Dr Reddy's Laboratories Ltd (RDY) 2017 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to Dr. Reddy's Laboratories Limited Q2 FY17 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

(Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Saunak Savla. Thank you, and over to you, sir.

A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings call for the second quarter of the fiscal 2017. Earlier during the day, we have released our results and the same are also posted on our website. We are conducting a live webcast of this call and a transcript shall be available on our website soon.

Just a reminder, the discussion and analysis in this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Saumen Chakraborty, our CFO; Abhijit Mukherjee, our Chief Operating Officer; Anil Namboodiripad, who is the Senior Vice President and Head of Product Development and Commercialization of our Proprietary Products business and the Investor Relations team.

Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlets without the Company's expressed written consent. Before we proceed with the call, I would like to remind everyone about the Safe Harbor. The discussion will contain certain forward-looking statement which are based upon management's current beliefs and expectations and involve a number of known and unknown risk and uncertainties that could cause our performance, results, and achievements to differ significantly from what is expressed or implied by such forward-looking statements.

For more detailed information on risk and uncertainties, you're requested to go to the Company's Annual Report filed with the Form 20-F which is filed with the US SEC for the year ended March 31, 2016, and the quarterly financial statements filed with the, Form 6-K, with the US SEC for the quarters ended September, December and June 2016.

After the call, if there are any additional clarifications, please feel free to get in touch with the IR team. There is one more information, there is a new member, Amit Agarwal who has joined the IR team and his contacts will also be available on the website.

Now I would like to turn the call over to Saumen Chakraborty, our CFO.

Thank you, Saunak. Greetings to everyone. Let me begin with key financial highlights. For this section, all the amounts are translated into US dollar at the convenience translation rate of INR66.58, which is the rate as of September 30, 2016.

Consolidated revenues for the quarter are INR3,586 crores or $539 million and grew 11% sequentially. All our major businesses have shown sequential improvement. On a year-on-year basis, it has declined 10%. Revenues from our Global Generics segment of $435 million and PSAI segment are $87 million. Consolidated gross profit margin for the quarter is 56%. Gross margins for Global Generics and PSAI were at 62.3% and 22% respectively.

SG&A spend including amortization for the quarter is $177 million and increased by 6% year-on-year. Following the dismissal of the writ filed with the Bombay High Court, contending the validity of certain notification issued by the NPPA, a potential liability of $5.2 million has been recorded. Normalized for this, the net sequential decline is primarily on account of reduced remediation cost and the product launch expense by proprietary product segment.

On a year-on-year basis, after normalization of the Venezuela based FX, the increase is largely attributable to normal salary increment, head count and other costs. We continue to explore revenues to optimize this spending.

R&D expenses for the quarter were at $78 million, representing 14.5% to revenues. This spend is in line with the ongoing set of development activities as planned. As we had discussed earlier, we have initiated further development activities on the recently inlicensed IPR&D assets from Xenoport and Eisai as well as the acquired ANDA filings from Teva, which has incrementally add it to the strength.

EBITDA for the quarter stands at $96 million, which is 18% of the revenues. During the quarter, we generated $61 million of cash flows from operations. We concluded the portfolio acquisition from Teva by paying $350 million and thereafter concluded the quarter with a net debt-to-equity ratio of 0.34. Effective tax rate for the quarter is 23%. We expect the annual effective tax rate to be in the range of 20% to 22%.

Key balance sheet highlights are as follows. Our operating working capital increased by $38 million during the quarter. Focus remains on rationalizing working capital across locations. This will obviously be done after considering necessary build-up, impending new product approvals and launches, and geographical expansions.

Capital expenditure for the quarter was at $46 million. Foreign currency cash flow hedges for the next six months in the form of derivatives and loans for US dollars are approximately $150 million, largely hedged around the range of INR67.6 to INR71.7 to the dollar. In addition, we have balance sheet hedges of $123 million. We also have foreign currency cash flow hedges of RUB600 million at the rate of INR1.03 to the ruble and EUR3 million largely hedged around INR75 to INR82.05 to the Euro, maturing over the next six months.

