter and it’s gaining some momentum. And while that was a little bit less than we had anticipated, largely driven by a biosimilars launch last year, this is not panning out as strong as we had planned, and a branded product in the GCC which is trading a little bit lower as well, somewhat driven by just the geopolitical conflict in that zone.
Setting all that aside, while our growth may have been a little bit less than we had planned, we see this accelerating into the second half of the year and posting nice double-digit growth on the full year for this particular space and also promoting the diversification of our business as we expected and our strategy. In the second half of the year we expect to see double-digit growth in our biosimilars business, as we did in the first quarter or the second quarter of the year. A growth in Searchlight as well as contributions from Cumberland and nice momentum in the rest of our existing business that supports that growth on the full year. That’s nice double digits.
Martin Aris (President of Apotex Health Canada and Rest of World)
Yes. You also had a question on the 2.4 milligram and this is Martin. Just want to give you some more details on that. So we continue to expect our initial launch of Cephnia, which is the generic version of Wegovy. We are planning to launch this product before the end of the calendar year. We already received our Health Canada approval for one, the pen strength, which is the 1 milligram. And we are obviously planning to launch all the other pen versions.
And these products are at several stage of regulatory filing at this point. So we’re committed to, you know, grow our portfolio and to ensure that we offer patients the full range of pens in the coming months. Mike, you understood another one.
Mike Nadolkovich (Analyst at TD Cowen)
Just a quick follow up on that. Do you have a sense of whether your competitors, when they enter the semaglutide market in Canada, will have all those strengths? Or is that known?
Martin Aris (President of Apotex Health Canada and Rest of World)
We don’t have any insight on this information. We are getting ready to launch our own plan and we’ll be ready to face competition when they come.
Mike Nadolkovich (Analyst at TD Cowen)
Great, thanks so much. My third question, if there’s time, is just related to the political environment in the US and the latest in terms of the risk of generic drug tariffs and whether that’s changed at all given the elections. Thank you so much.
Jeff Watson (President and Chief Executive Officer)
So as you know, we had a meaningful change in government in the midterm elections in the United States, that we now have a legislature led by a different party than the administrative party. Typically divided government moves more slowly. So I think it becomes harder to change current tariff policy, which again for generic drugs is a complete exemption, as well as the fact that affordability, especially in the health care space, was a driver of voter choice.
So we continue to believe that the administration has taken a very measured policy view towards tariffs of generic medication. I don’t think that, I think actually that position will be stronger, not weaker, than it currently is. Thank you.
OPERATOR
Thank you. Your next question is from Gary Ho from Desjardins Capital Markets. Your line is now open.
Gary Ho (Analyst at Desjardins Capital Markets)
Thanks. Good morning. Just a maybe quick question. I did see the Cigna sale ingredient manufacturing business in July. Just curious if there are other non-core assets that could be up for disposition and maybe just touch on the rationale for the sale as well.
Brian McClellan (Chief Financial Officer)
Yeah. So we have no plans, Gary, at this current time to divest any core asset. With referring to the Cygnus site in Mexico, that was a plan that was last year executed into this fiscal year, but ultimately dealt with an API facility. We looked at the opportunities at that site, capabilities, capacity, and we were ultimately able to reposition our API supply chain to other facilities and partners with better COGS. So it turned out to be a positive impact of the supply chain.
Certainly it was not a strategic asset within our supply chain at that point in time. So we’re in good shape there. And no other plans to divest any other core assets at this point in time.
Jeff Watson (President and Chief Executive Officer)
Brian, I’ll add on to that. It was an underutilized site for us. It was an obvious decision financially for us to drive improved costs for the organization and it’s included in the more than $100 million in productivity that we will deliver this year.
Gary Ho (Analyst at Desjardins Capital Markets)
Okay, great, thanks for that. And then just maybe going back to the U.S. first market launch. So it sounds like the exclusive launch is right on schedule. And just wondering how much of that will land in Q3 versus Q4. Just curious how quickly it takes to ramp up. Okay.
Christine Bader (President of Apotex Health USA and LATAM)
So yes, the launch will be in the back half of November and it’s sort of hard to say exactly what the split will be between the third and the fourth quarter. But you can look at it just calendarized and I think that that would be the best way to look at it.
Jeff Watson (President and Chief Executive Officer)
You know, importantly, I would add on as we look at the back half, and this is clearly a product that we’re excited about launching, but we have a very broad portfolio and really strong performance this year. In our portfolio of launches, our growth over the back half is driven by continued momentum from this launch in particular, as well as launches that are already behind us and building strong momentum. It’s also driven by the growth and nice momentum in our existing businesses. I talked about the biosimilars business, Searchlight growing double digits and seeing nice growth on the year, and then the inclusion of Cumberland in the back half. So we look very broadly at our growth. It’s a very diversified growth that we have quite high confidence in.
