Dr Reddy's Laboratories Ltd (RDY) 2004 Q4 法說會逐字稿

Good evening ladies and gentlemen. I'm Pratibah, the moderator for this conference. Welcome to DR's fourth quarter and full year fiscal 2004 Q&A conference call.

[OPERATOR INSTRUCTIONS]

I would now like to hand over to Mr. Nikhil Shah of Dr. Reddy's Laboratories. Thank you and over to Mr. Shah.

Thank you, Pratibah. Good morning and good evening to all of you. I'm Nikhil Shah, the Investor Relations Officer at Dr. Reddy's. I thank you for joining us to discuss Dr. Reddy's financial results for the fourth quarter and fiscal year ending March, 2004. By now, you should have seen the press release as well as the additional financial disclosures, which was handed out this evening.

The results are also posted on our Web site on the home page under the quick links icon. Today we have on the call GV Prasad, our Chief Executive Officer; Satish Reddy, the Chief Operating Officer of the company; and VS Vasudevan, our Chief Financial Officer. To ensure full disclosure, we are conducting a live Web cast of this call and a replay of the call will be available on our Web site soon after the conclusion of the call.

Additionally, the transcript of this call will be available on our Web site at www.drreddys.com under the quick links icon soon after the conclusion of the call. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcast or attributed in place of media outlets without the company's express written consent. Now the safe harbor statement.

I would like to remind you that the discussion and analysis during the duration of the call might 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 often demand for the products, our growth and expansion, technological change and an exposure to market business.

By their nature of these expectations and predictions are only estimates and could be materially different from actual results in the future.

And now to get started, let me turn the call over to GV Prasad, our Chief Executive Officer.

Thank you Nikhil. Good evening to those of you in Asia. Good afternoon to the people from Europe; and to those of you in the U.S., a very good morning; and thank you all for joining us on this call today. As you may have seen in the release, the net income for the fourth quarter is significantly lower at $4 million in comparison with the $14 million in the previous - in the same quarter of the previous year.

This number includes the impact of certain one-time charges and provisional $8.5 million that we recorded following exceptional events that occurred during this quarter. Later on Vasudevan will discuss these changes in detail in his analysis. As the (inaudible) part of these charges relate to the (inaudible) of the AmVaz project, and the forward-looking (ph) price modification (inaudible) on marginal percent.

In addition to the above, the performance of the quarter was also impacted due to lower revenues from Fluoxetine and tizanidine in the U.S., as a result of increased competition. Before we take you through the full year results, I would like to discuss key revenue highlights for the fourth quarter. Revenues grew by over 12% to $110 million.

This growth was driven by the APL segment, which recorded a very strong growth of 46%. Our international market and API segment grew by (inaudible) driven by (inaudible) in Europe. Revenue from the Indian API were up by a strong 31% on the back of strong volume growth in key products. The brand formulation business in India recorded a growth of 24%.

However, this growth should be seen in light of the fact that our revenues for the fourth quarter of the previous year were impacted by the value added tax issues. Now moving on to the full year results, in fiscal 2004, we invested heavily in our revenue building and strengthening of pipeline. So let's take a look at what we did in fiscal 2004 and also review some of the business highlights.

Starting with revenues, the revenues grew by 11% to $453 million. This increase was primarily driven by the performance of ramipril in Europe. For the full year, ramipril recorded revenue of $25 million. Russia and India continue their growth by adding to the overall revenues. I would like to highlight the fact that our U.S. (inaudible) for full year sustained its performance for most part of the year and that too (inaudible) despite not having any significant new project launches.

The brand formulation business in India achieved a growth of over 10% despite the challenges of (inaudible) our product portfolio and also a low industry growth rate of 7.3%. Let me now focus on our margins. Our full year growth margins are at $247 million, or 53% of total revenues. As a percentage of revenues, these margins are down by over four percentage points, primarily driven by the changes in our product market portfolio.

Let us now look at the increases in our SG&A and R&D costs. Our SG&A expenses increased by 29% to $151 million. This increase was primarily driven by the (inaudible) consultancy charges of $8 million and (inaudible) costs of $8 million. In addition, exceptional charges that I already mentioned for the fourth quarter also contributed to the global increase.

Let me now share with you a few details of our organization building efforts. As we drive innovation across our businesses and expand our business in key geographies, we are investing and creating the right (inaudible) goals and leadership to take on this challenge. During the year we strengthened our leadership team as we added Dr. Dennis Langer to help our North American operations, in addition to a number of key recruits.

We also strengthened our R&D team to (inaudible) recruits from global pharmaceutical companies and increased the debt to form (ph) incremental property management and legal teams. We also integrated a part of the movement effort across our global centers to increase the focus on productivity and product (inaudible).

In the U.S., we added new members to our team and also more of our officers to the (inaudible) of Bridgewater in New Jersey. In Europe, we consulted our business development and (inaudible). These investments are critical as we continue to pursue significant growth opportunities in these (inaudible) and we have emphasized this several times in the past.