With this, I now request Abhijit to take through the key business highlights.

Thank you, Saumen. Greetings to everybody and welcome to the earnings conference call. Overall performance for the quarter is in line with what we expected. Every business has grown sequentially on the back of new launches or volume gains. Broadly, this gives us comfort on the base business. Let me take you through each business to discuss the performance and some key themes. The reference to financial numbers will be in respective local currencies.

Our North America revenues were $245 million and grew marginally on a sequential basis. Combination of in-house and partnered new product launches coupled with volume normalization in few product help counter the adverse impact of McNeil business and competition in some key assets. On the pricing front, we have not seen much movement on a sequential basis. From our side, it's logical to expect some competition in a few of the top products. However, at the same time, we hope to see traction in new product launches to improve further as the year progresses.

Coming to Europe, our revenues for the quarter are EUR24 million and it sequentially grew by 11%. We are building on our strategy to leverage our global portfolio and set up a robust institution business in the EU5 that is profitable, stable and lean.

On the emerging markets front, the macroeconomic stability risks have receded and we expect it to be stable for some time. This is likely to have a lebron effect on the pharma sector as well as on the respective currencies. Any appreciation in the local currency will be meaningful source of growth. Specifically to this quarter, our Russia business grew 11% sequentially in constant currency. At H1 level, the business grew by 7% in constant currency. Performance over the last five to six quarters indicate that stability is gradually coming back to the marketplace.

At an overall level, the team continues to focus on productivity enhancement and portfolio augmentation. Ex-Russia, the other markets and emerging markets business performed in line. Further, we are on track to expand our geographic presence to leverage up our institution business portfolio. As explained earlier, we did not have any revenues in Venezuela. We continue our efforts to actively engage with the Venezuelan government to provide affordable medicines to the country, but with an assurance on payments.

Domestic formulation business revenues are INR625 crores, and grew 14% year-on-year. This is good growth considering the season pick-up, while continuing to face the challenging NPPA pricing requirements. Portfolio acquired from UCB has also performed in line with the plan. Team continues to focus on increasing the productivity and augmenting the portfolio.

PSAI business posted revenues of $87 million and grew 22% sequentially. The sequential improvement in the business can be attributed to improvement in supply situations and order inflow. On the quality front, we are actively focusing toward universal compliance of the global quality management systems, specific to the three warning letters affected sites, we have addressed all the commitments and we await inspection by FDA. Simultaneously, we are trying to ensure that critical products have alternate sites assigned to them.

On our Proprietary Products business, we are closely monitoring the market for our newly launched brand Zembrace and Sernivo. Several initiatives to accelerate volume growth have been put in place and we are seeing a gradual increase in prescription growth.

On the R&D front, the pipeline is continuing to grow. Several programs at neurology and dermatology has achieved clinical proof of concept and plans are in place for initiation of pivotal registration studies.

To summarize, we have improved sequentially, but at the same time, we remain cautiously optimistic of the approvals and launch scenario for quarters to come. Management's focus is primarily on new launches in North America Generics market, improvement of productivity in the branded generics business, deliver on the quality improvement initiatives and strengthen product pipeline for the respective businesses.

With this, I open the floor for Q&A.

(Operator Instructions) Manoj Garg, Healthco.

Hi, thank you. Good evening. I have a few quick ones. One, any abnormalities in US pricing; two, the timing of the FDA re-inspection, and then lastly; I saw new filer on Revlimid. Can you confirm if that's Reddy's and whether you would expect to get sued there?

Pricing erosion has become a part of the US business model. Currently, there are, essentially four customers, [constant addition] has taken it to that level. Having said that, it will not be uniform quarter-on-quarter, last quarter was very harsh, this quarter was certainly better, much better. But having said that, to say that if it's on the wane, would be too optimistic.

