Dr Reddy's Laboratories Ltd (RDY) 2019 Q1 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Q1 FY '19 earnings conference call of Dr. Reddy's Laboratories Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Saunak Savla from Dr. Reddy's Laboratories Limited. 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 Dr. Reddy's earnings conference call for the quarter ended 30th June 2018.

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. 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 Mr. G.V. Prasad, our CEO; Mr. Erez Israeli, our COO; Mr. Saumen Chakraborty, our CFO; and Mr. Anil Namboodiripad, who heads our Proprietary Products business and the Investor Relations team.

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

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

Thank you, Saunak. Greetings, everyone. I am pleased to inform that our financial performance for the quarter has been good across all 3 geographies with an improvement seen in the overall profitability.

Let me take you through the key financial highlights. For this section, all the amounts are translated into U.S. dollars at the convenient translation rate of INR 68.46, which is the rate as of 29th June 2018.

Consolidated revenue for the quarter was INR 3,721 crores, that is $543 million. And has grown by 12% year-on-year and 5% on a sequential basis. The growth is primarily on the back of the strong performance revival in Russia, consistent performance across businesses and contribution from gSuboxone.

As you are aware, during the quarter, after gaining effective FDA approval, we launched the generic version of Suboxone Film. In response to motion from Indivior, U.S. District Court of New Jersey granted a temporary restraining order, enjoining us from further sales. In the intervening period between the FDA's approval and the issuance of the TRO, we were able to ship some large quantity in response to the market demand for (inaudible).

Consolidated gross profit margin for the quarter is 55.7%, which is higher by around 230 basis point compared to the sequential quarter. The improvement in gross margin is majorly due to the benefit from the depreciation of rupee against the U.S. dollar and euro, overhead leverage due to improvement in sales on a similar cost base and the margin contribution from gSuboxone sales, which was partially offset with the price erosion in the base business.

Gross margins of Global Generics and PSAI were at 61.2% and 21.9%, respectively.

The SG&A expense for the quarter is INR 1,211 crore, that is $177 million, and is flat on a sequential quarter basis. It has grown by 3% compared to that in the previous year. We remain committed in our journey towards building higher cost consciousness across the organization and an improvement in the spend productivity.

R&D spend for the quarter is INR 416 crores, that is $61 million, representing 11.2% to revenue. The spend has been lower during the quarter due to a quarterly variation in the milestone payment and other spend activity when we compare (inaudible) towards financing the R&D spend, productivity and privatization. However, we expect the current year R&D spend to be around similar levels as the preceding year.

On the cost rationalization side, we are progressing in line with the internal expectations. A lot of work has happened around rationalization across the manufacturing network, portfolio, R&D side, manning levels, et cetera. It's a massive effort to reorganize the stem cell processes to help optimize our global cost structure and help us focus on other business strategies to drive growth.

On the same subject, during the quarter, we have entered into a definitive agreement to sell our antibiotic manufacturing facility and related assets. The conclusion of the deal is subject to certain closing conditions that have been worked up.

The EBITDA for the quarter stands at INR 807 crores, that is $118 million, which is around 21.7% of the revenue. The effective tax rate for the quarter is around 9%. It is lower primarily on account of profit mix and favorable resolutions for certain tax-related litigations pertaining to earlier year. On a full year basis, we expect the annualized effective tax rate to be in the range of 21% to 23%.

EPS for the quarter is INR 27.45. During the quarter, operating working capital increased by around $160 million, mainly due to a temporary surge in receivables and inventory for new products. Going forward, our free cash flow is expected to improve.

We invested $34 million towards capital investments, and our net debt equity ratio is 0.29 as on 30th June 2018.

Foreign currency cash flow hedges for the next 9 months in the form of derivatives for U.S. dollars are approximately $300 million, largely laid around the range of INR 65.80 to INR 69.54 to the dollar.

In addition, we have balanced (inaudible) of $386 million. We also have foreign currency cash flow hedges of RUB 1,215 million at the rate of INR 1.12 to the ruble, maturing over next 9 months.

With this, I now request Erez to take through the 3 business highlights.

Thank you, Saumen. Greetings to all the ladies and gentlemen, and I extend a warm welcome to you on this earning conference call.

