Dr Reddy's Laboratories Ltd (RDY) 2019 Q3 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Dr. Reddy's Q3 FY '19 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir.

Thank you. Very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's Earnings Conference Call for the Third Quarter Ended 31st December 2018.

Earlier during the day, we had released our results and the same are also posted on our website. This call is being recorded and the transcript shall be made available on our website soon.

All the discussion and analysis of 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. Erez Israeli, our COO; Mr. Saumen Chakraborty, our CFO; Mr. Anil Namboodiripad, who heads the 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 express written consent.

Before I proceed with 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 hand over the call to Mr. Saumen Chakraborty, our CFO. Over to you, sir.

Thank you, Amit. Greetings to everyone. I am pleased to inform that we have been able to sustain our financial performance in this quarter. 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 69.58, which is the rate as of December 31, 2018.

Consolidated revenues for the quarter are INR 3,850 crores, that is $553 million and grew 1% both year-on-year and sequential basis. In previous year, we had INR 130 crores of out-licensing revenue in our Proprietary Products business, adjusted for which the year-on-year growth would have been 5%.

Despite the pricing pressure in some of our key products anyway, arising out of new competition, we were able to grow our revenue, which was supported by improvement in the volumes of existing products, new product launches, contribution from new market and favorable ForEx.

Consolidated gross profit margin for the quarter is 53.9%, registering a sequential decline of 110 basis points, which is majorly attributable to the price erosion in the U.S. market. Gross margin for Global Generics and PSAI were at 57.6% and 30.8%, respectively.

The SG&A spend for the quarter is INR 1,204 crores, that is $173 million, with a sequential quarter decline of 3% and at similar level on a year-on-year basis. We have been taking several measures on cost optimization and the same is reflected in our spend trend. The SG&A cost is 31.3% of sales for the current quarter as against 32.6% for Q2 FY '19.

R&D spend for the quarter is INR 367 crores, that is $53 million, and stands at 9.5% of the sales for the quarter. The R&D spend is lower by 21% year-on-year and by 11% on a sequential quarter basis. While certain part of the reduction relates to the productivity improvement initiatives taken by us, it is also lower due to timing gap with respect to certain development-related spend. We expect that the R&D spend will increase in next quarter. However, the full year spend is likely to be lower than the preceding year.

We continued in our journey towards cost optimization and productivity improvement in the areas of manpower, SG&A, R&D and asset utilization. In line with our objective, we have concluded the sale of the API manufacturing business unit located at Jeedimetla, Hyderabad. These measures will lead to an improvement in our cost structure and enable us to be leaner and more cost-efficient organization.

Other income includes gain of INR 42 crores on account of sale of the API manufacturing business unit as aforementioned. The EBITDA for the quarter is INR 865 crores, that is $124 million, which is around 22.5% of the revenue.

The effective tax rate for the quarter is around 16.4% and ETR for the full year is expected to be lower than our earlier estimate, maybe in the range of 15% to 17%. EPS for the quarter is INR 29.21. Operating working capital decreased by around INR 946 crores, which is $136 million during the quarter.

The decrease is primarily attributable to sale of trade receivables and improvement in the DSO in the U.S. market.

We invested INR 153 crores, which is $22 million, towards capital investment in this quarter. The free cash flow generated during this quarter was INR 1,512 crores, which is $217 million, leading to a significant improvement in our net debt-to-equity ratio, which is 0.13 as on 31st December 2018.

Foreign currency cash flow hedges for the next 12 months in the form of derivatives for U.S. dollar were approximately $300 million, largely hedged around the range of INR 69.1 to INR 73.5 to the dollar.

In addition, we have balance sheet hedges of $352 million. We also have foreign currency cash flow hedges of RUB 1,855 million at the rate of INR 1.08 to the ruble, maturing over next 12 months.

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

Thank you, Saumen. Greetings to all. Thank you for joining us today for this earnings conference call. Let me begin with the current quarter performance highlights. I am glad to inform you that we continued with our growth momentum in this quarter and have performed well across our businesses.

