Dr Reddy's Laboratories Ltd (RDY) 2005 Q3 法說會逐字稿

Welcome to the Dr. Reddy's Laboratories 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 participants connected to the Singtel bridge, followed by a question-and-answer session for participants at Vivek International and then a Q&A session for participants at Vivek India. I would now like to turn over the call to Mr. Nikhil Shah. Thank you and over to you, sir.

Thank you. A warm welcome to all of you. I'm Nikhil Shah, the Investor Relations Officer at Dr. Reddy's. Thank you for joining us on the call today as we discuss Dr. Reddy's financial results for the third quarter of fiscal 2006. By now you should have seen the press release as well as the additional financial disclosures which were released earlier today. The results are also posted on our website on the homepage under the Quick Links icon.

To discuss the results we have on the call today GV Prasad, our Chief Executive Officer; Satish Reddy, the Chief Operating Officer of the Company; and Vasudevan, our Chief Financial Officer. Please note that all discussions and comparisons during the call will be based on U.S. GAAP numbers and the IR desk will be available to answer any queries relating to the Indian GAAP immediately after the conclusion of the call.

To ensure full disclosure we are conducting a live webcast of this call and a replay of the call will also be available on our website soon after the conclusion of the call. Additionally, the transcript of this call will be made available on our website at www.DrReddys.com under the Quick Links icon. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in special media outlets without the Company's expressed 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 our strategy; the market acceptance of 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 results from 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, ladies and gentlemen, and thank you for joining us on the call today. As you're aware, we released the third-quarter results earlier this afternoon and by now most of you must have read the results and accompanying notes. We are pleased to present yet another quarter of revenue growth which reflects the underlying momentum in our core businesses as we remain focused on steering the business back on the trajectory of revenue growth and profitability.

Revenue for the quarter was at $131 million driven by growth in the API and branded formulation businesses. We ended the quarter with profit after-tax of $14 million compared to what -- $1 million in the same period last year. This is of course after including the profit from the sale of our finished dosage facility in Goa. I would like to highlight that even after excluding the impact of this onetime income, the profit before tax for the quarter is at $12 million compared to about 0.3 million in the same period last year.

If you recall, earlier in the quarter we announced the acquisition of Roche's API facility in Mexico for our custom pharmaceutical services business. I'm pleased to announce that we have successfully completed the transaction by the end of December and the integration programs are well underway. While we start consolidating the numbers from January 2006, the meaningful accretion to the bottom line on a full year basis will be realized only from the next fiscal onwards.

Moving on to the performance of individual businesses for the quarter, let me begin with the API business. The API business grew by about 48% on a relatively low base last year driven by growth in all key markets except North America with corresponding expansion and gross profits (indiscernible). Europe grew by 78% to $8.5 million during the quarter driven by increase in all our product portfolio as well as the customer base.

In the rest of the world markets during the quarter we did particularly well in the key markets of Turkey, Israel, Mexico, China and Bangladesh. In fact, if you look at the growth rate for the first nine months this year has been very good for the rest of the world markets driven by an interesting mix of products and market opportunities. On a global basis it is this combination of a broad product and market portfolio that will drive long-term growth in this API business.

Moving on to the finished dosage business in the rest of the world, as we discussed earlier, all our key markets are witnessing very good growth rates this year with, of course, some seasonal demand patterns driving higher growth in certain areas. This has been true particularly of Russia wherein the third quarter has been exceptionally good driven by the higher offtakes on the trade. In the previous quarter we talked about the resurgence of growth in India and we have seen this continue into the third quarter as well.

Overall revenues in the third quarter grew by 34% to $60 million. The international segment grew by 33% led by growth in all regions. The 34% growth in India was led by the performance of the top brands and in particular Omez and Nise.

