Ladies and gentlemen, good day and welcome to the Dr. Reddy’s Laboratories Limited Q3 and FY2016 Earnings Conference Call. As a reminder, all participant lines will be in a 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. Kedar Upadhye. Thank you, and over to you sir.

Good morning and good evening to all of you. Thank you for joining us today for Dr. Reddy’s earnings call for third quarter of fiscal 2016. 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 IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy’s, comprising Saumen Chakraborty, our Chief Financial Officer and Abhijit Mukherjee, our Chief Operating Officer; along with the Investor Relations team. Please note that today’s call is 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. This discussion will contain certain forward-looking statements which are based on management’s current beliefs and expectations, and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. For more detailed information on the risks and uncertainties associated with the company’s business activities, please see the company’s Form 20-F for the fiscal year ended March 31, 2015 and Form 6-K for the quarters ended June 30, 2015 and September 30, 2015 and our other filings with the Securities and Exchange Commission. Now, I would like to turn the call over to Saumen Chakraborty, our CFO.

Thank you, Kedar. Greetings to everyone. Let me begin with the key financial highlights. For this section, all the amounts are translated to U.S. dollars at a convenient translation rate of Rs.66.19, which is the rate as of 31st December, 2015. Consolidated revenues for the quarter are Rs.3,968 crores or $599 million, grew marginally by 3% year-on-year. Revenues from our Global Generics segment up $507 million and grew by 7% year-on-year, despite currency challenges faced by emerging market geographies and constrained operations in Venezuela. The growth story is primarily driven by U.S., Europe and India. The growth in U.S. is aided by sustainable performance of the base portfolio. Europe business grew on the back of launches and India business continued its momentum, which was also benefitted by the full quarter contribution of the brand secured from UCB. Revenues from our PSAI segment of $77 million and declined year-on-year by 17%. These reflect in part, the impact of delay in dispatches on account of the ongoing remedies and activities related to USFDA’s observations. Consolidated gross profit margin for the quarter is 59.5%, versus 58.2% in the corresponding quarter of the previous year. The increase in margin reflects a continuing high quality of our commercialized portfolio in U.S. Corresponding values for Global Generics and PSAI were at 65.6% and 17.4% respectively. SG&A spend including amortization for the quarter is $182 million and grew by 8% year-on-year. During the quarter, the company’s settled and ongoing patent litigation with Novartis on zoledronic acid, consequent to these settlements, we have accrued $5.46 million as it charged towards talks to sell. Normalized for this charge, the balance increases largely due to remediation costs and certain routine items related to manpower and other spends. R&D expenses for the quarter were at $62 million, representing 10.3% revenues versus…

Thank you, Saumen and greetings to everybody, and I extend a warm welcome to you on this earnings conference call. I believe that our financial performance in this quarter with satisfactory despite a number of internal and external challenges that we face. And also considering the fact that comparable quarter of previous year had a high base in terms of both sales and profitability. As you would have seen, the base business and key geographies has been quite resilient which played a major role in quarter’s performance. Considerable amount of time and efforts are being diverted towards the important remediation and risk mitigation activities pursuant to USFDA’s observations. Now let me take you through some of the business highlights for each of the key markets. Please note that this section all references to numbers are in respective local currencies. Our North America revenues are $298 million and grew by 11% YoY. Key molecules contributed meaningfully to the quarter’s performance in absence of any notable new product approval. We experienced sustained pricing and market shares across our key molecules. As you are aware we relaunched Esomeprazole towards the end of December and are actively working towards gaining market share. In view of lower number of launches in the coming quarters, we need to be watchful of competitive pressure on the base portfolio. On the OTC side, Habitrol is well integrated now and we continue to target new accounts. During the quarter, macroeconomic factors continue to impact most of our emerging market territories. In the situation, the team continues to focus on broadening the product portfolio in existing countries and entering new geographies by leveraging the current portfolio. Russia revenues are 47 million for the quarter and grew by 5% YoY in constant currency. In Venezuela, we continue to be cautious and…

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

Patel [ph] are we taking questions?

Yes. Our first question is from the line of Manoj Garg from Healthco. Please go ahead.

