Dr Reddy's Laboratories Ltd (RDY) 2004 Q2 法說會逐字稿

Good evening ladies and gentlemen. I will be the moderator for this conference. Welcome to Dr. Reddy Laboratories second quarter fiscal 2004 q-and-a conference call. For the duration of the presentation, all participants' lines will be in the listen-only mode. After the presentation, the question and answer session will be conducted for international participants (technical difficulty). After that, there will be a Q&A session provided for participants (indiscernible) international (indiscernible). After that, we will have the Q&A session (indiscernible) India participants. I would like to hand over to Mr. Nikhil Shah of Dr. Reddy's Laboratories.

Thank you. Good evening everyone and welcome to Dr. Reddy's second quarter fiscal 2004 financial results conference call. I am Nikhil Shah, the investor relations officer at Dr. Reddy's. Today, we have on the call GV Prasad, our Chief Executive Officer; Satish Reddy, our Chief Operating Officer and Vasudevan (ph), our Chief Financial Officer.

We released our financial results yesterday, and these are available on our web site at www.drreddys.com under the quick links

On today's call, GV Prasad will give a brief business overview of the quarter and Vasudevan will review our financials in depth. GV Prasad will then discuss our look and future prospects, then he will leave the floor open for (indiscernible).

Now the Safe Harbor statement. I would like to remind you that the discussion and analysis during the duration of the call may include forward-looking statements as defined in the U.S. Private Securities Litigation Reform act of 1995. We have based these forward-looking statements on our current expectations and predictions about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such factors include but are not limited to changes in local and global economic conditions; our ability to successfully implement the strategy; the market acceptance and demand for our products; our growth and expansion; technological change and our exposure to market risks. By their nature, these expectations and predictions are only estimates and could be materially different from actual events in the future. Let me turn the call over to GV Prasad, our Chief Executive Officer.

Thank you, Nikhil. Good evening, good afternoon, and to those of you in the U.S., a very good morning. I hope you all had a chance to review our results and thank you for joining us to discuss Dr. Reddy's second quarter financial results. I will follow the key highlights of the quarter's performance and Vasu (ph), our CFO, will cover the financial section. At the conclusion of our section, we will be happy to take your questions.

To begin with, I am pleased to report yet another strong quarter and a good first half. For the first half, our revenues were at $223 million and net profit was at $38 million. The reserves continued to demonstrate our ability to (indiscernible) sustainable and profitable growth in our core businesses and our ability to sustain the momentum in our global generics business. (indiscernible) also reflects our commitment to invest in our R&D programs, patent challenge projects and new business initiators. And by doing all this, create a balance between current profitability and future growth. Beyond the current performance, we are confident that for the full year we will cross the $400 million mark, which I had discussed earlier during my calls at the end of Q1.

Let me now spend a couple of moments recapping the quarter. We had a good quarter with revenues of $470 million, which was a growth of over 9 percent over the second quarter of last year, and this was achieved despite a 5.4 percent appreciation in the Indian rupee against the U.S. dollar. Driving this performance is our growth in the U.S. generics and European APR (ph) segments. Our generics business in the U.S. and the UK continued their strong performance in the second quarter as well. If you step back and basically look at the first half, we achieved global revenues of $53 million in the generics segment, a year-on-year growth of 17 percent and we achieved this despite not having any significant product launches this year. As you can see in the results, fluoxetine and (indiscernible) sustained their strong performance during the quarter with combined U.S. revenues of $16 million. Interestingly, we are witnessing a volume expansion in fluoxetine which in part is driving the growth. Even ibuprofen, launched under the Dr. Reddy's label earlier this year, crossed the $1 million revenue mark in this quarter.

Moving onto Europe, I am pleased to report a strong revenue growth of 67 percent in our UK operations. This was driven by the performance of Omeprazole (ph). which (indiscernible) $2 million in revenues. Our new product launches included Rifazidone (ph) in the U.S. and (indiscernible) in the UK.

In terms of the pipeline that we're building for the future, we find (indiscernible) in the quarter, including three products for certification, of which one is pending acceptance by the FDA. And with this, we now have 37 filings pending with the FDA. We remain on target to file 15-18 NDAs for the full-year, and in fact, bio (ph) study from many of our products are either nearing completion or are well underway, indicating that we're likely to see a higher activity in terms of NDA filings in the second half of this year.

