Dr Reddy's Laboratories Ltd (RDY) 2022 Q2 法說會逐字稿

Ladies and gentlemen, good day, and welcome to Q2 FY '22 Earnings Conference Call of Dr. Reddy's Laboratories Ltd. (Operator Instructions) Please note that this conference is being recorded.

I'll now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir.

Thank you. A very good morning, and good evening to all of you, and thank you for joining us today for the Dr. Reddy's Earnings Conference Call for the quarter ended September 30, 2021.

Earlier, during the day, we have released our results and the same are also posted on our website. This call is being recorded, and the playback and transcript shall be made available on our website soon. All the discussions and analyses of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the Investor Relations team.

Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's expressed written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call.

Now I hand over the call to Mr. Parag Agarwal. Over to you, sir.

Thank you, Amit, and meetings to everyone. I hope you and your families are keeping safe and well. I'm pleased to take you through our results for the quarter 2 of fiscal 2022. We had yet another quarter of strong double-digit growth in terms of revenue, EBITDA, and profit, which was also our highest ever in a quarter.

Let me take you through the key financial highlights for the quarter in a bit more detail. For this section, all the amounts are translated into U.S. dollars, at a convenient translation rate of INR 74.16, which is the rate as of September 30, 2021. Consolidated revenue for the quarter stood at INR 4,763 crore, that is USD 777 million, and grew by 18% on a year-on-year basis and by 17% on a sequential quarter basis. The growth was driven by both base business and recent launches, supported by contribution from COVID products and out-licensing income in our Proprietary Products business. This was partly offset with continued price erosion, mainly in the U.S. and Europe markets.

Consolidated gross profit margin for this quarter has been 53.4%, a reduction of 50 basis points year-on-year and an increase of 120 basis points quarter-on-quarter. While the gross margin in the current quarter were impacted due to price erosion, product mix, and increase in input material costs, primarily on KSM solvent and other fuel. It was supported by out-licensing income and leverage benefit for manufacturing overheads.

Gross margins for Global Generics and PSAI businesses were at 56.9% and 25.9%, respectively, for the quarter. The SG&A spend for the quarter is INR 1,595 crore, that is, USD 215 million, an increase of 22% year-on-year and 6% quarter-on-quarter. The increase was to support sales growth and on account of continued investments in sales and marketing activities for brands in India and emerging markets and brand regional capability building. As a percentage of sales, our SG&A has been at 27.7%, which is lower by 290 basis points over sequential quarters.

The R&D expense for the quarter is INR 446 crore, that is, USD 60 million, and is at 7.7% of sales. R&D spend increased by 2% year-on-year and declined by 2% quarter-on-quarter. The R&D spend increased by 2% year-on-year and declined by 2% quarter-on-quarter. The R&D spend increase of biosimilars has been offset by a reduction in the Proprietary Products business.

The EBITDA for the quarter was INR 1,557 crore, that is, USD 210 million, and the EBITDA margin is 27%. The EBITDA margins for the H1 FY '22 is at 24.1%. Consequently, our profit before taxes stood at INR 1,258 crore, that is, USD 171 million, which is a growth of 47% year-on-year and 71% quarter-on-quarter. Effective tax rate for the quarter has been at 21.8%. We expect our normal ETR to be in the range of 25% to 30% -- sorry, 75% to 26%.

Profit after tax for the quarter stood at INR 992 crore, that is, USD 134 million. Reported EPS for the quarter is INR 59.65. Operating working capital increased by INR 950 crore, which is, USD 128 million against that on June 30, 2021. The increase was primarily driven by an increase in receivables of INR 752 crore due to increase in sales and planned discontinuance of the receivable discounting program in the U.S.

Our capital investment during the quarter stood at INR 358 crore, which is, USD 48 million. The free cash flow generated due to this quarter was a net inflow of INR 83 crores, which is, USD 11 million. Consequently, we now have a net debt of INR 268 crore, that is, USD 36 million as on September 30, 2021. Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar are approximately USD 450 million, largely hedged around the range of INR 75 to INR 78.4 to the dollar, RUB6,750 million at the rate of INR 0.9919 to the ruble. AUD5 million at the rate of INR 58.40 to Australian dollar, and ZAR74 million at the rate of INR 4.97 to South African Rand maturing in the next 12 months.