Hi, good evening, thank you for taking the questions and I would remind to two. So one on the regulatory front, our regulatory consultants here believe that the issue side then the warning letter would take about 18 months to 24 months to clear, just wanted to get your thoughts on that timeline assessment. And then two, on Venezuela, can you specifically break out Venezuela sales. And if I heard you correctly, I think you said, you continue to book revenues at VEF 6.3, other Pharma companies have devalued or booking at a exchange rate as high as VEF 200. So just wanted to better understand, the thought process there?

Hi, Manoj, Abhijit here, I will take the first one and let Saumen deal with the Venezuela part. So on the remediation, we certainly cannot provide you any explanatory guidance on the timelines because on our side we are doing whatever we can to sort of mitigate workout on the CAPAs, update FDA and I think the overall journey, we think is progressing satisfactorily beyond this is completely the agencies propagative.

So Venezuela, we have certain arrangement with Government of Venezuela. So we are staying quite hopeful that we get some repatriation during this quarter. Now, if that does not happened then we will have to reconsider what will be the right kind of rate for future accounting consideration.

So can you just, so what’s your – what’s the current exposure there?

$60.7 million, which is the pending for repatriation.

Okay. Thank you.

Thank you. Next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Yes, hi, thanks for taking my question. Sir, my first question is on Venezuela. Can you specify the sales booked during the quarter? And what's the EBITDA contribution?

So, during the quarter it is $18 million which is sales. We are not giving any specific country wise EBITDA disclosure anywhere.

Okay. Sir, the second question is with respect to your cash flows, which you has shown as improved to, you know, running at almost Rs.2,500 crore free cash flow. What are your thoughts on that in terms of increasing dividend payout or looking at the new acquisitions, if you could share anything you can share that?

Yes, of course, our growth agenda includes both organic and inorganic opportunities which we have been trying to pursue. So we have enough in our balance sheet today that we can leverage for such acquisition. But having said that, we are treating each of the opportunity on its own merit just because we have cash, it doesn’t mean that we will dilute the criteria that we have set for ourselves for meaningful acquisition. But, if acquisitions not there, we may think of any other corporate actions. If we doesn’t win there we find some alternative options, we’ll get back to you.

Okay, thanks. So if I can ask just one more question. This is on export incentives. I understand you recognized this as cost of goods sold. Can you quantify that number and is there a substantial increase versus last year?

Yes, there is substantial increase vice versa last year. So overall on annualized basis it could be roughly Rs.150 crore plus.

Okay. And how much was at the last year?

It’s incremental.

So, it is an incremental…

Okay. Incremental, okay. Okay, thanks a lot. I’ll turn back to queue.

Thank you. Our next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Yes, thanks for the opportunity. Sir, if you could highlight any updates on the biosimilar portfolio that we are building for regulated markets?

On the regulated markets, we have a few assets which we are working with Merck Serono. And Saumen just mentioned that there was a milestone recognized and we got during this quarter, which has been just against R&D investment for the quarter. The more exciting story on this is our efforts to put these into the emerging markets and we had mentioned earlier which is standby that U.S. pursuing approval in Russia. We are filing and quite a few important emerging markets and discussions with the regulatory authorities are in early advance stage and we may seek slightly more expedited sort of review of those. And we would like to sort of build on this, while our journey on regulated markets continue. Specific assets we’ll not get into at this stage.

But we have talked about Redoxon [ph] and Pegfilgrastim. Yes, so that these two assets, as what you are talking about for the year ended filing stage?

Yes. The more important is rituximab and they will be naturally having, worked on rituximab and taken into the market. There will be few follow-on maps which are in the clinic at the moment.

Okay. And for regulatory markets to enter the clinics. So what kind of filing dates we are looking at?

So, at the moment, these are steps we are not taking ahead ourselves into the regulated markets that we had mentioned earlier, it still continues to a partnership. Emerging markets will take it ahead ourselves to the data is already large part of it is in hand and we are filing depending on the requirement of specific country wise regulatory agencies. But as far as, regulated market is concerned, the strategy continues to be partnering.

Okay. And there is no timeline as of now for that?

The journey continues at the moment, I mean there is nothing which we can immediately, on a short-term, there is nothing coming…

Understood, fair enough. And secondly on the USFDA again, just trying and understanding after having assessed the warning letter and having consulted your third-party. Just trying and understand that if there is any supply disruption, in order to have third-party validation of goods or delayed shipments or because U.S. where they seem to be very much on track. Do you anticipate that happening or any disruption in supply or any delay in shipments?