Gary Ho (Analyst at Desjardins Capital Markets)
Okay, great. Thank you.
OPERATOR
Thank you. Your next question is from Federico Gomez from ATB Cormark. Your line is now open.
Federico Gomez (Analyst at ATB Cormark)
Yeah, thanks. Good morning. Apologies if I missed this. I want to ask about the dividend because I noticed it was declared at $0.05 a share this quarter compared to $0.06 last quarter. So just wondering if that’s a change in policy or maybe timing or just a rounding effect.
Brian McClellan (Chief Financial Officer)
Hi Fred, it’s Brian. Thanks for the question. No, it’s not a change in policy at all. When we provided our dividend for the first quarter, you may recall that we became a public company just before the end of the first quarter and that caused us to have a stub period and have a dividend of $0.06. Our commitment is to a quarterly dividend of $0.05, which we expect will grow as our business grows.
Federico Gomez (Analyst at ATB Cormark)
Great, thank you. Appreciate that. And then a second question just on the, I believe you mentioned some tariff recoveries as a, I guess as a positive for helping margins in Q2. I’m wondering exactly the magnitude of that benefit and also if you expect some of this to recur in the second half.
Brian McClellan (Chief Financial Officer)
Well, most companies that are in our position, we have been working with the U.S. Administration to recover tariffs that were paid last year. This is not a particularly material amount, but we were able to recover most of those tariffs in the quarter. And I expect that is just a one-off. It’s now behind us and we are stable moving forward, not incurring any tariffs on any of our products sold into the United States.
Federico Gomez (Analyst at ATB Cormark)
Great, thank you.
OPERATOR
Thank you. Your next question is from Tanya Gonzalez from Canaccord Genuity. Your line is now open.
Tanya Gonzalez (Analyst at Canaccord Genuity)
Hi, good morning everyone. Just flipping back to semaglutide. I can’t remember how this works, but could you confirm for me, does the PCBA price tier step down when a generic is approved or only once it’s actually on the market and listed? So basically what I’m trying to get at is what tier your fiscal Q2 was priced at.
Martin Aris (President of Apotex Health Canada and Rest of World)
Yeah, maybe I can take this question. This is Martin. So the price of a generic typically drops with the number of competitors that enter the market. In the case of semaglutide, the price was already set based on the number of competitors that were expected and the price is still fixed at the level that was agreed at the beginning.
Christine Bader (President of Apotex Health USA and LATAM)
And just, Tanya, to add to that, I think, as Martin had mentioned, it was set with a broader base of competitors, of course, which did not show up. So there will be no further price movement as they now re-enter. The price did not move up as they did not show up. Having said that, for Wegovy, this is a private market only and in that case the price is much different, much higher. And obviously we’ll be positioning our SEDNA block accordingly.
Tanya Gonzalez (Analyst at Canaccord Genuity)
Okay, perfect. That’s very helpful. And then as a follow up, I believe some of your competitors in the semaglutide market, like Aspen, are using their Canadian approval as a reference to get into emerging markets. Do you have a similar plan through your Mexico and LatAm footprint?
Martin Aris (President of Apotex Health Canada and Rest of World)
So we are looking at it. But the patent landscape is very different in those markets. So that’s a complex decision on timing and it would be outside of the scope of this year.
Tanya Gonzalez (Analyst at Canaccord Genuity)
Perfect. Thank you so much.
OPERATOR
Thank you. Your next question is from Dennis Din from Jefferies. Your line is now open.
Noah (Analyst at Jefferies)
Hi, this is Noah on for Dennis. Thank you for taking our question. So you licensed pertuzumab biosimilar for Canada. Would you be able to provide some color on how big you see the branded market and also if you could talk through any IP-related issues that you may have to navigate regarding the launch.
Martin Aris (President of Apotex Health Canada and Rest of World)
Yeah, pertuzumab, this is a new biosimilar, which is the BLA we actually just licensed with one of our partners. We are getting ready for the market strategy and also with the IP strategy. From an IP perspective at this point in time, we’re not really ready to share any details around this, but we’re excited with the launch of pertuzumab and obviously this is another exciting addition to our biosimilars portfolio. And it also shows that Apotex Health is really committed to grow in this space.
Noah (Analyst at Jefferies)
Okay, perfect. Thank you.
OPERATOR
Thank you. Your next question is from Michael Freeman, from Raymond James. Your line is now open.
Michael Freeman (Analyst at Raymond James)
Hey, good morning team. Congratulations on the strong quarter. Now you’ve raised the earnings outlook, but the first-half free cash flow conversion looks like it’s moving in the opposite direction for now. Wondering what we should watch for in the second half to determine whether these are mainly working capital timing effects or a more durable structural effect for the rest of the year and into 2028.