Please note that all references to numbers in this section are in the respective local currencies. The North America Generics revenues got stabilized, and for the quarter are at $209 million with a sequential growth of 1% during the quarter. We witnessed decent improvement in the volume uptake that help us offset the product specific price declines impacting some of our key products due to new competition.

Overall, we see stabilization in the trend at the broader portfolio level. This quarter was very busy in terms of new launch activities with record number of new launches in a quarter over the last 5 years.

In all, we launched 10 new products including some very exciting limited-competition products like Colesevelam, Dipyridamole, Aspirin XR, Sevelamer sachet, Sevelamer unit dose and Omeprazole OTC tabs. We are excited about the opportunity potential and contribution from these launches and gearing towards the gradual ramp-up over the next few months.

We will continue in this journey in the next few quarters and we'll be fairly busy with multiple new products launches lined up, including some exciting limited-competition opportunities.

As communicated earlier, we continue to work towards potential approval launch of gNuvaring in the first half of calendar 2019 and that of gCopaxone in the second half of calendar 2019.

On the gSuboxone, as you are all aware that during the quarter, the Court of Appeals of the Federal Circuit issued a decision in company's favor to vacate the preliminary injunction. On December 20, 2018, as part of a standard procedure, Indivior filed a petition seeking rehearing of the appeal. On this, the court sought our comments, to which we immediately responded. We are awaiting for the court decisions on this matter.

Let me also add with you on the status of 2 warning letters impacted sites. In October 2018, the reinspection for the sterile injectable plant in Duvvada was completed and the U.S. FDA issued a Form 483 with 8 observations. We have comprehensively responded to this observation, and we just now have received certain specific questions from the agency seeking further clarification on some of our responses.

With respect to the API manufacturing facility in Srikakulam, we have submitted the results of the investigation and responded to all the queries asked by the USFDA and await for reinspection of the facility.

The Europe business recorded sales of EUR 25 million with a sequential growth of 5% on the back of improvement in supplies and new launches. During the quarter, we launched 2 products in Germany and 4 products in the U.K., including fondaparinux. We will continue to launch new product in the future in this market.

The emerging market business recorded sales of INR 774 crores, continuing its strong performance with growth across all key markets. The overall business grew 31% year-over-year and 3% on a sequential basis. This is all-round performance with outcome of: one, healthy growth in the base business; two, new product launches in existing markets; and three, contribution of the newer markets.

These geographies are expected to remain a major growth driver for the company over the next few years. The India business are at INR 674 crores with a year-on-year growth of 10% and a sequential seasonal decline of 2%.

As per the IMS, we have performed better than the market for the 3 months ending November 2018. As a result of this sustained performance, our ranking improved by one place. India is a priority market for us and we remain committed to consistently improve our performance and grow better than the overall market.

The PCI business revenues are at $83 million, a year-on-year decline of 1% and a sequential decline of 5%. We believe that the changes in the API landscape has created opportunity for us, and we are preparing ourselves to serve that market.

On our Proprietary Products business, we recently received USFDA approval for our intranasal sumatriptan DFN-02 under the brand name TOSYMRA. We believe TOSYMRA has a favorable profile to benefit a large segment of migraine patients whose episodes are not optimally controlled with the current treatment, particularly orals. Prelaunch activities are underway and we are preparing for a launch in the next few months.

On the R&D front, progress on our key pattern program is on track. During this quarter, we have filed 3 ANDAs in the U.S. market and as of 31st of December 2018, we have 103 cumulative filings pending for approval within the USFDA, which include 100 ANDAs and 3 NDAs. The ANDA filing rate will improve further in the next quarter.

For our biosimilar business, we have started a Phase III trial for rituximab for developed markets. For our Proprietary Products business, we expect to file the NDA for DFN-15 by Q1 FY '20.

Development on E7777 for CTCL indication in the U.S. is on track, and we expect to file the BLA by Q1 FY '21.

On the business development, in line with our recently stated growth strategy, we have started to divest non-core assets and we will further continue to do more of this, which will help us to focus and channel our resources towards growth spaces. We also look forward to inorganic growth opportunity with right return on investments.