So as of now, I think these are in line of Saumen, we mentioned that PSAI business had some impact of that actually – and some impact of that we’ve closely in touch with the shortage loop of – if there is anything. But there is nothing major to be reported at this juncture from the existing set of products. Future of course that we don’t want to comment but currently there is nothing meaningful. And PSAI part also is largely behind us, it is now back on track.

Okay, so just a clarification here on PSAI, the decline is largely due to one of impact, because warning letter you were clearly supplying and there is no issue, as such for the upcoming quarters?

No, we mentioned that because of the remediation thing, there was some delay in dispatches of FDA from these facilities.

But you are back on track?

Yes.

There is also a product where we have our profit share on a specific product with our customer with – of ours which we are from a dominant market share position, the more generics have come in so to that extent, that has made an impact itself.

Perfect. Great, thanks I will be in the queue.

Thank you. Our next question is from the line of Neha Manpuria from JP Morgan. Please go ahead.

Thank you for taking my question, sir. First on, you mentioned that there was some impact on SG&A due to remedial cause. How should we look at that aspect going forward, I know third-party auditors that we have in a caught and that will be recurring. But I’m assuming there would also be some cost related to either side transfer, the derisking et cetera. So how should we look at the margin impact, when we look through the next few quarters?

So we are not giving any specific amount for it, but whatever is our SG&A for the quarter, it includes both kind of the payments that we have been making to the consultants for remediation, as well as there is certain like transfer related activities which have been happening already. But our SG&A this year, this particular quarter has also some other aspects like what we mention about the settlement of zoledronic acid that was a product we launched at risk. And now we have settled that, certainly there is no risk that we will carry on that. And so that has gone also to the SG&A. So there is some recurring kind of legal and professional expense, which will be incurred by us. But we are not giving any specific amount and it will not be – it will not have a huge impact. Yes.

Got it, sir. And second, in FY2016 overall has been a tepid year for us, when it comes to approval. Now that you are doing site transfer et cetera, how should we look at our launch pipeline for FY2017, will it be similar to FY2016, given it will take time to these approvals from the USFDA, despite site transfer or should we expect it to be better?

So Neha, firstly on the first question slight addition to what Saumen said, I think, although remediation cost has been there in this quarter, but it was not full blown, there will be some more impact, as well as will as we continue because the number of people has increased in the sites and that was look at there, so that is one. The second thing is on approval, I think this year has been a tepid year, no doubt. But next year we expect this to be definitely better than this year. Now two kinds of methods, one where which are date specific launches, one which are not date specific, needing approval from the agency and contingent tools some of the activities which are ongoing, in terms of what we just mentioned, part of site transfer et cetera. And some are litigation oriented, so but all in all, I know there is a probabilistic aspect to it, but I certainly expect next year to be better than this year.

And if I may just ask one more, quickly, our India business even if I adjust for the slippages that you mentioned, it seems like a very strong quarter with the UCB assets. If you look at our business ex-UCB this run-off, what is driving that very sharp improvement from let’s say in the last three quarters?

If you take up – take out the cut off impact from Q2 to Q3 and the UCB related growth then on a base business the growth will be around 19%.

Yes. And that’s pretty strong and it consistently being improving quarter-after-quarter. So just wanted to understand what’s change particularly on the ground to drive the strong improvement and can we see more improvement from these levels or the 18% to 19% base business as what – we should be assuming going forward?

One specific reason which I can attribute for last few years we’ve been working as a team a lot on India business several efforts on prescriber connectivity, patient connectivity, retail connectivity, portfolio distribution overall we use to be much more acute – we have over the last few years have become pretty well balanced between specialty chronic and acute. All these and coupled with good execution its yielding result. So going ahead I think we would certainly would be – we are hopeful of maintaining growth in this range, which should be few percentage points higher than the market growth.

Sure. Thank you so much again.

Thank you, our next question is from the line of Chirag Dagli from HDFC Mutual Fund. Please go ahead.

Thank you for the opportunity. Sir, just in your opening remarks you mentioned about base business price erosion if you can help us understand what set of base business erosion should we sort of penicillin for your business given the larger products. Generally when we talk to peers they talk about single-digit, high single-digit kind of erosion, you said what is applicable to Reddy’s as well or is there anything different in your base business erosion?

