Saunak Savla – Head-Investor Relations Saumen Chakraborty – President, Chief Financial Officer and Global Head of IT&BPE Abhijit Mukherjee – Chief Operating Officer Anil Namboodiripad – Senior Vice President, Proprietary Products and Head-Promius Pharma.

Manoj Garg – Healthco Prakash Agarwal – Axis Capital Neha Manpuria – JPMorgan Anubhav Agarwal – Credit Suisse Christian Glennie – Stifel Sebastian Sauter – RBC Capital Markets Saion Mukherjee – Nomura Securities Manushi Shah – Research Delta Advisors Sameer Baisiwala – Morgan Stanley Chirag Talati – Kotak Securities Shyam Srinivasan – Goldman Sachs Vishal Manchanda – Nirmal Bang Kartik Mehta – Deutsche Bank Nitin Agarwal – IDFC Securities.

Ladies and gentlemen, good day, and welcome to Dr. Reddy’s Laboratories Limited Q3 FY2018 Earnings Conference Call. As a reminder, all the participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Saunak Savla. Thank you, and over to you, sir..

Hi. A very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy’s earnings conference call for the third quarter of fiscal 2018. Earlier during the day, we have released our results, and the same are also posted on our website.

We are conducting this live webcast of this call, and a transcript shall be available on our website soon. The discussion and analysis in this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy’s, comprising Mr. Abhijit Mukherjee, our COO; Mr.

Saumen Chakraborty, our CFO; Mr. Anil Namboodiripad, who heads our Proprietary Products business; and the Investor Relations team. Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlets without the company’s expressed written consent.

Before we proceed on the call, I would like to remind everyone that the Safe Harbor language contained in today’s press release also pertains to this conference call and the webcast. After the end of the call, in case if any additional clarifications are required, please feel free to get in touch with the Investor Relations team.

Now I shall turn the call over to Mr. Saumen Chakraborty, our CFO..

Thank you, Saunak. Greetings to everyone. I will cover the key financial highlights. For this section, all the amounts I have translated into U.S. dollar at the convenience translation rate of INR 63.83, which is the rate as of 29 December 2017.

Consolidated revenues for the quarter at INR 3,806 crores or $596 million, grew 3% year-on-year and 7% sequentially. During the quarter, our Proprietary Products business secured the NDA approval from U.S. FDA of IMPOYZ that is brand low-concentration clobetasol cream. This had been recently out-licensed to Encore Dermatology, Inc.

for the commercialization of the product in the United States. This approval triggered the recognition of product milestone of $20 million in this quarter. Normalized for this, the balanced sequential growth was also aided by incremental contribution from new products, partially offset by the price erosion in North America Generics business.

Revenue from Global Generics segment is at $472 million and PSAI segment is at $85 million. Consolidated gross profit margin for the quarter is at 56.3%, a sequential improvement of around 300 basis points. Gross margins of Global Generics and PSAI were at around 59.5% and 23.8%, respectively.

Sequential improvement is largely attributable to the better product mix and also the above referred milestone recognition in our Proprietary Products segment. SG&A spend, including amortization, is INR 1,205 crores or $189 million, a sequential increase of 9%. During the quarter we settled with the U.S.

Department of Justice on the litigation involving packaging related issues against a payout of $5 million. Barring this, the balance increase on account of certain sales and marketing and other spend towards the event specific to the quarter. We continue to focus on optimizing cost as an organizational priority.

R&D expense for the quarter is INR 467 crores or $73 million, representing 12.3% to revenues. This is in line with our expectations of cumulative spend of around $300 million for this financial year. EBITDA for the quarter is INR 806 crores, which is $126 million and is around 21.2% to revenues.

During the quarter, we generated $136 million of positive cash flow from operations. Consequently, our net debt to equity ratio has improved to 0.25 as on 31 December 2017. As you all are aware that recently the USA has enacted the Tax Cuts and Jobs Act of 2017.

Consequent to this enactment we have reviewed and remeasured the deferred tax assets and liabilities of our U.S. entity resulting in a one-time charge of INR 93 crores recorded under tax expense. Normalizing these impacts, the effective tax rate for the quarter is approximately 28%.