Let me now cover the performance of the finished dosage business in Europe. Revenue from Europe grew by about 10% driven by volume growth in key products. The prices for Omeprazole and Amlodipine are beginning to settle down from the peak levels of the first quarter. In North America the revenues declined all last year primarily due to the decline in Fluoxetine and Citalopram.

If you recall Citalopram was launched in the third quarter of last year. However, compared to the immediately preceding quarter, we have done rather well with revenues of about $11 million. This also includes the launch sales of Glimepiride of about $1.5 million. This has been yet another successful launch for Dr. Reddy's, as we discussed on the previous call, and we are three months into the launch now and we still hold on to our market share.

During the quarter we received approval for two products and filed three additional ANDAs. With about 51 ANDAs now pending approval with the U.S. FDA we are looking forward to the launch of several of these products from the next fiscal year onwards.

As I mentioned in the previous call, we are more focused than ever on business development initiatives to complement the in-house product development programs and, in doing so, driving the overall growth trajectory of the Company. We are getting good traction on our (indiscernible) business development initiatives and we believe that these initiatives will create significant value in the years to come. With this update I will now ask Vasu to discuss the financials in detail.

Thank you, Prasad. And a very good afternoon to all of you. Prasad in his presentation touched upon the key performance highlights of the third quarter. Let me cover some financials in detail. Let me begin with the gross margins for the quarter. Driven by favorable mix of the business portfolio, we sustained our gross margins at 51% of revenue despite the current challenges in the generics business. Our SG&A expenses for the quarter at about $45 million are 18% higher compared to the previous year. This increase compares with the revenue growth of 25% for the quarter. The increase in SG&A is largely due to higher selling and marketing expenses.

Moving on to R&D costs, the investments for the quarter are at about 9% of revenue compared to 15% last year. During the quarter we filed three ANDAs and based on that we recognized over $2.5 million of income under the ICICI R&D partnership. Excluding the impact of this income, the R&D costs are lower by $1.7 million as compared to last year. The R&D costs are likely to be higher than the average run rate of the expenditure in the fourth quarter due to higher level of product development costs.

Moving down the P&L, we recorded other income of about $13 million compared to $3 million in the same period last year. There are two key items I would like to highlight. One is the profit of about 9 million on the sale of our finished goods (indiscernible) at Goa and the other is the net interest income of about $3 million. The profit before tax is at $20 million as compared to $0.3 million last year. After excluding the profit from sale of Goa plant, the profit before tax is significantly higher at about 11 million compared to 0.3 million last year. With respect to income taxes, we recorded a tax provision of $6 million. This was primarily on account of increase in the overall effective tax rate on the accumulated profits on the first nine months.

Finally, net income for the quarter is at about $14 million compared to about $1 million in the previous year. We entered the quarter with a pre-tax position of $124 million compared to $161 million as of end of September despite cash flow and also $57 million for acquisition of the Mexican plant as well as about $12 million of investments in property, plant and equipment. This concludes my discussion and over to you now, Prasad.

Summing up our performance for the first nine months, we have achieved revenues of 385 million bringing us inside of the $500 million revenue marked for the full year. The growth in revenues of 14% for the first nine months was largely driven by branded formulations, Europe generics and key markets in the API business. The [G&A] business is up by over 13% to [$28] million. The (indiscernible) investment net of income from (indiscernible) is down by 21% to $33 million. As a result of these factors the profit after-tax for the nine months has improved to $42 million as against $[17] million last year.

Compared to the growth in revenue and profitability in the first nine months, I would like to highlight and the fourth quarter may not offer the same level of performance, but I am (indiscernible) due to softening of revenue due to seasonalities and higher R&D investments as mentioned by Vasu.

Looking ahead, ‘06/'07 will definitely be an exciting and busy (indiscernible) for Dr. Reddy’s. With the integration of the Mexico operations into our (indiscernible) business progressing well, over the next 15 to 18 months we remain focused on scaling up this business to the 100 million revenue mark. U.S. generics business, as you are aware, from 2006 onward a number of products are going off patent; represents some significant opportunities for growth and we are quite excited about participating in a number of these new product launch opportunities.