Overall, we feel quite optimistic about our 6 chosen spaces: U.S. Generic, India, Russia, China, API and global hospital business. We have started to make the right moves, with focus on profitable growth, shareholder returns, cost efficiency and quality.

Let me share with you some quick updates on the additions to our senior leadership team. I am pleased to announce that Marc Kikuchi has joined us as the Head of North America Generics business. Marc brings with him extensive knowledge and vast experience in the generic space.

During the quarter, we also onboarded Sandeep Khandelwal as India Business Head, and [Dmitri Silverstein] as Russia Business Head. These new leaders, along with our existing strong leadership team, will help improve our key business processes and drive growth for the company in chosen strategic spaces and will enable the company to exploit its potential.

And with that, I'll now open the floor for questions and answers.

(Operator Instructions) The first question is from the line of Nitesh Jain from Axis Capital.

Hello.

Yes.

Yes, this is Prakash. Just wanted to check on 2 things. One is the gross margins. So the business has grown and especially the branded generics businesses have grown, which is India and Russia. So I'm not able to understand why the gross margin is so low. Would it be due to the U.S. pressure for key products? And then what is the concentration risk on the top 5 and top 10 products in the U.S.?

So you got it right and it is U.S. which is primary contributor for this sequential decline. And -- but it is not that low. We have been already saying that quarter-to-quarter there would be fluctuations in the gross market. And it is definitely within the range that we have put it. See, we have been able to sustain the margin despite a lot of price erosions in the past because of lot of focus that we have been putting on productivity improvement and costs. So this is here. We have got 53.9% for the quarter. It is very much within the range that we target.

Any particular product then which would be in the base, sir?

No, it depends on you are comparing with which. Suppose you compare with the same quarter last year. In last year same quarter, we had the Sevelamer launch, which was a very high-value product. And you can compare with that...

(inaudible) market, sir?

U.S. market you were saying?

Yes, sir.

So then if you compare on that basis, definitely, that would contribute to both in terms of the top line as well as on the margin it contributes.

Okay. And are you sharing the concentration risk please, top 5, top 10?

Our concentration risk has come down. What initially if you take a 40% of the revenue in U.S.A. in earlier years, suppose it would have been in just 5 molecules or so, now it is almost 10 molecules, which contributes to 40%. So to that extent, our concentration risk has reduced.

Okay. Great. And lastly, on the net debt which you mentioned has significantly come down due to lower working capital also, a, is what really has happened? I mean, you mentioned 2 things on the reduction in working capital. If you could give more color on that? And secondly, what are our thoughts on using the low leverage we have? Are we looking for something in the specialty area or more complex area in the U.S.? Are you open to that idea?

So first to clarify about the free cash flow in the first quarter. It was actually negative, which was compensated in the second quarter. And this quarter, we have significantly good free cash flow we generated. And there the working capital has contributed because the decreases on INR 946 crores. So one of the things that we've introduced this quarter is factoring of, whatever receivables that we have got in U.S.A. Some part of it we have been selling. And then otherwise, there is a overall improvement in the receivables all across the businesses. And some improvement in payable as well. Inventory, we'll have to still improve. There is scope, but if -- as and when we launch some new products, then definitely on inventory front also there is a further scope of improvement. Now our net debt-to-equity ratio is very healthy now at 0.13. But you know, we, as a company, are more prudent in terms of taking financial risks. Because there is always an operational risk which is there. Now in terms of opportunities, there will be always opportunities to expand and develop our business in our chosen spaces, which it is getting in highlight. And it all depends on whichever comes across are attractive, and after doing diligence, if we feel something worthwhile, we will not hesitate because this is also one area of growth not only organic but also inorganic growth. But we are not specifically committing ourselves that it is in the specialty or any such thing.

The next question is from Neha Manpuria from JP Morgan.

Sir, if you look at the improvement in the ex U.S. business in the last couple of quarters, obviously, there has been a pickup in India and Russia. If you could just give some color on what specifically we are doing in this market to see this growth momentum?