Moving onto our API (ph) business, as you may recall in the previous call, I discussed a key product launch in our European API segment. I am pleased to announce that we launched Lamopril (ph) in the second quarter and it has contributed significantly to our revenues, as well as margins. Sales of Lamopril for the quarter were about $8 million and we believe we have captured significant market share in the European market. We're certainly off to a good start and look forward to an interesting second half as well as the customers gear up for a launch in January in the patent before (ph) Lamopril expires in Europe (ph).

Our strategy for focusing on the regulated markets for the U.S. and Europe over a decade have been validated by our performance in the U.S. in the previous fiscal, followed by growth in Europe (indiscernible). In fact, in the first half, U.S. and Europe together have contributed close to 45 percent to our total API (ph) revenues. Driving this is our inherent (indiscernible) product development. In fact, we're one of the largest and most productive API R&D operations in the industry, (indiscernible) 10-15 new products every year. (indiscernible) an interesting portfolio of nearly 100 products with one of the largest in the industry.

Let me now move onto our formulations business. Revenues in India were up by a marginal 4 percent. This month (indiscernible) does not capture the underlying strong performance of our key brands. Our top 9 brands have collectively grown by 22 percent over Q2 of last year and in particular, (indiscernible) have recorded growth upwards of 24 percent. However, this performance has been offset by two specific factors -- our sales of Cipro (indiscernible) and (indiscernible) and Bio E (ph) have been lower compared to the second quarter of last year and (indiscernible) we rationalized our portfolio by dropping some of our non-performing brands. Going forward, driven by greater focus on our established brands and a rationalized portfolio, we expect to improve on our performance in the second half.

Moving onto this year, our revenues have declined by 18 percent same period last year. This we believe is an aberration and will get evened out in the coming quarter. Finally, coming to drug discovery, let me share with you the developments in some of our ongoing projects, starting with the oncology program. As you are aware, Phase II trials are underway on our lead compound DRS-1042 across three centers in India and the patients are now fully enrolled and the studies are progressing as (indiscernible). During the quarter, we have filed a Phase II application for additional oncology indications for this molecule. As discussed earlier, we're in the process of initiating Phase I studies for BRF-1042 in the U.S. sometime in the second quarter of calendar 2004 and we've already initiated the (indiscernible) studies essential for commencing Phase I trials in the U.S..

On the follow-up (ph) compound DRS-1644, during the quarter, we initiated Phase I trials at one center in India. (indiscernible) metabolic disorders program, we have successfully exploited our expertise in the (indiscernible) area to develop compounds for indications other than (indiscernible) and DRS-10945 is one such compound which is being developed for (indiscernible). DRS-10945 at predominately (indiscernible) lowering and (indiscernible) elevating agent and this class of compound is showing tremendous potential and has recently received prominence, as witnessed by the deal between Roche and (indiscernible) of Japan for a similar compound. The (indiscernible) DRF-10945 are nearing completion, and if everything goes well, we should be commencing Phase I studies in the first quarter of 2004. With his brief overview, I will now ask Vasu to discuss the financial highlights.

Thank you all for joining us on the call today. Prasad has discussed the key highlights of the quarter's performance. Let's now take a closer look at the financials.

Gross profit for the quarter increased 11 percent over $64 million while gross margins have been consistent at 54 percent, in line with our financial performance. SG&A expenses, as we have indicated earlier, continue to be in the range of about $32 million. As in the earlier quarters, legal and consultancy charges and personal costs remain a significant factor in SG&A spending. Our commitment to research and development continue with close to 9 percent of our topline (indiscernible) in R&D during the quarter. Approximately two-thirds of that investment was focused in our generics and specialty pipeline. For the full year, as indicated in the past, we're on target for (indiscernible) R&D spend as we continue to expand our pipeline aggressively. (indiscernible) about $18 million of R&D spend for the first half, (indiscernible) 8 percent of total revenues, and for the full-year, we may come in at about 10 percent of total revenues, which means our second half R&D spending will be higher than the first half. Despite these significant investments during the quarter, we delivered bottom-line net income of $20 million, or 27 cents per share on a diluted basis.

I would now like to highlights some of the key numbers from the quarter end balance sheet. During the quarter, we spent over $10 million in the expansion of our manufacturing facilities, primarily in the formulation and APIs (ph) business.