Let me take you through the performance highlights across key markets and businesses for the quarter. Please note that in these sections, all references to numbers are in respective local currencies.

Our North America Generics revenue for the quarter are at $237 million, registered a sequential growth of about 7%. The sequential increase is largely attributed to the launch sales of gSuboxone Film prior to the temporary restraining orders coming into effect. This was marginally offset by value erosion in this -- in the base business.

Further, on 13 July 2018, the District Court of New Jersey, in its opinion, instituted preliminary injunction, enjoining us from any further sales of gSuboxone Film. We disagree with the decision and have appealed it in the Court of Appeals for the Federal Circuit. We have also requested for the Federal Circuit to lift the District Court's injunction while the appeal is pending and consider the appeal on expedite basis. Overall, we remain confident of our key position and look forward to a favorable outcome in the appeal case.

On the base business, during the quarter, we continued to witness incremental competitive pressures around some of our limited competition products. While the tax erosion is continuing, the rate of the decline is not as steep as seen in the last few quarters.

At the same time, it will be very difficult for us to speculate on the likely behavior of the market participants and their impacts on the pricing environment over the coming quarters. Overall, the base business has performed reasonably well, and we remain optimistic about the eventual stabilization in the generic market space over the medium term.

We are quite excited about the growth outlook for the North America Generics business, owning the debt in our complex generics portfolio pipeline and continue to execute on our game plan to accelerate the launch time lines for key high-value products.

As highlighted earlier, we are anticipating an healthy new product launch calendar, with visibility of 15 to 20 launches in FY '19.

Continuing on the same lines, let me also update you on the status of our big-ticket launches of generic NuvaRing and generic Copaxone.

On generic NuvaRing, as anticipated, we recently received a few additional queries from the agency. We feel reasonably positive about the type of queries and also as a follow-up call scheduled with the agency, seeking additional clarifications. We are working on the response and plan to submit a response back to the agency in the next couple of months. We remain optimistic about the potential approval and launch for this critical asset in the first half of calendar 2019.

On generic Copaxone also, in line with the update shared during previous earning calls, we are all -- we are on track to submit our CRL response in the next couple of weeks. While we feel good about the work accomplished during such accelerated time lines and considering the complexity of the product on hand, it is likely that there may be additional queries from the agency as part of CR response review.

Consistent with extensive review time lines involved in such complex assets, we are gearing towards potential approval and launch of gCopaxone during second half of calendar 2019.

Our Europe Generic business revenue was EUR 25 million. As you would recall, the previous quarter have had some supply issues. The same are in the process of getting addressed with ramp up in supplies continuing.

Our emerging market business has shown strong growth during the quarter. The revenues from Russia market are RUB 3,501 million and has grown 14% year-on-year and 55% sequentially.

As discussed in the last earning call, there has been strong revival in the buying pattern following a soft quarter 4. This aside, we continue our strong focus on 3 strategic growth lever: one, new product launches; two, deepened presence into newer markets, such as Brazil and Colombia; and three, geographical expansion of our oncology institutional business. Performance in other emerging markets has also been in line with our expectation. Overall, we remain optimistic towards healthy growth in FY '19.

Our India business revenues are INR 607 crore, and has grown by 30% year-on-year and marginal decline of 1% sequentially. We have seen some good launches in this quarter, and we'll continue to strengthen our portfolio.

As announced recently, we also brought 5 biosimilars to the Indian market. With the launch of Hervycta, which is trastuzumab, a biosimilar of Roche Herceptin. We are quite hopeful of growing our India business better than the overall market in FY '19.

PSAI business revenues are $81 million and largely in line with our expectations. Our Proprietary Products business, with a deep end 02 filing, we have been granted the PDUFA date in January 2019. Prelaunch preparations are ongoing for an estimate launch around quarter 1 of FY '20. Overall, we continue to focus on building on our existing commercial footprint and also enriching the development pipeline.

On the commercial side, we are continuing to see an increase in prescriber base and volumes for our lead neurology product, Zembrace. We saw a slight decline in volumes for Sernivo over the previous quarter, but corresponding improvement in gross to net realization set off this volume decrease. We expect to see growth across dermatology portfolio over the next few quarters.

