Dr. Reddy's Laboratories Limited (RDY) Q2 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to Dr. Reddy’s Laboratories Limited Q2 FY17 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saunak Savla. Thank you and over to you, sir.

A very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy’s earnings call for the second quarter of fiscal 2017. Earlier during the day, we have released our results and the same are also posted on our Web site. We are conducting a live webcast of this call and a transcript shall be available on our Web site soon. Just a reminder, the discussion and analysis in this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy’s comprising Saumen Chakraborty, our CO; Abhijit Mukherjee, our Chief Operating Officer; Anil Namboodiripad, our Senior Vice President and Head of Product Development and Commercialization of our Proprietary Products Business and the Investor Relations team. Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlets without the Company’s expressed written consent. Before we proceed with the call, I'd like to remind everybody about the Safe Harbor. The discussion will contain certain forward-looking statements which are based upon the management’s current beliefs and expectations and involve a number of known and unknown risks and uncertainties that could cause our performance, results, and achievements to differ significantly from what is expressed or implied by such forward-looking statements. For more detailed information on risks and uncertainties, you’re requested to go to the Company’s annual report filed with the Form 20-F, which is filed with the U.S. SEC for the year ended March 31, 2016 and the quarterly financial statements filed with the Form 6-K with the U.S. SEC for the quarters ended September, December and June 2016. After the call, if there are any additional clarifications, please feel free to get in touch with the IR team. There is one more information, there is a new member Amit Agarwal who has joined the IR team and his contact will also be available on the Web site. Now, I'd like to turn the call over to Saumen Chakraborty, our CFO.

Thank you, Saunak. Greetings to everyone. Let me begin with key financial highlights. For this section, all the amounts are translated into U.S. dollars at the convenience translation rate of Rs. 66.58, which is the rate as of 30 September, 2016. Consolidated revenues for the quarter are Rs. 3,586 crores or $539 million and grew 11% sequentially. All our major businesses have shown sequential improvement. On a year-on-year basis, it has declined 10%. Revenues from our Global Generics segment of $435 million and PSAI segment of $87 million. Consolidated gross profit margin for the quarter is 56%. Gross margin for Global Generics and PSAI were at 62.3% and 22%, respectively. SG&A spend, including amortization for the quarter, is $177 million, an increase by 6% year-on-year. Following the dismissal of the writ filed with the Bombay High Court containing the validity of certain notification issued by the NPPA, a potential liability of $5.2 million has been recorded. Normalized for this, the next sequential decline is primarily on account of reduced remediation costs and the product launch expense by pro Proprietary Products segment. On a year-on-year basis, after nominalization of the Venezuela base effect, the increase is largely attributable to normal salary increment, headcount and another costs. We continue to explore revenues to optimize this spending. R&D expense for the quarter were at $78 million representing 14.5% revenues. This spend is in line with the ongoing set of development activity that’s planned. As we’ve discussed earlier, we’ve initiated further development activity on the recently in-licensed IPR&D assets from XenoPort and Eisai, as well as the acquired ANDA filing from Teva, which has incrementally added it to the state [ph]. EBITDA for the quarter stands at $96 million, which is 18% of the revenue. During the quarter, we generated $61 million of cash flows from operations. We concluded the portfolio acquisition from Teva by paying $350 million and therefore -- thereafter concluded the quarter with a net debt-to-equity ratio of 0.34. Effective tax rate for the quarter is 23%. We expect the annual effective tax rate to be in the range of 20% to 22%. Key balance sheet highlights are as follows: our operating working capital increased by $38 million during the quarter. Focus remains on maximizing working capital across locations. This will obviously be done, after considering necessary buildup impending new product approvals and launches and geographical expenses. Capital expenditure for the quarter was at $46 million. Foreign currency cash flow hedges for the next six months in the form of derivatives and loans for U.S dollars are approximately $150 million, largely hedged around the range of Rs.67.6 to Rs.71.7 to the dollar. In addition, we have balance sheet hedges of $123 million. We also have foreign currency cash flow hedges of RUB600 million at the rate of Rs.1.03 to the ruble and EUR3 million, largely hedged around Rs. 75 to Rs. 82.05 to the euro, maturing over next six months. With this, I now request Abhijit to take through the key business highlights.