Coming back to R&D, the full year investment of $46 were inline with our internal investments of about 10% of total revenues. Of this we invested $70 million in our drug discovery efforts. During the year, we commenced clinical development on two original chemical entities in line with our strategy of setting up our investment and clinical development of (inaudible) and in the process, unlocking the value of the assets.

In terms of numbers during the year, we filed 13 ANDAs and 15 Drug Master Files. Several of these filings are drug to file opportunities. (inaudible) permissions in the U.S. could have been higher, but for the fact that some of the (inaudible) was dependent on a positive deficient (inaudible). In the drug discovery segment, (inaudible) moved into Phase II trials and (inaudible) Phase I trials for two of our NCEs, DRF 1644 and DRF 10945, in Canada.

As a result of all the increased costs as well as the exception of charges, the net income for the full year was at $57 million or 12% of total revenues and compares with $78 million or 19% total revenues in the previous year.

Before I hand the call over to Vasudevan for the financial review, I would like to discuss the overall capacity of the company to achieve our vision of becoming a discovery lead global pharmaceutical company. Firstly, we are aggressively driving growth in our core businesses of the API, (inaudible) formulations.

We have focused on maximizing the opportunities in the regulated markets by stepping up our business regulative filings in the near and medium term. At the same time, we will use our cash flows strategically for investing in clinical development. This will help us unlock the value of our promising NCE assets, and this is the second part of our strategy implementation.

Finally, we also aggressively pursue (inaudible) and partnerships to enhance the value of our assets across key businesses as well as help Medicaid increase the (inaudible) pipeline development. We are faced with exciting as well as developing (inaudible) in the next couple of years as we continue the momentum in building our future. To help you understand the reasons of our strategy, let's just take a look at the following facts.

When you look at the near term and medium term, we are quite excited about what we have in our API and (inaudible) pipeline. (inaudible) believe that we are one of the most promising pipelines in the industry. We have 35 ANDAs, we approved 24 (inaudible), and 56 Drug Master Files on file with the U.S. FDA. In addition, we're working on over 50 new projects, projects including the APIs and generics.

Of this, we target to file between 15 to 20 ANDAs and 20 DMFs in the U.S. in fiscal 2005. While continuing our focus on (inaudible) challenges, we also target setting up the activity on (inaudible) projects, and this will get us (inaudible) in our future filings. This will also help in further expanding the breadth of our pipeline and also add predictability to our future markets.

And while we continue to build our pipeline internally, we are also aggressively pursuing strategic partnerships and (inaudible) to unlock the full value of our pipeline.

Some of our patents pending are now maturing and could well turn out to be very significant opportunities over the next few years. Of course, this is subject to favorable (inaudible). More interesting, many of these present an opportunity for Dr. Reddy's to participate both in development as well as the API segments.

Some of these patent challenges (inaudible) hear a lot about (inaudible) lately, particularly the (inaudible) of Lilideprexa (ph), GSK's Zofran, Novartis’ Lamisil, (inaudible), and Pfizer’s Zoloft, among others. The trial of Dr. Reddy's patent (inaudible) portion of (inaudible) concluded in factor and the expected addition later this year. The trial phase of commenced (inaudible) earlier this week and the trial (inaudible) in expected to commence in early 2005.

The (inaudible) industry in Europe is also opening up driven by the fast-paced generically formed and this we believe will perform - will provide a very significant opportunity to leverage our existing product pipeline. While we continue to power our growth initiators in APIs and (inaudible), the growth opportunities in our (inaudible) formulation business are also equally (inaudible).

We have established a strong base in India, and as we enter into the products (inaudible), we intend to leverage this list to drive growth through in-licensing, core promotions and new product launches in niche therapeutic (inaudible). At the same time, we will continue to expand our global business through key markets of Russia, Latin America, China and South Africa and this should drive up long-term growth.

In the drug discovery segment, fiscal 2005 will be a very busy year for us with as many as four NCEs in various stages of clinical development (inaudible). This we believe is very significant for a company of our size. As we make progress in advancing our pipeline of development, we are building strong capabilities in clinical development. This will help in enhancing the value of NCE assets.

It will further compliment our internal R&D approach by pursuing certain collaborations, licensing and (inaudible) in the focused areas. Let me now give you a brief update on our development program. In fourth quarter, we commenced our first ever clinical trial outside India on our predominantly PPAR alpha compound, DRF 10945.

In the Phase I trial, we are evaluating the safety of this drug from 56 LDNA projects in our single (inaudible) adult study. This represents an important step forward in providing patients who suffer from dyslipidemia with a very important treatment option. The clinical trial in topoisomerase inhibitors, DRF 1042 and DRF 1644, in the oncology segment, are progressing well in India.

We also expect to commence the Phase I trial of our (inaudible) compound, RUS 3108, in North America shortly. RUS 3108 is being developed into three (inaudible) and thereby reducing the incident of (inaudible). This is the leading cause (inaudible) ever provided (ph).