Overall, I feel positive that we are heading in the right direction. Strong performance during the current quarter has been a result of our ongoing efforts toward focusing on growth, as well improving the productivity levels. It is a journey, and we will continue to build on it for a sustainable growth for the company.

And with that, I would like to open the floor for questions and answers.

(Operator Instructions) The first question is from the line of Manoj Garg from Healthco.

First off, congrats on the stabilizing quarter. I have a few questions. I'll just go through and ask my questions and then return to mute. One, can you talk about how much Suboxone was -- you were able to ship in the few hours that you were on the market and if the entirety of that was booked in fiscal Q1?

Two, can -- you talked about the appeals process. Can you provide some color around the timing or your timing expectations for the appeal?

And then lastly, within the release, you talk about price erosion, but we actually saw a healthy uptick in gross margins. Is this entirely the benefit of Suboxone? Or are you starting to see some price stabilization in North America?

So the first question, we are not disclosing the exact sale of Suboxone. And second, I didn't understand the question. If you can repeat again, but for the third -- Okay, please.

Yes. So the follow-up for the first question, so that's fine that you are not releasing the sales of Suboxone, but was the entirety of it booked in fiscal Q1?

Yes. Whatever the shipment has happened, that has been part of the revenue recognition.

Okay. All right. So the second question was just around the timing expectations for the appeal.

Okay. You would like to take it?

Yes, so we -- as we mentioned, we submit an appeal and we are asking for a date. We don't know, naturally, the date, so we cannot comment on that, but we hope that it will be as early as September, but we, of course, it can go also to the next quarter as well.

Yes. To your first question -- sorry. Yes, Manoj?

Yes. The last question was just on gross margin. Was it entirely -- was the uptick entirely driven by Suboxone? Or are you actually seeing some price stabilization?

No. I already read out in the script that, sequentially, the gross margin has gone up by around 230 basis points. And there are four factors, three positive and one negative. Positive will be the depreciation of rupee against the U.S. dollar (inaudible). Positive will be the overhead leverage due to improvement in trends on (inaudible). And the top positive is the margin contribution from this new Suboxone, and the negative is the price erosion in the base business.

(Operator Instructions) The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

Saumen sir, you guys have exhibited great cost control. I had a question on personnel cost. This quarter, we have seen a 4% increase year-on-year basis. I was looking at our annual report. Last year, we had -- added about 4% to number of people, average selling increased, except managerial increase was about 8%.

So I'm just trying to understand, just putting context this $5 number versus the numbers, which I just talked about, average increase of 8%, still adding people. What do you think will be trend of personnel cost? Can we -- can this trend on personnel cost remain low single digit, or does it has to go high single digit to low double digit?

So there could be some increase due to the annual revisions, which we have not undertaken from (inaudible) as usual. So that has been deferred 'til July. So on account of that, there will be some increase. But at the same time, we have been focusing on organization design and improving the efficiency of organization design.

And consequently, since we are attacking both, the spread of control and the layout, we expect some reduction in the personnel costs. And what -- finally will be the trend, we'll be able to give you a better guidance probably next quarter, but definitely, I don't expect more than single-digit at all. But we have to find out the exact how, whether it's low single digit or what exactly next quarter and maybe altogether, this has (inaudible).

That's helpful. Second question about the receivables. You mentioned temporary increase, but can you just talk about which region they were -- it's a very sharp increase, I mean, what led to this -- such a sharp, temporary increase?

Multiple reasons. There would have been some credit period increase for key customers in USA. Also, there have been Suboxone (inaudible) would have gone to receivables. And once the sales fluctuations and more sales -- so as I said, this is a temporary surge, which will normalize in the coming quarter. And our free cash flow situation is expected to improve. So both in terms of the (inaudible) receivables, as well as in inventory.

But just subsequent clarity here. Is that -- excluding Suboxone, the credit term increase, et cetera, you talked about, are most of the increases all related to U.S. or this is ex-U. S.?

Primarily U.S.

The next question is from the line of Neha Manpuria from JPMorgan.