Thank you, Saumen. Greetings to everybody and welcome to the earnings conference call. Overall, the performance of the quarter is in line with what we expected. Every business has grown sequentially on the back of new launches or volume gains. Broadly this gives us comfort on the base business. Let me take you through each business to discuss the performance and some key things. The reference to financial numbers will be in respective local currencies. Our North America revenues were $245 million and grew marginally on a sequential basis. Combination of in-house and partnered new product launches coupled with volume normalization in few products have counter the adverse impact of McNeil business and competition in some key assets. On the pricing front, we’ve not seen much movement on a sequential basis. From our side, its logical to expect some competition in a few of the top products. However, at the same time, we hope to see traction in new product launches and grew further as the year progresses. Coming to Europe, our revenues for the quarter are EUR24 million and it sequentially grew by 11%. We are building on our strategy to leverage our global portfolio and set up a robust institution business in the EU5 that is profitable table and lean. On the emerging market front, the macroeconomic stability risk have recorded, repeated and we expect it to be stable for some time. This is likely to have a [indiscernible] effect on the pharma sector, as well as on the respective currencies. Any appreciation in the local currency will be meaningful source of growth. Specifically to this quarter, our Russia business grew 11% sequentially in constant currency. At H1 level, the business grew by 7% in constant currency. Performance over the last five to six quarters indicate that stability is gradually coming back to the marketplace. At an overall level, the team continues to focus on productivity announcement and portfolio augmentation. Ex-Russia the other markets and emerging markets business performed in line. Further, we are on track to expand our geographic presence to leverage of our institution business portfolio. As explained earlier, we did not have any revenues in Venezuela. We continue our efforts to actively engage with the Venezuelan government to provide affordable medicines to the country, but with an assurance on payment. Domestic Formulations business revenues are 625 crores and grew 14% year-on-year. This is good growth considering the season pickup, while continuing to face the challenging NPPA pricing requirements. Portfolio acquired from UCB has also performed in line with the plan. Team continues to focus on increasing the productivity and augmenting the portfolio. PSAI business posted revenues of $87 million and grew 22% sequentially. The sequential improvement in the business can be attributed to improvement in supply situations and order inflow. On the quality front, we’re actively focusing towards universal compliance of the global quality management systems, specific to the three Warning Letters affected sites, we have addressed all the commitments and the awaited session by FDA. Simultaneously we’re trying to ensure that critical products have alternate sites assigned to them. On our proprietary products business, we’re closely monitoring the market for our newly launched brands Zembrace and Sernivo. Several initiatives to accelerate volume growth have been put in place and we’re seeing a gradual increase in prescription growth. On the R&D front, the pipeline is continuing to grow, several programs of neurology and dermatology have achieved clinical proof-of-concept and plans are in place for envision of pivotal registration studies. To summarize, we’ve improved sequentially, but at the same time we remain cautiously optimistic of the approvals and launch scenario for quarters to come. Management focus is primarily on new launches in North America generics market, improvement of productivity in the branded generic business, deliver on the quality improvement initiatives and strengthen product pipeline for the respective businesses. With this, I open the floor for Q&A.

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We will take the first question from the line of Manoj Garg from HealthCo. Please go ahead.

Hi. Thank you. Good evening. I’ve a few quick ones. One, any abnormalities in U.S pricing? Two, the timing of the FDA re-inspection and then lastly, I saw a new filer on REVLIMID. Can you confirm if that’s Reddy and whether you would expect to get sued there?

Pricing erosion have become a part of the U.S business model. Currently there are essentially for customers, competition has taken it to that level. Having said that, along the uniform quarter-on-quarter, last quarter was very harsh. This quarter was certainly better, much better. But having said that -- to say that it's on the win would be too optimistic. Inspection, we mentioned that we’ve done our part of it in terms of completing all the remediation activities, keeping in touch with agencies with the updates and as we’ve mentioned we have requested the agency for re-inspection. It has to sort of -- it will follow the process and has to fit into the calendar and we will have to wait for that. Meanwhile we’re also trying to engage with them for a face to face. REVLIMID, I won't comment on that.