With this, I now request Erez to take you through the key business highlights. Over to you, Erez.

Thank you, Parag. Good morning, and good evening to everyone. I hope you're all safe and healthy. I'm happy to note that we had a solid performance in this quarter on the back of overall performance and contribution from all of our key businesses. This was on the back of consistent base business delivery, a ramp-up in key products, coupled with contribution from severe COVID portfolio in certain markets and our strategic transaction announced during the quarter.

It is encouraging that we are on top and delivered in uncertainty, while also delivering healthy EBITDA in our field. We feel very optimistic about the future prospect of the overall business, and there are enough leaders for us to continue this growth momentum in the coming quarters as well. Today, the U.S. FDA audited our formulation manufacturing facilities, FTO 7 and FTO 9, was completed. We have been issued the form filled with base observations. I believe that these observations are addressable, and we will do so in the speculative time line.

Let me take you through a few business highlights for the quarter. The reference to these numbers and these sections are in respective local currencies. Our North America Generics business recorded sales of $255 million for the quarter with a decent year-over-year growth of 3% and a sequential quarter growth of 8%. The growth was led by market share improvement in our key base products and scale-up of the launches from previous quarters. The overall normalization of demand levels also contributed different volumes across various categories of products impacted by COVID last year.

During this quarter, we launched 1 product in United States and 3 products in Canada. The loss momentum should be improving next year with incremental growth by a line-up for NDAs under each. Our Europe business recorded sales of EUR47 million with the year-over-year growth of 10% and sequential quarters growth 5% due to the announcement of new product launches.

During the quarter, we launched 2 products each in Germany and Italy, 3 products in the U.K., and 1 product in France. We believe that Europe will continue to be growth driver for us in the next few years and see a dual-income strategy of portfolio and market expansion.

Our emerging markets business recorded sales of INR 1,298 crore, with a strong year-on-year growth of 50% and a sequential-quarter growth of 43% partially supported with sales of COVID vaccine. Within the emerging market, the Russia business grew by 46% on a year-over-year basis and at 62% on a quarter-to-quarter basis in constant currency. The growth was primarily led by higher volumes and seasonal demand. The revival in the market growth after a negative impact grew a quarter 3, quarter 1 from a free launch of biosimilar bevacizumab. During the quarter, we launched 24 new drug applications in the U.S.

Our India business recorded sales of INR 1,140 crore with a strong year-over-year growth of 25% and sequential growth of 8%. This strong growth was supported by both product portfolio as well as sustained performance of the base business. During the quarter, we launched 2 new products in India. As per the Q2 report of September 2021, we've grown by 21.2% on an Q2 basis, much faster than the market growth of 15.4%.

Our PCI business recorded sales of USD 130 million, with a year-over-year decline of 1%, but the sequential quarter growth of 11%, partially supported by contribution from core results. While there may be fluctuation quarter-on-quarter sales, we believe there are opportunities to grow this business.

During the quarter, we start going through a broad market price globally including EUR2.19 million. We have also filed 24 formulation products across global markets including 2 ANDAs in the United States. As of September 30, 2021, we had 93 cumulative FDA filings pending for approval within the U.S. FDA, which includes 90 ANDA and 3 505(b)(2) NDAs.

In line with our strategy of commercialization, the proprietary products through out-licensing model, we have successfully out-licensed 2 our products in E7777 and given 16 billion this quarter. We have further strengthened our strategy with the focus of ensuring short-term growth and at the same time, build strong foundations for the long-term growth.

Our core business in North America, Europe, India, Russia, China, and other emerging markets comprising of the unbranded and branded Generics in global API business will continue to dive deep. This growth was led by an expansion of portfolio across markets, improvement in market shares, and driving operational and incremental composition of the field.

