Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q3F520 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. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchtone phone. 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.

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 quarter ended 31st December 2019. Earlier during the day we have released our results and the same are also posted on our website. This call is being recorded, and the playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS Consolidated Financial Statement. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy, comprising Mr. Erez Israeli, our CEO, Mr. Shaman Chakraborty, our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy 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 contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Swamin Chakraborty. Over to you, sir.

Thank you, Amit. Greetings to everyone. The current quarter's financial performance has been quite good with the highest ever quarterly sales without any one-off fighting. An improvement in both the growth margin and EBITDA margin and healthy cash generation. However, the profit is impacted by significant amount of impairments taken due to specific triggers occurred during the quarter. Let me take you through these and other major items in some more detail. Herein all the amounts are translated into US dollars at a convenient translation rate of Rs. 71.36, which is the rate as of 31 December 2019. Consolidated revenues for the quarter are at Rs. 4,384 crores, which is The growth has been supported by a good performance across all our businesses. On a sequential quarter basis, our reported revenue declined by 9%. In Q2 FY20, we had an amount of Rs. 723 crores recognized as revenue towards the sale of two neurology brands of our proprietary product business. And adjusted for this, the sequential quarter growth would have been 7%. Consolidated gross profit margin for this quarter is 54.1%. with an improvement of 20 BPS on a year-on-year basis. On a quarter-on-quarter basis, while there is a decline of 340 BPS in the reported gross margin, however, after adjusting for the one-off in Q2 FY20, the normalized gross profit margin has improved by about 260 basis points. Gross margin for the Global Genetics business is 58.2%. with a quarter-on-quarter improvement of 270 basis points. Growth margin for the PSAI business is 30% with a quarter-on-quarter improvement of 540 basis points.

The SGN spent for the quarter is Rs.

1,267 crore, that is $178 million, which is 28.9% of sales. with the leverage benefit being visible on improvement itself. In this quarter, we have taken an impairment charge of Rs. 1,320 crore led by specific triggers. In December 2019, there has been a generic launch and an authorized generic launch for the product Movering which has led to a considerable erosion in the valuation of this product for us And accordingly, we have taken an impairment charge of Rs. 1114 crore, equivalent to $156.5 million. The balance carrying value of the asset after impairment is Rs. 308 crore, equivalent to $43.2 million. In addition to these, considering the current market reality, we have taken an impairment charge of Rs. 206 crore on other intangible assets. Currently spent for this quarter is Rs. 395 crore, that is $55 million, and is at 9% of the sales for the quarter. The R&D spend has increased by 8% both on year-on-year and sequential quarter basis. The EBITDA for the quarter is Rs. 1074 crores. That is $150 million, which is around 24.5% of revenue. The net tax for this quarter is Rs. 42 crores. EPS for the quarter is negative. Rs. 34.37. Operating working capital increased by around Rs. 428 crore, which is $60 million. This increase is attributable to an increase in receivables and inventory, partially offset by an increase in payable. The net working capital has increased by 3 days against the last quarter. We invested Rs. 121 crores, which is $17 million, towards capital investment in this quarter. The free cash flow generated during the quarter was Rs. 582 crores, which is $82 million. Consequently, we now have an extra plus cash of Rs. 414 crores as on 31st December 2019. Foreign currency cash flow hedges for the next nine months in the form of derivatives per US dollar are approximately $210 million, largely hedged around the range of Rs. 70.43 to Rs. 74.34 to the dollar. In addition, We have capsulated of Rs. 900 million at the rate of Rs. 1.0789 to the ruble, maturing over the next three months. With this, I now request the A.H. to take to the key business highlights.