Okay. That’s fine. So, back to the pricing, so it sounds like, I mean, I -- so downward pressures is a common place of the U.S market, but it sounds like you’re saying into this fiscal Q2, it was a little bit less than fiscal Q1?

The erosion is a little subdued with particular quarter. Having said so that there is one more approval coming in any of the top assets, it will again -- it could see an upswing. It largely -- Valcyte was the biggest impacted molecule, the injectables also seeing pressure, but by in nature of the business it's -- there is some long-term contract and so and so forth which helps us to hedge to a certain extend. But having said that, we will have to take it in our stride.

Okay. Now that’s very helpful. And then, so just a clarity on that, so you’ve asked FDA for re-inspection. So you’re waiting for them to get back to you?

Yes, we are following the usual process. This is what that follows for all companies. I think …

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

Nothing at all, no. I think it depends on the, how agency feels about responses and -- but you can -- I know there are open [indiscernible] statistically typically how much time it takes, it follows a certain timeline.

Okay. Thank you. Thank you for the time this morning.

Thank you. [Operator Instructions] The next question is from Kumar Saurabh from Motilal Oswal Securities. Please go ahead.

Hi. Thanks for taking my questions. So to start with …

Kumar, I’m sorry to interrupt you. We are unable to hear you. Can you be a little loud? Thank you.

Yes, hi. Is this better?

Yes.

Okay.

Yes.

So the U.S business sales sequentially have marginally improved, even though the McNeil impact, as well as competition on the injectable side has worsened. So does that mean that apart from the new launches which we’ve seen, how has the base business [indiscernible] apart from this -- these injectable portfolio to couple of products which we’ve?

Yes, erosion as I mentioned, has not been severe in this quarter, but McNeil business we had messaged last time it saw the full blow impact of the McNeil business pretty much going away in this quarter. Its more than -- its in double-digit. So, beyond that I think I saw the broad launches are concerned, you’re aware that if you take first half two assets are relatively moderately effective between $20 million to $30 million range. The rest are therefore, which we’ve launched our base model and on so -- that’s the overall picture.

Yes, and we have earlier guided for better twitch compared to the first half. Do we stick to that in terms of U.S launches?

Look, I mean, in -- let the -- I think we mentioned, we’re cautiously optimistic. I think we will stick to that. That have litigation aspect, that have FDA approval pathway aspect …

Yes.

But, yes let's stay cautiously optimistic.

Sure. Sure. I have more questions. I will join back the queue.

Thank you. We will take the next question from the line of Neha Manpuria from JPMorgan. Please go ahead.

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

Still [indiscernible] will be there, it will be improved. And the meaningful means, you at least know one specific launch is litigation outcome dependent. So we will have to know when actually the question comes up. Overall, second half we expect to be better than first half for branded generics.

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

No, I think price per vial has taken some hit for sure. But competition I think as you’re aware, one is [indiscernible] in when generic available, having traction there maybe a little difficult, but otherwise the other one which is you know plain ANDA is certainly in nibbling share. I mean, but as I said, institution businesses have a slightly different nature of erosion. So I will just leave it there.

Okay. Got it. Thank you so much sir.

Thank you. We will take the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Yes, thanks for the opportunity. So just trying to understand the proprietary products that you’ve launched couple of products, how is being the traction? There is double-digit sales and what is the expectations in terms of second half and next year?

So we’ve Anil on this call. So I will request Anil to respond.

Yes, hi. Sure. This is Anil Namboodiripad. So let me talk about the two new launches in proprietary products. We are continuing to see traction with both prescribers and in terms of total prescription over the last three months July to September, that is when we measured it. We have double the number of prescribers and 40% of both prescribers are actually the peak prescribers, so which is a good sign. Second, just in the month of September, prescribers grew by 22%. Prescriptions are also growing consistently, but let me specifically talk about Zembrace and then I will come to Sernivo. Prescription for Zembrace are growing consistently and have crossed the 1,000 prescriptions per month mark, which is a milestone for us, with a four month growth rate of 54%. Similarly, for Sernivo, prescriptions have crossed 2,000 prescriptions per month and the number of prescribers have also grown to about 2,000, with again 40% of those prescribers being the deep prescribers. These are all some of the benchmark that we look at early stages of launch, because we [technical difficulty] how the product used to perform. The growth rate of prescriptions have also, in case of Sernivo been 50%. The base business is on track to budget and we moving forward, we expect to see, especially the Sernivo we expect to see increase -- a significant increase in the coming months due to favorable seasonality of this particular product usage.

