Dr. Reddy's Laboratories Ltd

Good day and welcome to Q2 fiscal year 2020. I'm Aishwarya Sitaram and I'm part of the Dr. Eddy's Investor Relations team. I'd like to indicate that all participants will be in the listen-only mode during the opening remarks and there will be an opportunity for you to ask questions thereafter. Should you need any technical assistance during the call, please use the chat function in your Zoom application. Please note that the chat will not be monitored for any questions to the management. I now hand over the conference to Richa Parimal.

Thank you. Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebration with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team, Mr. Ivez Israeli, CEO, Mr. Mvn, our CFO, and the investor relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with Mvn providing an overview of our financial performance for the quarter. Following that, Erase will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded and both the audio and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during this call. With that, let me now hand it over to M.V.N. to present the financial highlights for the quarter. Over to you, M.V.N.

Thank you, Avicai and Aishwarya. Good evening and a warm welcome to all. Thank you for joining us on our Q2 FI26 earnings call. I am delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower linoleumite sales. The acquired consumer healthcare business supported the top-line momentum. EBITDA margins stood at 26.7% of the quarter. All financial figures in this section are translated into U.S. dollars. using a convenience translation rate of Rs. 88.75, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at Rs. 8,805 crores, which is US$ 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While US generics faced From product specific price erosion and lower limited sales overall growth was supported by the integration of consumer healthcare business and double digit growth delivery across other markets aided by favorable forex. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points euro a year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower limit sales and product specific price erosion in the U.S. generics. One-time inventory provisions from the discontinuation of the certain pipeline products due to technical challenges and lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The S&A spend for the quarter was 1%. Rs. 2006, 44 crores, which is US dollars 298 million, an increase of 15% on year-over-year and 3% on sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. Agenia for the quarter includes a one-time promotion of Rs. 70 crores, for a VAT liability in one of our subsidies and charges related to a discontinued pipeline product. S&A spent accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT production, S&A spends as a percentage of revenues was at 29.2% in Q2 FY26. The R&D spend for the quarter was 620 crores, which is US dollar 70 million, a decline of 15% year over year, and broadly flat sequentially. The decrease was due to reduced development spends on biosimilars during the quarter, as major investments for Abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategy collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points euro a year and 26 basis points on sequential basis. Other operating income for the quarter was Rs. 267 crores higher than Rs. 98 crores in the corresponding quarter last year. This was mainly an account of product related IP settlement income in the United States and one time reversal of 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter inclusive of other income stood at Rs. 2351 crores which is 265 million US dollars. an increase of 3% on Euro rear and the sequential basis. The EBITDA margin stood at 26.7%, lower by 174 basis points on Euro rear and flat sequentially. Adjusting for the one-time VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Employment charge was 66 crores, including 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to a product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at 77 crores as compared to 156 crores for the same quarter last year. The decline in net finance income reflects lower returns From financial investment following a deployment of cash reserves towards acquisition of consumer healthcare business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at Rs. 1835 crores, that is, USD 207 million. PBT as a percentage revenues was at 20.8%. On an adjusted basis, excluding the one-time VAT provision, the PBT margin was at 21.6%. Effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2-FI26 was lower primarily due to favourable The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax asset related to land indexation following amendments introduced through the Finance Act 2024 to Income Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at Rs. 1437 crores, which is 162 million US dollars, a growth of 14% on year-over-year, flat on QAQ basis. This is the 16.3% of revenues. Diluted EPS for the quarter is Rs. 17.25%. Operating working capital as of 30th September 2025 was Rs. 13,331 crores, which is in US dollars 1.5 billion. An increase of 3 crores, which is like a US dollar 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at Rs. 511 crores, which is 58 million. Free cash flows generated during the quarter was Rs. 1046 crores, which is 118 million U.S. dollars. As of September 30th, we have a net cash surplus of Rs. 2751 crores, which is like a 310 million U.S. dollars. Foreign currency cash flow hedges executed through derivative instruments during that period are as follows. U.S. dollar... 502 million hedge using combination of forward structured derivative contract scheduled to mature through December 2026. These contracts are hedged at the rate of 86.9 per US dollar. Ruble 4.28 billion hedged at fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months. With this, I request Eris to take us through the