Thank you, Sherman. Greetings to all. I am very pleased with our continuing improvement in all of our business spaces and our ability to improve our performance and health metrics this quarter. We have seen strong growth in revenues across our key businesses, coupled with improvement in gross margins, operating expense leverage, and achievement of healthy EBITDA margins. During the quarter, we also turned to net cash surplus and further improved the health of our balance sheet as an outcome of sustained and focused efforts around our businesses. We are progressing well in implementing our strategy Across the market under the guiding principles of creating more opportunity with less risk. Now let me take you through the key business highlights. Please note that all references to the numbers in this section are in respective local currencies. Our North America generics recorded sales of $225 million for the quarter with a growth of 8% year-on-year and 11% on a sequential quarter basis. We launched five new products in this quarter. On a year-to-date basis, we launched 22 products, including four relaunched of the earlier discontinued products. We expect the new launches momentum to continue to deliver with about 30 product launches during this year. We are gradually improving our market share in G-Suboxone subliminal film products and several other recent launches like Carboprost Injectable and OTC running with Finestin Pseudoproducts. During the quarter, the market for the genome variant was formed, leading to potential reduction in the size of the opportunity for us. Based on this changing market dynamics, we have taken an impairment chart in the intangible carrying value depending upon the various scenarios expected to form our market entries. We continue to work on responding to the CRL which is expected to go out in the next few months. Our Europe business recorded sales of 39 million euros with a year-on-year growth of 59% and sequential growth of 11%. This strong performance was driven by new product launches and improvement in base business performance owing to stabilization in supplies. The growth was further aided by the increase in contributions from the three newer markets which included France, Italy, and Spain. During the quarter, we launched two products in Germany, three products each in UK and Italy, and one product in Spain. We expect this steady growth momentum to continue as we are building ourselves in these phases. Our emerging markets business recorded sales of 924 rupees, with an year-on-year growth of 90% and sequential growth of 11%. Within the EM segment, the Russia business grew at 70% in constant currency, both year-on-year and sequentially, on the back of sustained base business performance partially supported with the Reddy Talks standard supplies. The overall growth in the rest of the emerging market was led by higher volume and new product launches which was impacted partially due to price erosion in fuel markets. During the quarter, we launched 17 products across these markets. Our India business recorded sales of 764 crores rupees with a strong year-on-year growth of 13% and sequential growth of 2%. During the quarter, we launched eight new brands, including the launch of our first brand, Celle Vida, in the growing pharmaceutical space. As per the secondary sales reported by IQVIA, we registered healthy growth of 10.6% ahead of total market growth of 9.6% for the quarter ended December 2019. India is a priority market for us, and we continue to focus and strengthen Our PCI business recorded sales of $97 million with a year-on-year growth of 17% and a slight sequential decline of 3%. While there has been good growth in the API product sales, we witnessed a bit of softness in the services components of the business, which is expected to improve upon the future. During this quarter, We filed 20 formulation products across global markets including three ANDAs in the US market. As of 31st December 2019, we have 101 cumulative filing pending for approval with the US FDA including 99 ANDAs and two 505 G2 NDAs. We also filed 20 card master files globally including three filings made in the US. We continue to strengthen our pipelines of products across the markets. On the quality and compliance front, let me provide you a quick update on some of the key manufacturing sites. Last week, the USFDA has initiated the inspection of our API Centapulum plant, referred as ETO6, which has been under warning letter since 2015. Since the audit is still ongoing as we speak, We will not be able to offer any comments on the status until the conclusions of the Orbit. On the other side, pending compliance closure, post the recent Orbit in the last few months for FTO7 and CQSZ, we have submitted our response to the USFDA and await to hear back from the Agency. On proprietary products business, We have received the goal date of May 2020 for ending the filing related to DF-215, which is Oral Seleucoxib. The progress on the ongoing R&D program is on track, and we continue to pursue our licensing opportunities to unlock the value of our product portfolio. Overall, we continue to make steady progress on our transformation journey as we continue to reduce our dependency on pure products or markets of work. We have created multiple growth drivers by extending and leveraging our pipelines and assets to market across the global markets with limited incremental investments which provide us a good visibility for a long-term sustainable growth for the company. In the meanwhile, we continue to focus on productivity, problematical organization, and committed to make it a way of life. Our healthy balance sheet and sustainable cash flow generation will help us to grow faster to efficient practical deployment for both organic strategic initiatives and for inorganic opportunities. And with this, I would like to open the floor for questions and answers.

Sure, thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask questions may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star and 1. The first question is from the line of Aditya Kemkar from DSP Mutual Fund. Please go ahead.

Yeah, hi. Thanks for the opportunity. So it is firstly on the cost management. So for the past four or five years now, we have been seeing low single-digit growth in most of our cost components, which includes R&D expense and SGN expenses. And I understand this has come from a lot of efficiency and hard work from your end, from DRL's end. Could you sort of give us some flavor on, you know, if there was, let's say, 100 is the scale of which cost optimization could have been done when you joined Dr. Reddy's, where are you in that journey to 100? Are you at 50? Are you at 80? Are you at 99? How close are we to sort of achieving the optimal cost structure that you would have desired?