But any color in the sales would have also helped, because we’re seeing a very flattish YoY, QoQ moment in the same?

Yes, so let me talk about that. Our focus have been on -- because we in case of neurology, we are new to the market as [indiscernible] urology. It has taken us a bit of both kind and expected in terms of establishing our presence in the market. We had not significantly done three market or market development activities prior to launch. So as a consequence what we’re focusing on right now it's the business volume and increase the number of prescribers and the number of patients who experience our product, because our top believe is that if we’re able to increase volume, then as we continue to get listed across all the managed-care formularies, these will all turn into revenue spread. So we -- there is a significant effort in terms of sampling, as well as certain experience programs that we’re conducting in the field, so you’re not really seeing that translated into numbers, but as we continue to get managed-care coverage, right now we’re at about 50% managed-care coverage. As you know these -- you are working with each of the specific managed-care bodies to get listed in that formulary and that is a process of its own, where we negotiate rebates and things like that, so that is taking its time. And once we are able to get adequate managed-care coverage. you'll start seeing the number, but the previews to those numbers, it's basically the volume growth.

Okay, got it. And what kind of peak sales we are expecting by when?

The peak sales are still based on -- as we had originally indicated, we expect it to be somewhere in the range of $50 million for either both products. And we expect it to happen in the next three years.

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

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

So these tenders are one-time or this trend continue on quarter-on-quarter?

This is I think that the biggest national tender is twice in a year.

Half yearly, yes.

Okay, perfect. And this is the longest contracts, so this can see the impact in the next quarter and follow on quarters as well?

Yes, I mean, this is I think yearly sort of it goes through. Currently there are three sort of approvals. I mean, the [indiscernible] is there a Russian player [indiscernible].

Okay, great. I’ve questions. I will join back the queue.

Thank you. We will take the next question from the line of Anubhav Aggarwal from - Credit Suisse. Please go ahead.

Yes, good evening all. So Abhijit one question on PSAI business. This quarter benefit from delayed shipment from 1Q. I just wanted to understand that is this the new rate which work with or just because of delayed shipment this PSAI sales in this quarter are very much higher?

This is B2B business and -- so, I mean, you shouldn’t read always very deep into a quarterly figure, but having said that there is -- its not that as a delayed shipment or something, because sometimes it's also part of the PSAI business is the custom from our business, if the orders come sometimes in chunks, more importantly I mean since you ask the question, let me clarify. The health of the business I think I feel very satisfied about. I think overall, the gross margins look certainly better than what it used to be six quarters back. That's important. The supply situations are broadly under control. New products are peaking in and last but not the least, I mean, standalone figures are important for this business, but we will always have to remember that this is strategically important to the base business.

Okay. That’s helpful. So just one more clarity on this product you bought from Teva, NuvaRing. Now when you bought this product from Teva, in your [indiscernible] calculation, for how many years you think it will remain at two generic player market, just as a rough idea, because I just want to see that, what was the amount that you paid for the eight products. If the situation continues for more than two years as a [indiscernible] layer generic market, then it's a very sweet deal.

Look, I think, I mean let me make a broad commentary before I come to NuvaRing, I think we feel reasonably satisfied with this as things stands today. The two major assets have litigations and some of the information in public domain and overall the going is good. In terms of our expectations and diligence, I think its playing out well and we’ve reasons to be satisfied. NuvaRing is a drug device type of combination and to [indiscernible] that when is the third player coming in, I wouldn't be able to do that. I mean, that will be a shot in the dark. So it doesn’t make any sense. But overall we feel good about the two lead assets and some of the other assets as well, it is smaller.