In the branded formulation business we expect the growth [forming 17] markets to continue. In the API business we are looking forward to (indiscernible) growth opportunities from key markets on the back of a well diversified product and market portfolio. We will be able to share more details on outlook for the next year during full year earnings call. To sum up, I would like to repeat what I said in the last call -- I'm very confident that the outlook for the medium-term would have been slightly positive. Based on all the work that we've done in the last few years we will start delivering growth next year onwards. This ends my discussion and we now leave the floor open for the Q&A session and we'll be pleased to answer your queries.

(OPERATOR INSTRUCTIONS). At this moment I would like to hand over the floor to [Iesha] to conduct the Q&A session for participants at the Singtel bridge. Thank you, and over to Iesha.

(OPERATOR INSTRUCTIONS). There are no questions from participants at Singtel. I would like to hand over the proceedings to April at (indiscernible) International Center. Over to you.

Thank you very much. (OPERATOR INSTRUCTIONS). At this time moment there are no questions from participants outside of India. I would like to hand over the proceedings back to [Pratiba].

Thank you very much, April. We will now begin the Q&A interactive session for participants connected to Vivek India. (OPERATOR INSTRUCTIONS). Ajay Sharma, CLSA.

Good evening, everyone. A couple of questions. First is on Allegra, perhaps if you could give a timeline on approval and whether you're sure of launching as long as injunction is not given against Teva?

Yes, we still don't have the approval of (indiscernible). We have (indiscernible) to all outstanding credits (technical difficulty). So it is a possibility that we could launch after the (indiscernible) period runs out.

And on Zofran, is there a surety that you still have exclusivity in launching December this year?

No surety. It's subject to certain outcomes.

Okay. On the SG&A front the costs are still high this quarter, but would be fair to say that more of that is going in the branded formulation side rather than the generics -- how's the break-up there? Almost 200 gross?

The increase reflects increase in spending in marketing of branded formulations. (indiscernible) certain other costs and there’s some onetime costs onto that.

Any [quantum] on that because those numbers seeming slightly high, so how should we look at this?

(inaudible) should be around $3 million.

Okay, fair enough. And Vasu, if you could just give us the business side gross margins?

(indiscernible) is about 28% gross margin. The formulation business overall is around I would say 65% margin.

65?

Yes. Then the (indiscernible) is about 36% margins. And in EU we are at about 32% margins and then in – that’s (indiscernible) business which you have (indiscernible).

Okay. And just lastly on the tax rate, what should we model because this quarter was extremely high and last few quarters actually didn't pay much tax?

Because this quarter had additional added income for sale of Goa plant. You can't take out -- you can model (indiscernible) around the [15]%.

Wonderful, thanks a lot.

[Irshwin Agavar], [Akash Kanga].

My congratulations to the Dr. Reddy management team for a good set of numbers and very encouraging remarks by Mr. Prasad. I would like to ask Mr. Prasad, based on significant number of approvals from the next fiscal, do you feel in next 18 months you could reach a critical size for the generic business in the U.S.?

Next year will be a period of ramp up and I think still defined critical mass has a size that is equal to -- enough to absorb all costs and has better profit, I think sometime by the end of next year we should be there.

Good. Sometime back we had done a deal with ICICI just for funding the generic filings and commercialization of these products. In (indiscernible) this deal was up too much '06. So could we assume that this will be extended going forward?

The Phase I, it is up to March '06, but the period also can be extended up to another 2 or 6 -- so we can extend it if required.

Okay. And out of the 56 million, in the Phase I it was 22.5 million, out of that how much have we received (indiscernible) from ICICI financial?

We have received all the money, but the recognition has happened up to 10 million till now.

[Difficult writing] it is reflecting?

Tend to be recognized in the subsequent quarter.

Okay, thanks a lot.