I cannot say a quantified number, but there is still a lot of room to be better. The goal is to be the most efficient company on earth in our space and we are very far from there. So we will continue to see this effort also going forward.

Okay. And just in terms of your commentary and some of your calls, you said that the ideal metrics that you want to target is a 25% EBITDA with a 25% ROCE. Do you think that's something that is achievable over the next two, three years? Or would you target that for the next year itself? How would you think about that goal?

We achieved already for this quarter 24.5% EBITDA overall, so we are very close. And also on the ROC, we are not that far. So I believe that it's achievable. And I believe that it's achievable basically not just as an overall, but it's relevant actually for every activity that we want to do. which means that the average can be even higher in the future. I don't have time frame or guidance of that because we don't give guidance, but this is the indication.

Fair enough. On the revenue side, if you could just guide us on what the domestic business, we have seen a decent turnaround in terms of the growth that we have been doing now. What has changed in the domestic business? What has changed to achieve this superior growth versus the broader market? And how do you see that effort sustaining in the future?

We decided that we want to win in this market. I think this is the main change. And we substantiate it by putting relevant R&D for those products, by opening UPAs, by changing the team leadership, by putting commercial excellence. So it's multiple efforts and multiple activities. But I attribute the main We are always looking for opportunities. and we are very active on this front. The priorities are emerging markets, in India in particular, because this is where the area of focus. Having said that, we said it in the past and I want to use the particular shape now. We see it as a complementary move and we don't want to merge both financial risk and business risk. It means that we will not Thank you and all the best. Thank you. The next question is from the line of Vishal Ghada from Aviva Insurance.

Please go ahead.

Sir, could you guide us how has the China business performed in the third quarter?

China did well and it is growing and on top of it we discussed that we won, I think, the first winner, at least outside of China, in the product of philanthropy. We are not given a specific number for the market. But overall I'm very pleased with the performance. China Group this quarter as well.

Could you help us with the kind of launches that you're planning for Europe and EM in the coming few quarters?

What we do in Europe is primarily taking leverage in the US portfolio in Europe. So most of the launches in Europe in the future will be primarily injectables. And in the case of Germany, it will be also a solid dose. So the overall expectation and our strategy in Europe is to build a healthy organization with better critical mass based on debt leverage. And give or take, whatever we are launching or launch in the U.S., we want also at least a portion of it to submit and launch in Europe.

And the last question is, could you help us to understand what help in containing the FG&A costs?

It's primarily the commercial excellence. We are selling more, but we were able to do it with the same or even less resources in certain of the places. Just pure management of a much more stringent focus on KPIs. Nothing special. Nothing will be special, just more discipline.

I'll come back in the queue for more questions.

Thank you.

Next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Thanks for the opportunity. Good evening to the team. Just one question on the 11 billion write-off that we have taken for the Nuvaring product and we kept 3 billion pending. So I just wanted to understand has the value with one or two players come off that significantly or we are going ultra conservative? Some thoughts please.

These are all the trigger-based impairment testing that we do. And given the dimensions or the nature of this thing, we even take an independent evaluator beyond what in-management we consider and our statutory auditor. So, of course, there will be various scenarios Video is possible eventualities so with probabilities attached one takes a decision in terms of the impairment outcome. So pure accounting treatment we have taken this.

Okay and what is our current understanding of the product in terms of you know we got a CRL in the past so when do we plan to get this resolved and get an approval?

We are planning to submit it in the next few months.

Okay, and any color on the expectation on approval, sir?

Then it will go through the review. It's six months before, without inspection, and ten months out. So, there's no additional queries. So, from that submission, we need to count that time. But, of course, it can go through another cycle. We already have two cycles in this one.

Fair enough. and secondly on the cost I think a couple of guys already asked but just one thought here that you know since we are focusing more on the emerging market which is India, you know Russia, CIS where you know the cost is a push model where you need to use your MRs and we have been rightly growing you know with teams now so I just wanted to understand I mean Going forward, high single-digit or early teens should be the right matrix in terms of cost, or we can still maintain our low single-digit kind of cost escalations? What are the thoughts?

Firstly, in the emerging markets, part of our model is B2C, which is injection, part of it is B2B. and overall going forward B2B means selling directly to account management hospitals around the world will grow. So part of it is a mix of business model that we have to take into account as well. Overall there is room to grow efficiency also in what we have now so we did not finish the efficiency activities and in general the way you should look at it is that Bottom line will always grow faster than the top line.