Sure. That’s helpful. So I can ask one question to Saumen sir on the interest cost. Now for that Teva debt net debt we’ve taken for this deal, how much is the interest roughly cost for the debt, because two questions -- sub questions there, because sequentially our interest cost is down. Has that Teva debt contributed to interest expense in this quarter?

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

And why would our interest costs were down sequentially?

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

Okay. Maybe I will [indiscernible] off line. Thank you very much.

Thank you. We have the next question from the line of Surya Patra from PhillipCapital. Please go ahead.

Yes, thank you for this opportunity sir. Just one clarification. Whether the Nexium, striding shares -- and the Nexium have supported this quarter in the U.S business?

Nexium, sorry, can you repeat the question?

Adding the Nexium [indiscernible].

Yes, I think its stable and double-digit and nothing major to report at this juncture. Its going fine, but as and when new competition comes in, there may be some erosion.

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

I think we’ve earlier told that for the rest of the year in proprietary product, because of the in-process R&D assets that we acquired, we will be spending in [indiscernible] roughly around $25 million. So we will be very much within that kind of a range. That will expand incremental R&D spend that we’re doing overall for the organization. Proprietary products, you had a detailed commentary from Anil in terms of the two products that we’ve launched in the market.

Great.

That’s how one is focusing in terms of generating more prescription. And we will have to now see the moment both in terms of our -- exists in organic R&D as well as in-process R&D. And depending on that the overall breakeven timeline could vary.

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

Saumen, I’ll take that.

Okay.

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

Okay. Thank you. Just one exclusive, any update -- see what is the kind of update that we received from U.S. FDA on the earlier communications that we have already provided to them? Any clarity that you have so far received sir?

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

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

Thank you. We’ll take the next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Thank you, and good evening everyone. Abhijit, if you can update us on the three key opportunities, one is Aloxi court case, second is Copaxone 20 mg, refiling and the third one is on Gleevec the side switch, and potential launch in the 4Q?

Aloxi hopefully we would see -- we’ll hear something in Q3, and I think there is enough predictions made by these people who are knowledgeable on the subject. So let's see how that works out and then that will be a very big event for us, but we’ll see how it stands out. The second is Gleevec we had mentioned that sometime in Q4 and the effect on [indiscernible] has been submitted in time and I think that shouldn’t come in the way of approval. Currently as you know two more has launched and I think also some of the public domain announcements from innovators. There could be one more at least coming in, and then let's see. So beyond that I -- you’re guess is as good as mine. The third question ...

Copaxone 20 mg.

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

Okay. This is very helpful. And, Abhijit, Aloxi, it would be a district court decision. Would you -- assuming if you get a favorable one, would you rather wait for appeal or would you be launching or would you be prepared to launch at risk?

Wouldn’t comment on that, Sameer. I mean this is, you’re asking this question, I mean -- let this be debated internally and we’ll see whatever happens, yes.

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

I understand where you’re coming from. But you see the -- you know, in North America generics, the order of that day is to always be prepared for some down size. Even you ask me that, do we have concrete sort of visibility on competition coming in; maybe not. But you always hear that someone is getting ready on this. We hear [indiscernible] several people so on, so forth. So I mean I wouldn’t be able to back it back with specifics. But I think in today's terms, I think market is getting crowded, it's consolidated in market shares, you defend you lose, you don’t defend you lose. So I mean always it's better to be prepared for the worst.

Okay, thank you. I’ve got few more, I’ll get back in the queue.

Thank you. We’ll take the next question from Shyam Srinivasan from Goldman Sachs. Please go ahead.

Hi. Thank you for taking my question. I think on the opening remarks you talked about the working capital days has actually stretched. Can you just tell us how much of that is because of the channel part and how much would be for the launches that you’re anticipating in the second half?

So mostly for the launch preparation, as well as no geographic expansions that we are doing. And there is some volatility which is there in our table. Last quarter it was an increased kind of table days, which has again run back to our normal range. So that has an impact in terms of the working capital.

So nothing from the consolidation of the channel you think, that has played out gradually. Is that ...

There is no exceptional kind of listings [ph].