However, on the adjusted basis, the annual effective tax rate would be in the range of 23% to 25% as guided earlier. Key balance sheet highlights are as follows. Our operating working capital decreased by INR 33 crores or $5 million over this quarter. Capital expenditure for the quarter was INR 221 crores or $35 million.

Foreign currency cash flow hedges for the next 15 months in the form of derivatives for U.S. dollars are approximately $290 million, largely hedged around the range of INR 65 to INR 67.8 to the dollar. In addition, we have balance sheet hedges of $212 million.

We also have foreign currency cash flow hedges of RUB 970 million at the rate of INR 1.12 to the ruble, maturing over next 15 months. With this I conclude my section and request Abhijit to take through the key business highlights..

Thank you, Saumen. Greetings to everybody and a warm welcome on this earnings conference call. Let me take you through the business highlights for each of our key markets. This has been a good quarter for us despite challenging market conditions.

At an overall level, we have seen some growth on a sequential as well as YoY with most businesses doing well. We look forward to building on this growth momentum in coming quarters. Please note that in this section, all references to numbers are in respective local currencies.

Our North America Generics business revenues for the quarter are at $246 million, registered a healthy growth of 7% on a sequential basis. This growth was predominantly driven by high sales for Sevelamer launch owing to channel by itself.

The quarter continue to witness higher levels of price erosion for the base business in low to mid double digits driven by customer price harmonization and increased ANDA approvals.

We anticipate the market dynamics will remain challenging in near-term owing to analyze the impact of pricing actions and incremental completion in some of our high-value assets. On the other hand, we have launched 11 products in U.S. and two in Canada till date.

In this quarter we ramped up sales of Sevelamer tablet launch to Fludarabine and Melphalan injections in the U.S. market and as Azacitidine injection in Canada market. We continue to gain traction on new launches and have performed in contracting market share.

On the pipeline front, coming fiscal is expected to remain exciting with fairly good number of new launches scheduled including some high-value assets. Let me provide an update to you on the status of three key launches G Suboxone, G NuvaRing and G Copaxone. On G Suboxone we have received minus here recently and expect to respond in a month time.

We are closely watching the IP position and our action within accordance with the development upon litigation front. On the second asset G NuvaRing we have responded to some additional queries received from the agency and our TAD now is early Q2 FY2019. With IP situation behind us, we feel optimistic about the launch of this product by mid of FY2019.

Finally on G Copaxone we have received queries on the DMF while there is some work involved, we feel we can respond in a few months and continue to progress on the assets. On Europe business, we recorded sales of $26 million with a year on year decline up 11%.

As you will be aware this quarter we faced marginal supply issues following the German regulatory audit at one of our foundation facility in Bachupally. The re-inspection of the site by German authority was completed in this month.

The audit outcome was positive and the site was cleared by German authorities paving the way for all dispatches to connect. We hope to get back on the job of rebuilding the business in near-future.

On emerging market business performance – sorry, our emerging market business performance has been consistently improving on the back of new product launches entry into new markets such as Brazil and Colombia and supported by stable currency. Russia business grew 5% YoY in constant currency and 9% in INR terms.

Performance in other markets has also been in line with our expectations. We are looking forward to augment our emerging market footprint further with opening up a few significant emerging markets in coming in fiscal year by leveraging our oncology and biosimilars portfolio.

We remain optimistic of building this momentum further leading to a healthy and sustainable growth in these markets. India business revenues are at INR 613 million and grew 3% YoY. The channel inventories have now normalized. Our sustained prescription growth has been encouraging and we feel positive about the direction of the business.

We look forward to revival in market growth rates back to historical levels of double digits in near-term. The PSAI business posted revenues of $84 million and has grown 5% on a YoY basis.

The business has undergone strategy to realignment in last couple of years with focus shifted to cost rationalization, change in geographic mix and leverage of relationship with partners to move into those asset sales of select molecules. We believe that this will provide a sustainable growth for the business in the long-term.

Our Proprietary Products business as disclosed earlier, we were able to secure the approval from FDA on the NDA application of DFD-06. This was a critical milestone and in lined with the agreements with Encore Dermatology and we recognized related milestone value this quarter.