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY26, marked by a double-digit growth and steady profitability. This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities, namely growing the base, scaling our presence in consumer healthcare, innovative therapies, and biosimilars. We advanced our key pipeline programs, including Simaglutide and Abatacept. In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year, driven by broad-based growth across businesses, benefiting from acquired consumer healthcare, and supported by a favorable forex. Growth was partially offset by low contributions from Lina Dulemite and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROC for the quarter was around 22%. The cash flow from operation was utilized toward plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with net cash surplus of $310 million, reinforcing the strength of our balance sheet. We stranded our innovation-led portfolio to strategic collaboration and launches, We entered the anti-vertical segment with the acquisition of Stuggeron and related brands across 18 markets in APAC and EMEA from Johnson Pharmaceuticals. In India, we started our gastrointestinal portfolio with the launch of two novel day drugs, Tegoprazan under the brand name of P-Cab and Lina Clotide under the brand name of Coloso. In partnership with UNITAID, Clinton Health Access Initiative, and WHICH RHI, we are working to make Lenacavir, a long-acting HIV prevention tool, accessible and affordable in low- and middle-income countries. We continue to make progress on our key pipeline product, The Subject Expert Committee, the SEC, under Central Drug Standard Control Organization, has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicine Agency Committee for medicinal products for human use for adenosumab by a similar candidate. The U.S. FDA accepted our investigational new drugs IND application for COYA-302, a partner novel drug for the treatment patient with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated two-thirds of the business by value, including Canada, Australia, and selected key Western European markets. The next phase will include Southern Europe, Israel, and Taiwan. On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our batch pooling biologics facility and issued a Form 43 with five observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA, of our erituximab biosimilar candidate. We are acting, working to address these observations. The USFDA conclude a GMB inspection at our Mirfield API facility in the UK, resulting in issuing a Form A3 containing seven observations. Additionally, our API site, CTO5, in , as well as our Middleburg facility in New York were classified as VAI following successful GMP inspection by the USFDA. The GMP and pre-approval inspection PI conducted by the USFDA in July 2025 at our formulation manufacturing facility, FTO 11, has been formally closed. We have received the EIR, Establishment Inspection Report, with the inspection outcome categorized as VAI. We continue to be recognized for industry-leading performance in sustainability. We retained our MSCI ESG rating for A for the second consecutive year. Our ESG risk rating from Morning Star Sustainalytics improved from 23.6 to 18.4, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further, our formulation facilities at Shrikha Kulamb, FTO 11 became India's first pharmaceutical facility, to receive a Leadership in Energy Environmental Design Platinum certification for existing buildings from U.S. Green Building Council. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in the respective local currencies. Our North America generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion and selected key products, primarily linadulemite. During the quarter, we launched seven new products and expect launch momentum to continue in the second half of the fiscal year. Our European business reported revenue of 135 million euros for the quarter, growth of 150% on a year-to-year basis, and 3% on quarter-to-quarter. The year-on-year performance was primarily driven by contributions from the acquired nicotine replacement therapy portfolio and new product launches, which offset the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched eight new generic products across European markets, further strengthening our portfolio. Our emerging market business delivered revenue of 1,655 crores rupees in Q2, reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable forex. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms, despite prevailing macroeconomic challenges. Our India business reported revenues of 1,578 crores rupee in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing, and higher volumes. According to IQVIA, we have moved up one place to the ninth position in the pharmaceutical market for the month of September and continue to outpace market growth, with moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stuggeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 drug master files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty, limited market opportunity, or increasing competitive intensity. Our focus is anchored around complete generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development timelines, and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic findings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like Simaglutide and Abatacet, improving operational efficiency and productivity across the value chain, and we continue to actively explore partnership and value-accretive acquisitions. that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the QA session.