First on lowering. Just to clarify, we -- you mentioned that we've just received queries from -- received queries from the agency. But this isn't in CRL. Is the understanding correct? And therefore, you're expecting launch in the first half FY '19?

So we do have a CRL, and we are responding to it. Yes, and we maintain what I've said about the timing of the launch.

Okay, got it. And the second question is on Srikakulam. Have we heard back from the FDA after the queries that they had on that?

Let me take that. This is Prasad. We are in constant communication with the FDA. They've asked us to do some data investigations and analysis. We are providing them that. One phase of it is done, but there is a remaining phase which will be completed by September. And at that time, we will know the path forward with the FDA.

So we're still not sure whether the inspection would be required or not after we submit this data? Is that understanding correct?

I think that determination will be made after we conclude this round of supplying the information that they've asked us.

Okay, understood. And my last question on the cost saving. You had indicated that a lot of the cost saving benefits will start reflecting in the -- in this quarter, and you also mentioned sale of certain facility. Is part of that already captured in the gross margin expansion that we saw in terms of facility rationalization on manufacturer level cost improvement? Or we should start seeing more of that benefit probably in the second half of the year?

Let me answer it in 2 parts. The first was started -- we had started seeing some flow into the numbers, and that is reflected in the operating margin of this quarter. But the major impact will be felt only in the second half.

The next question is from the line of Nimish Mehta from Research Delta Advisors.

Saumen, I just wanted to understand, besides Suboxone, hasn't really been benefited by the 180-day experimental launch of Aloxi. And if yes, what do you -- if you can broadly tell us what is the performance ex-both of these products? So basically the base business performance in the year.

After the (inaudible) effect. So basically, if I understand correctly, you're asking for Suboxone, the performance for the base business as such. So largely...

Isn't it ex-Aloxi (inaudible) 180 exclusivity?

Yes, yes. But that's fine. So without these 2, I would say the base business kind of taken the hit with respect to Dacogen and a little bit on Toprol. But without that, I think at this point in time, there is no additional development on the marketplace which can lead to any different visibility.

Okay. And what is the outlook on -- competitive landscape on the (inaudible)? So are you expecting more players when 6 months are over? And also -- if you can also comment, if I'm not wrong, but the case -- I mean, the litigation has been accepted in the Supreme Court. Is there any color? Or maybe my information is not right. Please correct me.

So at this point in time, we'll not be able to comment on that on a comprehensive way. It'll be a bit too early to comment on that, so we'll just wait and watch on this.

Okay. But do you expect competition after 6 months is over?

Yes. It's a generic market, so yes.

Okay. Lastly, on -- (inaudible) expected to invite (inaudible) in this month. So...

We have already invited, and that is in there, in our annual report that is published.

I see. So any time line that you can propose or anything new that you can tell us? That will be great.

No. We have invited. We are yet to hear from both of these.

The next question is from the line of Surya Patra from PhillipCapital.

Yes. Just a clarification, sir. On the biosimilar front...

Excuse me, this is the operator. Mr. Patra, may we request that you use the handset please?

Okay. On the biosimilar front, as of now, what could be our domestic revenue sales that will be coming from the biosimilars and...

We are not disclosing product-specific revenue. But -- yes. But today, we have again, launched a product in biosimilar, that is mAB. And as you know, we already have 4 products in India. And so there have been competition which has come in for some of the products we will need to launch or first to launch. So maybe more details we can (inaudible) customers. That specific area that we recently disclosed (inaudible) revenue.

Okay. Sir, can you give some sense even on the Russia? In what manner does biosimilar, sir, contributing to the growth of Russia?

Again, product specific we'll not be able to give. But you know that we have got Rituximab (inaudible) in Russia and we have been participating in the tender process, and time to time, we are supplying them the (inaudible) but it is not uniform across quarters.

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

A question on Suboxone. I'm just trying to understand this landscape better. So the appeal you mentioned that expected by around September, October. But suppose we win and we launch at risk again. Just trying to understand the competitive landscape. Do you expect that the other parties which have also settled, could they also come in? It could more than one-player market, any broad sense?

We can't predict that. We don't know the nature of the arrangement between the innovator and the other generic companies. So we certainly cannot comment on that.