Mr. Pawan, Kotak.

First for Mr. Vasudevan, you said that the balance $12 million or $12.5 million from ICICI, would it be recorded over the next two quarters?

The next few quarters, that's what I said.

Next few quarters?

Because this can be extended up to June '06 definitely and also beyond that.

Let me just -- I would like to -- what I'd like to understand is how do you book these revenues? Basically, how should we model per quarter or unit per annum how much to book?

Sure. If you see the last few quarters (indiscernible) have been consistently around about 2 million each – close to 3 million each. This is based on number of filings normally.

Okay. So basically dollar let's say 2 to 3 million per quarter.

That's right. (indiscernible) looking at this.

It’s three, four quarters as well. If I understand right, it was supposed to be for India's filing of (indiscernible) 2005 and 2006, right?

It was based on a certain product portfolio and (indiscernible) two financial years, accelerated up to 31st mark. But we also prorated so that an extension period is (indiscernible).

That extension ends in June '06, and it covers some 30 ANDAs or something products?

Yes, it covers around all 38.

Then the second portion of this payment assumes, you know, you want it and you get (indiscernible) the combination you get it. And I would assume that it would get recorded as the litigation begins right?

Yes, it (indiscernible). It includes both a product development as well as legal expenses. But then those three are not yet taken to someone.

You're taking it because you already have so much of income that's come through at that rate?

That's right, we still have (indiscernible).

And second plant you said also includes product development cost.

Product development and legal expenses -- both.

I would assume the product development is over, right?

It's not yet; it can spill over to certain periods of ’06, '07, as I mentioned to you earlier.

So basically the second transfer get booked in something like next four or five years as the litigation continues.

That's right.

Okay, fine. Second was on your cash, it is $154 million, not 181 as shown because you did some -- how much is your cash? Is it $181 million or is it 124?

The free cash portion is 124 million. That's what you have to see; you have to net out the borrowings for our averages. And as the total cash portion you have to see including the borrowing will be this.

Is it after (indiscernible) for the Roche acquisition?

That's right.

Okay. How much of this would be in dollars or say overseas or something?

Most of our balances we (indiscernible) into [key] deposits.

Now, this is [indiscernible] for Prasad, my question here would be on Allegra, it can get big launch next year. I just wanted to clarify whether it is a part of our old agreement with Barr Pharmaceuticals, in which case we would possibly have to give away a portion of our profits to them?

No, it's not part of the Barr agreement.

It isn't, great. And Roche you're seeing is basically going to develop profits from (indiscernible) 2007?

Yes.

Okay. And there aren’t going to be any restructuring charges or anything relating to such things next year?

No, it's basically a bolt-on acquisition (indiscernible).

Okay, great. And would you like to give any numbers (indiscernible) U.S. or overall revenue (indiscernible) you said $500 million this year? What is your aspiration; what do you think is achievable next year including Allegra?

We don't give guidance on numbers. It’s policy of the Company not to give forward guidance.

Okay. Finally, last question on R&D cost. Let's say gross without removing the ICICI income, do you think it is going to decline next year or you think it will remain at the sales levels?

It will probably be a little higher than current year.

A little higher than current year?

We are increasing product development activity in all our business, so it's likely to be increased.

Okay. And you had this $3 million write-off in this quarter as G&A was. Would you like to say what it is?

Those are one-time charges of some infrastructure, some software and some fee for consultants.

Okay, fine. Thank you so much and all the best.

[Rahu Sharma], [Garvey] Stockbroking.

Congratulations on a good set of numbers. I just wanted to ask Mr. Vasudevan how much tax will we have paid for the sale of the formulation plant? Will it be marginal tax or will it be a long-term tax?

It is a marginal short-term tax.

That is 33.6% [around that]?

[That is correct].

Okay, thank you.