We hope to demonstrate that by reducing a protein called perlecan, we can block inflammation, (inaudible) and thrombosis on the (inaudible) side, which is a novel approach in treating glaucoma (ph). We are also evaluating some interesting treatments we can (inaudible) in metabolic disorders in anti-infective segments and I look forward to reporting on our progress as we move forward throughout the year.

Before I conclude, I would like to discuss our specialty strategy for the acquisition of Trigenesis earlier this month. With the (inaudible) strategy, we were trying to build a business in primary care - the primary care segment of cardiovascular therapy through a switch strategy from Norvest (ph), but given the AmVaz core position, this strategy is no longer valid.

However, we are committed to fixing the (inaudible) business in the U.S. by focusing on segments with (inaudible). This is important given the fact that the generic business is driven by, you know, fluctuations and variations as a result of the (inaudible) in the market and the branded segment is likely to add predictability to our business.

The dermatologic (ph) segment is one such segment with an attractive profit margin, a small base of specialists and thereby requiring a smaller detailing (inaudible) and also being below the radar screen of large pharmaceutical companies. The acquisition of Trigenesis provides us with an entry to the dermatology stage and we are quite excited about it.

We combine this with (inaudible) marketed products and organic pipeline (inaudible) to make our entry into the dermatology business. So what are our next steps? Currently, we are in the process of developing product opportunities based on the core (inaudible) platforms and as we (inaudible) progresses, we hope to take some of these opportunities forward into development.

We intend to combine our internal capabilities to product developments with possible acquisitions of marketed products and aggressive business strategies to create franchise on differentiated products that will establish us as a key player in the U.S. prescription dermatology segment.

This concludes the portion of my presentation and now Vasu will discuss the financial results in detail.

Thank you Prasad. Good morning and good evening to all of you. Presad touched upon the key aspects of fourth quarter and full year performance. What I would like to do is to take you through the fourth quarter numbers in particular detail. I will discuss the tax provisions and key balance sheet items. Revenues were up 12% to $110 million during the quarter.

The strong performance in our API and (inaudible) formulation businesses was to some extent offset by the (inaudible) business. This (inaudible) was due to the increased competitive pressures in (inaudible) and (inaudible). Combined revenues from both these products were at $8 million as against $13 million in the third quarter. Looking at the margins, the growth margins were (inaudible) percent of revenue, down from 63% in the fourth quarter of the previous year.

The change in business mix in the quarter with (inaudible) contribution from Gendex business impacted the gross margin. Also of note is the fact that we have sustained the gross margins at the third quarter level despite changes in business mix. During the quarter, we recorded one-time exceptional charges of $8.5 million.

As Prasad mentioned, this includes a charge of $2.6 million in net income to AmVaz project, an inclusion of $4.2 million (inaudible) from the government of India prize notification (inaudible), a charge of $1.3 million relating to divestment of Compact Electric Limited and a charge of $.3 million relating to the segment of assets.

Our G&A costs increased by 13% to $48 million, this includes the impact of one-time exceptional charges, which I just said earlier. Our R&D investment increased 32% to $15 million or 14% of total revenues.

This increase was likely driven in investments in clinical trials of our (inaudible). Moving on to our net income, net of (inaudible) expenses (inaudible) decreased to $700,000 from $4 million in the fourth quarter of last year, due to certain equipment charges as mentioned earlier.

Let me now discuss the tax (inaudible) for the full year and fourth quarter. Based on the fourth quarter results, divestment of compact increased our India (inaudible), including the (inaudible), (inaudible) for the full year, that (inaudible) will go to 3% of our pre-tax profit and as we have already provided for a higher amount in the first nine months, really (ph) was $10 million in tax inclusions during the quarter.

Turning to the balance sheet, we ended the year with cash balance, cash and cash equivalent, and investment in securities of $198 million. (inaudible) to $8 million (ph) during the year in property plans and equipment. We've already implemented the working capital as reflected in the prediction of the (inaudible) of days of sales, outstanding from 72 days to 67 days, and on (inaudible) marginal income from 55 days to 54 days.

This concludes my presentation and now over to Prasad.

Thank you, Vasu. I would like to thank all of you participants and the financial community for it's (inaudible) in building Dr. Reddy's to where it is today (inaudible) with a strong pipeline of generics as well as (inaudible) of products has the potential to create long-term sustainable value. As we go about the stock, the challenge of managing profitable growth while investing in the businesses of the future remains our prime focus.

The short-term effects may underscore the (inaudible) seasonal business, but this in no way affects the strong fundamentals on which our businesses are built. The powerful pipelines, highly productive R&D engines, and global presence known in the key markets, are the pillars on which we will build Dr. Reddy's.

We now leave the floor open for the interactive Q&A session and we will be pleased to answer your questions.

Thank you very much, sir. At this moment, I would like to hand over the floor to Zinav Acentive (ph) to conduct the Q&A session for participants at the (inaudible). After this, we will have a Q&A session for participants at (inaudible) our international bridge, and then a session for (inaudible) our India bridge.

Thank you and over to Zinav

Thank you (inaudible). We will now begin the Q&A session for participants connected to (inaudible). [OPERATOR INSTRUCTIONS]

I would like to hand over the proceedings to Christie at (inaudible) International Center. Over to Christie.