Okay. On the second -- second question is on this NPPA provisions, I think 34 crores, is there more -- can you just update us on the several cases that are happening for not only you for the several other players. Just your thoughts on the whole thing?

The NPPA case is primarily what IPA has filed and that was initially rejected in the High Court. And then [indiscernible] when the attempt was made by last year to get it admitted in Supreme Court, that has all been defaced. So we have now approved that potential liability which is 34 crores on that, and definitely we’ll hop up the products we are already complying. And so remaining half immediately we’ll start complying from it.

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

It depends on some other cases which are going on in terms of the method of computation. So [indiscernible] we will wait and find out some of those cases. We have right now exclude the liability as what is very logical and right kind of provision.

Okay. Thank you. Thank you so much.

Thank you. You have the next as from the line of Nimish Mehta from Research Delta Advisors. Please go ahead.

Thanks for giving me the opportunity. A lot of them have already been answered. Just few product updates on Cubicin and Diprivan, Cubicin as Daptomycin and Diprivan, that will be helpful. When do you think we will be launching those products?

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

Deprivan, Propofol.

It’s the same thing. So which is the other one? Second one, Propofol?

You’re not very clear. Can you repeat?

We can’t hear you.

Yes, the first one is Cubicin, that is Daptomycin.

Yes.

The second one is Deprivan, which is Propofol.

Yes. I mean, I wouldn’t comment, they are in portfolio? Yes. But I wouldn’t comment [indiscernible].

Okay.

Not even a broad comments like that question indeed on next year, something like that?

No, [multiple speakers].

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

Okay. The other one, among the facilities which are actually under U.S. FDA [indiscernible]. Have we seen any regulatory update on some any other regulatory agency other than U.S.?

Yes, Health Canada audited our CTO facility, Chemical TakeOff facility which is [indiscernible] and they have indicated compliant status now.

Okay. So [indiscernible]?

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

Okay. Does that any in which was increase the chances of U.S. FDA, can you see it earlier or you spend too much for the region?

We don’t want to comment and speculate on U.S. FDA actions, and we would be eagerly waiting for any inspection that may happen.

Any regulatory agency or it is completely their prerogative, so it will be -- there is absolutely no connectivity with between the different regions, so [indiscernible] you asked, I will just gave you that data point.

Okay, no issues. Thank you very much.

Thank you. You have the next question from the line of Manoj Garg from Bank of America. Please go ahead.

Good evening and thanks for taking my question. So Abhijit, just since there’s a recent ruling where activists had joined the litigation for NuvaRing. So just would like to understand, do you think that probably you see higher visibility and possibility of you guys launching these products in the next fiscal year?

Not impossible, but it's in under litigation. So there is one data point as you know in the public domain which you can look up which is gone in favor or Generics. The file has clearly good position but it's in the Court of Law. But we, as I mentioned overall we feel good about the current decisions. Now things may change, but we think [technical difficulty]

Fair enough. And the second thing as a part of risk mitigations, since most of the key assets which were from the affected facilities, you have already done the site transfers. But are you also now looking to do the similar thing for even some of your key assets in FY ’18 as well?

We will have to continue. We have a program, we are closely overseen and I personally chaired those meetings. It's an important activity for this Company, and we are continuing to do those things. It is I think we wouldn’t like to take chances. But it takes time, even after they transfer, when you submit it goes through some timeframe which the agency may take for going through the data of stability and all that, but the activity continues completely in full swing.

Sure. And the last question from my side, if I can. Particularly like the Russian guy like BioKid [ph] has put an allegation on the [indiscernible] that there had been taking very high price cut for some of their biosimilar assets in this year in order to make sure that generic companies goes out of the business. With your backdrop and obviously you participating now in one of the parts with tender like, what’s your view on that and how do you see in terms of oil pricing environment for Rituximab in the Russian market?

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

Sure. So, I have more questions. I’m in the queue. Thank you.

Thank you. You have the next question from the line of Saion Mukherjee from Nomura. Please go ahead.