Bottom line would be always faster than the top line.

Will grow faster than the top line.

That is great. Okay, thanks. And secondly, just two more updates. If you could help us with the COPEXON expectation now as well as rev limit. Thank you.

We will submit also next few months the CRF.

For COPEXON?

Thank you.

Thank you.

The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.

Yeah, good evening. My question is on the Russian market. It was quite a strong quarter in this geography despite a mild winter. And in your release you mentioned about the volumes and realization both were better in this quarter. So some more explanation will help just in a quarter what led to such a strong result.

This also will help by the tender of returns

So it's a combination of both. We do better on the retail and we run the tender together. And I attribute it primarily to the commercial excellence program that we put in place and we are achieving better results with less people.

So you comment that the volumes and realization were better. Largely that was for Red Tech's visit.

It's a combination of both retail and the Rituximab that we won in Russia.

So just to help us guys so that we have a better idea, so retail performance was that out of line with what we've been doing for the last 2-3 quarters or was it much stronger this quarter?

I believe that we just, the team performed better. We did not do anything special. and there was no single act or single activity that led to death because it was a cost of both. The only one that was a signal out was Rituximab which we mentioned already. Okay.

Second question was on the PSA business. Our top line was largely similar sequentially, September to December quarter, but margins were significantly better. Some color will be helpful. Was it like more API, more custom product, or within API, significantly better mix? What was the reason for that?

The main reason for that is a combination of product mix, so the mix of the product was more profitable. And second, I think we're doing better on cost also.

Sorry, what was the second reason?

We are doing better on cost. More and more post-conscious and from quarter to quarter we see the benefit of it. Manufacturing over ADP is implied.

Okay. And just one clarity on the earlier question on the newaring when you responded, that you made several cases and took probability adjusted. So when you do this kind of accounting, do you typically do all probability adjusted scenarios or is it just you tend to be more conservative and select the most conservative one?

The accounting standard doesn't allow you to be extra conservative and it doesn't allow you to be aggressive. So you have to have a very nice balance and that's why, you know, when it is very significant, you actually go out and get a third party also to do the same thing. Okay, sir. Thank you. Validate. Directionals.

Thank you. The next question is from the line of Neha Manpurya from J.B. Morgan. Please go ahead.

Thank you for taking my question. On the U.S. business, if I remember correctly, there was, other than Ranitudin, there was some logistical issues which impacted our revenue, which should have been resolved in this quarter. Given we've had 20-plus launches in the last nine months, are there Revenue does not seem to be reflecting both resolution of logistical issue or the launches. Am I missing something in the U.S. performance for the quarter?

As long as you are missing, you normally don't miss. I'll do my best to explain. First, logistic issues are behind us. Ranitidine event was only last quarter. This quarter we did not sell Ranitidine. We are still out of the market. and then it's a combination of new products and price erosion. So it's just a mix between the two of them.

Is it fair to assume that we're still seeing probably high single-digit price erosion in our portfolio despite our concentration being much lower? Because with the works on market share increase and launches, should there not have been an improvement in the U.S. business versus, let's say, the first quarter in FY20?

Our portfolio is indeed in price erosion. If you do year-over-year, it's still nice price erosion. It's absolutely inevitable. What I do agree with you also is that the product mix is much more healthy than it used to be. Naturally, when you launch a new product, those products that we launched in the earlier part of the year is also... Sushrut Kulkarni, Kallam Satish

What is the MR that we have on ground and are we seeing an improvement in productivity? Because as per the last reported number of March 19, there has been a reduction in the number of MRs that we had in India. So have we added, directed how the productivity has improved? Just trying to understand the profitability of the India business.

Primarily the sales force productivity has improved considerably. And what do you see, what do you report is the top line growth? Our profitability in India has grown much better than the top line.

And do you see more scope for improvement, sir?

Yes. Yes, there is scope for more improvement even in the future. We just started to have an engine.

Okay, understood. Thank you so much.

Thank you. The next question is from the line of Kunal Mehta from Valen Capital. Please go ahead.

Sir, thank you for the opportunity. Sir, when you look at your present manufacturing infrastructure, are there any sites where the utilization is below what we would like to have, I mean below 50% or so?

Yeah, there are sites where utilization is still low. Multiple regions?