Overall, we continue to focus on building our existing commercial footprint and also enriching the development pipeline. On the commercial side, we’re experiencing gradual increase in prescriber base for our lead product ZEMBRACE, Sernivo and Trianex. Lastly, let me provide an update on quality front.

We began 2017 with the resolve to improve manufacturing operations and strengthen our quality management systems across the organization. We believe that we have made considerable progress on the CRL. On U.S. FDA side, multiple sites were audited over the last one year.

Agency has sent some queries on the API site in Srikakulam, which have been responded now. Regarding the [indiscernible] facility in Duvvada, the quality improvement program is in progress in line with the comments made to the agency. We await the re-inspection of the site possibly in a quarter or two.

Quality and operation transformation will remain top priority for the organization going forward in addition to our focus on growth and cost optimization. With this, I conclude my section and open for Q&A..

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

Hi. Thanks for the questions. A few on the U.S. segment. Then I will just go ahead and ask the questions and go back on mute. One, what was the approximate contribution of Sevelamer during the quarter, since you did have it for the full quarter? Two, on U.S.

price, can you share some additional color other than the one or two lines that are in the press release. And then lastly, I think you spoke briefly about Copaxone and Suboxone.

Can you just maybe extend a little bit more color there as well as in terms of the nature of the queries? Or what the agency continues to look for there as well as provide an update on REVLIMID. Thank you..

Okay, a lot of questions. Let me take the first one of Sevelamer. Without getting into absolute specific details, we were ahead of the other competitors by few weeks, which helped us in launching the product and fill the channel.

So it is significant and we’ll see some erosion in the subsequent quarters in terms of – while on the other hand there is, of course, the innovator, the percentage of shares continues to be high, which also provides some opportunity for the future but more players have entered and prices have fallen to the level with more competitors coming in.

The second question was, I guess, the color – a little bit of color on pipeline and launches, I guess.

That was the second question, is it?.

Yes. And just on the U.S. price..

Price. Okay. Broadly the next year, I think quality of launches we feel better than this year. However, this is all subject to approvals coming on time and litigation playing out in the right way. But having said that, clearly later than this year. On the pricing, let me take it in two parts.

I will borrow the term from another company, base product and transitional product. Base product erosion is likely to slow down and flatten in coming several quarters, it’s not immediately. But the transitional products, the intensity of erosion will continue to be fairly heavy.

In net of net, I think we would continue to see annualized erosion in low double digits. But these are predictions and difficult to be very specific about this. The third one was on the specific assets. So I think – Suboxone, I think it’s – still IP is being discussed, litigated as you know.

There is still a patent which is being asserted and then couple others which are not yet – which are coming up. So we will see. But we feel very strong about our position. But on the litigation, let us see how that progresses. Otherwise, asset per se is progressing in the right direction, in terms of our responses and site and all those things.

As far as NuvaRing is concerned, IP is clear, as you know. And it all depends on the approval of the asset. And I just sort of mentioned that it’s progressing and we have our TAD in the early Q2 of FY2019. Copaxone, the BMS, you would recall we had a date of November, but it’s got two months to two and a half months delayed.

We just received week back or so the BMS queries. It involves some work in terms of analytical. But the good thing is I think we feel and now our team feels that there is nothing we should not be able to answer. Having said that, it will take four months to five months to put it together and respond.

And we will see whether there are a lot of questions on that, et cetera. So beyond that, it’s – that’s what it is at the moment. I guess I have more or less answered all your questions..

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

Yes. Thanks for the opportunity. Good evening to all. First question on – actually the gross margins flowing down to EBITDA margins, now if we adjust the one-time milestone payment that we received, despite the Q-on-Q jump in the U.S., we haven’t seen much of a movement. I mean, it’s actually flattish.

I’m just trying to understand what has really led to this.

Is it the pricing pressure, though we’re getting top line, but we have not got the margins? Or how should we think about that?.

If the sequential improvement is around 300 basis points, slightly more than half of it is due to the Proprietary Products milestone-related revenue recognition. So remaining is on account of the U.S. growth as well as whatever other measures that we have been taking. But there have been – there will be always some quarter-specific events.

So that’s why it is very difficult to predict accurately how the margin is going to move from one quarter to another quarter. But if I remember in the last quarter call, there were specific questions about margin. So we are targeting to keep in the same kind of range..