Okay, understood. And on Suboxone, if my understanding was right, the product was purchased, and would we not have to provide for the amortization given the product is now commercialized?

We have started that. And this quarter's numbers reflects the amortization that we have done.

Okay, perfect. And lastly, on the approvals you mentioned 15 to 20, just the launches that you mentioned. So this is not subject to the FDA clearance. You're saying any which ways, we'll be able to launch these products. Is that right?

Yes. We have already launched 4 out of this 15 to 20 that we have alluded.

No, it has nothing to do with the FDA approval of the sites.

Okay. And fair to understand that we would have some chunky launches as well?

Yes.

You are familiar with the significant launches, and so we cannot comment anymore on that. But the launch is important for us, and we need to execute well both on (inaudible).

Okay. Your filing data is missing, sir. How many NDAs did we file this quarter?

NDA, we have filed 4.

The next question is from the line of Girish Bakhru from Bank of America.

Just a clarification on the appeal side. I couldn't get -- there are 2 motions, if I understand correctly, one is regarding appealing the PI and other is regarding lifting the stay 'til the appeal is decided. Which one are you commenting could get decision by September, October?

We hope to lift the injunction. That's what we hope to do as soon as we can. By the way, we said that the earliest is September, it can drag over, it can be even beyond October. We don't really know because we don't have the date.

But this is regarding challenging basically the PI, which you're commenting on September, October, right?

Right.

Yes, that's correct.

Okay, okay. And just on 15, 20 launches, is it fair to assume some of these launches could be site transfers from the Duvvada plant.

Those are inclusive of it, yes.

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

First question is on Copaxone. You plan to do the comprehensive submission in the next couple of weeks, but you already expect FDA to ask more queries. Why do you think?

Normally, when you are submitting a CRL response, the agency may have questions on that, so it's not that we are anticipating, it's normal process of registration.

Okay, got it. Sorry. Second question sir, is how do you see the year-on-year fiscal '18 versus fiscal '19 U.S. business dollar revenue? I mean do you think new launches, 15, 20 versus the erosion. Do you expect to grow or not grow?

As you know, in the USA, there is a pressure of price erosion, and the new product launches, we expect both to offset the prices as well as to grow further. So -- and you know that we do not provide guidance, but we remain cautiously optimistic about growth from FY '18 to FY '19 in regimen business.

Okay, great, just one sir, final one from my side. You mentioned about -- you touched upon rationalization of businesses, some manufacturing site, IND center and some product as well. Can you be a little bit more specific other than this antibiotic site? And also, could this also result in loss of some revenues? So some more color here would be useful.

We can't give you that level of specificity. But overall, in the medium to longer term, some of our urban sites, we will close down, both as a measure of reacting to the urbanization around our plants as well as rationalization. That is one part. The other part is, there are sites which are a bit outdated, and we're shifting those products to our newer sites.

So we will do all this with a minimal impact on revenue, and we will do a combination of site transfers as well as arrangements of continued supply as we fill these sites. We cannot predict when will these things will happen, but we are on the process of looking at the whole network and moving forward with some rationalization.

One site, we think we will fill in this next few weeks that is antibiotic site, hopefully we will start seeing 1 or 2 sites in the rest of the year. But we don't expect any major impact on top line or bottom line as a result.

Next question is from the line of Surajit Pal from Prabhudas Lilladher.

Saumen, if I remove the -- your revenue as well as the profit, in Suboxone, your gross margin as well as your EBITDA margin, they are very much at the average of, if I take Q2 and Q3, I mean that looks like to me you are in the same range of around gross margin of 54.5% around.

No. I can only say that even if you won't have got Suboxone opportunity for the quarter, we have improved on our performance both sequentially and year-on-year that much we can tell you.

And how big that improvement will be? I'm not -- without getting into any specification, I mean if you can give some idea that how big that improvement?

There is improvement, and of course, there are some added benefit for the products also, we cannot take out that -- that it also has -- yes...

Okay. Second thing is that in the light of increasing competition as well as price erosion in U.S., do you observe that some of the companies or competitors are also indulging into working capital funding of your channel partners?

No, I don't want to comment on that.