No, while Erez can dwell it on more, but I wanted to clarify that emerging markets, the growth in rest of the markets other than Russia is higher than the growth in Russia. Russia, would have grown by, say 22%. Whereas in CIS countries and rest of the world, the growth is very close to 40%. But overall, 31% has been our growth in emerging markets. And India, of course, year-on-year, it is 10%. Erez?

In respective of the content of this growth, in the case of Russia, it's primarily the big branch that performs very, very well, actually, 9 months right now. So this is -- we have a lot of confidence in those brands and we'll continue to invest in them. As for rest of the world, this is primarily hospital products. We -- it's a combination of penetrating with especially oncology product to some of the markets plus yield of a portfolio that was submitted and now getting matures in places like Latin America or the relaunch of Omez in Romania and some other areas.

Overall, it's a great performance plus these markets are fairly profitable, so we are encouraged by this performance.

And what about India, sir?

India is growing nicely. It's a -- for us, we continue to see the growth and we continue to perform well in this market. We -- in addition to that, we had the new leadership team. I mentioned Sandeep and introduce him also in this call in addition to other members that came. And we are both executing this here plus determining ourselves for further growth in the next coming quarters and years.

Understood, sir. And my second question is on the cost. While SG&A has improved partially because of FX, et cetera, in the last quarter, the reduction in R&D, you mentioned that some of it could -- is timing issue. As we look at more over the next 2 years given we have talked about making proprietary and biosimilar self-sustaining. How should we look at our R&D run rate?

So normally, on an absolute basis, we have been spending say $250 million to $300 million on R&D, but 60% of that we spend in generics including API. Remaining 40%, we allocate it to -- for Proprietary Products that's the maximum, then biosimilar and small percentage in Aurigene and other. So that's how it has been traditionally. So this year also, we plan for a similar level our absolute spend. And the way it stands today, it looks like it will be a bit lower than what we initially estimated. And that definitely is after seeing the kind of productivity improvement, which is happening also in IPD area because we have not reduced the intensity of R&D in any site at all. And going forward, in order to make Proprietary Products and biologics more self-sustainable, we are looking at various options how to do it. Because we got a good pipeline in biosimilar, and if we have to take it for U.S. and Europe market, it calls for right kind of funding. So we are looking at options. So we'll get back to you as and when we finalize some options.

As related for the generics, naturally the growth that are expected in places like China, India and Russia will require some R&D resources. So overall, we are looking for how overall the R&D will continue as R&D naturally is very important for us. It was and will continue to be our main growth engines. Overall, we want to contain the overall spend of R&D primarily on efficiency, while we want to develop more products. So actually the yield that we are expecting from R&D is more products than we previously did in recent years.

And sir, just one follow-up question. On the -- you mentioned that the filing run rate is expected to pick up. Could you give some color as to what is the number that we are looking at given we want to expand our U.S. portfolio?

In Q4, it will be not much more than cumulatively what we have done in the 3 quarters for U.S.A. market. But as Erez said, there is -- a lot of R&D efforts are going for various other markets, including China and many other emerging markets, and India. So overall, ask rate from R&D is much higher, and he spoke about the generics area.

The next question is from Sangeeta Purushottam from Cogito Advisors.

I just wanted to understand what do we see as the growth drivers for the top line as well as profitability going forward? This year, a significant part of the profit improvement has happened because of a strong control in costs and some stabilization in the U.S. operations. Now going forward into next year and the year after, how should we think about it? Do we think that the cost improvement will continue? And do we see any kind of pickup happening in the U.S. market in terms of the base business? Or is it going to be driven primarily by the launch of the products, which are in the pipeline, the speciality generics?

So on the current growth, just to add to what you said is naturally the performance in India and the emerging markets. This is a major contributor to growth also this year, just to add to the 2 components that you mentioned. In addition to that, we had also great effort on the balance sheet, and overall there is a big improvement in many, many forms of the company. We are planning to continue with that. Also next year, there will be a major focus on cost. We believe that there is also further room for improving productivity, and we are planning to do so while planning to grow and gearing for that in all 6 spaces that we mentioned. So all 6 spaces are gearing to grow. Exactly how much, we are not giving guidance but this is the general expectations.