Okay.

Until and unless your major products start kicking in next year?.

Yes, of course. If there is like a significant product launch which happens with much higher margin, that will help us improve..

And a couple of peer group have talked about some impact of the TAD pricing from the consolidations.

So has that also impacted in terms of pricing apart from the base business pricing erosion?.

Yes, it had an impact. So the agreement had its impact..

And it’s a full-blown impact or we are likely to see more impact going forward?.

Mostly it is factored in. Some may spill over..

Okay, understood. And secondly, you talked about TAD for NuvaRing I think, which has slipped to 2Q now.

Would you have a TAD for Copaxone and Suboxone as well?.

For Copaxone, we will have to answer the BMS and post the BMS the other dates would come through. It’s still a while away. On Suboxone, as I said, our journey towards approval is progressing well in terms of the technical terms. It – we will have to watch the IP development and that would be governing the destiny of the asset..

And any time frame we will be expecting? I mean, earlier we’ve talked about April time frame?.

On the litigation front, it’s difficult for us to comment..

Okay, I understood. And one more question I had was on, you talked about the quality of approvals and launches would be better going forward.

So you’re factoring in Srikakulam as well as the Duvvada facility resolution or it’s without that you are expecting both the number of approvals and the quality of filings to be better?.

So we mentioned about few assets, NuvaRing, a little more pleasantly about Suboxone, especially we feel optimistic as we see where it goes from there. So these certainly determined as I said, that we should be able to respond. These are all in public domain.

But there are quite a few which are not certainly not of big size, but still meaningful in course of the year, which can provide – I mean, we’re talking about four quarters of next financial year. We can provide good support to the impairment.

Taking all of it rather than getting into specific site details, why I’m not commenting on the site details because you will appreciate that next year’s launches it would not be fair to factor in too much site level uncertainty, so some maybe towards the end of the year and in the process of being fixed on it so on and so forth.

So given all that, of course, this is always complete maze of what questions we will get from the agency and what intellectual property issues will come up. So those are uncertainties which remain. But in best of our understanding, I think still – I think there are assets..

Perfect. Thanks. And lastly –.

Prakash, I’m sorry to interrupt but maybe request you to come back in queue for follow-up questions. Thank you. Participants are requested to limit your questions to two per participant. Time permitting you may come back in the queue for a follow-up. The next question is from Neha Manpuria from JPMorgan. Please go ahead..

Thanks for taking my question.

Sir, on Suboxone, is it fair to assume that because we have a minor CRL, our TAD will now be pushed out versus the March-April TAD that we had?.

Look, I think let me once again talk about the asset. This being the first wave generic, I think the approval pathway on the technical side in the best of our assessment should not be a bottleneck..

Okay..

I’m pointing out to the IP development, which we are watching very, very closely. We will be plugged to it and see what happens. And based on that, that will govern the path to approval..

And would this have to do with the new patent that has been filed by the innovator?.

So those details, I mean, we would not be getting into – I think, there are several external opinion, views. You can get the details there..

Sure, sir..

And last, but not the least, of course, there is not full certainty on first filer and so on so forth. But again, I won’t, this is in public domain. So I’m not repeating most of these. But the only thing I can probably say is overall I think technically we’re moving in the right direction..

Okay. Got it. And sir, we’ve talked about cost savings two quarters back. We haven’t really seen that much of it come true in our numbers of SG&A, even adjusted for the litigation settlement increased.

When should we start seeing the impact of the cost saving reflect in our numbers?.

So if you take away what I said specifically that there was a settlement for which – settlement with the DoJ. So if you normalize that, and I also made a statement there will be always some quarter-specific thing one has to look at. But we internally have been seeing good effect from all the efforts which has been put for cost optimization.

And going forward in subsequent quarters, we can see a little bit traction..

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

Yes, thank you. For me just one question on India and Russia. Despite the higher promotion spend this quarter we haven’t seen the strength of growth in either of these two markets. Especially Russia, the base was weak. And India base was not great as well.

What’s happening in these two markets?.

The SG&A in branded markets do not immediately translate into sales impact, okay. These are building brands and things, so that’s all. So it’s not exactly immediately sort of applicable.