Inspection, we mentioned that we have done our part of it in terms of completing all the remediation activities, keeping in touch with agency with the updates and as we've mentioned, we have requested the agency for re-inception. It has to follow the process and has to fit into the calendar and we'll have to wait for that. Meanwhile we're also trying to engage with them for a face-to-face. Revlimid, I won't comment on that.

Okay, that's fine. So back to the pricing, it sounds like -- downward pressure is a common place of the US market, but it sounds like you're saying in this fiscal Q2, it was a little bit less than fiscal Q1.

The erosion is a little subdued this particular quarter. Having said so, if there is one more approval coming in any of the top assets, it will -- again it could see an upswing. Largely VALCYTE was the biggest impacted molecule. The injectables are also seeing pressure, but by inherent nature of the business, there is some long-term contract and so on and so forth, which helps us to hedge to a certain extent, but having said that, we'll have to take it [on straight].

And then, so just a clarity on that. So you have asked FDA for re-inspection. So, you are waiting for them to get back to you.

Yes following the usual process. This is what it follows for all companies, I think --

So, doesn't that have a clock, isn't there a 180-day clock on that?

I think I don't know. I think it depends on how agency feels about responses and -- but you can take statistically, typically how much time it takes. It follows a certain timelines.

(Operator Instructions) Kumar Saurabh, Motilal Oswal Securities.

So, the US business sales sequentially has marginally improved, even though the McNeil impact as well as competition on the injectable side has worsened. So does that mean that apart from the new launches which we have seen, how has the base business fared, apart from these injectable portfolio; the couple of products which we have?

Yes. Erosion, as I mentioned, has not been severe in this quarter. But McNeil business, we had messaged last time, it saw the full blow impact of the McNeil business pretty much going away and as you know in this quarter, it's in double digits. So beyond that, I think as far as the broad launches are concerned, you are aware that if you take first half, two assets are relatively, moderately effective between $20 million to $30 million range. The rest are (inaudible) which we have launched are very small and so that's the overall picture.

Yes. And we have earlier guided for a better 2H compared to the first half, do we stick to that in terms of US launches.

Yes. Look, I think we've mentioned, we are cautiously optimistic. I think we'll stick to that. The assets have litigation aspects, have FDA's approval pathway aspect. But, yes, let's stay cautiously optimistic.

Sure, I have more questions, I'll join back the queue.

Neha Manpuria, JP Morgan.

Sir thanks for taking my question. Just a follow-up on the last one, previously you have mentioned you expect a brisk pace of launches in the second half given we have de-risked a lot of these launches from the impacted facilities. Does your cautiously optimistic comment incorporate that? Should we still see launches improve and how many of these do you think could be meaningful?

So a large case will be there, it will be [improved] and meaningful means, you at least know one specific launch is litigation outcome dependent. So that we'll have to know when actually the court thing comes up. Overall second half, we expect to be better than first half for the generics.

Okay. And my second question is on VIDAZA. We did see competition come in, but the numbers don't seem to suggest too much erosion. So is it fair to assume that we didn't really see too much erosion in generic VIDAZA due to this new entrant and that could start coming through as these long-term contract that you talk about go away.

No, I think price per vial has taken some hit for sure. But competition, I think, as you're aware, one is (inaudible) when generics available it beginning to having traction there may be a little difficult. But otherwise, the other one which is certainly nibbling share. But as I said, institution businesses have a slightly different nature of erosion, so I'll just leave it there.

Okay, Thank you.

Prakash Agarwal, Axis Capital.

So just trying to understand the proprietary products that you've launched couple of products. How has been the traction. Have they reached double-digit sales and what is the expectations in terms of second half and next year?

So we have Anil on this call so I will request Anil to respond.

Sure, this is Anil Namboodiripad. So let me talk about the two new launches in Proprietary Products. We are continuing to see traction with both prescribers and in terms of total prescriptions. Over the last three months, July to September, that is when we measured it, we have doubled the number of prescribers, and 40% of those prescribers are actually repeat prescribers, so which is a good sign.