Thank you very much, Anais. We will now begin the question and answer session. To join the question queue, please use the raise hand option available on the bar at the bottom of the Zoom application. If you wish to exit the question queue, you may click on the lower hand option. Participants are requested to not ask more than two questions at a time and to rejoin the queue in case of any incremental queries. I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us. The first question is from the line of Neha Manpurya from Bank of America. Neha, please go ahead.

Yeah, thanks so much, Aishwarya. Good evening. My first question is on the U.S. business. You know, while I know you talked about product-specific erosion and rev limit fourth quarter, should we expect any rev limit at all in the third quarter? And second question on the U.S. business, you know, we've seen a product discontinuation this year. Last year, we saw no R&D discontinued. We continue to spend a fair bit on R&D. How should we think about the, you know, U.S. product pipeline? Because, you know, I look at Reddy's approval history. While we have got a fair bit of approvals, we haven't really got any, you know, meaningful large launch approval outside of Redmond and probably Vasepa was the last one that I can think about. So I just wanted your thoughts on how we should look at, you know, some of these more meaningful launches coming through. Now that conjugated estrogen has been discontinued, you know, how do you think about the universe group?

So just, Neha, I think there was something with the voice. Just the beginning of your question, I got the rest of it. Just the beginning of the question, I could not hear it. Sorry about it.

Yeah, no, no problem. I was asking that is it fair to assume that there would be no red limit in the third quarter or would we still see some bits of red limit as a part of the settlement in the third quarter?

So we should assume that we will have but less than what was in this quarter. So and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have review limit in it. On the R&D question, first I agree with you. There were certain products that we tried for a while to get an approval, and as we did not get, we kind of pulled the trigger on them. We kind of gave ourselves certain timelines that if we don't, we just move on. As we speak, the main product in the United States as related to R&D will be the biosimilars. I think the main product in terms of significant growth in the United States will be Abatacept. On the small molecules, we do have meaningful products that are coming, primarily peptides, long-acting peptides. Some of them we missed the first five, but they are still meaningful. The overall pipeline is about 100 products, as we speak, people taking the pipeline. And out of that, about, I would say, around 20 that will be considered what you call the complex generics. But as we discussed many times in the past, it's hard to predict on these products. So your observation is correct. What we absolutely did is that we re-look in our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come.

Understood, it is. It is if I would just extend this question then to let's say a SEMA filing or a BATISAT filing. What gives you confidence on getting approvals on those filings? You know, even in case of a BATISAT, now that Bachik and me, you know, we have got a CRL on the C-MAP. I'm just wondering if, I know there's always risk to approval, but how should we think about management's confidence in getting approvals for, you know, SEMA in Canada or, you know, next year as we think about the BATACEP?

So on the BATACEP, let's talk about the BATACEP. I'll go to SEMA after. On the BATACEP, we are supposed to submit the BLA, and I'm very confident about it, in the end of December of this year, calendar year, end of December. end of December 2025, which is exactly the date that we aim to. Here I have a high level of confidence. It's also important to us because it will open the door for us to launch also the SAPQ, which is the more important SKU, at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not going only with BatchPuli. But we increased the chance because we will have also for the United States a CMO that will make it, the product. I am less concerned about European approval because Bax Polio was already approved by European, but not yet by the US FDA. And also, in the case of the US, we don't yet know what will happen with the tariff on biologics while we feel now more comfortable giving all the press that likely there will be no tariff we need to see when the guidelines will come but as a biologic we don't know and we feel the need to have a backup also there so uh so we will it will not be able to launch from much will be able to launch from the united states and this will enable us also a potential challenge it will happen on tariff on the sima we are expecting the feedback from health canada in the next few weeks it can be any day but it can be within the next few weeks and we know if we get a deficiency or not i'm certain that we will launch all the 12 million pens that I discussed with you last time. Obviously, if it will not be in Canada, it will be in other places, so the launch is going to happen. The question, of course, if we'll get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they will come from. Can I guarantee that we'll not get the CRL? No, I cannot. I wish.