Again, it's called to improve our head capital turnover. Sure. And just a second question. The set of actions which you have taken to improve the business has been very commendable. But I just wanted to understand your view on what sort of precautions are we taking to make sure that the inspections we go through in the future would give us satisfactory outcomes because any company we see is just probably one bad inspection away from affecting their product mix and their growth trajectory. So how would we be dealing with that?

It seems that 2015 until today and increasing every year we took measurements to be compliant not just with the United States, all over the world. and it's in the forms of a very, very different quality organization than we used to have a few years ago. A very different digital level. Most activities are digitized. All the activities that are related to Part 11 are in very, very different level. and so is the resources and the awareness of compliance. I personally believe and so far the track record for the last few shows that it is working. One should never be too sure of himself and it's something that we always need to insist on and we are planning to do so. Thank you very much for the answer. Thank you, sir. Thank you. The next question is from the line of Sameer Baisawala from Morgan Stanley. Please go ahead.

Hi, thanks. Good evening, everyone, and congrats on a very good set of numbers. Sir, just on the U.S. market, you were mentioning in your commentary that you saw price erosion in some of your key molecules. Can you just let us know what is driving this price erosion? I mean, was it a new entrance, or was there some other reason?

It's primarily a new entrance, and it's and some of you know well this market so when there is a new entered car especially to one of the key customers then you either defend your share or lose your share and that's the mechanism and that's what happened to us.

Okay and I'm sure what you're saying is these are mostly new products they were not the mature products.

Also mature products but let's say the As we started to launch new products after the drought that we had since October last year, those products that we launched in the last year and the beginning of this year naturally got higher erosion percentage than the natural products.

Okay, got it. So just belaboring a bit more on this point. Going forward, our understanding is that The North American market pricing environment has got a lot better. From mid-teens to high-teens, it's gotten down to single-digit price erosion. Is this something that you would also confirm? And how do you see as you roll forward to fiscal 21 on price erosion?

So we're not giving specific numbers. For us, there is no overall trend. It's more of what portion of our portfolio is in this competition because per product, per customer, it's always double-digit. So it now depends on how many of your products are under that kind of regime. In our case, we do see a price erosion also this year, but we are not giving specific numbers.

Okay, great. Thank you. And just one more from my side. and most companies in Indian generic space have margins mid-20s and that's sort of topping it out at EBITDA level. You're already there and your comment suggests that you've just started, you know, you've got a long way to go. So, quite naturally, you expect this EBITDA margin to expand substantially over the next two year period?

I believe that we can do much better on the EBITDA, yes, absolutely.

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

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

Hi, thanks for taking my question. So on this, you know, Reduximab launch in Russia, is it, I mean, this is a one-quarter number or it's going to be sporadic or this is something that's going to continue through the quarters?

You know, Reduximab, we have launched long back in Russia. The way it gets sold is through tendering and the tender happens in a particular frequency. So this quarter there was, you know, tender awardees consequently sales on the detox is higher. But it is not a new one, but it doesn't happen consistently every quarter.

Okay, there's going to be an element of lumpiness to these earnings, depending upon the tenders then?

The lumpiness is already there on account of this particular molecule.

Okay, thanks. And on ReddyTax per se, how are we, this world buys similar in emerging markets. Beyond Russia, how should we look at this portfolio now?

We have Rituximab in many markets. I don't recall exactly how many. We are now in the middle of a trial for the U.S. markets. And the way we look at it, those markets that would like to get the data of the USFB approval, once approved, will open a new opportunity for us. In a place that will have a good go-to market, we will do it ourselves. And in a place that we don't, we will license it to others.

Thanks. And are there any other products in the Bias Miller pipeline beyond Reduximap?

We have 11 more in the pipeline.

Okay, thank you.

Thank you. The next question is from the line of Surya Patra from Phillip Capital. Please go ahead.

Congratulations for the great set of numbers. So just a simple clarification on the gross margin front. Is it fair to believe that there was an element of currency that also played meaningfully for the expansion of the gross margin sequentially this quarter?