Moving onto working capital -- collections improved during the quarter, given as a sales increased 12 percent sequentially quarter-on-quarter, and as a result, the numbers of days of sales outstanding at the end of September quarter improved to 72 from 79 days at the end of the June quarter. However, our inventories are up by about $5 million from June end levels. This is primarily on (indiscernible) of the buildup of inventories in our international formulations development and (indiscernible) special customer demand, and in part due to the situation in (indiscernible) which we discussed earlier. And finally, we closed the quarter with cash and cash equivalents of (indiscernible) million (indiscernible) of over $9 million and investing $10 million in various projects. This concludes the financial review of our second quarter, and now I would like to turn things back to Prasad for his final remarks.

Thank you. Before turning to your questions, I'd like to share my thoughts on some of the near-term opportunities, especially in Europe and Brazil as we continue to drive geographic expansion. However before I do that, let me give you a quick update on (indiscernible). As you are already aware, in mid-October, the FDA assured its (ph) response to the pending (indiscernible) under section (indiscernible). The FDA Has declined to alter its current interpretation of section (indiscernible) and this brings clarity on the final (indiscernible) process. (indiscernible) our first product in the U.S. specialty segment, we are now awaiting final FDA approval. We will update you on our future course of action on receiving the final approval.

Coming back to Europe, I'm pleased with the way the market is shaping the field. Europe will be a key growth driver for us, adding onto the growth inherent in the U.S. market. And I certainly believe that there is a lot more that we can do in this region. With the increasing focus on containing rising health-care costs, the current wave of generic reform and a favorable regulatory environment, Europe is offering certain interesting growth opportunities, either through (indiscernible), product licensing or company acquisitions. And in response, we are stepping up our business developments in this region and are committed to make the necessary investments, even as we continue to drive growth organically through our API business, as well as our genetic business in the UK.

Moving onto Brazil. For the past few quarters, it has been a work in progress. As you may recall, we've reorganized our operations in Brazil to focus on the oncology segment, and I'm now pleased to announce that we have received pricing approvals for three products and expect revenues to continue from the third quarter onwards. And as I speak to you, our sales reps are on the ground (indiscernible) our products to the (indiscernible).

Finally to sum it up, it has been a good first half and I'm quite confident of our outlook for the second half. We continue to make progress in driving profitable growth in our core businesses, building our U.S.-based specialty business and strengthening our discovery pipeline. With this brief overview, I would now like to leave the floor open for your questions.

(Operator Instructions). (indiscernible)

Good evening. Thank you very much for the presentation. I just wanted to ask on the recent launch of Nifazidone (ph) and (indiscernible), what kind of market you are expecting for those drugs, what kind of sales expected for those drugs. And also, just where the boost came from in API sales, because that was noticeably improved. And my last question would just be on -- can you just (indiscernible) again the reasons for the sharp decline in Russian sales?

Nifazidone, as you know, is a very (indiscernible) product today and we're marketing this through (indiscernible). And as of now, it doesn't look like it is going to be a big product (indiscernible) (technical difficulty) market share and I don't have exact numbers. For the quarter, I think we did something close to $700,000, in terms of Nifazidone. This translates to a market share of around 10 percent today. (indiscernible) I don't have the exact numbers, but it is also a product that is not very big for us. I can give you the numbers in a minute.

Ramipril (ph) is the product that has driven our growth in the European market, and we clocked (ph) $8 million for this product. You (indiscernible). In the Russian market, there's been a change in the way the customs processes for importation of medicines that have been conducted, and this (indiscernible) resulted in the postponement of revenues of up to $2 million. This will be recognized in the coming quarter and with that essentially (indiscernible).

Okay. I'm just going back to the Ramipril. Would you say Ramipril is actually kind of at peak sales level in the second quarter, or is there more to come?

There will be more to come in the coming quarters, but not at that level. We have had large quantities, so there is some level of stocking up.

And that has presumably affected both your API and your formulations lines?

Could you repeat that?

That (indiscernible) both formulation and API?

Primarily API.

My last question would be on the four big drugs -- fluoxetine, (indiscernible) ibuprofen. The sell-down in fluoxetine wasn't as harsh as perhaps expected, and I was just wondering whether you have an outlook for the full-year for those four key drugs -- what sales they would have in aggregate?

I'd have to give an outlook, and as of now, the prices are maintaining, the marketshares are maintaining. (indiscernible) nothing immediately that will (indiscernible) this, but you never know how the generic market will behave (indiscernible).