Over the last few quarters, we have built strong pipelines of COVID portfolio drugs, and this can be a meaningful additional growth opportunity for us in the short to medium term. As of now, we have commercialized Sputnik vaccine, Avigan that is favipiravir, Remdesivir, and Sputnik V, and call to conduct a clinical trial for Molnupiravir and various other drugs. While this portfolio has made decent contribution in the last few quarters, we believe that there are multiple opportunities even for the future.

Specific to Sputnik, we are exploring several growth opportunities, which include availing Sputnik Light as a vaccine or as a booster dose, Sputnik Light for adolescence, and free export opportunities. We are also investing in various innovation business, which will drive growth in the long term. This includes building a global pipeline biosimilar, development of vaccines for immuno-oncology, building of efficient nutraceutical portfolio, vaccines, the CDMO, and digital health care platforms.

With the addition of business likely to offset, initially replacing the doors of opportunity for us. While majority of our growth will be organically driven, we will supplement it with relevant inorganic opportunities. We will continue to grow our OpEx despite investment in the new businesses. The key to enablers, which will drive the success will be our people and the digitalization initiatives being undertaken by us.

As we are committed to our patients to bring innovative medicines at affordable cost, we are also committed to our investor agents for driving healthy and profitable growth on a sustainable basis.

With this, I would like to open the floor for questions and answers. Hopefully, we can start the question and answer, please.

(Operator Instructions) The first question is from the line of Kunal Dhamesha from Emkay Global.

So the first question is, what would be the COVID-related sales in this quarter for us, including the domestic market as well as the exports?

So the COVID sales, we have recorded some sales in India with Sputnik, and we have also sold Favipiravir in a few emerging markets. So overall, the contribution -- we have had a good contribution from COVID sales during the quarter. For example, in India, the reported growth year-on-year is 25% but if we were to exclude Sputnik vaccine sales, the base business would have still grown in mid-teen. So overall, I would say that there has been a good contribution from COVID portfolio during the quarter.

Sure. And the COVID vaccine sales, would you say it has been margin accretive for us?

So the Sputnik did not contribute to the COVID but also did not create a lot for us. We are about breakeven in the investments in the -- between the investments and what we gained. During the quarter, we could extend much more if we have supply and -- but we headed a special June-July shortage of supply; we fixed that and now we're self-sufficient out of India for the future and the opportunities that I mentioned, meaning Avigan kits export and Sputnik Light both for vaccine and boosters.

So have you able to crack any contracts for the export with the RDIF?

We do have contracts works for this.

The question from the line of Surya Patra from PhillipCapital.

Sir, can you give some clarity whether -- what is the kind of or contribution from the generic Revlimid that we have seen from the Canada side this quarter and what is our kind of preparedness and time? And also if you can talk something on the time line about launching the centers for Revlimid in the U.S.?

Sorry, I did not get the question from the line.

Just a second, sir. So is it fine, sir? I just wanted to have a sense, what contribution that we would have seen from generic Revlimid that we have launched in Canada this quarter?

Yes. So it was a decent launch. Canada is naturally not a big market, so the overall contribution is not much. But it was a decent launch for Canada.

Okay. And if you can give some clarity, sir. Is there any clarity now to launch the product, same Revlimid in the U.S., and what is our preparedness for that?

So we got the approval. So we are very happy about it. With that it's basically the last obstacle to launch. So we have secured both in terms of regulatory as well as legally. And we will launch within accordance to our agreement and our settlement.

Sure. Just last one question on the gross margin for the generic business. What we have seen that -- see, there is a kind of a steady declining trend that we are witnessing for the generic business, Global Generics gross margins. So it has trended down from 61% to now 57% level. So is it because of the pricing pressure, what that is in there in the U.S. or generally, it is led by multiple factors, but can be recovered going ahead with the new launches coming up? And some sense on that gross margin front, sir?