Okay. Third point is that your -- what could be your normalized domestic sales in FY '19? Because this quarter, definitely, is an abnormality because of last year destocking. So what is...

You are talking about the growth rate?

Yes, in domestic.

Yes, so we would be expecting a double-digit growth.

From last year?

From last year, overall last year.

In FY '18.

The next question is from the line of Vishal Manchanda from Nirmal Bang.

I have one on the Proprietary side. You've been expecting payment of $30 million from CHD Bioscience for an outlicensing deal. So is that due in the next few quarters? And would that happen?

Anil, do you want to comment on that?

Yes. So we are still -- one of the conditions from CHD Biosciences is that they are supposed to raise a certain amount of capital, so there is a capital that would trigger that $30 million. We are closely watching that, and we will be able to have a better idea of whether that payment will be realized in the subsequent few months. So that's all we can comment at this time.

So as we understand there, they're yet to file for an IPO. So would that -- if they file for an IPO anytime now, can that happen in the next 6 months?

If they file, yes. But we are -- they have not done that yet, and we are closely observing where they stand.

Okay. And another on Zenavod, which you out-licensed to Galderma, any color on that? When is that going to be launched?

Yes. So the original understanding was that Galderma would launch within 24 months of signing the contract. So what we know so far is that Galderma is making plans to manufacture product, which -- implicit in that is that they have plans to launch. So we are estimating that they would launch sometime in calendar year 2019. We don't have a specific date yet, but we do know that they're making -- they're taking actions in the direction of a launch.

Okay. There was some litigation also. One of the licensing -- one of the royalty owners in Croatia has litigated this settlement you did with Galderma. So has that something to do with the launch?

We cannot comment on that. That's between Galderma and their litigator. So I would not like to make any comments in that regard and respect.

But can that potentially delay the launch time?

I cannot comment, unfortunately, until we have a better read out on where they stand.

Okay. And finally on Sernivo, is that going to pick up or we should expect that as being -- like kind of peaked out at current levels?

No, Sernivo, it's not by far peaked out at all based on the demand for the product. The issue lies in coverage. So there are -- yes, we continue to make efforts to expand the coverage. There a number of initiatives that are in place and our expectation is that in the coming weeks, we will hear more about coverage from some of the major plans.

Sernivo is very clearly linked to coverage, if there is more coverage there would be a proportionate increase in volumes and revenue. So it's a wait-and-watch, but in terms of the overall demand in the market, Sernivo has not peaked by any means.

Okay, so for coverage do you have to reduce prices, is that the case?

No, it's not about reducing prices. It's about the managed care, the organization continuously change their definition of what they want to include within their formulary. And it is the manufacturer that has to make a case for it and establish the economic argument, the pharmacoeconomic argument.

So that's the thing. It goes back and forth until we reach a point where we are able to convince payers to include in their formulary. So that's what's going on. It's not about price, of course, you can't price exorbitantly and expect to get on the formulary, but we are by far not priced above what a typical branded topical product would cost.

So at the end of the day, it's about the rebates, negotiating on what kind of rebates can be given, negotiating on the value proposition of the product, and ultimately, that decision is made. So it's a long process, and it doesn't apply only to this particular class of product, I think it's across the industry, and the product now is going through that process.

The next question is from the line of Naveen Baid from Aditya Birla Capital.

If you can just give a sense of -- because I joined the call late, but what has been the price erosion in the place business for this particular quarter?

So we did not specify a specific number, what is...

A rough sense would be okay.

Sorry.

Just a rough sense would also be okay.

No, I appreciate that. We are not specifying a number, but what we are saying that it's less steep as it used to be last year.

And if you compare the same with last quarter on a sequential basis?

Okay, but earlier we were experiencing mid to high teen compared to that still it is slightly less stable.

The next question is from the line of Kunal Dhamesha from SBICAP Securities.

I think I just missed on the launch expectation for NuvaRing and Copaxone. I think I am confused between calendar year and the FY fiscal year, so if you can just provide clarity on that.

Yes, as we mentioned, the NuvaRing, we expect to launch in the first half of calendar 2019. And on Copaxone -- generic Copaxone, sorry, we said that we are expecting right now a launch during the second half of calendar 2019.