Did ibuprofen reach your sales target in the last quarter, or is there more to come on ibuprofen?

I think there's more to come.

We have steadily been ramping up supplies, because this is the first product we've launched in the U.S. and we are ironing out the (indiscernible) issues and (indiscernible) (multiple speakers).

You can't give a full-year sales estimate for ibuprofen alone, could you?

No, we cannot.

Thank you very much -- sorry, could I just confirm what the net cash position was?

Net cash position (indiscernible) $116 million-plus.

Okay, thank you very much for your time.

(Operator Instructions). At this moment, there are no further questions from participants at (indiscernible). I would like to hand over the proceeding to Amy at (indiscernible) international center.

(Operator Instructions). At this moment, there are no questions for participants outside of India. I would like to turn over the proceedings back to Menali (ph).

Thank you very much. (Operator Instructions). (indiscernible).

Congratulations on a good performance. I just wanted to know if there was an announcement yesterday regarding acquisition in Germany. Can you elaborate on that?

In particular, we're looking at expanding our presence in Europe, so we are looking at all kinds of models -- partnership, joint venture, (indiscernible) acquisitions in Europe, and our focus was to begin with (indiscernible) Germany.

Okay, but has anything been finalized or?

No. If it's finalized, we would be at a public company (indiscernible) obligations.

Regarding (indiscernible), are there Indian suppliers in the European market?

No Indians, but there are European suppliers competing.

Okay, so there's no Indian suppliers besides (indiscernible)?

As of now.

Okay, thank you.

(indiscernible)

Good evening, sir, and congratulations on the improved performance from Europe and Asia (ph). My question is - you know how sustainable is the revenue from the European region? And also I wanted to know about the 27 NDAs that we have filed so far -- what is the market size that we are addressing with that now?

First of all, I think in the API business, the initial supplies have tended to be at the higher price and higher volumes as companies to get ready to launch. So going forward, (indiscernible) in that volume and (indiscernible) depending on the competition. So you have to factor that in when you look at the revenues going forward. The NDAs -- I don't have an exact number, in terms of the (indiscernible) opportunity. But, (indiscernible) can you answer this question?

(indiscernible) we have about 20 (indiscernible) which are pending at the (indiscernible) office, and the total size that we are looking at in terms of (indiscernible) sales, is about $18 (ph) billion as per IMS (ph) 2002.

Thank you. I have one more question. That is about you know (indiscernible) mentioned about 90 to (indiscernible) discovery, and about 25 (indiscernible) land acquisition for research (indiscernible). So could you give a little more (indiscernible) on this, the significance of the investments that are made at both the places?

Investments in origin in (indiscernible) I think are (indiscernible) in Bangalore, as well as in Boston. The Bangalore center is (indiscernible) accommodate up to 200 people in case one construction company (indiscernible) Phase II (ph) and we can expand as and when we want. So that's the investment in origin (ph). The land acquisition in Agriba (ph), it's a large tract of land 185 acres, very close to our existing facilities. We have bought this (indiscernible) as a strategic move to accommodate our needs in the future. Correctly, we're not constructing anything here, but we acquired this land as an opportunity for expanding our future facility from the same quarter (indiscernible).

Thank you, sir, and all the best to you.

Richard (indiscernible), (indiscernible) Consultancy.

Good evening, sir, just a couple of the bookkeeping questions. You said that your expenditure contains some legal cost. Could you elaborate on exactly how much this legal cost was for the quarter and for the first half?

The legal cost of total (indiscernible) $5.11 million. In the second quarter, we had spent over $2.86 million.

2.86? Okay and (indiscernible) particularly in your debt expenditure, which went up from 75 close to 99 accrued in second quarter?

We had that (indiscernible) in place (indiscernible). If you look at G&A, the key drivers of this has been the legal, as well as the employee costs.

I see. So in the GAAP (ph) consolidated figures, your wages have gone up about 13 close (ph) on a sequential basis, so part of it, can it be attributed to your recruiting senior people in U.S. for marketing network?

Yes, that is right. It's 33. (indiscernible) employee costs.

Can you give us an idea of what is the marketing setup now in U.S. as of now?

We have 42 of our colleagues working there, and we have (indiscernible) marketing team, the specialty marketing team, and as well as the API (ph) marketing team, which operates out of a New Jersey office, along with the regulatory and legal team.