Yes. So there are multiple factors here. But first, I was I can point out 2 key drivers that put downward pressure. One, as you know, the export incentives that have withdrawn has clearly put a downward pressure on the gross margin. Secondly, as you rightly pointed out, there is some pressure that is there because of North American price erosion. However, we have a number of levers to offset this impact. One is productivity. So as we drive higher sales growth, and we set our assets, we can leverage the cost base. And the second is the product mix. Some of our significant high menu launches are margin accretive. So overall, I don't believe that there is a downward trend in gross margin, gross margin structure from one quarter to another. And we are fairly confident of the margin profile of the generic business.

(Operator Instructions) The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets.

My question is again on gross margins. So in view of input material cost inflation, how should we look at trends in next few quarters?

Yes. So indeed, there is an impact of the increase in the commodity prices, and we are offsetting the productivity activities, this is one. And second a little bit of sourcing. So in general, I believe that once you see similar margins, especially gross margin as you see, we normally trend somewhere between 51% and 56% in the last few years now between that 61.5% to 64%. This will probably continue to be that way. I want to emphasize a normalization, those between a standard between the cost product mix, if we will get to a 49% mix, 49% is not necessarily very much. So it would help to know about the actual money than the percentage of it. Well, of course, we are very sensitive to the percentage of the profitability as well. But let's say, lastly, that it will be the same range also in the future.

Sure. And on Russia business, you explained some region, which has led to very strong sales during the quarter. So going ahead, how much of this is sustainable? And how should we look at good patterns in Russia and CIS market in next few years?

It is sustainable, and we're also planning on growing in Russia. So it's sustainable with the projection of role. At the same time, it's not necessarily sustainable quarter-to-quarter and some of the products are seasonal and depends on the cold, the flu, and stuff like that, especially some of these products. Some of them are seasonal because they are tender products for hospitals. And therefore, it depends on the timing of the tender. But on the year-to-year basis, we are planning to grow a margin.

Sure. And my last question is on U.S. pricing scenario. So what kind of erosion we are facing right now? And when do you expect it to normalize to the base portfolio?

So we do see, like others, a relatively higher level of price erosion, which we were able to offset both new products as well as productivity measures. The price have also been a learnings area because this is the business model, but it can fluctuate, depends of course, on the relevant products; the products and how much competition will be here for our relevant products. So likely that it could be moderated for us in the next few quarters. It has an estimate with type of products that we have in front of us. But it's very much product, so mix dependent. I don't see any change in the United States' policies or any structural change.

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

Parag, some data questions. First, in the RoW market, we were doing last year, INR 300 crores kind of run rate now, we're doing INR 200 crores in quarter 1 and INR 500 crores now. So the incremental large part of it, so can we assume that INR 150 crore, INR 200 crores would be COVID sales there, can any help over there, what would growth percentage over there?

So I don't think I would quote any specific numbers for competitive reasons. But this quarter, the growth in rest of world, rest of the market is about 90%. I would say, even if you exclude the COVID growth, the growth -- base business growth is still very strong in markets like South Africa and Latin America. So I would say there is a good concentration from COVID portfolio, but the base business growth also continues to be very strong. As I said, I can't give you any specific numbers.

Sure. That's helpful. Second question is on SG&A. So quarterly increase that you've seen, which you talked about 6% this quarter. But also are these some of the discretionary spends that we're doing now, but may not do later on or is this very much a new base for us that we'll continue to spend on this?

So SG&A -- see, as I think I have been saying for a couple of quarters, there are 2-3 drivers for the SG&A increase that you see compared to same time last year. One is we have seen normalization of operation. And last year's first couple of quarters, SG&A was computed and now we see normalization. So we are seeing good growth in our markets. And therefore, we are putting money behind our brands in the branded market side, India and Russia. We are also investing behind digitalization, both front end, and back end. So that's one part of it. So one is normalization, I would say, has largely happened. Second is investment that we will continue to do. The third point I would make is this quarter also has a royalty on Favipiravir sale, the COVID portfolio sales, which is the third reason. So broadly, I would say that SG&A has normalized. As the percentage to sale, which is a key measure that we track, we do believe that overall, the aggregate for this year will be lower than last year.