Just a follow-up question. In terms of the past performance, if you could tell us -- you'd mentioned that you managed to contain price erosion by a mixture of volume increase in existing business and new launches. Now could break that up for me? For example, have you -- can you break that up for the existing business and new business in let's say by key geographies such as the U.S., as to what has actually happened in the past? And how do you see this price erosion going forward? Do you see it as having kind of stabilized or do you see it continuing to happen over the next 12 months particularly in the U.S.?

Sir, may I know who is speaking? Because Sangeeta was speaking earlier and suddenly you came in. May I know who is speaking?

Yes, I am her partner, Andrey Purushottam.

Okay, okay, okay. Can you -- because you asked too many questions, so can you again break up one by one and we can respond?

Yes.

One question at a time and I will respond.

So to repeat my question, I was saying if you analyze the performance of the last 12 months, you've said that you've managed to keep your revenues flat by a mixture of increased volume from existing business and by new business launches. So I just wanted a breakup of how that has happened? So how much of volume increase have you experienced? How much of price erosion you have experienced and how much of gain in new business have you experienced. That's question one. And the second part is really...

Let me respond to that part before you put to the second. So it is not 2. We just said there are 4 factors. Volumes for existing products, new products launch, contribution from new market and also favorable ForEx. We'll have to understand that in the last year dollar to rupee was much lower than what it's currently going on. So all these factors have contributed. Now in market wise, I mean in different markets, the ratio will be different. U.S. market will be different. Russia will be different. For example, in Russia, apart from performing very well in some of the mega brands that we have there, we also have a new product there this year. We cannot though contribute it significantly. Now so far as U.S. is concerned, there has been price erosion, which is applicable for the industry. For us also there would have been a few products on which there have been much more competition. So consequent, since will look more on those specific products, and so the ratios are very difficult to give at a granular level like that, but we have a lot of information. For the company, we provide in 6-K and I'm happy to announce that this time we have filed 6-K today itself. I mean as we are speaking, we just filed 6-K. So maybe all of you were in the call so I may ask you to refer to the 6-K we are filing along with our result announcement today. Normally, there is some days gap, which used to happen in all the quarters. This quarter, we have been able to do it simultaneous. So can you get into your second question?

Yes, how do you see the price erosion particularly with the U.S. market spanning out over the next 12 months for the industry as a whole and for you?

I wish I could predict price decrease. So if I could do that I would be very rich man by now. So I can tell you what we see. We don't see equalization anymore. This is over. When we see competition at specific product, naturally there is a price decrease. We believe that this will continue to happen. Products that we recently launched, naturally, we'll see also price erosion over time when more competitors will come. So this dynamics was and will continue to be in the U.S. market. And we need to address it and this is what we are planning because of the nature of our portfolio. As the nature of our portfolio is promising and the base is relatively low, we believe that we can offset it with new launches, efficiencies, cost reduction and market share.

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

Saumen, this one question is on PSAI business. We have reported gross margin almost 31%. I mean that's like one of the highest we reported in last 4, 5 years. Is this a new normal or when does it moderate for us?

So first, I have always maintained in the past that there will be quarterly fluctuation. I mean when we talk about PSAI business segment, there is API and there is CPS. And between the 2, obviously, we get more contribution from CPS, even though -- in terms of the gross margin, but even though the API is a larger part of the business. So when we get a very good kind of an order for CPS with a high margin, that can increase the margin. When it is in a normal, that will be reduction. Similarly, at API, the kind of margin that we are having is -- it is very difficult to say that it will be at a particular level every quarter. There will be fluctuations, but our endeavor is to get a gross margin level of 30% for PSAI segment.

Okay. So CPS orders are typically for 6 months or less than 1-year duration. So that's the way we should take it, unless we repeat this kind of performance, this good performance may continue for another 1 or 2 quarters?

See, it always depends. We continuously scout for new kind of -- new customers and new kind of requirement even for CPS. So it goes on. It is like a flow. So you cannot say a specific order, which will be there for few months. It all depends on when you wait and when you really deliver and what kind of improvement on margin is happening specifically in that quarter. So that's why I'm saying when you -- we already talked about the sustenance of the margin, and there could be some quarters where it is much lesser than our expectation, but some quarter which could be even higher. But target wise, it is at that level.