And of this 42 people, how much could we label in senior category, or could we label as (indiscernible) hires from pharma companies?

(indiscernible).

I see. Thanks a lot.

(indiscernible), Suez (ph) Investments.

Hi. My question pertains to a note which is given in the press release, whereby we say that during the quarter, gain (indiscernible) an foreign exchange loss includes gain on rupees 53 million on a (indiscernible) mark-to-market of U.S. dollar forward (ph) contracts. Can you please elaborate on the need for this?

This is basically done on the U.S. GAAP requirement. (indiscernible) I think are -- and also (indiscernible) contract (indiscernible) of the quarter. We value them marked to market. This is (indiscernible).

My second question pertains to -- we don't have any (indiscernible) between the U.S. GAAP and Indian GAAP number. Would it be possible to provide it to us?

Sure. It will be possible, but what we have been doing in the last few quarters (indiscernible) that we have been giving out the -- all our expenses and their comparisons on the U.S. GAAP number, so (indiscernible) start giving the competitor numbers for Indian GAAP and U.S. GAAP. But we can definitely (indiscernible).

I will send an e-mail to you. Thanks.

Manish Jain, DSP Merrill Lynch.

I had three sets of questions. First is -- off the (indiscernible) challenges, how many are first to file? Second, on the (indiscernible) filings, do we remain on track to file significant DMF in the second half? And last one is a minor accounting query. On the discontinued production Indian market, what is roughly the value of the discontinued brands?

Nikhil, can you answer first two questions and (indiscernible).

To answer your question on the number of first to file positions that we have, off the 20 (indiscernible), there are 8 first to file positions.

On the DMS part, I think we're on track. There have been some delays, some of which would have been filed in this quarter or going into the next quarter. But overall, we're on target to file over a dozen DMFs. Vasu, do you want to talk about how much -- what the value of the discontinued brands is?

It's about 25 million rupees, Manish.

Thanks.

(indiscernible) Agarwal, (indiscernible).

Congratulations to the Dr. Reddy's team on a good set of numbers. Mr. Prasad, you expressed confidence on the target for AND (ph) filings 15 to 18. Is there a possibility of filing more than 18? Because from the tone of your confidence, in seemed that you would exceed the 18 mark. Could you comment on that?

I don't know how you could have read it through my tone. I will stick by the number 15 to 18.

Okay. Secondly, could you confirm that (indiscernible) still filed only two NDAs, or we have filed further NDAs in this quarter?

No, we have not filed anything.

Have we been sued on the second NDA which we had filed by the (indiscernible) company?

No, we have not been filed.

Then what would be the milestone, or what would be the event that you would disclose which is the second NDA.

Approval from the FDA.

And when are you expecting that approval?

It is hard to say. (indiscernible) in any case.

Has there been any linkage with the approval of the first one (indiscernible) or it's independent?

It is independent.

Lastly, you said you were working on several NDA projects. Could you give us a status on these projects and when we could expect further filings?

We could expect one or two filings in the balance of this financial year.

Okay. Lastly, you have already clarified this, but I am again asking -- where did this recent clarification on the citizen petition would have any indication or would have any leverage (ph) to the pending quota judgment, or that would be independent of this?

This will have no impact on the court. The court is really looking at different issues.

Is it correct that Cintone (ph) is going ahead with the launch of Parexotine (ph) on December?

I cannot comment on that.

Okay, thank you a lot.

Pawan Nahar, SSKI.

Hi. I had a few questions. First is on the APA's business. What I've done is I've looked at it from the four regions that you specify in there -- U.S., Europe, rest of world. If you could like you know I think for the first two quarters of this year, the U.S. has been pretty silent (indiscernible) the growth. We understand the reasons. But can we expect that say, from the second half, there could be better growth there?

There can be some uptick in the U.S. because some of the products, like Nizatidine (ph), could start picking up.

Any new product you hope to launch in the U.S.?

In the second half?

Without names, of course.

I don't see any new launches in the second half.

On Nizatidine, you are saying you're expecting uptick in the second half. Is it -- I don't think it is a seasonable thing, but (indiscernible)?

It's not seasonal. Before launch people, have all stocked (ph) the product, so there is going to be a catch-up on that.

Okay. Second is on the Indian market, we see very good growth there. Any particular trend or just that one off quarter?