(OPERATOR INSTRUCTIONS). (indiscernible)

Thank you for taking my question. My question is on Balaglitazone. Could you give us the latest details when it will enter Phase III, what do we know about it in clinicals so far? Is there a possibility that most of Phase III or during the course of Phase III, you could out license (indiscernible)?

Basically we have no new information during the quarter except that it's completed additional weeks of studies (indiscernible). I think we have a few more weeks left and after that it will move -- it will move the asset forward into clinical development. As you know, the [asset] have completed Phase II which will get into Phase III after we present carcinogens [330] to the FDA and the FDA gives us go-ahead.

Any broad timeline as to when it will enter Phase III?

Probably second half of next fiscal. Second half of next year fiscal if everything goes well or even towards the later part of the year is when the asset will move (indiscernible).

Okay. And also in Perlecan Pharma, by the end of fiscal '07 what do you expect will be Dr. Reddy's stake buildup?

It could be at the same percent. The 20% could begin with the (indiscernible). And it will [warn or appear] of 33 months.

Are there any plans in terms of any kind of a listing or something for Perlecan Pharma?

It's too early to comment on that selection.

Okay, thank you.

[Namish Meta], [E.D. Rice].

Good evening, everybody. I have a couple of questions. First one, if you can elaborate a little more on the Roche acquisition that you made in terms of the kind of products and the kind of agreements you have at the Company for the products, how long are the current agreements at the table? And second, I have a question related to Balaglitazone. What is your comment after (indiscernible) of Merck and [Somaya] was discontinued by those companies because they are (indiscernible) in the same class of [people]? And finally, I would like to know as to how many ANDAs you expect to be launched in the next fiscal -- FY '07?

The Roche acquisition brings to the three lines of business the first line is API, naproxen and naproxen sodium. This is the largest part of the portfolio and there are multi-year agreements to supply various customers from this plant, principal customers being Roche as well as Bayer and a large number of licensees of Roche around the world. These agreements are multi-year agreements.

Then we have (indiscernible) innovators and there are several large Pharma customers there. And third one is the steroids business which also has a number of global customers. Most of these agreements are long-term in nature (multiple speakers) agreements and -- pertaining to your question about Balaglitazone.

You raised a concern about (indiscernible) was a dual activator where Balaglitazone is not. And the problems that the dual activators have are not fully seen in the Balaglitazone kind of compounds. And so I don't really remain optimistic about Balaglitazone’s prospects for the marketplace.

But don't you think that people in the class have been a bit concerned for the FDA in general?

You're right in a sense and that's why they lost on several customers in a few studies, but two full years before we go to Phase III. And so far we don't have anything to comment on.

And on the number of ANDAs that you're expecting (inaudible)?

Absolute number of ANDAs to be filed or --?

Launched.

(indiscernible) products in the U.S. market.

Can you repeat that? Your voice was breaking up.

Two, eight products.

Eight products.

Eight is the maximum of six.

And a minimum of six? So the six are non Para IV or Para III, and the two may be Para IV?

No, it's not like that. It depends on approvals as well as mitigation outcomes.

Many may be Para IV out of this eight?

I cannot comment on that.

And this definitely includes (indiscernible), right?

Possibly, not definitely because it's subject to regulatory approval (indiscernible).

Okay, thank you very much.

Sameer Baisiwala, Morgan Stanley.

As far as (indiscernible) exclusivity, what are the keys impediments or key variables that you need to overcome to win this exclusivity?

Basically I think the exclusivity is driven by the formalization patent and I think the latest version is not completely clear on this yet.

And how would this get clear and what are the timelines?

I think it makes -- the case has been still [hard], so in the next six to nine months we should have some clarity.

If you were to lose on this court case, even then you think you can get the exclusivity?

That is subject to interpretation.

What is your take on this?

It's a possibility; I can't say it’s definite but it’s a possible.

And the second question is related to Allegra. In your assessment what do you expect the competitive landscape to be once this 180 day exclusivity gets over?