Brian McClellan (Chief Financial Officer)
Yeah, thanks, Michael. We actually see our cash conversion building and strengthening in the second half of the year. In the first half of the year we saw some outflows related to the Cumberland transaction as well as working capital investment. The overall view on the second half is actually improving and you can expect that that will also result in a moderate reduction in our leverage ratios as well, all things being equal.
Michael Freeman (Analyst at Raymond James)
Okay, great. Thank you, Brian. Now, I wonder how you’re feeling about the 70% first-to-market rate of launches this year. Were there any missed opportunities or upside surprises as you’ve been launching this year?
Jeff Watson (President and Chief Executive Officer)
We look at the launch calendar. I think the surprises really came from showing up at times with more good news than bad news. I would say, for example, we think of some of Bluetide showing up without competitors there. We had really strong momentum on our semaglutide launch in the U.S., which was quite strong, as well as—we don’t talk about it quite as much—but it was a very important launch on the Infu Light, which is another complex injectable product, a multivitamin product which certainly added great dimension.
So I think we are on track. I think what we feel really comfortable in our launch calendar is the consistency that we’re seeing and no surprises. In fact, having launched more than 60 products—we talked a lot about semaglutide—but if you think of the first half of the year having launched 60 products, we feel very good about the momentum we’ve built as we move into last year. And of course we have a strong first-to-file coming in the coming days in the U.S. with another very important launch which will round up this launch calendar quite nicely as we move into the back half of the year.
Michael Freeman (Analyst at Raymond James)
That’s great. Thank you. If I could shoehorn one more in. We don’t talk about Chem probably. I wonder if you could shed some light on its core performance, its growth prospects and potentially if this is an area of additional business development interest.
Martin Aris (President of Apotex Health Canada and Rest of World)
Yeah, this is Martin. We’re very pleased with the performance of our Chem brand business. We are growing by double digits, or we expect to grow by double digits this year. We’re also encouraged and happy with the progress we’re making in the U.S. The feedback on our Chem brand expansion in the U.S. and the feedback we’re getting from customers is really, really positive. We’re making good progress to increase distribution both in the retail space but also in the e-commerce space.
And I would say it’s still early stage at this point in time, but we’re very, very confident with the feedback we’re getting on our ability to drive and to grow a meaningful business in the U.S.
Michael Freeman (Analyst at Raymond James)
Thank you very much. I’ll pass it on.
OPERATOR
Thank you. Your next question is from Nate Po from National Bank. Your line is now open.
Nate Po (Analyst at National Bank)
Good morning, guys. Thanks for taking my question. So you’re talking about you’ve got a strong balance sheet and you’re talking about your leverage ratio also getting better in the back half of this year. Want to touch on your M&A pipeline. What does that look like now? And can you give us any refresher on what criteria you’re looking for? Whether that’s region—I know you guys want to expand U.S. and grow into LatAm—therapeutic area, modality, size, etc.
Jeff Watson (President and Chief Executive Officer)
Yeah. Thank you, Nate. So we have, I’d say, a strong pipeline of opportunities that we are continuing to look at. Our core focus remains in the Americas business and actually primarily focused in our Canadian and U.S. markets right now. That being said, we’re active in all of our core strategic markets that we’re looking for. As we kind of drill down into the kinds of assets we’re looking for, we’ll anchor back to a Cumberland-type asset where we could acquire portfolios or portfolio expansion opportunities to add to that. You’ve heard Christine mention in the hospital setting, acute care-type products in the GI space. So we do have a very active list. We expect to continue to be active and in fact close some targeted opportunities before the end of the year. These opportunities work on.
So primarily focused in the core markets that’s mentioned. I would just say we keep a very watchful eye on the LatAm region, and this is, you know, kind of swath of M&A. We think of larger transactions which we continue to think about—those are not in the numbers—but we continue to make sure that we’re on top of those opportunities as well, looking at where there could be good fit, but primarily focused on portfolio expansion in these higher-value product lines.
Nate Po (Analyst at National Bank)
Thank you for the color. Appreciate it. And you did mention some of those targeted opportunities closing by the end of the year, which brings me to my next question on guidance. What do you see as the main risks from where you sit today and are those smaller or targeted opportunities baked into your revenue guidance at this point?
Jeff Watson (President and Chief Executive Officer)
Well, we feel good about the guidance that we’ve provided on the year and included in that guidance. So let me talk about the top line. But first is the success of our momentum in our portfolio of launches that were well underway this year, as well as the growth in our existing business. While we always include some level in our plans, in our midterm projections for what I call portfolio expansion opportunities, like the Cumberland business, our projections do not include material transformative M&A. That’s for sure.
As we look at the risk moving forward, confident in our pipeline, confident in our productivity plans, we’re highly confident in the margin profile that we provided to you. What are the swing factors for us — and it could go both positive and negative — is the competitive environment that we operate in and those dynamics. We talked about a positive competitive environment that we saw in the second quarter of this year and a normalization of that expected in the fourth quarter, and that’s something that we’re monitoring.