I mean broadly what others perceive, we perceive the same way expect for the fact that we have quite a few bigger sets, so far we’ve been doing well. It is – it could be in that zone but it may not be even that if it concern for all of us, it can vary from as and when we get the hits. So certain quarters could be better, certain quarters could be little worse. So far actually destiny has been kind.

So when you sort of take a three year view on this base portfolio sir, this high single-digit number should hold?

The channel is consolidating okay, and what everyone else is commenting is normal when the channel gets consolidated that ability to negotiate and demand, not negotiate goes up to that extent. So some of that certainly we are all sort of on the receiving side of that. Finally, the oral solids and more, more sort of ADR which are crowded will certainly – unlikely to see anything lesser than that going ahead.

So, we will see more than this or lower than this sir?

Very difficult to sort of make the very definitive statement on this, broadly I gave you the headwind associated with it, which is consolidation of the channel, the big time consolidation. So, more or less will depended on how, which assets you’re in.

Fair point, sir. And my second question was on the EBIT, base for PSAI, it’s lower because we said, there were obviously delayed and one lower profit in one of the key products. But both these should sort of continue at least over the near-term right sir?

Swing down of dispatches Abhijit has already commented we are back on track on that.

We are already back on track, okay, okay, sir. Thank you so much.

Thank you. Our next question is from that line of Anubhav Aggarwal from Credit Suisse. Please go ahead.

Yes, good evening. Saumen sir, about question on Venezuela, I was looking through your notes. This quarter you had ForEx loss from monetary assets about Rs.63 crores, this is much higher than last two quarters. Was there no sales done from India and that's why this is such a large number this quarter? That's part A. And secondly, would you say the Rs.63 crores would largely correspond towards including of Venezuela and EBITDA this quarter?

First we’re not giving country wise EBITDA, but yes, net monetary asset we have taken a provision of Rs.64 crores, this quarter. And, our dispatch has been not there during this quarter.

Okay.

We have completely calibrated.

This, then Rs.64 crores would have been only generated this quarter right? That’s why it’s coming here.

Rs.64 crores get generated, there is an overall impact on the – the way we compute the net monetary asset. We take as on date, as on 31, December. We need to consider even this or that you compute. Yes, but large part will be attributed to this quarter.

Okay. One more clarity on the way you report gross margin on the segment side, sharp decline in gross margin for the Global Generic segment sequentially from September to December quarter, about 170 basis points, numbers suggest, regional make – suggest that is largely coming from the U.S. market. Was there any large inventory write-off more than normal or any other reason for that sequential decline in gross margin?

There will be always some kind of the quarter-to-quarter, some kinds of inventory write-off which happen, but there is nothing very significant to report…

I think its…

Go ahead with businesses.

Anubhav, it’s largely currency related impact on a sequential basis.

Largely currency related. Okay.

Yes.

Which you mean to say that’s basically coming from EMs which is impacting it?

Absolutely.

Just one Abhijit, question for you, just one clarity on this your response to warning letter to FDA, is there any third-party kind of risk assessment report that you need to submit for the non-impacted plants. Why I'm asking this is that we've got warning letter on 5th of November, it's been three months, we haven't seen any final approval from Dr. Reddy's any plants so far, except the proprietary products, which I'm assuming is not from the Indian plants. I don't know whether there is a correlation or not but I'm just checking that when you submitted the warning letter response, the CAPA response. Is there anything you promised that you need to do on non-impacted plants as well?

No. I think there was no specific request on that front at all formally. But certainly we are extending lot of the CAPA which we have out of these observations to other site now. Coming to approval, I think we did have statutorily in tentative approval during this period. And it’s a little bit of a lean patch in development few approvals got slightly delayed as well. And because these were from this size or some of them we mentioned last time, very specifically, you have – industry now got delayed by about six months, very expensive for us. Xeloda was all set, but it’s still, it’s not going to come in because both are from impacted side. And few others, which I’m not going to details, not that impactful as well. However, having said that, there was some period the audits which happened in the earlier period where EIRs were taking some time to come in, in a very recent past we have, most of the audits which happened EIRs have come in for the other sites. So is that answers your question.