I don't read too much into Indian market. I don't think it is (multiple speakers).

Sure makes money, I would think.

Doesn't make a lot of money.

Okay. Third is on the European market. Ramipril, you said it's (indiscernible), in fact item number on the Nizatidine when it happened initially, you said it's the initial (indiscernible), but I think it continued for about two quarters or three quarters, I think.

That's why you don't see sales now.

That's okay, but then this came as a very pleasant surprise, I would think. But can we expect this kind of a business, I mean with Europe being a focus at least, 500 million or so for the next two quarters?

I would hate to give you a number on this.

Fair enough, but would you expect a good deal of business in the European market?

I think the European market is doing better for us. We have somewhat restructured the way we operate in the European market. It's becoming the market of increasing focus for management. So I think Europe is going to (indiscernible).

SO any more new launches that you are expecting there in Europe?

Not in the rest of the fiscal year.

Finally the fourth segment, rest of the world. I think there's a sharp decline. What I see is that it appears the business is almost hobbed (ph) out there. I mean, is there -- again, I would think is this a one-off quarter, or is it some trend or something?

Unidentified Speaker It is both. It is one-off in the sense that that sharp decline shouldn't happen on our (indiscernible) basis, but it is also a trend because we tend to focus a lot more on the Europe and U.S. these days. So we are de-emphasizing rest of the world and (indiscernible) also.

Because the point is you had about 46 gross (ph) in Q1 and 22 gross in Q2. And last year, you averaged about 40-45 gross in the rest of the world.

That's why I'm saying, it could be both a one-off and also a trend.

Then coming to genetics, you I think earlier in the call, you said that Loxatin (ph) volumes are doing good, and so should we assume that the end of this (ph) 500 kind of level or $12 million is sustainable?

In the generic business, is very difficult to say that anything is sustainable.

Fair enough. But at this moment, it looks so?

Until the next move by the competitor, yes.

Okay. And then there is the question for Mr. Vasudevan. Earlier in the year, you had said that full year tax rates would at around 10-12 percent. But at this moment in the first half, I see about 17 percent. So does this mean -- are you still holding to the earlier guidance, or would it mean that there's some changes (inaudible)?

Yes (indiscernible) first quarter tax (indiscernible) was at 18 percent. It has come down to 17 percent. We can see the tax (indiscernible) coming on in the subsequent quarters.

But will you think 10-12 percent for the full year? (MULTIPLE SPEAKERS)

At this moment, (indiscernible) the guidance, depending on the (indiscernible) market performance and the (indiscernible) business performance. (indiscernible), but it's hard to say now.

Finally one more question for Mr. Prasad. So you have been investing in Oragene (ph), and I mean, you said that -- in d in fact, before I ask the question first, can I understand -- you said that Phase I would be the 200 people. So you have 200 people onboard?

Not yet. We have the capacity to hire 200 people, we have the infrastructure ready for (indiscernible) slowly ramp up.

By then, you think this business can actually be, let's say, a $10 million business?

I think it will be several years before it reaches that level.

$10 million?

Yes. I think it will take about 3-4 years.

Finally on Amlodipine, you know what I was trying to understand was in any way is the deal approval linked to the judgment?

No, it's not linked.

Because what I was -- okay you're saying it is not linked?

It's not linked.

Finally, what about (indiscernible)? Would it be a case of shared exclusivity? Because I think (indiscernible) comments that they made recently where they declared (indiscernible) after which March 2003 or something after which the shared exclusivity begins.

This doesn't fall under that category. We are not first to file on this. There is a subsequent patent (indiscernible) first to file. So under some scenario, it would be a shared exclusivity, but by no means is it assured.

Fine. Thank you and best wishes.

(indiscernible)

My question relates to the segment-wide revenue results. What I noticed was that in the generics, the revenue has come down from (indiscernible). And the profit before tax and interest has come down from 47 gross (ph) to 12 gross. Yet in the note which is on the website, the generics is about 20 percent or so. So could you please explain to -- in fact are profits from Gendex (ph) come down or have margins fallen, or what exactly is the status?

(indiscernible) if you look at the U.S. GAAP, and if you look at the gross margins (indiscernible) performance, but as you see, I (indiscernible) mentioned the legal projects as (indiscernible) to R&D. (indiscernible) profit before taxes. So (indiscernible) in this business would be to (indiscernible) the gross margins as per U.S. GAAP. (multiple speakers)

But you're not getting the separate profit figure for generics. The generics are 1.2 billion, or 1 billion -- you're not excluding the profit before interest and tax on that amount?