Having said that, the mega brands in Russia have some – these are very big brands and which are sort of the big brands where we have nice maze setting, very big and they – the growth has tapered to a certain extent. But there are new launches.

But more importantly, overall emerging market I think we would feel – we’re feeling good about the institutional business ramping up in the new markets. So both Columbia and Brazil doing well and will further ramp up in Q4.

And as we go into next year, I mean, using our forward-looking little bit projection, I think next year we hope to open another four to five markets. And there is a strategy and we want to extend the strategy all around the world. And that part we feel optimistic about. I mean, every quarter we wouldn’t be able to explain SG&A to turnover.

But given the stability in commodity, especially oil, I think we feel good in next several quarters in emerging markets..

Surly, sir. That’s helpful. One question more on the U.S. market. Abhijit, sir, that if you look at the U.S., it’s a $246 million this quarter. There were two components. That were some benefit of seasonal sales and certainly Renvela – Sevelamer was a high contributor.

If you were just to normalize Renvela and take off seasonal, just to understand what’s the true base to look at.

Would 5% to 7% correction would be a reasonable number to look at?.

I guess I will not exactly guide you. I said that it was the first quarter channel filling for Renvela. Some correction prices have come in. On the seasonal sale of largely injectables, this year was certainly not as big as previous years.

The fact that the big assets have eroded on the face of competition to a certain extent, lesser market share, more on pricing. And hence the impact of that maybe to an extent but not as big as previous years. But these two factors have rightly picked up.

But we do have in U.S., I mean, there is a possibility of injectable launch which we will see, and most of it is in public domain and IP development and all that. And the second thing is we have opportunities for couple of quarters also next two quarters.

But then there is also price erosion thing, which is still continuing, and there is some more layout of erosion in the next one or two quarters. So we have to take that in totality. So overall yet – I mean, there may be some erosion vis-à-vis this quarter..

Thank you. We will take the next question from the line of Christian Glennie from Stifel. Please go ahead..

Yes. Good afternoon and thanks very much for taking the question. I just wanted to clarify, again, if I may on generic Suboxone and just from an FDA and a regulatory perspective, outside of any patent or litigation issue. Just to clarify, it sounds like you received a minus CRL recently.

That’s your – if I understand that’s your second CRL on the product. So what does that relate to, because on a technical level it’s not really related to just to patents and outside of things. And then what’s the time frame from here? I mean, I think if I got it right, you talked about responding to the CRL in about one month.

And then what would be your projections in terms of FDA reviews timeline of that response?.

So on the site questions, all I can say is we think all these questions are easily answerable and hopefully satisfactory. We would be able to respond to this in give or take three weeks from obviously to four weeks from now. And normally where in the first wave of generics, I think agency is really providing resources to such file.

So depending on whether there will be more questions or not, at least technical approval pathway should be verified and you can do your own calculation, yes?.

So I presume there is standard reviews on that in terms of two months or six months in terms of the nature of the response?.

Yes. I mean, first wave of generics that’s a fair assumption from the response. It’s normally agency puts priority on such things..

Okay, thank you..

Thank you. We will take the next question from the line of Sebastian Sauter from RBC Capital Markets. Please go ahead..

Hi there, guys. Thank you for taking my questions. I know it’s been asked before. But I think my line went a bit funny. So I just want to clarify. Can you – if you could update me on please the generics Suboxone product? I understand you are in contact with the FDA.

Has it now been approved by the FDA? And, if not, how have the interaction progressed? And do you believe you have answered all the concerns that were raised in the CRL? And then the second question relates to [indiscernible] has recently accepted two new patents in the Orange Book.

And we will be – I’m keen to understand what impact this has on your launch timetable like for your own product? Thank you very much..

Yes, thank you. Firstly, on the litigation and the details, we wouldn’t be commenting. As I mentioned, we will be watching this very closely. It’s not that our priority, but we won’t be commenting on litigation and patents. And quite a few things in public domain. You will just have to look up.

But on the technical side, I think we’re doing fairly well, which I just explained in the last question on the technical side, I would not repeat the same thing. I think we’re doing okay. We got the minus CRL. We will be responding in, let’s say, four weeks from now. And, yes, it’s probably a quarter from there.

I think the technical side, but we will have to watch..

Yes, yes, yes..