Sure. That's helpful. Just last question on the Duvvada plant. 2 parts of this question. One is how many pending ANDAs are from this plant? Secondly, in terms of rate observation, are more observation on the injectable side or on the oral side of the plant?

Can you repeat the second question?

Second question, based on that out of the 8 observations, are more observations on the injectable side of the plant or the oral side of the plant?

Yes. So the -- we have quite a few ANDAs. We are not disclosing specific numbers but they will come from that site. All the -- I went and read. There'd be a probation that'd be in the public domain soon. We believe that that's addressable of course with each other as it trails within the relevant time and we will do so. These are primarily related to products and not to the site itself. Primarily given the fact that it was a PAI type of an audit, which is also at the GMP as well. So it's a combination of GMP as well as PAI. Eventually, most of the energy was about a team of over-cost issued with products.

The next question is from the line of Prakash Agarwal from Axis Capital.

My question is on Revlimid. So just wanted to check where we have 2.5 and 20 mg, do we have exclusivity? And if yes, are we at par with Natco to launch these 2 doses?

So we believe that we are entitled to the exclusivity on those 2 strengths, and we will launch, then in accordance to the supplemental agreement that we had with the innovators.

With respect to time line, would you give just broad time line if that would be helpful?

We cannot give time lines. Sorry for that. It's part of the agreement if that's okay.

Okay. And (inaudible) it would be in the range of $500 million to $700 million?

It will be a decent amount of money we believe.

Sorry, sir. I'm not able to hear you.

We believe that the number will be different. We cannot specify or guide any number as per our policy.

Okay. Got it. And my question is on the sales that we have done ex-COVID. So India, you called out that your India growth is mid-teens ex of Sputnik, which means about INR 90 crores to INR 100 crores. How would it look if I include exports also because you have seen a very strong growth across your RoW markets and emerging markets?

Yes. Sputnik in the relevant quarter was not exported. We believe that licenses will be generated during this quarter itself. But in the third quarter, we did not export the Sputnik.

Sir, your voice is not clear, sorry?

What I said is that -- do you hear me properly now?

Yes, very much.

Okay. Sorry about that. So we did not export during Q2. Exporting license will be given by the government only during this quarter. And when we will receive that, we will be able to export the Sputnik, not before that.

Okay. So the follow-up on RoW is there is a exceptionally high growth. And what I heard last was that the growth momentum is strong, but any particular reason you want to call out? Is it COVID-related products or is there any one-off to that?

There was a great contribution, especially from Avigan for Favipiravir, especially in Asia. This was the tablet related to COVID. But as Parag said, even without COVID, there is a very, very robust growth, primarily led by growth in the Russia and China and the rest of the emerging markets in both retail and hospital products. So even without coverage, which contributed in a healthy manner, we have a healthy growth, and this will continue also in the future.

Very helpful. And last one on the PSAI, sir, if you could just give some highlight, when do we start seeing growth and margin improvement? And on the back that you're already hearing a lot of raw material pressure, so what exactly we are doing so that our growth comes back?

The main growth will come in the next -- so overall, strategically, the main growth will come when the new portfolio of API, which will, of course, support launches in the -- by our customers, including our own internal use of the new API. So if you wish, our API business, the biggest product is primarily driven by a group of products that are, let's say, are veterans in the generic business and the new products that will be launched, primarily both sides will replace it if you wish to correct the products in the next coming years. Specifically, the API is doing well, given the fact that, on one hand, we are increasing in the commodity, and we have intensified competition of some of these key products. But we are doing well in penetrating with the newer product, and I believe that within the next few quarters, we will see a sustainable growth. The fluctuation that we see now probably will continue in the next 2 to 3 quarters.

The next question is from the line of Nithya Balasubramanian from Bernstein.

So my first question is on generic Vascepa. What's the current API situation? Has it eased out? Can you scale up and take the target market share?