Thank you very much. [OPERATOR INSTRUCTIONS]

Our first question comes from the line of Joel Kahn (ph) of Cook Securities (ph).

Good morning. Can you provide us with any earnings estimates for the next 12 months? Any guidance there at all?

(inaudible) guidance for the future period. It's not been our practice.

OK. Can you talk a little bit about what the legal strategy will be given what happened with the AmVaz litigation in the U.S., how it's going to affect your future patent litigation here in the U.S.?

The AmVaz litigation was based on a (inaudible) that extension. It had a specialty (ph) complication with (inaudible). The patent (inaudible) provision. We are (inaudible) extension in patent life (ph) given (inaudible) was to be one form of the marketed product and not the other target. Publicly, this was not accepted by the (inaudible).

This (inaudible) of this (inaudible) fact on our pipeline of other products because this particular document is very specialty-based (ph) (inaudible). Also, in the sense that the other (inaudible) challenges (inaudible) our portfolio is different and in fact, they're different (inaudible).

Great. Thank you.

Your next question comes from the line of Sonjay Valvoni (ph) of BAM (ph).

Hello guys. Vasu, I'm just wondering if you can let us know whether the fiscal fourth quarter run rate of SG&A at around 44% and R&D at 14% are reasonable assumptions to carry forward to fiscal '05?

I think that those are the assumptions as we (inaudible) year. The R&D expenses (inaudible) for all of the year and the (inaudible) could see a slight increase in the R&D (inaudible). And as far as the SG&A also is concerned (ph), there would be (inaudible) a (inaudible) skill sets and also as we mentioned earlier, we (inaudible). There could be a slight step up in SG&A (inaudible) also.

So there could be a slight step up in SG&A greater than 44%, what we saw in the fourth quarter?

No. What (inaudible) is eliminate the exceptional items out of the (inaudible) and look at that base number and see a price index (ph) .

Great. Thank you.

(inaudible) index.

Very good. Thank you.

[OPERATOR INSTRUCTIONS]

At this moment, there are no further questions from participants outside India. I would like to hand over the proceedings back to moderator.

Thank you very much Christie. We will now have the Q&A session for participants connected to (inaudible) India. [OPERATOR INSTRUCTIONS]

First in line, we have Mr. Visalakshi from Kotak Securities.

Yes, good evening to everyone. Can you give us some more (inaudible) of what are the products that could be launched (inaudible) formulations of generic are doing at (inaudible) in Europe and U.S.? Is it possible for you to give any guidance on that?

We (inaudible) already launched (inaudible) in Europe, OK?

Yes.

Then we are looking forward to launching (inaudible) in the U.S., (inaudible) product. Of course, we have to look at the outcome (inaudible).

Yes.

Which (inaudible) that goes in our favor.

OK.

These are the next products which we are looking forward to.

OK. And just another question regarding (inaudible). What's the status of that? I mean, has it progressed to Phase III or is it like little progress in near term?

It is undergoing certain tests and it is slated to go into Phase III shortly.

OK. Thanks.

Thank you very much, sir. Next in line, we have Mr. Rahu Shamir (ph) from Carvey Stock Broking (ph).

Sir, I just wondered as the (inaudible) in (inaudible) courts and I just wanted to know what type of legal expenses are there budgeted for the current year and could you throw some light on that?

After (inaudible) $12 million (ph), (inaudible) the number of cases (inaudible) portfolio. This could go up by (inaudible) dollars.

So could I - I cannot hear you properly, so can I ...

Last year we spent $12 million and this could go up farther (inaudible) currency (ph).

Followed (ph) by what amount, sir?

What we are looking at really is that cases in their various stages, they are at this moment, it may be difficult (inaudible) a step up as you (inaudible) an increase (inaudible).

The increase should be not more than $5 million at most.

(inaudible) launch in the U.S. markets?

Rahu (ph), could you repeat your question?

I just want to know if there are any progresses happening on the agenda (inaudible)? Hello?

Do you have a (inaudible)?

But are they expecting it in the (inaudible) any indications?

At the end of fiscal 2005.

End of 2005.

And then new products which we are planning to launch in the European market and any acquisition in (inaudible) or the (inaudible) markets and (inaudible).

I've given (inaudible) a few products (inaudible) currency of the UK (ph). We have thought of - we have thought of going slow on that acquisition front in Europe as we have started working on a (inaudible) and they (inaudible) of business to the U.S. (inaudible) before we expand into the (inaudible).

Thank you.

Thank you very much, sir. Participants are requested to kindly use your handsets while asking a question. Next in line, we have Mr. Ajay Sharma from CLSA.

Some (inaudible) questions for (inaudible). What kind of growth margins can we expect for next year? Is that 52% right now? And the tax rate for next year?

(inaudible). Because of the (inaudible), the expenses that we are looking for tax (inaudible).

And gross margins are expected to be at (inaudible) higher from here?