Yes. That's helpful. If I can just ask a related clarification on this. On the PSAI business is there impact from any of the customers after you've got the warning letter, not in this quarter. But anyways in future, one or two quarters because I mean anyways, it takes time for anyone to shift capacity, our source of supply. Is there any potential impact that you have experienced so far since the time of warning letter.

When the letter came in, there was a lot of questions, both from the retail channels as well as the API customers. I mean, we worked overtime in sort of providing the complete transparency and clarity of the status. I think most of the concerns are mitigated, having said that, new filings from the site would naturally be impacted, people would be hesitant to sort of immediately take samples of those important ones. We have a site I see that site next over where we are filing, all the filings are from API from the new hesitated site. So those are I mean impacted but whole site whatever product we develop we’ll have to sort of some of those there are some impact, I mean I’m not struggling to sort of put any figure to that, but there would be certainly some impact, yes.

Thank you.

Thank you. Next question is from line of Abhishek Sharma from IIFL. Please go ahead.

Thanks for taking my questions. Sir out of the total pending ANDAs how many would you have which are not dependent on the three sites which have got a warning letter?

So we have approximately if I could call correctly 79 pending ANDAs and many of them are of course with certain letter dates based on IP et cetera. The near-term one, so whatever we lost, we lost – few are pending at the moment with everything complete and impacted, which I just covered in my earlier answer to another question. The rest of the ones we are trying very hard to ensure that the delay is not due to the site of course the remediation of the site is always priority one and all the efforts are going in but specifically on gross approvals we are trying to see what we can take transfer, before that becomes about next for the coming hits.

Understood, but a large number of these 79 today, you're saying are directly or indirectly linked in some way to the sites which have got the warning?

I didn’t say that I didn’t say that at all, I didn’t say that at all. I said when the impact I mean these – look we have 12 sites which are regularly audited by FDA of the various. So these are the three out of that two APIs over that and one injectable site and there also many products which are partnered outside for manufacturing quite a bit of business. using different site. So certainly I didn't say last part of it, in fact a small part of it probably.

Understood, great. Thanks, helpful. Sir, on the injectable business, existing business, you have been using vendors, which appeared on your label. So does that de-risk some of your existing injectable business as well as future filings? I mean could you use them going forward probably for site transfer or for making future filings?

Yes.

Right. Okay and sir, one question on Venezuela, so how much unsold inventories there in the system and when was the last shipment that you made to Venezuela?

As we say that we have been calibrating the dispatch and sales also accordingly is becoming low at every quarter. But whatever inventory that we have on hand, it can cater to next six months of sell.

Which has already been shipped to Venezuela?

No, so let me take it, we are not – first of all we are not manufacturing anything fresh, okay. We have stopped manufacturing probably six months back, whatever inventories are being tapered out, the sales are pretty much going to drop to very, very low level by the end of this quarter. In fact, as we speak this quarter itself is very, very low and naturally we need to calibrate that in the impact of vis-a-vis when you do YoY. So it is pretty much comes – being tapered down to zero level, no further manufacturing and not a whole lot of inventory in the system. But having said that, since you are on this topic, I wanted to clarify a couple of things that what are we exactly doing on this geography. There are two deals we have signed, specifically with two companies owned by the government their specific names. I’m not getting to the specific details on the names of those companies, one is on supply of an oncology biologic product. And the second is a whole host of very important medications for the geography, which at the moment is very acute shortage of medication. And so one we have said, these are – which we will take it to government factory, we will do secondary packaging there and maybe at some point in primary packaging, as a certain pre-discussed cost, which will be lower than the current price prevailing in the market substantially. So the county makes get the benefit and this is a legal deal, which we have signed, whether and how it is executed, I don’t know. But if we can do this well, as currently it is a little bit of chaos in the country, you can well imagine. But if it comes through, then we will be able to revise this. But in absence of that we are not going to sell anything more pretty much next year.

But if conditional to the days are repatriate.

Yes, somewhat.

Quite a significant onto us.

If they signed them.

They do not, and we are not going to go ahead with it.

Yes, yes.

And that is why I said in the beginning, we are hopeful. But we will have to closely monitor and watch what is happening, during this quarter.

Yeah.

Thanks and that’s very helpful and does this deal involve advance payments?