Second, just in the month of September, prescribers grew by 22%. Prescriptions are also growing consistently because -- let me specifically talk about Zembrace and then I'll come to Sernivo. Prescriptions on Zembrace are growing consistently and has crossed the 1000 prescriptions per month mark, which is a milestone for us with a four-month growth rate of 54%.

Similarly, for Sernivo, prescriptions have crossed 2000 prescriptions per month and the number of prescribers has also grown to about 2000 with again 40% of those prescribers being repeat prescribers. These are all some of the benchmarks that we look at early stages of launch and because we (technical difficulty) how the product is poised to perform. The growth rate of prescriptions has also, in case of Sernivo, been 50%.

The base business is on track to budget and moving forward, we expect to see, especially with Sernivo, we expect to see a significant increase in the coming months due to favorable seasonality of this particular product usage.

But any color in the sales would have also help because we are seeing a very flattish Y-o-Y and Q-on-Q movement in the same.

Yes, so let me talk about that. Our focus has been on -- because we, in case of neurology, we are new to the market as Promius neurology. It has taken us a bit more time than expected in terms of establishing a presence in the market. We had not significantly done pre-market or market development activities prior to launch.

So as a consequence, what we are focusing on right now is to build volume and increase the number of prescribers, and the number of patients who experience our product, because our belief is that if we are able to increase volume, then -- as we continue to get listed across all the managed care formularies, these will all turn into revenue scripts. So there is a significant effort in terms of sampling as well as certain experience programs that we're conducting in the field.

So you're not really seeing that translated into numbers, but as we continue to get managed care coverage, right now we are at about 50% managed care coverage. As you know, we are working with each of these specific managed care bodies to get listed in their formularies and that is a process of its own, where we negotiate rebates and things like that. So that is taking its time. And once we are able to get adequate managed care coverage, you will start seeing the numbers. But the prelude to those numbers is basically the volume growth.

And what kind of peak sales are we expecting by when?

Peak sales are still based on -- as we had originally indicated, we expect it to be somewhere in the range of $50 million for both products and we expect it to happen in the next two years.

And second question is actually on Reditux. So in Russia, are we on track to launch this in 3Q as indicated earlier. And with the -- as you mentioned currency impact is largely getting over, so do we expect a very strong 2H?

This is a tender. Tender is slated to be in Q3. And we'll certainly participate strongly. So beyond this -- if we win, we will certainly see revenues.

So these tenders are one-time or this can continue quarter-on-quarter.

I think the biggest national tender is twice than a year.

And this is a longish contracts. So this can see the impact in the next quarter and following quarters as well?

Yes. I mean, this is, I think yearly sort of -- and it goes through. Currently there are three approvals. I mean the innovator is there. There is a Russian player and us.

Okay, great. I have questions, I'll join back the queue.

Anubhav Agarwal, Credit Suisse.

Good evening all. Abhijit, one question on PSAI business. This quarter benefit from delayed shipments from Q1. I just wanted to understand that, is this the new rate should we work with or just because of delayed shipment this PSAI sales in this quarter was much higher?

This is B2B business. So, I mean you shouldn't read always very deep into our quarterly figure. But having said that, it's not that this is a delayed shipment or something, but sometimes it's also part of the PSAI business is the custom pharma business. Orders come sometimes in chunks.

More importantly, I mean since you asked the question, let me clarify that the health of the business, I think, I feel very satisfied about. I think overall, I think the gross margins look certainly better than what it used to be six quarters back, that's important. Supply situations are broadly under control. New products are kicking-in. And last but not the least, I mean standalone figures are important for this business, but we'll always have to remember that this is strategically important to the base business.

Just one more clarity on this product you bought from Teva, NuvaRing. Now when you bought this product from Teva, in your internal calculation, for how many years you think it will remain a two generic player market, just as a rough idea. Because I just want to see that versus the amount that you paid for the eight products, if situation continues for more than two years as a two player generic market, then it's a very sweet deal?