Gross margins possibly will be at the (inaudible) level but it's difficult to depend on the two product launches. If we launch new products, (inaudible).

And R&D, should we (inaudible) around the 11%? Is that fine (ph)?

It depends on the outcome of the clinical trials, but that could be important to (inaudible).

And can I just squeeze in one more short question?

Yes, please.

Given the challenges you're facing now after the (inaudible) thing, as a CEO, what are the key strategies for you from here on over the next two to three years?

One is to (inaudible) manage short-term profitability while continuing to build pipeline. (inaudible) more problems (inaudible). And third is to really build a speciality business which would (inaudible) what you're seeing, the nature of the (inaudible) business. (inaudible).

Thanks.

Thank you very much, sir. Participants are requested to stick to one question in the initial round. Next in line, we have Mr. Ashmin Agalvar (ph) from Akash Vendor (ph).

Hi everyone. My question is for Mr. Prasad. Mr. Prasad, by when do you feel you will have a clinical site (ph) of generic market in the U.S.? I know it would depend on your battle for challenges, but what is the broadest roadmap, because of your really high focus on battle for - and there is a lot of uncertainty? By then, you will be able to have a critical site (ph) in the U.S., at least in the generics?

(inaudible). If we win the patent challenge this year, it could be as early as next June and if (inaudible) lose all (inaudible), it is an unlikely scenario, 2006, 2007 would be (inaudible) clinical site (ph). So it depends on the outcome and there's a range of possibility it could be as early as next fiscal year. (inaudible) the next fiscal year or (inaudible) would be 2006 or 2007.

And what would be the critical size?

(inaudible) 200-300 million dollars.

I have a follow-up question. In India front you said because of the negative (inaudible), a few of the products had to be shelved (ph). You said (inaudible) that you were to file , you would probably not file now. Do you have any (inaudible) ?

Yes, we have one more .

What is that?

We aren't disclosing that as of now.

OK. And it's not related to (inaudible)?

No, it is not related to (inaudible).

OK. So basically you have two pending in India?

Right.

OK. And what are the targeted number of India filings for this year that youhaveyou have not given?

(inaudible)?

Yes. I (inaudible).

Yes. We don't have a number on that now, but we are working on specialty products and the results of the (inaudible) acquisition. I cannot predict whether we'll file it this year.

OK. So do you feel that you could be - the first India launch could be around 2007, '08?

Yes.

OK. OK. Lastly, in the fourth quarter, you have (inaudible) for DMS (ph) and I understand all the (inaudible) goes over the first filed?

During the fourth quarter, we filed six DMS (ph).

OK.

I think (inaudible) reflect (inaudible). They maybe have carried forward to the Q4.

So out of the six, I think four of them, they were the first time DMS (ph), so what is the strategy on that for whether we could see better (inaudible) challenges on (inaudible)?

In all of our business, we have at least two of the top 10 generator (ph) customers and they could well be (inaudible) challenges on most (inaudible) products that they find (ph) so far.

OK. Thanks a lot.

Thank you very much, sir. Participants are requested to kindly restrict to one question in the initial round. Follow-up questions will be taken later. Next in line, we have Michele Hemal (ph) from HDS Securities (ph).

Hello. I have this question for Mr. Prasad. What would be your marketing strategy for (inaudible), which the (inaudible) I believe would be launched in the middle of this year for July? And secondly, (inaudible) which has done very well for you last year that is around (inaudible) in U.S.D.. How do you think this product (inaudible) for you during this year and also is it Europe or is it U.S. also?

(inaudible) in launching, so it could be (inaudible) and then out on sales force. As far as (inaudible) is concerned, as you already know, the first year is the peak year of (inaudible). And the second year is (inaudible) a part of the (inaudible) efforts. It's always a different company, each of them hoping to take market share.

So the second year, you see (inaudible) decline in (inaudible). It's okay in Europe (ph). As of now, all my people have been told (inaudible).

And would you expect to (inaudible) compensate (inaudible) decline and what (inaudible) decline (ph) (inaudible)?

It's hard to predict because the generic market is difficult to understand what market share we can actually launch, but (inaudible) going to be pretty complicated (ph).

Thank you.

Thank you very much, ma'am. Next in line, we have Mr. Sameed Nurine (ph) from NM Securities (ph).

Good evening team. This question is to Mr. Prasad. Mr. Prasad, in response (inaudible), you mentioned that the clinical (inaudible) $210 million (ph), which would be by ’07 in case we don't win any of the patent challenges.

Right.

So right now we (inaudible) $100 million U.S.D. in generics, so do you see a pipeline by which we could probably triple our sales over the next three years without any patent challenges?

Yes, because some of the patents will expire in (inaudible), even those which are challenged.

OK.

Some will expire. We will (inaudible) significant launches during (inaudible).

OK. And sir, just if I can slip in another question, sir?

Please do.

Sir, can you give us some outlook on how the (inaudible) launch in UK is doing for you and how do you see it going forward?

It's a very (inaudible) situation. (inaudible) comes to the market, makes the sale come down.

So (inaudible) for those who are currently competing?