Fair enough. Fair enough. Thanks so much. Yeah.

Thank you, Neha. The next question is from the line of Damayanti Kerai from HSBC.

Hi. Yeah, hi. I hope I'm audible. Yes, absolutely. Okay. Thank you for the opportunity. My first question is again on semaglutide. So, Eresh, can you remind us the legal status which was underway in India, litigation with Novo on semaglutide?

Sure. We are challenging the patents in India, and it's currently in high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions, and likely that whoever will not like the decision will appeal. So likely that it will continue after. But at this stage, the hearings are done, and we are waiting for the outcome of the of the decision of the judge and sure and just to clarify this outcome should not be impacting your plans in the ex-india market right the markets outside of india depends what will be the decision of the judge what we are seeking we believe that the patent is invalid and in any case as we speak today by the decision that was done in May, we can produce an export. Not to do it in India, but the court in the decision back in May allowed us to continue to make the product and to export it. In terms of in the current state, we can launch in India only at patent expiration, which is right now dated to March 26.

Okay, that's clear. My second question is going back to Abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupali takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place?

Sure, correct. So we will have – I did mention that we will have a CMO – in the United States to produce Abatacept in addition to our capacity that is built in Batchbool, India. And it's a mitigating theory.

Hello.

Can you hear me now?

Yes, I can hear you now.

Okay, it's addressing three risks. One is in a case that will be against CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other... a potential restriction or regulatory burden, assets related to make or sell biosimilar in the United States. And the number three, to increase capacity. It's allowing us more capacity in the case that we will get a nice market share. So we're absolutely going with the CMO option in the United States.

Okay, that's helpful. And my last question is for Seba Glutide, I understand you're working on your in-house filling finish capacity. So can you share the update on that project?

It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify, it will be post-approval in all the countries. So we are working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant, maybe with some upside, but right now I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO11, and this will be significantly expanded capacity to many, many more millions. But let's see that we, let's say in that respect, it can go to even up to 50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that.

Sure, that's helpful. I'll get back to you. Thank you.

The next question is from the line of Dr. Dino Patiparampil from Illala Capital. Dino, please go ahead.

Hi, good evening all of you. First question on the India market, India business had a strong growth in the quarter. Is there anything in particular that helped you and was there any impact related to the GST disruption in the quarter?

So we managed well the GST. The GST was not a significant obstacle for us. We managed it well. It's just execution of our strategy the way we discussed it for many quarters. areas that we want to focus on and we made several inorganic moves to buy brands that allow us relevant access as well as licensing of innovative products and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Understood. You have recently done this acquisition of the Stagerone brand from Janssen. Could you give some idea about what sort of revenues does that business have in its acquired form?

So it's a 100 plus in terms of size, something like that.

100 million dollar?

No, 100 CR. This is in India. India and India. That is India.

Okay.

India and emerging markets put together.

Is 100 CR. And for that, if I am right, you paid 15 million US dollars.

Correct.

Okay. understood and any any benefit of that in the growth for the quarter is some 20 days of that part of india business not much no no it's a it was very insignificant yeah you can take it as no no real impact Got it. And my last question on the margin outlook beyond revenue. Of course, we keep asking this every quarter. But if you look at current quarter, even with lenalidomide, if we remove the other income from the EBITDA margin, it is below 23%. And with lenalidomide further coming down in the next quarters, it may fall even further. So, do you still fully stick that for full year of 527, you will get back to 25% EBITDA margin?