Sure, that's helpful. And one question I had on the personnel costs. Now for the first 9 months, we have seen personnel costs increased by 4% year-on-year. Is this the trend you expect for full fiscal '19 as a whole that the personnel cost increase remain around mid-single digit?

So first, normally, if you would have seen Dr. Reddy's manpower cost has been on a higher side even -- compared to even industry, we have been on a higher side. And trend wise, there would have been always -- every year, there would have been an increase year-to-year. Last 2 years specifically, the previous financial year and in the current financial year, we have been able to contain the manpower costs very well. And see, there are some portions of the manpower costs which will be because we have a large number of people who are employed overseas. And if there is a -- year-on-year, if there is a -- Forex rate goes up, while the Forex is a favorable thing around our top line and margin, but so far as some of these costs, including material and this manpower, it works for a negative way. So on a constant currency basis, if you do really look at, we have been doing a very good containment of manpower costs on the back of the productivity improvement initiative that we have been having.

Yes, that's helpful, but can we assume around a mid-single digit kind of growth rate at constant currency?

You know very well that we really do not give financial guidance to that extent that you can do an exact model for yourself. We help you in some of the areas within a specific range. We have been telling you that we have been focusing a lot on productivity improvement and some of the expense in a sense. Beyond that, I cannot be more specific.

The next question is from the line of Saion Mukherjee from Nomura Securities.

Sir, I have a few questions on the Proprietary Products business. First on the DFN-02, I'm just wondering, is the label in line with what you have expected? And how should we think about launch and costs associated with? And if you have any peak sales expectation that you would like to share?

I can take that question. Saion, this is Anil. The label for DFN-02 is very much in line with what we had expected, so in terms of onset of response and the efficacy rates. We are in the middle of preparing for launch. At the same time, we are looking at other options as well to see whether we can expand through partnerships and so on. As far as peak sales go, it hasn't changed from what guidance we have given in the past. Our market research clearly indicates that there is a large number of migraine patients today who can benefit from the properties of this drug. And so as far as guidance for the peak sales, I think it's in line, and we have spoken before about it as well.

And on the costs, I mean in terms of launch-related costs, anything we should -- if it's material, we should factor in our estimates?

I cannot comment on the exact costs for the -- for launch. It'll be typical of any specialty product. We expect it to be slightly higher than what we have invested to launch Zembrace because this is a much larger product and a larger prescriber base. We expect the sales force to increase by around 15% or so, and adequate marketing investments to make sure that there is significant awareness of this product as it comes onto the market.

Okay. Sir, just one follow up on the filings for some of the other products, which you mentioned in your opening remarks. On DFD-03, you have not made any mention there. So what's the status? Are we still progressing with that product?

We are making certain determination in terms of whether -- what the market potential for that drug will be. So at this point, I cannot comment on what our plans are with this product.

Okay. And just one more question, sir. On the PSAI front, you mentioned about some strength in the API business. Actually, the segment has been stagnant for many years now. So how should we think about PSAI business as a whole from a growth perspective going forward?

The PSAI will grow. We are now focusing on it and give it importance. There are couple of reasons why we believe that it will not be stagnant in the future. One is the product that we are working on, and second is the fact that the competitive landscape is changing as we speak. We discussed quite a few times about the changes in China. This is naturally still relevant. And I believe that the primary focus for us is -- now is to give attention to those areas that we believe we could grow and execute on them. So for us, it's a space for growth.

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

Just following up on both NuvaRing and Copaxone. Erez, you gave us the time lines, but just wanted to understand a bit more of what's behind these time lines? Last I remember, you had responded to FDA in full. So is there anything which is pending for these 2 products? Has -- did FDA come back? And are there any pending queries?

We are getting -- we are in the weekly and biweekly calls with the FDA, so we are receiving questions and queries on the product. Nothing that's in form CR. And we are addressing those questions. So it looks like these time lines are still on track as we discussed last time.