Sameed, this is Nikhil. In the UK, there would be about four to five players right now.

OK.

So that's the status as far as UK is concerned.

OK. Thank you.

Thank you very much, sir. Next in line, we have Mr. Rajesh Vora from ICICI Securities.

Good evening. Mr. Prasad, I have a question for you. You have filed four NDAs in the quarter that have gone by and none of them have been known that are (inaudible) non-patent challenge. And also during your speech, you mentioned that going forward, that will also be an area of focus.

Does it mean that from your earlier (inaudible) focusing on patent challenged products and managing the risk you are trying to shift more towards a patent challenged product? Can you throw some light on this?

I'm not going to be able to give you the names of the products we filed, but that will be a predominant, will be a large number of products for (inaudible) our portfolio. People (inaudible) in the first (inaudible) of (inaudible) challenges. They would like it to be (ph) in the first (inaudible) of launch (inaudible), but (inaudible), that (inaudible).

So it just happens that on the products that we filed the fourth quarter happen to be non-patent challenges. But we're also looking at certain niche areas which have technology barriers and not necessarily legal barriers and we will be filing NDAs (inaudible) also. (inaudible) barrier of technology on them and, you know, (inaudible).

Do you think if you had started doing this a couple of years back on the (inaudible) completely different, would that have made sense?

I wouldn’t completely agree with that because as you know it's only one or two products that make a huge impact on the top line and bottom line of generic companies. Even though they have very large pipelines, it's a small (ph) (inaudible) of the product that gives them that portion of the profits, if you analyze the pipelines of biggest companies.

If we just did incremental products, we would still probably end up with the same revenue but with a lot less profitability. So I don't think fundamentally that the strategy is gone (ph). It's just that there's been a (inaudible) in terms of ramping up our R&D and the product (inaudible) without a corresponding outline on the business side of these costs (ph).

Thanks a lot and all the best.

Thank you.

Thank you very much, sir. Next in line, we have Mr. Abhay Shanbhag from HSBC Securities.

Good evening sir. I'm just wondering on numbers. With an (inaudible) and with most (inaudible) of the cost expected to go out, is it good to be a (inaudible) if none of the (inaudible) go too?

If none of the (inaudible) go through and they don't do anything to mitigate costs, it (inaudible) that, it could be (inaudible).

How do (inaudible) guidance can you give as you (inaudible)?

You know, we can't give you any guidance, but I (inaudible) come to market (inaudible) in the UK.

OK. And just as we go through (inaudible) last year, is it possible to you from any other (inaudible) coming to Europe which can also (inaudible) revenues (inaudible) fiscal?

(inaudible) franchise (inaudible) of the major launch (ph).

OK. So just the last question. Regarding all the exposures (ph), I mean, typically (inaudible). Then why is that you have a charge of (inaudible), you know, after it was (inaudible)? And again, (inaudible) for two years back, so the (inaudible) why the - why the (inaudible) this quarter?

Well, a lot of the expenses are coming from (inaudible). It's also related to some service (inaudible) and we took it to the (inaudible) quarter. And that is (inaudible). That's the last quarter of previous year. So the (inaudible).

OK. And (inaudible). Is it all? I mean, any (inaudible) of more (inaudible) or this is, I mean, you know, just now, there wouldn't be any further (inaudible) like also (inaudible) in any other products?

This is (inaudible) system is (inaudible).

OK. Thank you, sir.

Thank you very much, sir. Participants who wish to ask questions, please press star, one, now. Next in line, we have Sameer Baisiwala from Morgan Stanley.

Good evening everyone. Would you please elaborate on the income tax benefit for the (inaudible) mentioned on R&D compared to other spend (ph)? But I mean, how exactly do you make (ph) it up (inaudible)?

Yes. Good evening. I mean, (inaudible) (inaudible) where we improve on the investment. The (inaudible) has been (inaudible) and as far as the audit (ph) is concerned, some of the expenses (inaudible) and we've been able to (inaudible) and get (inaudible) because there is a (inaudible). (inaudible) we can (inaudible).

OK. And on your cap ex (inaudible) that you've done, (inaudible), how much of this has gone into manufacturing effort? And what's (inaudible) for the next year?

More so (ph) than last year to manufacturing (ph) (inaudible). And here you can look at a similar number.

OK. And just one last question for manufacturing (inaudible). Mr. Prasad, what is your outlook for the overall sales for the next year?

We don't give you guidance on these things, right? It's never been a practice for us to give you guidance on (inaudible).

I'm not looking for number, I'm just saying overall outlook?

(inaudible) overall outlook. What do you mean?

I mean, do you see the growth or do you see the (inaudible) or ...

Instead of (inaudible), (inaudible). The growth will be modest.

OK. Thank you very much.

Thank you very much, sir. We have our next question from Ms. Liz Onakshi (ph) of (inaudible) Securities.

Good evening sir. My question is on, you know, what you indicated on pursuing strategic partnerships to drive future growth. Can you (inaudible) what one should expect over the next 15 to 18 months in this line (ph) ? And (inaudible) on your cap ex plans for the next 12 (ph) months?