Okay, okay, okay. And following on that on generic Suboxone, does the 4 strengths approval -- all the strengths approval for the DRL, does it give you any edge compared to any other players?

I'm not sure I got the question. Can you repeat?

So DRL has got all the 4 strengths for generic Suboxone approved, right? And if I compare with others as compared to Mylan, I think they have got 2 strengths approval. So does it give you any advantage?

Okay. So basically, if you take the case of key Suboxone market, the 8 mg one is the primary volume driver. So without getting into the specifics, if you're generally concentrated on the 8 mg, you are largely addressing a significant portion of the market.

Okay, okay, okay. And just 1 clarification. So earlier you just mentioned double-digit growth for FY '19. So is it India or is it for DRL as a whole?

No, we don't give guidance for DRL as a whole because North America Generics volume is sometime difficult to predict what can happen. Normally, based on our branded generics market because of the fluctuation could delay. We share our confidence level. So in that, we said both in India as well as in emerging markets, we can expect a double digit growth.

The next question is from the line of Aditya Khemka from DSP Blackrock Mutual Fund.

Just one for me, Saumen. If you can comment on this Mylan cutting the list price of Copaxone by some 50%, 60% is what I heard in the media. How does that impact the addressable market for Copaxone? I understand that the list price is not exactly the same as realized price, but my sense is that if the list price is down 60%, the realized price cannot go up.

So you can draw yourself as much inference from what can happen because of that. One can expect more generic sales to happen because of this. So we'll have to see as and when we enter the market, we will have to then analyze what is the value of the overall Copaxone, and how much we are retaining. Right now there is no point in getting too much into what will happen of specific actions by any single player.

No, my question actually was that, let's say, the Copaxone market was $1 billion, now with this 60% price cut in the list price, has that $1 billion gone to 800, 700, 600, 900? Where is that market size now?

So what is the question?

So what would be generic Copaxone market size now? We can discuss off line with Saunak to discuss about it.

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

I have one question about raw material inflation. Now asking given the news flow increase in API prices from China. Saumen, if I just look at your company on a like-to-like basis, can you just indicate what kind of inflation are you seeing? Are you seeing in single -- high single-digit, double-digit, what kind of inflation are you seeing in API prices?

Indeed there are some raw materials that we see in the -- from China, but against it, it's offset by other places in which we actually see savings. Overall I don't assume major impact from this area. I will repeat. Indeed we are buying some stuff from China where the price was increased, but against that the stock that we are buying, the price was decreased, so overall, no major impact from that specific issue.

Okay, that's helpful. And the other question was CapEx which is roughly about INR 1,000 crore in a year. Can you just broadly outline where you are spending that CapEx? Like which -- I'm not expecting you to mention that which facility is spending how much, but which kind of new capacities that you're putting up where this largely INR 1,000 crore is going on?

So you are talking about the previous year or are you talking about the current year share?

Even for current year, I am assuming our CapEx expectation will be about INR 1,000 crore.

Yes. So today in the press meet I said that this year it would be less than INR 1,000 crore, earlier we took up about more than INR 1,000 crore.

So there is normal CapEx, which is modernizing facilities, improving and upgrading that is one part of it. Then there is -- we are creating one new injectable site in the Pydibheemavaram area outside our SEZ, which will be injectables primarily. And beyond that there is a little modernization, line balancing and that kind of stuff overall. Only one major project going on in FY'18. And there is a project, some ongoing work that is going on in the Biologics facility which will be capitalized.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

I wanted to know how much is the constant currency growth in the U.S. business.

See in USA it is within 7% because it is the dollar revenue that we get there, in dollar terms.

Okay. And how much would be volume growth in that?

Volume growth, across a number of tariffs.

Okay. My second question pertains to Suboxone. In terms of how much would be the inventory that is at risk because of the injunction order?

No, we have considerable shelf life on Suboxone, so right now we don't (inaudible).

The next question is from the line of Anupam Agarwal from Lucky Investment Managers.

I just wanted to know what -- how much Suboxone contributes to the total profit reported in the quarter, if I can have the absolute number?