Okay, great. And you would say your answer applies to both these products in equal measure? Or is NuvaRing a bigger priority for FDA versus Copaxone?

The time lines are different because NuvaRing is a pipeline. So with NuvaRing, we expect 6 months, and with Copaxone, we expect 10 months. We are still in that area of expectation, subject to the fact that we'll not get another CRM.

Okay, great. And just on biosimilar, Erez, I missed the name of the products for which you are targeting the BLA filing.

This is E7777. This is one -- it's an asset that we required years ago, and it just has biologic applications. So this is the product that we call E7777, like E 4 times 7.

Okay. Yes, that's right, okay. And you said one more product, I thought?

This is the product that I mentioned.

Okay, fine. Fair enough. And just talking about Rituxan where you mentioned that you're taking it into Phase III clinicals. I'm just wondering because we are at the cusp of market opening up in U.S., and Europe has already opened. So in all likelihood, all things going right, you would be the fifth or a sixth player. Does it make any sense to put money behind these kind of assets?

We use the USFDA as opening gates for many, many markets that wants to get to the U.S. quality and they don't have their own standards. So it's not necessary to launch in the U.S. If it will not make sense to launch in the U.S., we will not do that. We will not lose money on that.

Okay, that helps. And sorry, with your permission, 2 two more, if you don't mind. One is on the receivable. Saumen, what has changed for receivables to have come down so dramatically? Are the contractual terms changing with your customers for the...

No, I mentioned, in U.S.A., we have started factoring. I mean we have been selling some receivables with a very small discount factor, so that is helping. Beyond that, there were earlier receivables which we have got in this quarter. Overall, there is an improvement in receivables as well as in the payables side. Only thing I'd say is that the other part of the working capital, which is inventory, there, there is opportunity, but we have still -- we'll have to move towards that direction. Maybe with some of the launches, there will be improvement in that front.

Okay. And one final one for the U.S. market. Erez, how is the market behaving in terms of -- you talked about volume gains over there. What was driving -- are you seeing competitors exit and that's what's driving your market share volume gains?

We are giving a great service to the U.S. customer and they like us.

Okay. Why are they liking you now more than what they had liked you for last few quarters and years?

I guess we are giving a better service. Seriously, we do see certain opportunities on the current molecules. And in terms of supply situation, it's a mix of supply situation and our ability to gain share in -- because of certain agreements with the customers, and focus, it's always worked.

The next question is from the line of Mehul Sheth from PhillipCapital.

Just one clarification about the products that had been procured from Teva, the Rozerem. Is it a calendar '19 opportunity?

Yes, absolutely. We mentioned that it's in the first half of fiscal '19.

Okay. And similarly, one question on the...

Calendar year. Yes, I said fiscal, I meant calendar '19, yes. So...

Okay. And a quick question on the taxes also if that's okay. Since last couple of quarters or last 3 quarters, we are witnessing a significantly lower tax rate, whereas the guidance was something higher for the full year. So whether this is a new norm that we are seeing currently, or what is it? Any guidance for the -- for future period?

So what I said is what could be for this year. What would be for the future years, I'll be able to only give you some indication at the beginning of that year as we complete our planning process for that year. See, this time it was lower, primarily there are 3 reasons, and you can -- when you read 6-K you will find there. One, last year, you see, there was this reduction of the federal income tax rate, which was 35% to 21%. So because of that, there was a higher tax implication. So year-on-year comparison, that affect us. But this particular quarter, there have been 2 things which has happened. There is some resolution of a certain tax matter in company's favor, which results in reversal of some income tax expense but into earlier years. And also there is some claim of deduction of an item in the current quarter, which was previously disallowed for tax purpose. So these are the things, which in the beginning of the year, we could not factor in or estimate. And that's why now, for the year, we feel our ETR could be in the range of 15% to 17%. But next year, I will be able to tell you when we are announcing the full year results.

Fine, sir. Just one more question on the growth outlook. See, where -- about the revenue growth, it was indicated that, okay, it is the emerging market India, which will be driving. And you have also emphasized more on the new market entries. So can you indicate something more on the new market aspect? And what is your growth outlook for the U.S. business considering the price indication, what you have given earlier and considering the kind of pipeline here, what you have provided a hint on?