So anything future, Saumen mentioned, one, it’s actually part of the deal that the significant part of whatever is due to us will have to be paid. And second, any further award be contingent to – complete clarity on payment the reason means you can do it we are not going to thinking anything more there.

Okay. Perfect, sir. Just one more if I can squeeze in, sir, directionally on biosimilars your deal Merck Serono where it's going, when can we see the first program in Phase 3 in the reg market.

I think – you got me that and exact data I will not be able to specifically – we’ll come back to on that but we’ve got the milestone payment and I would guess it shouldn’t be very far in terms of.

Maybe later we can.

Yes.

Check together.

Sure, all right thanks.

Thank you. Our next question is from the line of Girish Bakhru from HSBC. Please go ahead.

Yes, hi. First question again on the injectable side, is the site transfer process complete to de-risk the API of some critical products from Srikakulam?

You mean – yes, I think we message it last time that we have completed that actually there is one of the two which is from there and we have completed that.

Right. So in terms of say the business momentum particularly pertinent to injectables which was doing something like 20% of U.S. in that run rate we would be largely maintaining right, or has that changed because of the initiatives or site transferring all that?

No, no you are saying in the event that suppliers are impact – at the moment as you are aware that suppliers have not impacted from the site. But yes, the question is in case they have gets impacted whether we have derisked.

Yes, because that was the assumption that you would anyway preparing for that. Isn't it?

Supply will not be contained but one cannot give any guidance on what is going to happen in the market.

Right and why would you not say site transfer some pending injectable products which probably would not get approved order Srikakulam at this stage. I mean particular question being propofol?

Propofol is not from Srikakulam number one, so that’s a specific question. Second is what’s your question that why future approvals will not come from Srikakulam because it’s under warning letter at the moment.

That part I understand but I’m saying would you have initiatives site transfer of some injectables or the pending injectables filings from Srikakulam through other injectable sites?

If the APIs is from there in case but few other site transfers also we have done from or doing the process of doing from the Dorada site. So that is continuing. As I said, if you see the broad message, you should take is that we have missed a few approvals financially pretty big, which has already gone in into whatever we are declaring, a couple of them I mentioned, going ahead the effort is depending on the date specific launches, the effort is trying to see whether we can risk mitigate those. The current lull of approvals is a mixture of two factors, it’s a combination of two factors. One is, of course, this sites and the delays which happened. And the second is in any case when we embarked on the journey of complex generics, the pipeline slowed – the development pipeline 2.5 years back, slowed down a bit. A part of that patch is now, getting over, my message in my earlier – one of the question is that my expectation is next year launch would be better than this year.

Right. If I could just stretch this further to answer specific on propofol. I mean what according to you has been delaying that? Is it the particular matter where you think some other players blocking your lunch, or what has been delaying it?

Not really, not really. We – if broadly as per our understanding, we shouldn’t be too far away from approval…

Okay, Okay, that's helpful. And just on transdermals, you have started filing them. Are you doing clinical trials on transdermal products?

Depending on certain product which mandates, yes, certain products which doesn’t mandate, but quite a few, we have already filed with the clinical trials got accepted. So, the journey of the file is being sort of scrutinized where we have started.

If some of this which would be say very open in terms of the IPR would be in a position to see a launch in next two years, is that a fair assumption?

I’ll have to get into those details, specifically, firstly we will not you know go as simply as I said, but as I said, the file has gone in, accepted, the journey is in progress.

All right, thank you so much.

Thank you. Our next question is from the line Sameer Baisiwala from Morgan Stanley. Please go ahead.

Thank you and good evening everyone. Just a, which have been a commentary on the risk to the base business and you mentioned a few times in the call. Is this just out of caution you are seeing or do you see based on your intelligence on what or what you see in the market that more competition is coming for some of your bigger assets?

Well, you know the five or six are very big ones. To be very honest, I mean, do you have specific names of competition, no, we don’t except for – we are hearing a lot on – that we don’t know exactly when could be earlier than later, but others being the while, so just my guess that we will certainly see it at some point in time.

Okay, that's helpful. And can you just share with us how many products for which you have applied for site transfer?

Again, Sameer, I think where I will put it is suppose, I'm hypothetically, we have an expected approval in, let’s say, six, seven months. If you haven’t filed, already we would be missing it, normally these transfers are exact sort of application of the API and another site. And so if you put it in, put the stability data, the reasonable probability in six months. So more or less keeping that margin of error, we’re trying to the transfer and submit.