Hi, good evening and thanks for taking my question. Abhijit, on the U.S. site, the new launches are quite critical as you keep facing competition. So slightly from a longer term perspective maybe FY ’18 to ’19, can you just help us understand how should we think about, because last two years we haven’t seen any major launches from Dr. Reddy’s. And particularly on product specific [indiscernible] since you’re going to re-file it, how confident you feel about the approval given that there’s already one generic in the market. Do you have enough visibility now, some guidelines from FDA that makes you feel or now when you submit it will be in a stage where it can be approved quickly?

So let me give you the broad picture first. I think overall the filing, approval scenario is clearly moving in the right direction. There are always [indiscernible] as I mentioned. So without those disclaimers, I think we are feeling good about next year as well. So let's see how this stands out. I know it's a combination of our filings, it's the combination of some of the partnerships. These partnership activities started some time back gaining traction. Some of them are thoughtfully done and it should be an important part of the business as well. So all in all I think again we remain optimistic. Copaxone, I think as I said, validation is complete. From our angle I think we have done a fair bit of job, detailed. Lets submit and see. These are complex assets, just one approval and I think we have done, we took our time to sort of go through the response and let's see how that showcases.

And in terms of your patches [indiscernible] etcetera, when do you expect those launches?

You mean the other product in terms of [indiscernible] and other patches and all that. Is that your question?

Yes.

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

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

Progress is happening. I mean injectables pipeline overall is shaping up well. It's not just complex or they are carefully picked opportunities. If you do the portfolio of management as well the opportunities we take some [indiscernible] some of them are good. Yes, OctoPlus is a combination of semi-complex and complex. The complex story is yet to play out in full, but there are lots of assets which are value accretive still which are some of them filed, some of them filing.

Okay. That’s helpful. And just one last question on top products and biosimilars. You declared approval has not yet come through, and the reason for that and secondly if you can update on biosimilar program?

ZICLA's [ph] approval we’ll not comment on at the moment. Anil, you want to comment on ZICLA's [ph] specifically and I will take the biosimilar.

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

And on biosimilars, the story is progressing well on the emerging markets while as the regulatory markets is slightly long-term. And emerging markets I think as I mentioned I think probably next year you will see meaningful sort of launches coming up.

And just a clarification on ZICLA's [ph], you mean it's from [indiscernible] that's the reason you're not getting an approval?

Yes, that’s right.

That’s what I said, yes.

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

Yes, I mean, this one is an NDA, so we will have to sort of seek through. I’m not fully aware of the regulatory part of this currently. Anil, you can …

It is -- until we get clearance from the primary side, it will be difficult to do a site transfer at this time.

Okay. Okay. Thanks a lot.

Thank you. We have the next question from the line of Nitin Agarwal from IDFC Securities. Please go ahead.

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

Currently three. The earlier assets [indiscernible]. So these are the three give or take revenues [multiple speakers].

More than $40 million.

$50 million -- in the range of $50 million. But as I said, the bigger ones hopefully in near future Russia, Venezuela, maybe Algeria, maybe few other countries which we are very, very actively [indiscernible]. Currently we’re selling in several markets like Chile, Vietnam. Ukraine we just launched just about a quarter and half back, but doing very well. So that’s it.

And this $40 million or thereabouts is across including Indian sales also, the sales in India?

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

$50 million. That’s $50 million, yes.

Okay. And secondly on -- in terms of the pipeline, how does the biologics pipeline would look like for us?

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

Okay. Thank you.

Thank you. We will take the last question from the line of Abhishek Sharma from IIFL. Please go ahead.

Yes, thanks for taking my questions. Sir, I just wanted to ask you about the base business and its impact that it had on account of warning letter. Was there any loss of volume on any of the existing products that you would hope to make up once the warning letter is lifted?

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

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

We’ve been focusing on, we’ve a cost excellence program and operation excellence program to specifically to see that whether there is a possibility of improvement. So that’s why year-on-year this is you see that the increase is very nominal, which is actually mostly for the annual increment that we'd have given effective 1st of April. And going forward, this is one area we’re going to continue to drive and see that how we can get a better productivity, but a lot of productivity depends on actually the revenue line increasing. As we see, if the revenue goes up, we can expect a better EBITDA margin.

Sure, sir. Very helpful. Thanks.

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

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

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