It depends on the approval processes of the other companies. We believe that we may be ahead of some of them.

Okay, that's fine. Thanks.

Ajay Sharma, CLSA.

Just a short query, Prasad, on this Roche acquisition. You mentioned that you have long-term contracts or that Roche had long-term contracts. I just want to ask whether on one side you've been challenging big Pharma on multiple (indiscernible) challenges and some of them could be your potential customers through this API plant. Is there a dichotomy there or the contracts will still stay?

All contracts are applying to Dr. Reddy's and they're in possible contracts. And I think we have a full history of applying to many of these customers already in some of our other parts of our business. So I don't see any concerns on that account.

Okay, wonderful. Thanks.

Rahu Sharma, Garvey Stockbroking.

I just wanted to ask you, you have clocked some very good numbers in API as well as the formulations business. Do you think we'll be able to sustain these level numbers going ahead in the next quarter and probably in (indiscernible) '07 also?

Broadly long-term kinds of data, but quarter-to-quarter there will be some variation driven by (indiscernible) launches of products in the API business. So there will be that kind of a variance, but the levels of the numbers are definitely sustainable.

Can I put it another way? Nine-month numbers, will you be able to sustain the nine-month growth numbers which are probably more evened out compared to our quarterly numbers which have been calling for at least 7% growth for the quarter API business and around 33% in formulations?

In Q4 we see a couple of things. One is the seasonality that is normal and we see it in the Q4 revenues and the (indiscernible) formulations, new weakness, some regrowth in the fourth quarter due to seasonality. Second thing is also that we are facing higher R&D costs in this current quarter because of the bunching up of the number of different studies -- [bioequivalent] studies that we have conducted. (indiscernible) I think Q4 will be more subdued.

Even in domestic formulations business, sir?

Yes, in domestic we see something on the effect of Q4.

Okay, thank you.

Mr. Rakish, (indiscernible) Partners.

You said that the Roche acquisition is completed in December and so can I anticipate the numbers to be reflected in the last quarter this fiscal?

Yes, some portion of it will be reflected in the current quarter.

Thank you.

(OPERATOR INSTRUCTIONS). Jesal Shah, JPMorgan.

Good evening, everybody, and congratulations to the management for excellent results. I just had two small questions. One is on this Roche acquisition. Can you give us some idea about what kind of (indiscernible) margins would we be looking forward to?

Margins you should consider (indiscernible) the API business kind of margins.

At the gross margin level?

Yes.

Okay. And is there some high amount of fixed overhead that you'd have in that company?

Normal overheads; I wouldn't consider them very high.

Okay. And the second thing is if we look at the domestic formulation business (technical difficulty).

Mr. Shah, sorry to interrupt, sir. Are you on a speaker phone?

No, I'm not. So the domestic formulation business (technical difficulty), but that could be partly because the last year third quarter had declined by 5%. So maybe that's one of the reasons why it's doing so well. So what is your sense in terms of -- what's the underlying growth that you are seeing in some of the key products and how the new products have really contributed to growth? What is the kind of (indiscernible) introduction, the domestic and the export market also going forward? And the branded formulation business, what kind of growth rates do you think can be (indiscernible)?

You're partly true in saying that last year there was a bit. But even accounting for that there has been an accrual growth. We are seeing double digit growth in the domestic market now and the (indiscernible) of many, many markets. (indiscernible) strong performance in Russia and [CRS] even at the absolute level. And we see that continuing, but not at the same highs that we have seen in this quarter. But we definitely see growth more internationally and in India.

And what about the new product launches and what have you planned in the domestic business as well as in the export business for branded formulation?

We are seeing an acceleration of our new product launch and it will be -- the number of launches that we've done is steadily increasing. (indiscernible) the market is a generics market at the end of the day and the products that have been launched are equal in products. And it takes time for the brands to build up, so you really have to see it over a three-year horizon. And we are doing quite well on that front and we're quite satisfied with our performance on the new product introductions.