So just to make sure that, first -- and actually, we're not giving guidance, but we did indicate that all 6 spaces, not just the spaces that you mentioned, are going to grow, including the United States, including the other spaces. Specifically for the other markets, our -- there are a bunch of small countries, and each one of them are primarily based on either biologics or hospital product as the primary expense that each one of them picking up, primarily based on B2B model that doesn't require a lot of S&M activity. Here, we are leveraging a portfolio, which was developed for the U.S., and selling it in markets that do need these products.

Okay. And any indication that you're providing for U.S.? I know that, okay, you're not giving any guidance, but last 2 years, we have been seeing a kind of declining trend.

The reason that we are not giving guidance is because you never know in the U.S. if you can get 60% discount, you can get 90% discount, you can get 10% market share, you can get 40% market share. So it's just we cannot predict that well, but overall, our portfolio is promising, and we are in a very, very good wave of launches.

The next question is from the line of Nitin Agarwal from IDFC Securities.

Sir, on the emerging market business, we've had 2 very solid quarters in the RoW business. Just want to check, I mean should we take that the base -- that the number that you have -- the revenues that you've done in the last quarter as a base for this the business? Or there's going to be an element of lumpiness in this business, given the -- given that there is a surging of hospital business will be driving this business?

You see, if you open in a new market, for example say, Colombia, we opened 2, 3 years back. And this was one country where we became profitable and started making an impact right from the year 1 itself. For Brazil, even though this is not the first time we have got into Brazil, but this time, when we have gone to Brazil, backed on these hospital products for oncology and all the complex generics, which we are leveraging out of the U.S. complex generics portfolio, the growth has been very good. So the thing is, there are opportunities, but it is completely linked with the kind of product that you can launch in these markets and then how much you can grow. And already, I said that this -- the global hospital business will be one of our focus area, and we expect to grow there.

Okay. And secondly on the U.S., the key for us going back to the top 3 products, which are the 3 filings that we have. Sir, from just an overall perspective, for the next 2 years, how much of our growth would be really contingent on how well do we do on these products? I mean is that -- I mean a broad quality difference, how would you sort of explain that bit?

See, there are 103 ANDAs which are pending approval as on date, and we have been continuing to file. So yes, these 3 products are prominent. We have been discussing over time, and these are very, very important and it can provide a very key impetus for our growth there. But the reason that we are spending so much on R&D is with the expectation of creating value in several markets, and U.S. is the very key market for us to create that kind of value.

Okay. And secondly, sir, last one. On R&D, how should we look at R&D spends moving forward? As a percentage of revenue, is there a reeling that we should be looking at? Or in absolute dollar terms -- growth in dollars terms? I mean how are we looking our R&D spend view over the next couple of years?

So as I said, maybe this year, there is an improvement in the productivity. Quarter-on-quarter, there could be some timing issues. But overall, for the year, it could be slightly lower than what we normally would have been spending. But as a ballpark figure, $250 million to $300 million per year on an absolute basis is the right kind of indication of the R&D commitment for us. As a percentage of sales, it will depend how much sales we are generating. So not to take on an absolute manner.

The next question is from Anuj Mohmaya from ValueQuest Research.

So can you just let us know what is the status of REVLIMID litigation? Where are we in that?

Which litigation?

REVLIMID.

Again, you're talking about lenalidomide, just to make sure?

Yes.

Yes.

REVLIMID he is saying.

Yes, yes, so we did not pick up the question, so I'll take it. We are -- basically, there are 3 forms on this product, whether are the indication patents or the polymer patents, and we have, of course, the REMS patent. So for each one of them, we are proceeding nicely with all fronts. We believe that we have a very, very good position on this one.

So when are you hearing some of these litigations [are during], any time line you can suggest for this?

We are not providing time lines. Once it will come, we will know.

Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you, everyone, for joining us today for the conference. In case of any further queries, please reach out to the Investor Relations team. Thank you.

Thank you very much. On behalf of Dr. Reddy's Laboratories Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.