This would be low single-digit, what do you say?

The number which we – if we take the ones which we have submitted and in the process of WC, we will have to take both the batches, sometimes it is T0, sometimes we do T3, all put together it will be more than low single-digits, it will be – it could be five to ten.

Okay. And Abhi, can you update us on your COPAXONE 20 mg file?

So, better than what I said last time, last time I pretty much said that we are struggling with the science part of it. I think we have a much better visibility now, slowly getting into trial batches and getting into the optimized scale up; i.e., four to five months or so, we should – hopefully, should be in a position to respond to the CR, which we received, five months, six months.

And do you think this is…

This is we are trying to do that.

And would you say this is a fiscal 2017 launch?

Beyond that, look how many more questions, if you would ask, we are trying to do a very deep decent science job on this. We don’t want to rush it, whatever time gets lost, because pretty much similar things would come up in the next asset as well. So, I wouldn't certainly not comment on the timing of launch, but we are trying to do a good work on our side on the science part of it, very good work.

One final question on NDAs. You had set yourself two NDA filing every year. How do we stand for fiscal 2016? And actually to 2017?

Roughly, yes, we again, I’d probably reiterate what we said. We would be trying to get to about couple of filings every year. Now those things can change a little bit depending on what data we get, but yes, I mean our internal target would be two per year.

Okay. Thank you so much.

Thank you. Next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.

Thanks for taking my question. If you can give us some outlook on the Gleevec launch. I know it was probably stuck because of the oncology facility being under warning letter, but have we been able to transfer it to other site or will this be delayed launch?

We have a date specific launch as per the deal. And the site issue should not be a bottleneck to that in our view. We should be done before that in terms of de-risking it.

But right now, was it filed from the facility.

Yes.

Which had a warning letter.

One part of it, but its – the work is as we speak in progress of shifting it still gives us adequate time.

Do we have, by the way, more than one facility, which assets approved?

No, we don’t have internally, but many of the assets we don’t have to do it internally.

I understand. Okay, understand, okay. The other thing I just wanted to know about the timeline for resolution you mentioned, you have kind of started the implementing CAPA plan. So according to the plan, what do you think how long will it take for you to complete the CAPA processes that you can tell us that will be helpful.

So there are a sizable number of commitments. What we are tracking is when we are selling the updates – at the date of the update are we on track and I think Saumen mentioned in his discussion point, that so far whatever update we send, we are completely on track on that. And we continued, we hope to be continued to be on track with – when we send update will be on track of doing those. So hopefully, in about between three to four months, three to six months, we will be implementing the comp-off [ph]. So in our side, we will do whatever it takes.

Understood, okay, fine. Thank you, and just a clarification. You mentioned that the increase in the export incentive is Rs. 150 crore for the nine months or for the year, how should I…

I said the annualized, Rs. 150 crore plus, I think, exact we can say in the year-end.

Okay. So it shows Rs. 150 crore plus of annualized for incentive.

Yes.

And a lot of it would be between Q2 and Q3. Is that fair assumption?

Not due to Q2.

It will be fairly, [indiscernible] actually, over the four quarters.

Yes, yes.

Is it. Okay, okay. Fair enough. Thank you, very much.

So while we will take couple of more questions, just couple of things I also wanted to say that this time we’ll be filing the 6-K very shortly. May be, either today or tomorrow, it will be there. So you can all refer to that for more detailed analysis. And second thing, in the Q4, the currency, particularly in Russia, it has also come down in terms of – right now, against one RUB1, it is only Rs. 0.88 or so. So there would be some pressure from Russia and Venezuela already we have talked about that we have not dispatched anything. So there will be pressure which will be there, both Venezuela and Russia front. And so I thought it will be appropriate for you to take that into consideration when we are looking at the Q4.

Yes.

So we will take two more questions.

One second. So little bit to add to Saumen this question, so he mentioned about mostly the emerging markets, the oil related impact eventually into currency and economy leading to both these large markets getting impacted in Q4. Energy, normally Q4 is a little weak quarter because injectables, institution and heavy sales normally in Q3. Normally gets mitigated with new launches, we don’t have new launches, so there will be some impact there as well in North America. Europe we were doing well, in two products which are slowly getting into tenders as we speak and that will have some impact and we spoke about API as well. So essentially some of these things will certainly have, a sobering effect, a substantially sobering effect on Q4. So just wanted to sort of make since no one asked wanted to make that amply clear to everyone.