(inaudible), we are looking at (inaudible) as one is to increase the (inaudible) of market share and market (inaudible), which can be other countries in Europe as well as market penetration in the U.S. The second thing is to, you know, share (inaudible) cost and related costs that (inaudible) expenses. And other (inaudible) which would help us absolve the (inaudible) and the product (inaudible) costs. (inaudible).

In terms of for (inaudible), the number of (inaudible). Would you like to give us some visibility on that front?

Oh, I think it - I think (inaudible). (inaudible).

And your cap ex plans for fiscal '05?

(inaudible) that is to be similar to the (inaudible).

Thank you.

Thank you very much, ma'am. Next in line, we'll have Mr. Sondi Javla (ph) from Motilal Oswal.

Good evening, sir. My question is relating to the (inaudible) pending NDS. Could you tell us out of these studies (inaudible), (inaudible) and how many of them are non-(inaudible) and which are more than nine months old?

Sondi, hi. This is Nikhil. If you look at the year, total pending (inaudible) applications, we have about 35. Of this 35, 24 are facing challenges and the balance, 11, are non-(inaudible) challenges. And of these 11, four are (inaudible) in the quarter. So the balance, seven, would be more than a year old.

OK. Thank you.

Thank you very much, sir. We have our next question from Mr. Nimish Mehta of Mehta Partners.

Good evening, sir. In your (inaudible) in Europe and U.S.?

(inaudible) as part of our pipeline for the UK market. And that's it. (inaudible) products (inaudible).

Can you be a little bit louder? It's very difficult to hear.

We have launched 10% (ph) in the UK market and (inaudible) to launch from (inaudible).

OK. And what about your U.S. plans?

The U.S. did not (inaudible).

And are you planning to launch any (inaudible)?

We cannot give you such information (inaudible).

OK. Can you give me your current (inaudible) in Europe?

Nimish, this is Nikhil. I have the details with me, but it's not (inaudible) and (inaudible). I'll send it across - I'll mail it across to you.

OK. Thanks. Thank you.

Thank you very much, sir. Next in line, we have Mr. Pavin Shinda (ph) from Pioneer (inaudible).

(inaudible) disclose your cap ex plan for next year in mostly all the (inaudible) market and (inaudible) market?

All of the (inaudible) India only.

India only?

Yes.

OK. And so can you give some outlook on the domestic market in the (inaudible)? What's the plan of Dr. Reddy's (inaudible) next year? Are there some significant product launches and (inaudible) domestic market next year?

Well, I think there's some confusion. I think you asked the question (inaudible) cap ex and (inaudible) domestic market. What was (inaudible) cap ex (inaudible), right? The market will be all over the board in terms of (inaudible) because some of it is for (inaudible) market from a domestic formulation. There is some that (inaudible) for markets made to the U.S. and Europe also.

OK. Thank you, sir.

Thank you very much, sir. Participants who wish to ask questions, please press star, one, now.

Next in line, we have a follow-up question from Mr. Sameed (ph) of NM Securities (ph).

Mr. Prasad, you mentioned about the progress that's happening on our (inaudible) program. So in the internal (ph) estimate (ph), when do you think we'll reach a (inaudible) that this could be a possible revenue stream for us?

Yes. The strategy of the company is to take the (inaudible) that is to (inaudible) which is (inaudible). This should take 18 months, 24 months and after that, it will be (inaudible).

OK. Thank you.

Thank you very much, sir. Next follow-up question comes from Mr. Rahu Shamir (ph) of Carvey Stock Broking (ph).

I just wondered, any new launches in (inaudible) expected in Europe or in the U.S. in the current deal (ph)?

So far, (inaudible) Europe, but you could see one or two products.

Well, (inaudible), are you (inaudible)?

There are (inaudible), European launches (inaudible), but U.S. will see or two launches.

And will these (ph) maintain the momentum that has been present in last year's (inaudible)?

In API?

In API (inaudible).

We have the broadest pipeline to date than any company in the world and (inaudible) must be applied and we have at least two to three of the top 10 companies (inaudible) to Dr. Reddy's as a customer. But this (inaudible).

Thank you.

Thank you very much, sir.

(inaudible), how many calls do we have now? How many questions do we have now?

We do have three follow-up questions in India and we have one question from the (inaudible). Would you like to take the question from (inaudible) first?

Yes, sure.

Just a moment, sir. We have Mr. Cobb (ph) from Payne, Shuber of London (ph). We're going to (inaudible). Zinav (ph), could you please open his line?

He's already on the line. Go ahead, Mr. Cobb (ph).

Hello and good evening. I'm sorry I'm late. Thank you for the presentation. My question is just on (inaudible), if there's any indication of timing for that launch? And also, just looking at the international formulations of business, quarter on quarter revenues are declining there, particularly in Russia and perhaps you could just give an outlook for that and the international formulation of markets? And overall, what kind of revenue growth you're targeting for next year?