Because they're on Indian GAAP numbers. We're (multiple speakers)

-- Indian GAAP, and Indian GAAP, the profit has declined sharply from 47 gross with (indiscernible) and maybe I'm making a mistake, but if you could just --

That's because of the investments in the legal and R&D side.

For the (indiscernible) Indian GAAP stand-alone. (MULTIPLE SPEAKERS). You're right, but the Indian GAAP stand-alone does not capture the global performance of the generics business. So you need to look at the U.S. GAAP numbers. And in fact on the gross margin performance in the generics business, last year, we were at a gross margin level of 70 percent, and this quarter, the comparable quarter in this fiscal, the margins are expanded to 73 percent.

Thank you.

Lisa (indiscernible), (indiscernible) Institutional Equities.

My question (indiscernible) origin or discovery technologies. Is there likely to be further investments in this subsidiary going forward? And could you give us a brief update on what kind of work you're planning to do (indiscernible) and when exactly you see the (indiscernible) here?

Origin will do three kinds of services (ph). One is it can have its own internal drug discovery program, and a certain percentage or resources will be used there. It will serve external customers and the service contracts, which are purely services without any ID (indiscernible). And the third area is collaborative research where there will be IP (ph) generation. And BRL (ph) will also be a customer for (indiscernible) services under this category. In the (inaudible) origin is not going to be huge revenue (indiscernible), but it will be (indiscernible) IP, as well as discovery as well as some element of revenues. And it is also going to focus on building up skills in the area of structure with (indiscernible). In fact, it is the only center in India which has this ability to do structure based on design based on protein structure determination today. Is that adequate, or do need to know more?

In terms of potential customer (indiscernible) (technical difficulty)?

The target customers could be large pharma, as well as emerging pharmaceutical companies from the biotech sector. We are seeing faction (ph) from the emerging margin pharmaceutical companies. It will take us some more time to get to relationships with large pharma in this area.

Okay -- and how well origins (ph) work the (indiscernible) in genes (ph)?

(indiscernible) based on design.

But will there be overlapping (indiscernible) chemistry-related services at all?

There may be (indiscernible) overlap in the synthesis part, but that is not the focus of origin.

Any further investments likely?

There may be some investments until the Company breaks even, in terms of covering the operational (indiscernible).

Thanks a lot.

Rajesh Vora, ICICI Securities.

Good evening. Just a couple of quick questions. First on your 27 (ph) Indian spending approval -- how many would have been filed for over 12 months and not being approved? And second relates to -- I want to know the rational of acquisition of this company called (indiscernible) business limited (ph), (indiscernible) bioscience, wherein you have already paid 25 (indiscernible).

On the first part of the question, I don't have it ready, but I could mail the details to you -- is that fine?

Sounds good.

(indiscernible) is nothing but land. We acquired the Company for its land asset, which pumps (ph) into our own corridor where we have significant (indiscernible) like our generics facilities, as well as our research facilities. This is a campus which we want to build later on to meet our growth needs. We just bought it for the land value.

Okay, thanks a lot gentleman.

Nimish Mehta, Mehta Partners.

Hi. Good evening, everybody. I just wanted to get some update on the OTC business in U.S.. You have a (indiscernible) liner health care products (ph) -- if you can just tell us about that.

There's no change from the last quarter. We continue to sell (indiscernible). We also have a supply contract to supply ibuprofen 200 mg. tablets to (indiscernible). And we also have the (indiscernible) 10 mg. (indiscernible) strength, which has not been a significant product for us. We have a set of products which we have developed, and some of them have been filed, which will eventually be marketed to Liner (ph) (indiscernible) when the patents expire.

Can you tell us -- (indiscernible) sales (indiscernible) of (indiscernible) in the U.S., and going forward, how do you look at it?

(multiple speakers) I can give you the product-specific numbers in INR. If you're looking at the (indiscernible), it's about 1.5 (indiscernible). And the Ranitidine 75 mg. is about 6.5 gross for the quarter, for the second quarter.

Totals for the second quarter?

Yes. That is about the OTC business.