Constant currency, there has been no impact either on sales or profit year-on-year basis. Specific currency could have happened, but it has misaligned. Overall, for the company, on a constant currency, it would have been very, very similar to what is reported

And on the kind of capex trend and the R&D expenses trend, along with the kind of a cost containment pages that we are seeing a kind of a flat is R&D spend and alongside the capex also meaningfully has corrected from the last couple of years. So any thought process on the kind of money free cash flow that we are generating

We have spent considerable amount of capex over 13, 14, 15, 16, all these years we have spent considerable amount. Today, as we told that there are some assets in our network which is And also for biologics, you know If we sell more in different markets, we need to increase the capacity. But the level of capacity that we need to do, we actually alluded right at the beginning of the year, that we will not be spending as much as we would have been spending in the past. R&D on an absolute amount, again, you know, Something which will be slightly less than what we have spent last year. But of course, when the percentage of sales goes up, then R&D as a percentage of sales has come down to single digits. Right now it is around 9%. And if we can contain on an absolute level, then improve the R&D productivity. Because I always want to emphasize that our focus on R&D is always very high. We have been focusing on developing our pipeline, expanding our pipeline, and we want to continue to focus on that, but just want to improve the productivity so that we can deliver more. In terms of the cash flow, obviously our margin is better, and if we can improve on a weekly level, then consequently You know, the generation, as generation can improve. All said and done, working capital, even in this quota, we say that our working capital has increased by three days. Suppose instead of increasing by three days, we would have improved by three days, reduced, then we would have generated more taxes. So, there are always opportunities to what extent we do based on, you know, how do we, you know, execute on multiple fronts. The good thing I find with this quarter, in all the businesses we have grown, sometimes we have different, you know, we haven't put all X in one basket, there are multiple baskets. In this quarter, all businesses have grown. So, that way it is good, but I mean, working capital from this quarter was not that great.

Okay. Just on the U.S. business front, in the opening remark, you have mentioned that you have relaunched a couple of the discontinued, or few discontinued products, and also the kind of a The focus on the anchor product for the dependency, that is also to some extent is going away. So that way, what would be the ultimate strategy that you are thinking about? Are you thinking that okay, whether it is the anchor product or it is a common product, Everything that you should be launching and hence the quality of earnings in U.S. that is going to deteriorate. You are trying to change growth at the cost of quality. Is that the meaning that you are trying to convey?

First of all, to the last comment, absolutely we will not grow cost on the expense of quality. Quality is not in the equation of we will meet the quality standards for sure for the U.S. market. and absolutely we are not comprised of qualities. This is unrelated to qualities. This is a license to be in the business of quality. In the case of the products, we will not be dependent on any single product to grow, including United States. The notion of the past that the company focuses on relatively small numbers of assets either company generics or biologics or proprietary products for the growth of the company. This is a strategy that was indeed in the company until two years ago. Since then, we announced a new strategy in which we have multiple spaces that have synergy among them, much more opportunity, less risk. So we moved from high risk, high reward to a low risk, very high reward. That's what we moved. And we are not dependent not on Uber Ring, and not on Paxron, and not on any other big names to grow. In the United States we will grow because we want to have 350 products. Now we have commercially 120. And this is including the product that we have in the pipeline, plus the products that are in the pipeline of the R&D, plus additional efforts that we have to do. A number of products. What we want is to give the customer in the United States the products that they need, not necessarily focus on a specific asset. Naturally, when you have a broad portfolio, some of your products will give you upside. What is important to us is that the products will have a low cost in order to allow the right EBITDA and the right housing.

But is it fair to, or any timeline that you are targeting to achieve double digit kind of a growth again in EOS?

I'm not targeting a double digit growth, I'm targeting it is done and I will see.

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

Thank you.

Thank you. The next question is from the line of Nikhil Matul from Ambit Capital. Please go ahead.

Hi, good evening everyone. My first question is on SG&A expense. So in fourth quarter FY19 and first quarter FY20, the proprietary products were outlicensed. So my understanding is that there would have been some cost savings in SG&A from that outlicensing. So has it materialized in third quarter or for that matter even in second quarter as well?

Participants, please stay connected while we reconnect the management. Participants, please stay connected. We seem to have lost the line for the management. Please stay connected while we reconnect them. Thank you. Music Ladies and gentlemen, thank you for patiently holding. We have a line for the management reconnected. Over to you.

Should I repeat my question? Nikhil here from Ambit. Yes, please repeat. Okay. So, in fourth quarter and first quarter, you would have outlicensed your proprietary products. Now, my understanding is that there would have been some cost savings arising from that outlicensing. So, has those costs come off in third quarter this year? Or for that matter, in second quarter as well?

There will be, suppose you direct a commercial deal, there are also costs associated in terms of You know, separating people. So that takes, you know, some time to really get the complete benefit out of that. So maybe, you know, next financial year onwards, we can see a full benefit of that kind of a cost selling. But yes, it has contributed to the overall cost selling to some extent that I can clarify.