For (inaudible), as you know, the case was hard as (inaudible) the company adversely (ph). We don't have a firm base (ph) from anybody, but (inaudible) that we could have a (inaudible) by the end of Q2, or in the summer, August/September. As far as the (inaudible) revenues, (inaudible), they have been very (inaudible).

I think for the quarter you were asking was about Russia I think on the formulations front. What happened was there was a (inaudible) of some sales on the Q3 part from the (inaudible). That's what - there's been some distortion there. What I would say is just to look at it in the (inaudible). Also, if you see (inaudible) year, it's been about 7% growth in Russia.

OK. And just on the - I saw in the report, you were saying that you're proposing a dividend of 100% of net profit. Is that correct?

No, no. It's (inaudible) on the par value of the stock.

I see. OK.

(inaudible)% of (inaudible).

OK. And so, and the last question, (inaudible) cap ex for next year?

We are looking at about $25 million (ph).

Twenty-five (ph) million. OK. Thank you very much indeed.

Thank you.

Thank you very much, sir. Our next question is a follow-up from Michele Hemal (ph) of HDS Securities (ph).

Hi. This is regarding the recent newspaper article that said that you had a recent approval (inaudible) for the API - some API products. Could you elaborate? Does this have ...

(inaudible), I guess what you are listening to is the (inaudible) approval that's we received on (inaudible).

And some API was approved (inaudible) the approval of (inaudible) responsibility?

There is no such (inaudible) in China (ph). (inaudible) three or four days back and it was potentially on (inaudible).

Thank you. Thanks.

Thank you very much, ma'am. Next is a follow-up from Sameer Baisiwala of Morgan Stanley.

This will confirm you mentioned (inaudible), it is slated to go into Phase III (inaudible)?

This is (inaudible) required before it can go to Phase III. (inaudible) now. (inaudible).

I’m sorry, (inaudible) audio is really bad?

The product has already (ph) started testing as required by the (inaudible) in primates and other such animals, and subject to that, our company wanted to safely (inaudible) in a few months.

Next few months, OK. And this one - my last question is on domestic formulation. If I'm not wrong, I think (inaudible) good growth in (inaudible) gone by (inaudible) I think it's 44% (ph) versus what the board has been saying. I think (inaudible). Is there an inventory issue or how do you explain the disconnect?

Yes. This is the comparison for the previous year, same quarter. We had a (inaudible) in the same quarter and that was why the number was low in the previous year. So this year's number looks great compared to that number. (inaudible).

Why do you not (inaudible) against the same low base?

Pardon me?

Why are you comparing against the same low base?

(inaudible) to capture the sales at the retail level is not (inaudible).

OK. Thank you very much.

Thank you very much, sir. Our next follow-up question comes from Mr. Ashmin Agalvar (ph) from Akash Vendor (ph).

Yes, thanks for the follow-up. Mr. Prasad, you said you would be filing (inaudible) in India and in the last two years, you have found that (inaudible) India. Now you are saying that you have the (inaudible) for DMS (ph), and on the other side, we see (inaudible) to record (inaudible).

What is stopping you since you have such a large (inaudible) of DMS (ph), plus you seem to be more (inaudible)? What is stopping us from filing (ph) ?

You know, last year we said we would file (ph) about 18 (ph), but a portion of (inaudible) because of the price is dependent on the Amvest (ph) (inaudible) of the (inaudible) extension. So that's why (inaudible) . (inaudible) talking about (inaudible). The actual limit to filing (ph) the last number of days here are twofold.

One is the actual work that needs to be done for a new product in terms of (inaudible) as well as development as well as the cost of (inaudible) studies. So that is (inaudible) litigation. And (inaudible) critically doing this work. I don't think Amvest (ph) (inaudible) anybody is close to what (inaudible), even as a problem (ph).

They talk about that, but most of them are from partnerships outside the company. So you know, I think for a company outside the (inaudible).

OK. And (inaudible) will be launched on 10th of June, correct?

Yes.

And what's the (inaudible) arrangement?

No. We are being (inaudible)

OK. OK. Thanks a lot.

Thank you very much, sir. Participants who wish to ask questions, please press star, one, now.

We can take one last question.

Sure, sir. Participants who wish to ask questions, please press star, one, now.

We have a follow-up from Mr. Abhay of HSBC.

This is a short question to Mr. Vasudevan. Any specific (inaudible)? The income was also gone down significantly despite the increase in cash results?

As we discussed, (inaudible) exceptional items.

No, no. (inaudible), just for that. I mean, after (inaudible) for that also as compared to the various quarters of 16, 17 (inaudible). It's come down to 10 (inaudible).

That's sort of (inaudible), the company's (inaudible).

OK.

It's a charge on the other income. . So actually the (inaudible) because of that.

OK. Fine.

Thank you very much.

Thanks.

Thank you very much, sir.

Yes, we would like to end the call.

Sure, sir.

We would like to thank you for joining us on the call today and before the (inaudible), please feel free to get in touch with the (inaudible) desk. It (inaudible) and we apologize for the poor audio quality that some of you have faced on the call today. Thank you.

Thank you.