That aspect on first filer aspect which we wouldn’t – never have visibility about and I feel we wouldn’t comment on..

Okay, okay, okay. So basically can I just summarize this? You said you got the minus CRL and you’re going to respond in four weeks from now.

And you would assume further response from the FDA probably a quarter from here from them and this is basically because you are the first filer, right?.

I said first wave. It’s still not been clarified that who’s the first filer..

Okay, great..

Okay, great. Thank you very much. .

Thank you. We will take the next question from the line of Saion Mukherjee from Nomura Securities. Please go ahead..

Good evening.

Is it possible to give a split between Proprietary Products and others, the $39 million for the quarter?.

Can you state the Proprietary Products and others mean?.

So you have $39 million.

So how much is Proprietary Products in that?.

So basically we’re giving segmental revenues, Saion..

Yes. I just wanted to know the Proprietary Product, excluding the license..

So if you have a specific question, you can get back to Investor Relations later..

Okay.

And continuing with the Prop Products, can you basically give us the timeline for your filings for Phase III assets, which are currently in development?.

Can I ask Anil to respond to this?.

Yes. Hi, this is Anil Namboodiripad. Let me answer that question. So we have one of our key flagship assets that is expected to be a major revenue driver for the Promius/Proprietary Products business. It’s called DFN-02 which is nasal sumatriptan for the treatment of migraine.

We expect to file an NDA in the next three months to four months with that asset. We have another Phase III asset that has completed Phase III. And there are still some other preclinical studies and some CNC activities that are going on. And we expect to file that NDA sometime late in 2019 – sorry, 2018..

Okay.

So you have to move Phase III assets, right? When would you?.

We have a third Phase III asset, which is currently in Phase III, and that’s not complete yet..

Okay. And what’s the timeline for the asset which you in-licensed from Eisai, E7777.

When is that expected? When is the trial expected?.

That one, the registration study is ongoing. And we expect to have a BLA filed sometime in 2019/2020 calendar year..

Okay, that’s helpful. Thanks. And just one last question if I can. On the biosimilar product, what is the current revenue that you’re doing? Because you’ve guided for $150 million from emerging market by fiscal 2020.

I mean, what’s the visibility on that number?.

The target remains.

So it’s a question of whether it gets achieved in FY 2020 or postpone by a year or so?.

Moving well – we are moving well next year reasonably meaningful emerging markets we should be able to launch our first MAbs, other two MAbs, India approval hopefully one in a quarter and the one in few quarter – another one in a few quarters. And immediately thereafter we will extend these also into those markets.

And meanwhile the footprint is getting ready in all these markets. On the specifics, I think revenue-wise it’s progressing. Every three months providing us new data points. Beyond that, I mean, just stay tuned. We will keep you updated on how it’s progressing..

Thank you. We will take the next question from the line of Manushi Shah from Research Delta Advisors. Please go ahead..

Hi. I had a question on 3 products.

I just wanted to know the status of Sandostatin LAR, Lovenox and Invega Sustenna?.

Sorry, can you repeat the name of the products..

Sandostatin LAR, Lovenox and Invega Sustenna..

So you are talking about – so it’s sometime way – I mean we are it’s a complex product we are trying to sort of work on it. It’s not – it will take time. And Lovenox is already genericized and it is not high on the privacy. Yes, third one, we would not specifically comment on. It’s not in public domain. And we won’t specifically comment on it..

So Sandostatin LAR, is it because of Duvvada that it will take time or it is….

One thing I would like to say, which we have said earlier that on our R&D pipeline and portfolio, we would not like to comment on specific, which is not there in public domain. So please don’t insist on such questions..

Okay, all right. Thank you very much..

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

Good evening everyone. Just a quick question on Duvvada. You were planning to do some site switches from there.

Can you please update us on that? And do you expect any some of your site switched on products? Do you expect any major one getting approved in fiscal 2019?.

It’s an ongoing process Sameer, ongoing process not very easy exercise. But we are taking one by one. Several in the past have happened, I mean, from Duvvada and other site as well. Some operators, I’m talking of the last 18 months or so.

But as we speak, I think more being done, we will not go into specifics on this, but we have mentioned that we had a – which filing lifts from the site. And we’re continuing to sort of site transfer..