Going forward, how do you see the (multiple speakers)

We also supply certain bulks (ph) under our agreement that play a significant quantity of Naproxen (ph) (indiscernible), as well as ibuprofen to these customers to Liner (ph). We see a large number of products going into this pipeline, and it is a long-term strategically (indiscernible) on the products as well as when we launch.

I see. But the pace of launches -- anything to comment on?

There's nothing to comment on.

Okay, thank you.

(indiscernible)

Good evening. My question is more on a macroperspective. Where do you see Dr. Reddy's (indiscernible) (technical difficulty) in terms of the (technical difficulty) drug discovery front, the generic (indiscernible) markets?

First of all, our focus is to become a discovery and a (ph) global pharma company. So our strategies will be to move towards that. And in the next three years, we will build up our international presence, we will become a very significant player in the generics industry, we will have launched the specialty business, and we will have had (indiscernible) candidates in (indiscernible), but none of them have launched yet. So as you look three years out, we will be a company which is not be especially place, it is a significant bulk of generics (indiscernible) globally and moving towards becoming an (indiscernible) player.

Could you probably for our understanding give us some kind of a milestone in the way how do you intend to do it and achieve this broader objective?

We're already working on all fronts. Generics business has been developing over the last seven or eight years, and we are going to accelerate the rate at which we file our NDAs. We will drive growth through product expansion and some geographic expansion. That's the generics business. In the emerging markets, we're looking at key geographies to establish a greater presence and increase our maintain penetration. For the specialty business, (indiscernible), if it happens, will be our first product. And on the back of this, we will launch a slew of products, some of which will be differentiated products offering a value proposition and treatment. And we already have a portfolio of NCE (ph) assets, which as we go forward, we will take increasingly the risk of development, but not today. As we go forward, we will assume some risks and we'll do some core development and co-promotion of these NDAs, and finally migrate towards launching our own (indiscernible) to our own sales force. That's the roadmap (indiscernible).

Thank you. That answers my question.

Nimish Dasai (ph), Alchemy.

Hello. I wanted this one clarification on these changes, or a clarification on (indiscernible) filings. I wanted to know specifically related to the salt (ph) change that (indiscernible) said that (indiscernible) public opinion on. Now does it in any way impact Dr. Reddy's future pipeline of Pfizer (ph) (indiscernible) products?

I cannot answer that question.

Okay. Secondly, can we assume that these (indiscernible) changes will be applied from future date, and not from a retrospective effect that is (indiscernible) will not get impacted by these changes announced?

That is (indiscernible).

Thank you.

(indiscernible).

Most of my questions have been answered, but just a couple of things. Do you want to comment on (indiscernible) as to what is the deal between (indiscernible) between GSK (ph) and (indiscernible). That's first. And secondly, on (indiscernible), are you looking at taking this (indiscernible) in Germany (ph) and from the NDA (ph) filing in the U.S. also?

To your first question, I'm not aware of any (indiscernible) GSK. But there was a court case which there was a summary judgment issued. I don't think there's any deal between them. (indiscernible) we filed in the UK, we have no plans yet as of now to take it to Germany or the U.S..

Thank you.

We will take one of question.

Ravi Shankar (ph), (indiscernible) Mutual Funds.

Good evening, sir. (indiscernible) have your views on the domestic market. You are on a more (indiscernible) basis, you move towards the low growth of (indiscernible) industry is going much faster. What other kind of strategies do you have now to kind of boost growth in this area?

Okay. As far as this low growth situation, is probably (indiscernible) what you see in the media (indiscernible). What happened is we have rationalized some (indiscernible). That's why we kept repeating (indiscernible). So even if (indiscernible) try to just take (indiscernible) does not reflect this out yet (ph).

Okay. Besides this rationalizing of product lines, on a longer-term sustainable (indiscernible) for the full year, what kind of growth can we see?

(indiscernible) high base that we should be going in line with the market growth pace (ph). So (indiscernible) slightly above the market (indiscernible) continue to do that. The market is at a low growth rate (indiscernible) market growth rate, but I think we're beyond that.

Okay thanks.

At this moment, I would like to hand over the floor to Mr. Nikhil Shah of Dr. Reddy's Laboratories for final remarks.

This question-and-answer session we conclude (indiscernible) conference call. I would like to take this opportunity to thank all of you for your continued support and interest in following up on the progress made by us. Thank you very much for being on this call today.

Ladies and gentlemen, thank you for using (indiscernible) services. That concludes this conference call. Thank you for your participation.