Look, let me make a broad commentary before I come to NuvaRing. I think, we feel reasonably satisfied with this, as things stands today. The two major assets have litigations and some of the information in public domain. And overall, the going is good. In terms of our expectations and diligence, I think it's playing out well, and we have reasons to be satisfied.

NuvaRing is a drug-device type of combination and to hazard a guess that when is the third player coming in, I wouldn't be able to do that. I mean that will be a shot in the dark, so it doesn't make any sense. But overall, we feel good about the two lead assets and some of the other assets as well, the small ones.

So if I can ask one question to Saumen on the interest cost. Now for the Teva, debt that we've taken for this deal, how much is the interest roughly is cost for the debt, because two questions there, because sequentially our interest cost is down. Has that Teva debt contributed to interest expense in this quarter?

Yes, to the extent we took in the middle of the quarter, the interest expense is there. But so far it is a short-term borrowing, so the interest rate is low.

And why would our interest cost be down sequentially?

Basically, we also need to -- as per the accounting requirements, certain portion might get capitalized also. So it's a net impact of that.

Okay. Maybe I will take any detail in offline. Thank you very much.

Surya Patra, Phillip Capital.

Just one clarification, whether the Nexium (inaudible), the Nexium have supported this quarter in the US business?

I think it is stable and double digits and nothing major to report at this juncture. It's going fine. But as and when new competition comes in, there may be some erosion.

Okay and secondly, in fact I just wanted to know something more on the NDA launches that we have talked about. So whether the kind of the expenses, what we are currently incurring on that is stabilized and we should be seeing a kind of a similar trend going ahead in the subsequent quarter or it can see a kind of a spike also? And by what time we should be expecting a breakeven for this division?

Honestly, we have earlier told that for the rest of the year in proprietary product, because of the in-process R&D assets that we acquired, we will be spending additional roughly around $25 million. So we'll be very much within that kind of a range. That will expand the incremental R&D spend that we're doing overall for the organization.

Proprietary Products, you heard a detailed commentary from Anil in terms of the two products that we have launched in the market, as to how one is focusing in terms of generating more prescription. And we'll have to now see the moment both in terms of our existing organic R&D as well as the in-process R&D and depending on that, the overall breakeven timelines could vary.

Okay. So in that case, whatever the growth on the prescriber front that we have seen in the recent quarter and the recent months since the launch of this division, whether we have captured already 20% of that total potential key prescribers or it is like 30%, 40%. Some sense can you provide on that?

We have right now captured roughly around 15% or so in neurology and slightly higher in dermatology. But we intend to capture much more over the next coming months. As I said, we have seen a significant growth month-by-month actually and if this trend continues, then we will be able to capture a significant proportion of our key prescribers within the next several months.

Okay. Just one last question. What is the kind of update that we received from US FDA on the earlier communications that we have already provided to them? Any clarity that you have so far received, sir?

No, I mean, normally the interim updates are not common. So there is no interim update. But certainly we are in the process of trying to organize a face-to-face, which is moving ahead. Beyond that, there is no update.

Okay, wish you all the best sir. Thank you.

Sameer Baisiwala, Morgan Stanley.

Good evening everyone. Abhijit, if you can update us on three key opportunities; one is Aloxi court case; second is Copaxone 20mg re-filing; and third one is on Gleevec the site switch and potential launch in the 4Q.

Aloxi, hopefully we'll hear something in Q3 and I think there are enough predictions made by various people who are knowledgeable on the subject. So let's see how that works out. And then that will be very big event for us. But we'll see how it pans out.

The second is Gleevec, we had mentioned that sometime in Q4 and the site transfer et cetera has been submitted in time and I think that shouldn't come in the way of approval. Currently as you know, two more have launched. And I think also it's on the public domain announcements from innovator, there could be one more at least coming in and then, let's see. So beyond that, I mean, your guess is as good as mine.