Okay, so in SI21, even if a bit of expense increases because of growth in India and Russian markets, You still do have a lever of this proprietary product cost that can kind of benefit you?

On proprietary products, we are going to use to have the commercial cost. That is going to be beneficial.

Okay.

Because we are going to continue to focus on the proprietary products R&D.

Okay. And second question is on your product launches in FY21s. Can you give some kind of an indication as to what kind of proportion would those be injectables or some kind of complex launches in FY21? And a question associated with that would be, I believe that there would be a fair share of launches from your partner sites. So are most of your partner sites compliant with USFTA currently?

I don't have the information about the So the documentation of the product launches, so sorry about that, I don't know. In general, we are not dependent on a specific supplier or a specific vendor or third party to launch a product. Most of the products will be launched out of the Reddy facility.

Okay, thanks a lot.

Thank you. The next question is from the line of Surjit Pal from Prabhudas Leeladhar. Please go ahead.

Hi, just two to three questions. One thing is that, you know, is there any update on Suboxone loss of cells which you were supposed to receive it from the originator for blocking your launch? That is one. Second thing is that, is there any literary update on the WADA observations Had it crossed 90 days and what is the status of the plant currently? And third is that the 30 products which you have guided out of which 22 already you have lodged. Any key products can we expect?

So on the first question Suboxone and the bonds which we have, we are still in the legal process. and it will be resolved when the legal process will take place. So far we won all the relevant related litigations that were on that. So it's still a work in progress in that respect. I do not expect that the legal process will end in the next few months. It will probably take more than that. But I don't have exactly the indication of how long it will take. As for Duvaga, it was a PAI inspection that was in August. We did not receive yet the EIR, and we are waiting for the EIR. We don't have any additional information on that. We're just awaiting the EIR. And as for specific big products in the rest of the year, again, I'm repeating, None of the products per se will be that important. Some of them can bring nice money, some of them not. But there is nothing special that we can share.

Thank you and all the best.

Thank you. We'll be able to take one last question. The last question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Thank you for taking my question and good evening. Just the first one on China and the second GPO for 32 drugs. I know we didn't win anything here, but just wanted to understand, you know, any of the learnings that you got from Olanzapine in the round one. How did they play out this time? You know, we see the price cuts are very high, 60-70% again in GPO2. So how does this kind of shape your China strategy? So that's my first question.

It's part of the strategy, just to remind us all, we have four different spaces in China. One is branded generic. One is selling generic directly to the hospital. One is this tender, if you wish, and one that we are selling services like API and other activities to Chinese players. On this front of this GOP model, It's still a working process also for the Chinese authorities. So the next tenders have already different rules. For example, there will be N-1 winners for the next tenders. So there is a high likelihood or higher likelihood to be a player in that. But of course, there will be also more winners. And this is the main learning that I can share. What we will do in China... It's a clear leverage strategy. We are taking U.S. products or products that we submitted for the U.S. that can meet the Chinese criteria. We are submitting them. We are obtaining approval and then participating and do our best to win as much as we can. Even in the case that we do not win, it's a leverage product, so it's not a risky move in our case. That's how we plan to do it, but it's very hard to tell which product will win and which product will not and what will be the price. Naturally, on this product, on one hand, there is a relatively high price reduction, but on the other hand, you don't need to pay SG&A because you're not promoting those products. It goes to the standard.

Just following up on this, are you saying, even after these price cuts, Thank you very much. Thank you. Chinese operations or on the contrary, does it also benefit us in some form of way? Is there any impact of the virus?

Naturally, it did not impact the quarter because it's Asian. No, I don't have anything that happens to us in the last few days as of the corona issue. And I hope and wish for everybody that nothing will happen.

Got it. Thank you. And my last question is on Revlimid. I know you said it's a great product. We get that. But the point is on trial dates. Our understanding was that the trial has been pushed to second half of calendar year 2020. Could you confirm or just give us details on when are the upcoming dates so that we can look out for this product?

I'm not aware of a specific date that was scheduled. That's what I know. But for my point of view, versus what we want, the product and the legal process is continuing in accordance to our plans.

It still is not a near-term opportunity. We still think it's probably some time out.

Yeah, I don't think it's in the next few months. It's probably going to be after this.

Thank you and all the best.

On behalf of Dr. Reddy's Laboratories Ltd, that concludes this conference. Thank you for joining us, ladies and gentlemen, given our disconnector lines.