I'm not sure how did you get to the 23%. I'm aware of 26.7%. But, never mind. Yeah, absolutely, linoleumide is with higher margin. Everybody knows that. and actually it's impacting and anticipating that we are discussing for four years. We knew exactly when Lila is going to go, and it's happening exactly as we discussed. We are addressing it with the leader that I mentioned, growing the base, contain the cost, BD, and focus on these key products. I absolutely believe, and I'm maintaining it, that In the next two years, we will absolutely get back to the growth and to the margins. The question is, what will be the journey in this point of time? The more SEMA we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins. We are maintaining our commitment for growth. The question is what will be the scenarios between CIMA, Bataset, NBD primarily. And, of course, because of the levers that we can control better, we are very confident that this is the base and the cost.

Understood. Thank you. I'll turn back to you.

My name is Dino. The next question is from the line of Sain Mukherjee from Nomura. Sain, please.

Yeah, hi. Thanks for taking my question. So my first question is on the US-based business. You know, there has been a lot of price erosion over the last, you know, three, four years since you have launched Revlimid. How is the base today versus, let's say, before Revlimid? Is it up, down, if you can give some color? So that we get a sense that we should, you know, assume the number post-revelement.

Sure. So it went down. It went down. Primarily, not so much on volume. There were some products, about, I think, five, that faced competition and price erosion. And that's what took it down. It's not significantly down. Most of the decline that you see is leaner. But if you want to compare, it is down.

And do you see it sort of stabilizing now from the current level, or do you think there is hope for further price erosion? And if you can just give some color on the pricing dynamics in the U.S. at this point, anything has changed?

No, no change. I think it's stabilized. And I believe that it stabilized also for a while beside the products here and there. But, yeah, I don't foresee additional trends like that in the coming quarters. On the base products, the erosion that will be on some of the launch products, the products that we launch, those can still face because not all of them, what you call, exhausted their potential erosion. But it's insignificant as we speak.

Okay.

My second question is on SEMA. This 12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view? Which markets?

Sure. So we... We are going to, either directly or through partners, going to obtain approval in the next, let's say, 12 to 15 months in 87 countries. Most of them are very small. The notable countries, besides Canada, will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America, so I cannot... highlight a particular market and also in asia we have also b2b partners that also preparing their own launches and we have partners on both api as well as on those friends so i believe that that the main markets that i mentioned can take let's say The lion's share of this quantity depends, of course, on the success and the date that we'll actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to two types of countries, the COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, in the demands that we have, We have already, just the orders that we are discussing, it gives me confidence that if the approvers will come, that we'll be able to send it, yes.

And, you know, if I can just add, like, this is for 2026. Now, what about 2027? How does this 12 million move up in 2027 in your estimate?

So, it can move up. even to, for sure, to 15, but it can move up even further than that. It depends on the evolution of the product. And the qualification of FTU11, which will significantly ramp up the capacity, will be toward the second half of 2027. I'm talking now calendar, not FY.

Understood. Yeah, thank you. I'll join back.

Thanks, Ayam. The next question is from the line of Madhav Marta from Fidelity International. Madhav, please go ahead.

Good evening. Thank you so much for your time. I wanted to understand a bit on the, you know, I think you've delivered double-digit growth in the ex-US markets. Are we confident of maintaining this tragically over the next one or two years? That's my first question.

Yes, very much so.

okay and could you highlight any key drivers like do we have like new launches lined up or what can help that steady growth because india especially 13 was was quite a good number so uh ahead of market so just wanted to understand what could drive is it yeah so each one of the markets we have different drivers and so i if you want i can highlight the markets for you the main markets

In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up, and the launch of biosimilar rituximab, lenusumab, and vivasuvivant that we had in the U.K. In the case of India, it's obviously primarily an inorganic move that we made on innovation. and the acquisitions of brands that we did, in addition to a normal growth that we had on the legacy pipeline. So I always mention that in India, our legacy pipeline will be like the market, and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy. And now that we accumulate enough of those, it's starting to be shown. It took us... I'm sure we all remember quite a few years to build it. In emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology, as well as biologics. All of our biologics go into emerging markets, and in each one of them we have SLA. It depends on the market. selective innovation that we also license as part of our deal with India. In the case of Russia, it's primarily our legacy brands, as well as some licensing and acquisition that we made in Russia on board the OTC, as well as the RX. API is primarily the focus on peptides. And on both, there is also a lot of demand for the peptides on the API side. I hope I covered all the markets for you. If I forgot something, please.