The third question, Copaxone 20mg, the validation batches are complete, it looks good. Compilation of the response is going on. I mean we are behind schedule by a couple of weeks because the amount of analytical data to be generated is fairly heavy. But we again feel good about the way the whole thing has panned out. I think we have -- the work done is good and this would be -- hopefully let's say by second week of next month we should respond back on the DMF and this is the same DMF for 40 mg as well.

Okay, this is very helpful. And Abhijit on Aloxi, it would be a District Court decision. Assuming if you get a favorable one, would you rather wait for appeal or would you be prepared to launch at risk?

Wouldn't comment on that, Sameer. I mean this is [really I'm] asking this question. I mean I'd let this be debated internally and see whatever happens.

Okay. And the second question Abhijit is, in your opening remarks, if I'm not wrong, you mentioned that some of your top products, there could be more competition coming in and there could be more downside. So do you think there is more vulnerability left in say your top five, top six products over next two to four quarters, I mean in a material manner, not a small hit.

No, I understand where you're coming from. But you see, in North America Generics, the order of the day is to always be prepared for some downside. You ask me that do we have concrete visibility on competition coming in. Maybe not, but you always hear that someone is getting ready on this, we hear Nexium, several people so on and so forth. So I mean I won't be able to back it up with specifics. But I think in today's terms, I think market is getting crowded, it's consolidated market shares, you defend you lose, you don't defend, you lose. So, I mean always let us to be prepared for the worst.

Okay. Thank you, I've got few more, I'll get back in the queue.

Shyam Srinivasan, Goldman Sachs.

I think in the opening remarks, you talked about the working capital days is actually stretched. Can you just tell us how much of that is because of the channel part and how much would be for the launches that you're anticipating in the second half?

Mostly for the launch preparation, as well as geographic expansion that we're doing. And there is some volatility which is there in our payables. Last quarter, it was an increased kind of payable date, which has again run back to our normal range. So that has an impact in terms of the working capital.

So nothing from the consolidation of the channel you think. That has played out largely.

Yes, I mean there is no exceptional kind of listings.

Second question is on this NPPA provisions, I think INR34 crores, is there more? Can you just update us on among several cases that are happening for not only you, for several other players, just your thoughts on the whole thing.

So the NPPA case is primarily what IPA has filed and that was initially rejected in the High Court. And then the attempt was made by IPA to get it admitted in Supreme Court that (inaudible) in the phase. So we have now accrued that potential liability, which is INR34 crores on that. And definitely, half of the products we are already complying and the remaining half immediately we start compliance on them.

So do you foresee more such provisions? That's the question I'm sorry.

It depends on some other cases, which are going on in terms of the method of computation. So one have to wait and find the outcome of those cases. We have, right now, exclude liability and what is very logical and right kind of provision.

Okay, thank you. Thank you so much.

Nimish Mehta, ResearchDelta Advisors.

Yes, thanks for the opportunity. Lot of them have already been answered. Just a few product updates on Cubicin and Diprivan, Cubicin is Daptomycin and Diprivan. That would be helpful. When do you think you will be launching those products?

Specific comments, we would not be able to give you. You asked about Cubicin. What is the other product you asked for?

The first one is Cubicin, that is Daptomycin. The Second one is Diprivan, which is Propofol.

Yes. I mean, I wouldn't comment. They are in portfolio, yes, but I wouldn't comment specifically on the timings.

Not even a broad comment like FY 2017 or next year, something like that.

No.

We normally do not comment on our pipeline and portfolio specifically.

Okay. The other one among the facility which are actually under US FDA warning letter. Have you seen any regulatory update on from any other regulatory agency other than US FDA?

Yes, Health Canada audited our CTO facility, Chemical Tech Op facility which is the Srikakulam district and they have indicated compliance status now.

Oh great, so basically [API won]?

Yes, this is a good news for that plant, because the last audit happened by the Australian authority, that also went well and now Health Canada has also done well.

(inaudible) chances of US FDA than you see it earlier or it's back to most of the region?