So my constant, we believe that we secured the APIs that we need for the next few quarters and beyond and we feel very comfortable with our situation right now.

Your competitor had commented that this is possibly not a high-margin product as they would have normally imagined the new launch to be? Would that be the case for DRL as well?

We are not going to discuss the profitability of this product. I can say that I'm very happy and pleased with the performance of this program.

My next question is on if you can give us an update on generic NuvaRing and generic Copaxone, where you are in terms of the revenue cycle to the FDA, and if you are on track for an FY '23 launch?

We are both on the same stage that we discussed last time, Copaxone kind of the volume in our cost, we still need to address the FDA. I don't remember even how many cycles we have by now. So the recent cycle. NuvaRing, we are awaiting for the FDA response we submitted, I think, back in June, and this is the status that we have now. About launch prospect right now, I cannot give any finance for the launch, learning from the past experience. When we see it, I believe that we'll want to get it.

Fair enough. Just on NuvaRing. Given that NuvaRing and Copaxone, given that it's gone through multiple cycles of queries and then and reread by the FDA. Are we still -- should we still assume once you've submitted, it's still a 6 to 8-month revenue cycle or does it go longer because it's a multiple cycle now?

With the current practices with FDA. Every time that we submit, we are getting a new goal date, and that's the practice that probably will continue. I don't think it will be less than that for a good submission.

The next question is from the line of Sameer Baisiwala Morgan Stanley.

Erez, on your Sputnik, you had contracted for 125 million doses. And the expectation was that you would achieve that within, say, 12 months. Given where India is stood in vaccination, so do you think this is a realistic target or do you think the volumes could be a lot lower?

On the rate of vaccination that was in India, especially during July and August, we clearly missed it primarily because we were lacking of supply on the second dose. And right now, the level of vaccination in India is very healthy. At the same time, we believe that it's still a very hard opportunity, given the fact that Sputnik and the booster for any vaccine, not just in India, but elsewhere. The qualification of Sputnik Light as a vaccine and as a booster and the trial that we are doing for both kids, meaning 2 to 12 and adolescence, say 12 to 18 as well as the ability to export. So it's a new, if you wish, a new, if you wish, a newer opportunity, a newer position. In terms of quantity, you have to speculate potentially an even more than this. But I would not necessarily stick with the number, it should be still about the opportunity for us. But naturally, the -- I wish we had more supplies during July. We could make this quarter even better.

Okay. Great. For Vascepa, very specifically, it is -- I know you've answered that you've secured supply for next few quarters. But has your new API supplier approved by FDA or that filing a state pending?

We got the approvals of the suppliers that we seek for.

Excellent. Okay. Wonderful. And Erez, I know you have limited comments on Revlimid 2.5 and 20 milligrams. And I will not push you too much, but the question here is that for these 2 strengths, the contract is same as you have for other strength or is it a different contract with innovator?

So 2 strengths are included in the second number that we're going to incur.

Sorry, I missed that.

The 2 strengths are included in the second message element we reached with the innovation.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on the Molnupiravir clinical trials that you have been doing in India. What is the update? I thought end of September is when trials concluded, but I could be wrong.

We are expecting the results within the next few weeks. And of course, we are expecting the approval of the product by the U.S. FDA. And if both will happen, then it's an interesting opportunity, especially for countries with the lower level of vaccination.

Sure. That's helpful. So this could be -- and given that Molnupiravir seems to be the preferred candidate at this point of time, do you foresee this to be a large -- both, you have rights in India as well as low and middle-income countries, right?

Yes. We have high expectations but COVID, like COVID, no one knows what will happen. So we are preparing ourselves for a big opportunity and let's see what will happen as it, of course, it depends not just on the approval, but also how the pandemic will evolve in the next few months and quarters. So I wish I knew but that's the same for this.

Yes, sure. Does our trial also cover prophylactic use in which case, the use case could be larger, right or do we have to be something different from that?

No, no. It's prophylactic use.