It makes sense. And my second question is just on the biotasept. You said you can submit the BLA by end of calendar year 25. So, the phase 3 trial, I am assuming, is complete now and we are expecting sort of an update on that in terms of whether that is completed successfully or how should we think about the progress on the trial itself?

It should be completed very, very soon and so far so good.

Okay, understood. And if we file on time and so basically the approval will be in line with the expiry in early calendar year 27. That is how we should think about it.

That's the idea, yeah.

Thank you.

Thanks, Madhav. The next question is from the line of Dr. Kunal Navesha from Bakwari Capital. Just a moment, sorry.

Yeah. Hi, can you hear me? Hi, thanks for taking my question. Just the first one on Amata said, so basically the first filing that we will do would be for IB version, right? Correct. And what kind of further development the subcutaneous version would require? Can you repeat, sorry?

For the subcutaneous version, what further development... There is another set of tests that allow us to submit the sub-Q, but it doesn't require additional study.

Okay, so no phase 3, but some form of characterization, etc. Correct. And the first filing that we will do by December 2025, would that include Bachupalli as a manufacturing source or the CMO as a manufacturing source?

Batshupali. Batshupali will be start, and the CMO will be a tech transfer from Batshupali.

Okay, tech transfer from Batshupali. So Batshupali would be still the keystone for us in a way.

Yeah, but in the United States, I'm absolutely building that we will be able to be, especially for the sub-Q, the CMO will be in every last day one launch. Sure. For the mitigation that we discussed before.

Sure. And the second one on Semicrotein Canada, so basically, you know, let's say over the last, since we talked in the earlier Q1 earnings call, your expectation about the market formation has that changed now on the day of patent expiry or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada no so nothing changed at least in my perspective just to make sure that that

that we are expecting the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Once there is an approval, there is an application for reimbursement, and according to the rules in Canada of the pricing, That's how the market will play. So nothing changed in the way I think the game will be played. Now it's about obtaining approval and obtaining a good outcome from the litigation in India.

And lastly, on India, for SEMA, when I look at, we have basically conducted trial for Ozempic and Dibelsus. So does that enable us to launch the weight loss version, which is Virgovi Chandrika as well? So Virgovi will have to have an application by itself. It would be a separate application. It will be separate. Okay, perfect. Thank you and all the best. Thank you.

Thanks, Kunal. The next question is from the line of Tushar Madhutani from Mopinal Uswal Financial Services. Prashant, please go ahead.

Yeah, am I audible? Yes. Thanks for the opportunity. Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologics sales across different markets on an annualised basis to date?

Sorry, is something in the voice?

Yes.

Just to make sure, you asked how our cells evolve in India and Europe? That's what they asked? The question is?

So, biologic cells, cumulative biologic cells across the market.

The market or us?

Sorry, I'm not... Us, all things.

Yeah. So, we launched in Europe, hopefully I'm answering correctly, We launched in the Europe Bibasusimab and recently Rituximab in multiple countries, and we will increase the numbers of the countries as time goes by, and this is after we got the approval, the recent approval for Rituximab for Europe. In India, in the emerging market, we were always there, so it is going well. The main program that we will launch in Europe will be the Nusrumar-Venabatasat. This is the main pipeline. The same products, obviously, will be launched in the Indian emerging market. But in India, we'll also have Pembroke as well as Nivo. So that's right now the plans in those countries.

Got it. And so with respect to RetuxMap, now that we are thinking of having a CMO, so will that require, let us say at least the stability data from CMO side and hence there will be more time to sort of get through the regulatory process?