We don't want to comment and speculate on US FDA action. We would be eagerly waiting for any re-inspection that may happen.

Any regulatory agency audit is completely their prerogative. So, it'll be -- there is absolutely no connectivity between the different regulatory agencies. Since you asked, we just gave you that data point.

Manoj Garg, Bank of America.

So Abhijit, since there is a recent ruling where Actavis has won the litigation for NuvaRing. So, just would like to understand, do you think that probably you see a higher visibility and possibility of you launching this products in the next fiscal year?

Not impossible, but it's in another litigations. So, there is one data point as you know in the public domain, which you can look up, which has gone in favor of generics. The file has clearly court position, but it's in the court of law. But as I mentioned, overall we feel good about the current decisions since maintained are pretty good.

And the second thing, as a part of risk mitigation, since most of the key assets which were from the affected facilities, you've already done the site transfers. But are you also now looking to do the similar thing for even some of your key assets in FY18 as well?

We will have to continue, we have a program, we are closely overseen and I personally chair those meetings. It's an important activity for this Company and we are continuing to do those things. I think we would like to take chances. But it takes time, even after the tech transfer you submit, it goes through some timeframe, which the agency may take for going through the data stability and all that. But the activity continues completely in full swing.

Sure. And the last question from my side, if I can. Particularly like the Russian guy like BIOCAD has put an allegation on Roche that they have been taking very high price cut for some of their biosimilar assets in Russia in order to make sure that generic competency goes out of business. I mean with your backdrop and obviously you participating now in one of the products tender. Like what's your view on that and how do you see, in terms of overall pricing environment for rituximab in the Russian market?

I know any allegation is prerogative of that particular company. We'll go through a normal process. We will participate in the tender and see what happens. And that's not just about Russia as we speak, I mean we feel -- we're fairly excited about many markets where we have filed. I think we're seeing traction in terms of regulatory agencies receptive to quickly to review these files. And I think there is -- from the access affordability angle, it's an exciting journey in many of these markets where the penetration is hindered by the price and we would like to play a role while creating our own business.

Sure. Sir, I have more questions, I'll be in the queue. Thank you.

Saion Mukherjee, Nomura.

Abhijit on the US side, the new launches are quite critical as you keep facing competition. So slightly from a longer-term perspective maybe FY18 and FY19, can you just help us understand how should we think about, because last two years, we haven't seen any major launches from Dr. Reddy's. And particularly, on product specific Copaxone, since you are going to re-file it, how confident you feel about the approval, given that there is already one generic in the market, do you have enough visibility now or there are some guidelines from FDA that makes you feel now when you submit, it would be in a stage where it can be approved very quickly.

So let me give you the broad picture first. I think overall, the filing, approval scenario is clearly moving in the right direction. There are always ifs and buts, as I mentioned. So without those disclaimers, I think we're feeling good about next year as well. So let's see how this pans out. I know it's a combination of our filings, it's the combination of some of the partnerships. These partnership activities started sometime back, gaining traction, some of them are thoughtfully done. And it should be an important part of the business as well.

So all in all, I think, again, we remain optimistic. Copaxone, I think as I said, validation is complete. From our angle, I think we've done a fair bit of job detailed, let's submit and -- see these are complex effect, [because it] just one approval and I think we took our time to go for the response and let's see how that progresses.

Yes. And in terms of your patches and soft gels, et cetera, when do you expect those launches?

You mean the other product in terms of soft gels and other -- patches and all that, is that your question?

Yes.

Moving on, there is some settlement in one product. Moving on, I mean these are new areas but I think the learning curve is slowly getting behind us. I think we are moving okay. That's why I'm saying some of this, hopefully next year, we should be seeing, let's see.

Okay. And my second question is related to OctoPlus and complex injectable filings from there, any progress on that front?

Progress is happening. I mean injectables pipeline overall is shaping up well it's not just complex. So there are carefully picked opportunities, if you do the portfolio management well, the opportunities, we take some bets on. Some of them are good and OctoPlus is a combination of semi complex and complex. The complex story is yet to play out in full but there are lots of assets which are value accretive still which are -- some of them filed some of them in filing.