Okay. We can get two more questions before we close it.

Sure. Next question is from the line of Manoj Garg from Healthco. Please go ahead.

Hi, thanks for taking the follow-up questions. So assumptions typically on your North American business: one, can you quantify your Nexium sales for the quarter. As I believe you’re in the quarter for about half of it. And then after you re-launched, how does that marketplace, look like in terms of pricing?

Again, Manoj, specifically I’ll not be able to give a figure. We’ve lost lots of share there because of the reception, but the prices have gone down initially when we came in. Now there are five players in the market. Strangely I think the stock up in the market is still there. So full off-take hasn’t fully happened. We are still looking at more shares, but what is one thing that certainly got calibrated is the price at the time which we came in to where we are now, the prices have substantially calibrated. So I had given an indication, very broad indication of our analyzed revenue from this asset. I think it’ll go southwards from there. But at the moment, I think this somewhat still unsettled scenario I would not provide you a specific figure. But having said that it still is going to be a good asset for us, we still have some share and we are looking for some more share.

Okay. That’s helpful. And then let me just try asking the pricing question in different way. So the 18% growth in North American generics that you’ve reported, can you sub-divide that into volume and price?

We are not giving that level of details.

Okay. And then last question on North America. Of the three NDAs that you filed in the current quarter, where all three of those, as a result of such interest to other facilities?

We have filed three NDAs and one more…

No. none of those are site transfer these are new vendors and two injectables, one fairly attractive, the second was also good, and third is also a soft gel oral asset business we’re looking.

Okay, great. Thank you for taking my questions today and best of luck.

Thank you.

Thank you. We’ll take our last question from the line of Nitin Agarwal from IDFC Securities. Please go ahead.

Thanks for taking my question. Abhijit, on the three, the two of final approvals that we’ve got for our 505(b)(2)s, I mean we did discuss about in the R&D meet, but if you look, when you look at the market now, I mean how do you assess the opportunity for these two products and when do you see them coming into the market?

Which product are you specifically referring to…

The proprietary products you are referring?

The proprietary products, yes.

Oh. Okay, okay. Yes. So, one is the doxycycline, I said is still under litigation the rest two, in the course of coming few months, we will get into the market. And probably we have said the potential for both these, if I recall rightly, is in the range of $50 million to $710 million on an – but having said that you’ll have to sort of factor in typically in the proprietary products first year, with feet on ground you really have to build the market, but at this point in time you don’t have enough prescriptions. But eventually, sort of, you start making money.

But you still believe the opportunity has not much changing much, in depth.

No. No. I think, each of them have their story which is also – 3 mg injection is basically trying to see 4 mg oral tablet users of migraine, who are – there is a part of the patient who were not fully satisfied with that and for quicker round set of action. So there is a pool of patients for this, for the betamethasone spray, it combines all the benefits of – lotion, cream, ointment, et cetera, I think that shows that it can, pretty much has in one form, all the benefits of all the other skills. And similarly the doctor setting [ph] is that has – it’s clear, that on the – there is a specific meal related advantage. So each one has some signs behind it, yes. Go ahead.

Thanks. Lastly, on the R&D cost, I mean how should we look at R&D costs going forward. And what would have been the impact of this whole the payment, the milestone that you’ve got from Merck would have been a more than 10%, 15% of the R&D cost for the quarter?

Certainly, it was basically out of the biologics already. It is self-paying [indiscernible] will be to that extent only. So it will not be that. But at the same time, our R&D, as a percentage of sales will be between 11% to 12% as we alluded earlier.

Okay, fine. Thanks very much.

Thank you. I would now like to hand the floor over to Mr. Kedar Upadhye for closing comments. Over to you, sir.

Thank you all for joining Dr. Reddy’s senior management for Q3 FY’16 earnings call. In case of any additional clarifications, please feel free to connect with the Investor Relations team. Thank you and good day.

Thank you very much members of the management. Ladies and gentlemen, on behalf of Dr. Reddy’s that concludes this conference call. Thank you for joining us and you may now disconnect your lines.