The CMO that I mentioned is for Abatacept. Primarily for the sub queue, And it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar 28. So we should be good by then.

Understood. And just lastly on the PSCI segment where there has been improvement in the gross margin quarter to quarter while we are still lower than the historical gross margin. But if you can just help understand in terms of the current gross margin and how to think about it over next 1 to 2 years.

So, the we expect I think going forward PSA cross margin the range of 20 to 25 percent.

Compared to 15 percent currently, right?

No, this quarter is 18, 18 percent and Because I think here, based on the product mix and then I think leverage of all the overheads and everywhere, I think the range you can expect, I think going forward 20 to 25 percent PSA gross margin.

Got it. And you also, there was a earlier comment of peptide sales within PSA. So, if you could quantify how much has that been?

So, the We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level. And right now it's very small, but it will grow as it will come.

Got it, sir. Thank you.

Thanks, Moshar. The next question is from Analia from Access Capital. Viral, please go ahead.

Hi, good evening. So, firstly, I would like to understand how your R&D will take shape given that you are developing a few biosimilars like Pembrolizumab and Diatomumab. And of your R&D budget, how much you would be earmarking for, you know, biosimilars and origin. So, basically, your non-creatic business.

Sure. So, just to clarify, Diatomumab, We are not developing. It's a product that we licensed from Enlius, from a Chinese company. The Nusumab was developed by Alvotec, and we have a partnership with them. And so in that respect, the main products that are done internally is still a batacept that we basically finished the clinical of it. As you can see, the R&D is about 7% right now of the cells and likely that it will stay in this range for now.

Sure, sure. Thanks for that. And secondly, again on semaglutide, So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada? Because, you know, besides the number of filers, which are increasing by the day, you know, there are perhaps risks, let's say, from a compounding pharmacy, which is intending to enter Canada. And even the innovator has seen volume pressures in several markets. So, you know, there might be a situation where they are aggressive on pricing. So is there a risk of the market deterioration?

First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also, you know, in 33 years I turned pharmaceuticals. I learned not to forecast launch. I always mentioned that it range from zero to many many millions of dollars so but yeah to answer is i anticipate that canada is going to be very very competitive sure i'm sorry i anticipate that canada will be very very competitive us players will get an approval

Right. And if I can, if you don't mind, you know, ask, is there any particular price erosion, you know, that we can see from the current level, maybe 80-85% kind of price erosion that will eventually settle down to?

I have no clue. I wish I do.

All right. Thank you.

Thanks, Kunal. Participants are requested to restrict the number of questions to just one to ensure that everybody in the line gets an opportunity to interact with management. The next question is from the line of Vivek Agarwal from Citi. Vivek, please go ahead.

Hello. Am I audible?

Yes, I'm here.

Thanks. Thanks for the opportunity. My question is related to NFT and branded markets like India EM. So the growth was quite decent across the board and it's a really commendable job. So just want to understand how to look at the investment that you are making behind these markets. So are these sustainable investments or let's say it can be cut down in future?

Thank you. First of all, I don't think you see the investment in emerging market. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by ELEON, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for ELEON is going. And therefore, the margins are going up because we don't need to pay them. And we are starting to invest. The markets that we invest are only the markets that we got at the beginning, meaning UK and Scandinavia. So right now, my advice is not yet. It's absolutely not a steady state. We have two more waves to go. And before we go, what I can tell that so far it's exceeding our expectation, both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it.

I understand, Erich. And just a related question here. It's on OPEX, basically. So, on absolute basis... How we should look at the OPEX and API 27? So can it continue to increase, let's say, from 26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OPEX, let's say, in 27 compared to API 26? Thank you.

So this quarter we have a 30%. And then if you adjust the one-off, I think we are close to 29.1% or somewhere there. And then for any of modeling, I think we'll be in the zone of like a 28 to 30%.

Thanks, Anil. That's so much.