And just one last question on prop products and biosimilars. This [ZICLA's] approval has not yet come through, any reason for that. And secondly, if you can update on your biosimilar program?

ZICLA's approval we'll not comment on at the moment. Anil, do you want to comment on ZICLA's specifically and I'll take the biosimilar?

Sure. So the ZICLA's approval is pending the feedback from the FDA on our plans, because the API was manufactured in one of our plants. So we anticipate that as soon as we get positive feedback, we will be able to contact the FDA for approval and eventual launch. So it is tied to the timelines of when we get FDA clearance.

And on biosimilars, the story is progressing well on the emerging markets while as in all the regulated markets, it's slightly long-term. And emerging markets, I think as I mentioned -- I think, probably next year we'll see meaningful launches coming up.

And just a clarification on ZICLA, you meant, it's from Srikakulam and that's the reason you're not getting an approval.

Yes, that's right.

That's what Anil said, yes.

And is there a possibility to do site transfer for this product?

Yes, I mean, this one is an NDA, so we'll have to sort of see through. I'm not fully aware of the regulatory pathway of this currently. Anil do you--.

Until we get clearance from the primary site, it will be difficult to do a site transfer at this time.

Nitin Agarwal, IDFC Securities.

On the biologics side, can you please let us know, what is it the size of the biologics business that we're doing right now. And secondly, how many assets are we currently selling in the emerging market?

Currently three. The earlier assets Reditux, Pegfilgrastim and Darbepoetin Crespso. So these are the three, give or take revenues around --

More than $40 million.

$50 million -- in the range of $50 million. But as I said, the bigger ones hopefully in near future over Russia, Venezuela, maybe Algeria, maybe few other countries which we are very, very actively sort of -- currently we're selling in several markets like Chile, Vietnam, Ukraine, we just launched just about a quarter and a half back, doing very well. So let's see.

And is $40 million or thereabouts is across -- including Indian sales is also the sales in India.

Yes, that's right. It is in between $40 million to $50 million.

And secondly, in terms of the pipeline, how does the biologics pipeline really look like for us?

Again without going into specifics, the two [more maps] are well in clinic progressing well. So based on certain amount of data, we will go ahead with the emerging markets and keep moving that further. So that's going well both in clinics.

Abhishek Sharma, IIFL.

Sir, I just wanted to ask you about the base business and its impacts -- the impact that it had on account of warning letter, was there any loss of volume on any of the existing products that you would hope to make up once the warning letter is lifted?

Volumes, I'm not sure was impacted because of the letter. But certainly, I mean we've have lost opportunities and some of it is history now, and I've mentioned in earlier -- we were in the first wave of Nexium, which was a big thing and there are a few other products, which certainly we miss out. And the room to quantify the figure here, but I think it's been a significant impact, but hopefully, most of it is behind us and we'll be able to sort of here on move the needle up. I'll leave it there.

Sure. And the second one is around SG&A cost. Apart from remediation, is there any other cost line item which helped reduce the number, on an absolute basis sequentially and can this go down further?

We have been focusing on, we have a cost excellence program and operation excellence program to specifically see that where there is the possibility of improvement. So that's why year-on-year basis, you'll see that the increases is very nominal, which is actually mostly for the annual increment that we would have given effective April 1.

And going forward, this is one area we are going to continue to drive and see that how we can get better productivity, but a lot of productivity depends on actually the revenue line increasing. As we see, if the revenue goes up, we can expect a better EBITDA margin.

Sure sir. Very helpful. Thanks.

Thank you very much. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Saunak Savla for closing comments.

Thank you all for joining the call. In case of any additional clarifications, please feel free to reach out to Asish, Amit or myself. Thank you Anil for joining in the call. Thank you sir.

Thank you very much, ladies and gentlemen, on behalf of Dr. Reddy's Laboratories Ltd that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.