Thank you.

(indiscernible), Kotak.

A question on that Roche acquisition of yours. How is the cost structure of that facility and is there any potential for those products to be manufactured out of India? And what is the kind of scale up potential still at that facility?

The products definitely won't be shipped (indiscernible), they will be operated from that plant, because all of these are registered products with the FDA and the other regulatory agencies. And our customers want our production to be there, so that won't change. However, having said that, we will do some backward integration of some of the [stocking] materials and produce them in India. So that's the strategy for that. In terms of growth, there are some kinds of businesses which have income growth opportunities. We intend to expand the (indiscernible) aggressively. Also we intend to pursue other existing customers for expanding the offering from us and especially to intermediates business. So there is growth there but it has to be realized through good execution.

Okay.

[Mitan Agrival], SSKI.

Good evening, everyone. I have a small question on the U.S. generics business. You mentioned also that on a sequential basis the performance has improved on (indiscernible) the revenues have gone up from 12 million rupees to about 48 million rupees. You've contributed partly to 66 million from the Glimepiride launch. I was just wondering what else has really contributed to the sharp increase in the U.S. revenue because sequentially they've been falling in the previous quarters?

Sequentially you know the product that you mentioned, Glimepiride also added to the base sequentially. In addition to that, certain other products also (indiscernible) sequential growth like Fluoxetine, Ciprofloxacin and even Citalopram. Sequentially we'll seek entry to all of them -- together have [contributedly] improved sequentially.

This is pretty much a reversal of the earlier trend wherein on a sequential basis these products were (indiscernible).

Well the prices have not (technical difficulty) they have increased our market share.

And there's one more question, the Roche acquisition. What's the annual revenue for the Roche products when you acquired the business?

Could you repeat the question?

When you acquired the Roche business what was the revenue -- the annual revenue of those products that (indiscernible) will be manufactured in the plant?

The revenue is not really disclosed because they were part of the total manufacturing difference between Roche and the site and the site was really not run as a business because run as more of a manufacturing organization. So it's hard to really quantify what the value of the business was.

Okay, thank you very much.

Namish Meta, E.D. Rice.

No, I think all of my questions have been answered. Thank you.

Irshwin Agavar, Akash Kanga.

Mr. Prasad, could you fill me in on the growth outlook for [Origin] and what kind of customer list we have? And what will be the investment going forward because fortunately it's quite big?

Origin has a business model where the business model is partnering with innovator companies and assuming the risk of the work so the business model works in a way that Origin makes revenue when it finds a molecule with pre-agreed characteristics from its customers. And then there are milestones and then downstream priorities involved. But this involves a collaborative effort with the innovators. Right now there are no additional investments from Dr. Reddy's going into Origin, Origin is able to sustain its operations with just reaching breakeven this year. I cannot give you the exact numbers of revenue at this time, but also the customer list is confidential and we cannot share the (indiscernible) with you.

Is it moving as per your target because--?

It's growing a little slower than we anticipated.

Okay.

But it's on a good trajectory now.

That means primarily Origin will make money only on raising targets and milestones?

The upsides will come from reaching milestones and targets. Some amount of costs will be covered by ongoing revenues also.

So do you believe in next three to five years, this can be exclusive if few of the targets go through?

Origin won't have its own discovery program. It will only do partnered programs.

What if the partnered program moves through the phases?

It will get milestones as well as downstream prior revenues when the product (indiscernible).

Okay, thanks a lot.

(OPERATOR INSTRUCTIONS). Mr. Pawan, Kotak.

This is for Mr. Vasudevan. Sorry, but can you please repeat your gross margins for the segmented numbers?

Pawan, this is Nikhil. The gross margins by business are as follows -- API is about 28%, then the branded formulations business is 69%. The generics business is about 44% (indiscernible). And then the balance is split up between the smaller businesses.

Okay, fine. Thanks.

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