Yeah. Thanks, Vivek. The next question is from the line of Dr. Harit Amat from Evendus Park. Harit, please go ahead.

Hi. Thanks for the opportunity. Just on Rituximab again, so given this is the second unsuccessful PAI and CRL that we've had, are there any specific challenges related to this facility? I'm asking also because this is a biologic facility and our track record otherwise on compliance has been quite excellent in recent years.

So there is nothing specific per se. We, it's all, it's obviously, as this is a sterile plant, we have, we've got queries that are related to that nature of the site. We believe it's addressable. In the case that they will come with another set, of questions, what we will do is that we will submit, we have an alternate line as a backup, which is FFM2, that we feel that FFM2 is the fill and finish, sorry, for those that are on the line. So we may need to move the product from one line to another in the case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have, FFM1, is some of the design of it raised those queries in the last time. We are addressing it, but if it will not work, we'll have to move to FFM2. I'm not worried on the not getting approval. I'm certain that we'll get approval. Just to remind all of us, Rituximab for us was deliberately chosen in order to start the regulatory process on time, to make sure that by the time that a battleship will come, we will face those kind of stuff, and this is serving its purpose, and hopefully we can resolve it soon.

Okay. A quick one on Tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program?

We are not planning to have it as a global product. Okay. Thank you. We will have it only for India.

Okay. Yeah, and one quick follow-up on the previous question. You know, the uh you know cost reductions that we've alluded to in the past uh around 500 600 basis points uh of reductions uh are these reflecting to a small extent in the first half numbers or should we wait for the coming quarters for this to actually numbers yeah i believe so you can see that despite the fact that elena is going down we are maintaining our

a reasonable number, so it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And then also share the number, so we believe that with IG&A of around 28% and R&D of around 7%, it comes to the famous 5 to 7% and there is even opportunity for more if we need to. So we maintain that we will We are very, very sensitive to the margins, and naturally we're discussing it every time, and we will absolutely be very disciplined on those.

Thank you. That's all I can say. Thank you.

Thanks, Harit. The next one. In the interest of time, we will restrict the questions to the next two speakers. Next is Gautam from Leo Capital. Gautam, please go ahead.

Hi, hi, good evening. My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances? How much manufacturing capacity do you have and which are markets are you targeting for this?

So we have CTO6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 kg, but we are very, very far from this output at this stage. We don't need also. Just that we are preparing it not just for C-magnet and l-agglutide, but also for 40-something peptides that we identified, and we are going to develop either by ourselves or with the partners in the next few years. So right now we will have sufficient capacity for the demands that we'll have for the liraglutide, semaglutide in the submissions to the relevant authorities of all the peptides, that will be of patents including Tercepetide, that will be obviously an R&D project but is very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO 11 and also with the partners. In general, the approach will be that we will have for every product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations.

Okay, so can you just like expand on the fill and finish also? What's the capacity we have and the status on that and the markets we are supplying for that?

I think we discussed it. We have 12 million pens for the Simagro type with the partner. We have two lines of cartridge that will be in F2-11. They can reach even 50 million, but right now it's all theoretical. The cartridge lines are on the way and they will be assembled and will be ready not for this 12 months, but after.

Thank you. Thank you, Gautam. The last question for today comes from Sumit Gupta. from central capital. Sumit, please go ahead.

Hi, thank you. Good evening. Yeah, so just one question on the Indian business. So, sir, can you segregate the volume and price both? The volume and the price. Yes.

So, Sumit, the price is like in the range of normal 5% and then the balance growth is like mainly from the new products and volumes.

Okay. So, going forward, like should we expect this to continue or can we expect any significant growth in volumes also?

You should expect to continue. We will have new products, volume and the price will be in that range that MBH is showing you.

Understood.

Thank you.

Thank you. We've reached the end of the call. I now hand the call over to Richa for the closing comments.

Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's laboratories and the time you've taken to engage with our cumulative F526 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care.

Thank you.