The resilience and diversity of our business, though, allows us to weather any storm that may come our way on that front or take advantage of any opportunity as well.
OPERATOR
Thank you. I’ll turn the line. Thank you. Your next question is from David Martin from Bloomberg. Your line is now open.
David Martin (Analyst at Bloomberg)
Congratulations on the quarter and thanks for taking my questions. Back to semaglutide. Can you comment on what the current status of supply is? You know, what percent of demand are you filling now, and how has that evolved over the one and a half months into fourth quarter, and what do you expect for the remainder of the quarter? And you mentioned to Tanya that list price is going to be fixed even when more generics enter. Will your net pricing be affected?
Will net pricing decrease?
Jeff Watson (President and Chief Executive Officer)
I’ll start here. So if you think about the demand, we came into the market with roughly 12 million pens of demand that we’ve seen, and we’ve seen that market, as mentioned, expand close to the 20% — so 19%. It’s hard to tell where that demand will eventually go. We see as we provide greater access to patients that there’s going to be likely more uptake. And right now we’re at a current position where we basically can sell every pen that we can procure.
So good position there, and we see that procurement, as mentioned, growing into the end of the year for Apotex Health. We continue to build out our supply there and that will strengthen into the next year. So hard to pick where the demand will end up, but we do see this high tide rising, which is good news for patients, patient access, great for the healthcare system, and good for the supply chain. So we’ll continue to kind of build on that and see that that share continues to grow. As I mentioned earlier, share is sitting now at around 21%. We would expect that share to grow as well as we continue to up our supply chain. Bartend, if you have anything else to add.
David Martin (Analyst at Bloomberg)
Got it. And my second question is you mentioned specifically in lida, first to market with exclusivity. Are there other products in the second half of the year that you expect 180-day exclusivity or other products that you expect to be first to market?
Jeff Watson (President and Chief Executive Officer)
Yeah, absolutely. Now a lot of our launches are behind us now, but there is one that we mentioned a few times, which is our SunBio launch and being in market with the generic to Wegovy before the end of the calendar year. That will be a first-to-market launch that we have in the near term.
David Martin (Analyst at Bloomberg)
Okay, great. Thank you.
OPERATOR
Thank you. Your next question is from Justin Keywood from CFO. Your lines are open.
Justin Keywood (Analyst at CFO)
Good morning. Nice to see the strong results. I had a question on branded or innovative pharmaceuticals. There was strength in the branded and biosimilars segment. So, one, if we could separate the branded portion of that, and then how should we look at the branded pharmaceuticals going forward as far as number of launches or proportion of target overall sales?
Brian McClellan (Chief Financial Officer)
Maybe I’ll just make a comment on segment reporting. Unfortunately, we don’t separate branded and biosimilars for competitive reasons. But maybe I’ll turn it over to Martin to provide a little bit more color on our growth expectations.
Martin Aris (President of Apotex Health Canada and Rest of World)
Yeah, if we look at our Searchlight business, which is a full spec pharma company that we purchased two and a half years ago, the business is really performing well. We’re delivering double-digit growth in the quarter and also year to date. It is driven by the strength of our women’s health portfolio. And when you think about our spec pharma in Canada, we are focusing on key therapeutic areas — women’s health, which is really driving tremendous growth at this moment.
We’re in oncology, we’re in ophthalmology, and we’re also starting a new business in dermatology with a few launches, our pipeline enriched. We won’t comment on the pipeline, but we’re really encouraged by the number of products we’re going to launch in the future that will fuel even more growth in the future. And yeah, so this is a very good acquisition that Apotex Health made a few years ago. And obviously now, with more product we’re adding to the pipeline, it will drive further growth.
Justin Keywood (Analyst at CFO)
Thank you, that’s helpful. And then a question for Brian. Given the visibility and stronger free cash flow for the second half, are you able to remind us of the comfort leverage range in the business?
Brian McClellan (Chief Financial Officer)
Yeah, our comfortable leverage target is two and a half times. We’re below that. We expect to be below that in the balance of the year as well. And as I mentioned earlier, with a moderate decline from where we are today, all else being equal, as we do not have significant further investments to accelerate our growth outside of our plans that we have in place, that provides us with a very healthy balance sheet. We like that target. It allows us the flexibility to invest in future growth.
Justin Keywood (Analyst at CFO)
Absolutely. Thank you very much.
OPERATOR
Thank you. There are no further questions at this time. I will now hand the call back over to Kevin for the closing remarks.
Kevin Mannix (Investor Relations)
Want to thank everybody for joining us today for all your questions. For those of you that we were not able to get to, we apologize, but look forward to speaking to many of you later today and in the coming weeks. Thanks again.
OPERATOR
Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.
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