We are not disclosing that. This is a repeat question. Hence I will also repeat, we are not disclosing molecule specific sales.

The next question is from the line of [Pranav Tendulkar] from Rare Enterprises.

Thanks a lot. All my questions have been answered, sorry.

Next question is from the line of Anik Mitra from Stewart & Mackertich. As there's no response, we take the next question from the line of Surajit Pal from Prabhudas Lilladher.

Saumen, just following the previous questions, is that -- in case we lost the case in Suboxone, how much inventory -- possibility of write-off going forward?

I cannot comment at this point in the point of time because we'll have to see when it happens, and we'll have to see what is the expected -- when finally the normalized CK is going to materialize. So currently we'll have to see what is this. Right now, I can't comment. Mostly, whatever finished good inventory was there that has been sold.

Next question is from the line of Saion Mukherjee from Nomura.

Just can you comment on the performance of Zembrace? And you also mentioned that you expect Sernivo to also improve. So how much more time you think it takes for these 2 assets to reach to the peak revenues from now?

I'll answer your first question about the performance of Zembrace. Zembrace continues to perform well. The prescription volume grew by 10% quarter-on-quarter. And also, we saw the increase in the subscriber base. We are, as I mentioned, to answer the previous question, we are facing certain challenges with Sernivo at this time and it has to do with coverage.

To answer your second question, how long will it take to peak? We are estimating anywhere between 24 to 36 months before we get to the peak. And we are following certain trajectories and that is totally linked to the investments that we make in the market in terms of position outreach, and the coverage patterns that happen. So based on that, we expect to get to peak in about 24 to 36 months.

Okay. And just a related question on DFN-02, which you mentioned will be commercialized in the first quarter of fiscal '20. In terms of the trajectory there as well, do you think it would take as long or you think it can be faster? And the question is, when you launch the product, what kind of cost implication we should factor in, in the early stages of launch?

Yes, so Saion, to answer that question, we are at this time evaluating various launch scenarios. The value of DFN-02 goes beyond what we've seen within the narrow specialist community. So we are evaluating as to what our launch would be, whether we launch within a limited space and find a partner to go into the expanded space of physicians who can take maximum value or should we do it ourselves.

So all of these discussions are ongoing as to what types of investments we need to make, what makes economic sense for us today. So that's the question that we can -- we will have a better understanding as we get closer to launch. Meanwhile, we are making investments in terms of prelaunch.

We have been very active in conferences, we are keeping with fairs, we are taking the clinical data which is quite robust to fairs and explaining to them. So we are doing all of that prep work, but the ultimate decision on how much we will invest and whether we will go on it on our own or we will go with partners that's something that we are still modeling out. And that will determine how the updates are and everything would look.

Got it. And just one last question, can you update on the PEG GCSF file, and any timeline on that for the U.S. market?

No further development since we last spoke.

Ladies and gentlemen, we'll take the last question from the line of Anik Mitra from Stewart & Mackertich.

My question is, one pipeline drug C170. What is the current status of this particular drug? And what is the tentative period of the expected filing?

Anil?

Sorry, I didn't get the question, which product are you talking about?

C170.

170? I'm not sure which drug you're referring to.

Okay, sir. Then another question, regarding Repatha. Can you throw some light on Repatha sales since the sales of Repatha considering Praluent price has been lowered by Sanofi and Regen, which is your competitor's drug.

Okay, as for the previous question, Anil, he was asking about Repatha origin, which is not there. Anyway, what is the next question, please?

Sir, can you throw some light on the sales of Zembrace and DFD-06?

You are talking about Zembrace or are you talking about DFD-06?

Zembrace and DFD-06, both.

Both, okay. So Zembrace, I had already mentioned that Zembrace continues to grow. We have made progress in terms of prescription volume growth. We expect to end this year north of $20 million. And on DFD-06, by the way, the brand name is Impoyz, our partner Encore Dermatology has launched the product. But it's too early to get a read on sales. That product was launched in May of this year. So we will start getting a better read once we get into 2 or 3 quarters into the launch.

Ladies and gentlemen 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 you have any additional clarifications, feel free to reach out to the Investor Relations team. Thank you.

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