Got it. Okay. Helpful. Second question is on Suboxone film. I know we've been in the market for quite some time. But the brand still seems to be retaining like what, about 25% market share, we are at 13%. I'm just quoting, I'm stating what I can see. Should -- with the 4 to 5 generic -- shouldn't generics to be higher? Is the -- do you think there is further room on Suboxone film?

It is -- very much depends on the patterns of the way this product is being prescribed in India. So the level of penetration of generics is going to be higher in the future. It's just slower than the other. By the way, I do see a higher market share than the number you shared now.

Mr. Erez, it's close to 20% you think?

It's north of 20%, yes.

Okay. Great. That's very helpful. And my last question is on China. Anything that you can help us update in terms of what -- how are we doing, either what will your annual run rate, what's the product portfolio there, how many are we launching, anything in terms of the tender systems? Any update on China, very helpful.

Sure. So first of all, we are on track with China. And also the performance in China is very, very positive. On both the partnership that we have with Therapy as well as the projects which are going to what we call the GOP tenders. We are preparing to launch to -- so to submit relatively larger numbers of all that for the GOP that potentially can be among the first to file and among the first to markets. At this stage, more than 15 products. And for next year, this rate will be probably less than 10% and it eventually will be submitted. And as you know, in the GOPs, normally every cycle of 2 to 3 years depends on the nature of the products. And we are targeting the progress in accordance to the finance of those tenders. At the same time, our partnership is focusing on the image and opportunities and this is going very, very well and continuing to grow in double digits.

The next question is from the line of Shrikant Akolkar from Asian Market Securities.

My first question is on Revlimid in Canada. So can you please talk about initial trends like price erosion or market share gain?

No, I cannot speak yet on these terms primarily because post-launch in Canada, there is a process in each one of the provinces and states to get approval. So as you know in Canada, you are getting approval from the Minister of Health and then you need to register it in each one of the provinces. So this is the process that we are in. And so we did launch the product. It's a healthy launch, but it did not reach its potential, and it will be once it will be approved all the relevant provinces.

We lost his line, so we'll move to the next question. The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. 2 questions. One, in terms of the outlook in terms of biosimilars. When do you see it contributing meaningfully? And I mean, by which year? And secondly, in the -- during the quarter, there has been some license fee income as well as some -- as well as sale of price income. So adjusted for that, how much would be the normalized EBITDA margin led Dr. Reddy's Labs on?

So on the first question with biosimilars, I believe that in the calendar year of 2024, we will start to see no meaningful contributions. And as we are now reinvesting, the sales that we have and especially in emerging markets by building more capacity and building more R&D. This is our business model. And of course, licensing in for the United States. So this is right now the model, and this continues to be the model probably until the calendar 2024 or fiscal 2025. As for the margins, I'm reiterating the '25 -- the same is '25 that we are sharing. We are very much in that direction and it's coming faster than we anticipated, let's say, 2 years ago. So we are very, very close to that.

Okay. About your partnership with Fresenius Kabi?

What's about it?

For pegfilgrastim?

Yes, it's still there. We're lucky for them to launch and to enjoy the profit.

Okay. But they have got the approval, right?

Not that I know of. They should get it, but I don't think they will get it.

Okay. Yes. And regarding the EBITDA margin?

I said that we are very close to the 25% in EBITDA as well as the 25% I've seen we're getting closer to that. And this is where I would like to see the company in the quarters and years to come.

The next question is from the line of Nitin Agarwal from DAM Capital.

It is on Sputnik. You talked about the potential export opportunity opening up in the second...

I'm sorry to interrupt you, Mr. Agarwal. May I request you to speak on the handset more, sir? Your audio is not very clear.

Is it clear now?

Yes. Thank you.

Yes. So as I was saying. On the Sputnik opportunity, I think if I were to go get it right, you mentioned that the export opportunity for Sputnik should potentially open up in the second half of the year. Now from the longevity of this opportunity, do you see this essentially being a FY '22 opportunity or do you see it lasting much beyond '22 over the next, maybe more than a year or 2 years as you see it?

It depends on what kind of booster policy countries will adopt. So at this stage, and as we all know, COVID is evolving faster than we can plan. At this stage when we export, it's either in countries with lower level of vaccination and the medium term is primarily about the booster. But it, of course, depends on the booster protocol that each one of the country will adopt, especially the countries in the emerging markets. So feel like we have the vision but this is the opportunity.

Okay. And secondly, on our R&D. Now that we've significantly produced our specialty work, where are we spending currently our R&D dollars on, which areas are the focus areas for us going forward?

We are spending on our generic portfolio for the spaces in each one of the markets, mainly in the United States, China, Europe, emerging markets. We are trying to globalize the products. So we are developing products more than one market, and if possible to all of the relevant markets. It was part of the productivity products. But this is in line of our core business. In addition to that, we are spending the money on biosimilars. And recently also on COVID product as well as vaccines. Specifically for India, we do have in Russia, certain clinical and some differentiated products -- clinically differentiated products, the money is also going there. And last but not least, we are developing APIs as well as intermediate as part of the -- there is a small group under the branch of the original discovery that is developing products for immuno-oncology with the business model in which we are taking some of the assets and licensing out in early stage, and this is what is financing the products that we wanted to come to the marketplace. And this is part of what I discussed before to Avigan too. The current business model of generic, branded generic, and API, will continue to be our main business for the time being. At the same time, we are building new businesses that will serve us in the next coming years, a part of it is coming by our investments and part of it's coming by self-financing of that specific group. So we want to create the growth of our core business as well as building the new franchises and maintain the 25-25. This is the challenge that we took upon ourselves. And so far, we are in that direction.

If I can squeeze in one last one. You talked about inorganic growth. So what are the areas that typically are a top priority for us from inorganic opportunity perspective?

So these are primarily complementary products or assets that can help us grow in our spaces. Like we did with the acquisitions of the products at Wockhardt's at the time. So we have all the time value primarily product assets. But in each one of our spaces, India, Russia, United States, Europe, we are evaluating deals and as well as emerging markets, which will be complementary in nature. And we are trying to leverage, of course our relatively comfortable financial situation that we have now.

The next question is from the line of Kunal Dhamesha from Emkay Global.

Again, coming back to the Sputnik export opportunity. So from the economics, does export change anything, I mean, in terms of the whatever profit margin that we -- that for India versus the exports, is it different or would it be same?

Prices outside of India currently are higher than India.

Sure. And in terms of the quantities, it still remains the same, right? 125 million people so roughly 250 million doses.

This is the current contract that we have with RBI is still the same. We have now gone just different outlet. It was meant primarily for India. And this did not materialize the way it was designed originally. Now we are trying to find opportunities in the other places that we have discussed.

So we have a contract in place right now for exports or not?

We do have contracts for exports in terms of places agreed that we can explore the products, yes.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Are there any updated thoughts on outpatient health-tech platform that you talked about? How is it progressing? What are the key milestones that you're looking out for?

Yes, we launched it in July. It is growing very nicely. And we are now at the stage of upgrading to 5 more cities in India as well as upgrading the digital platforms that is supporting it. The recruitment of the physicians is going well and it's a very, very interesting disruptive idea. Hopefully, it will continue to be deployed. But let's say, the launch is encouraging.

Okay. And is it only towards a doctor consulting or is it also towards e-pharmacy and diagnostics are you also expanding on that?

It's end-to-end resolution, including all of the above.

Okay. Great. And one more. As far as biosimilars for regulated market is concerned, can you confirm how many do you have in Phase III clinical? I thought there was one Rituxan. And over the next 12 to 24 months, how many more can enter into clinical trials, please?

Phase III, we have one, which is rituximab. In the next period of time that we discussed, we will have 4 more.

For more? Excellent.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Amit Agarwal, for closing comments.

Thank you, all, for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you. Thank you. On behalf of Dr. Reddy's Laboratories Ltd., that concludes this conference. Thank you for joining us, and you may now connect your lines.