Okay.

And on Copaxone, your entire commentary for 20 milligrams or also for 40 milligram? Because for 40, I think added in March?.

No, so Sameer, Everything will be hinging on the BMS. Okay, as you know, the formulation is less – the formulation. And follow-up questions one. So that should not be much to handle – should be much of a problem to handle. And so [Audio Gap] applicable to both assets. And both assets have been filed.

We probably last time we said that we had standards for both will sort of – we are not so much preoccupied on the dosage thing..

Okay, that’s helpful. And just one final clarification on Suboxone and NuvaRing Suboxone. I think when you say the IP something that you are watching very closely and I know you could talk too much. But just a little bit of nuance for you.

Is it your appeal case that you’re more worried about? Or is it your competitors’ appeal case that you’re more worried about? And the second is on NuvaRing, I understand the patent is going to expire in April 2018, and you probably are looking for a launch in fiscal 2Q 2019.

So do you still think you will be the first player or do see a competitor does it before you?.

Okay. Let me answer the easier on first. NuvaRing, April 2019 – April 2018 it goes off – the patent goes off it depends on approval. At the moment we have – the responses have gone in early Q2. So that’s slightly clearer process.

As far as Suboxone is concerned, again, I mean, anything on IP Sameer will be difficult to comment because you have to study this. But we are watching this very closely. We feel strong about the position we have taken – very strong about the position we have taken. But then there are views which have come up. So we will see in which direction it goes.

And we have to leave it there as far as Suboxone is concerned. And, of course, as I mentioned that the first filer exclusivity is not clarified as yet..

Thank you. We will take the next question from the line of Chirag Talati from Kotak Securities. Please go ahead..

Yes. Hi. Thanks for taking my questions, two questions. A DMS query essentially it means that it’s a major CRL.

And if that is the case, given that this probably third or fourth cycle of review, there won’t be a tax that will be applicable, right?.

So it is a major CRL, as I said, that there is technical work, the volume of growth is there. But it’s not something, which we cannot answer that is actually. So there are – I think we will need some time. Beyond this, we will see how that unfolds actually..

Fair enough. Second question. I mean, if I look at your U.S. sales, you talked about injectors – injectables stocking not being very high. But [Audio Gap] seasonally strong quarter.

So adjusting for these two article can you give us some sense of how the quarter would have panned out?.

So on the injectables, there is some – as I said the Renvela ramp-up and injectables are the two factors. The other factors are not significant. I mean, when you’re talking of Fexofenadine and things of that sort, if they – I mean, which make a substantial difference, I wouldn’t think so.

Yes, and – but so the three factors, which I mentioned is scale-up of these two. There is, of course, somewhat like price erosion to be played – to be playing out. To be counterbalanced to some extent by probably hopefully an injectable launch and some business. But all in all, I think would we be able to maintain similar level of Q4, less likely..

Okay. Thank you so much..

Thank you. We will take the next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead..

Hi. Thank you for taking my question. My first one is on the U.S. tax changes. This deferred tax in assets and liabilities, I think it’s a one-time outstanding event. But can you talk about the flow in terms of the BEAT provision, base erosion and anti-abuse tax. Does it apply to our U.S. subsidiaries for Dr.

Reddy’s?.

No..

Okay.

So we will – so there is no incremental impact that we foresee from this act going forward in that business?.

This is just the one-time impact that has been taken. And depending on the inventory which is there [Audio Gap].

Great..

It gets liquidated during the quarter, it will depend on that..

Got it. Thank you. Just a second question on the commentary on the Indian business which said the channel inventory has kind of normalized now.

So are we working with the lower number than pre-GST? Is it like 25, 30 days now? Where is the new normal at this point of time?.

It is done past 30 days, mine that have done back to 40 days..

Okay. And the last question if I can squeeze in. On the tax rate, you said normalized tax rate is 28% for the quarter. What gives us the confidence and we can do the 23% to 25%. Because I think you’ve trending above all those numbers in the first nine months..

So we said our annual ETR will be in the range of 23% to 25% we are still holding to that. Of course the annual ETR now will go up because of the U.S. Tax Act. And if you adjust of that INR 93 crore, then it will remain within that range..

Thank you. We will take the next question from the line of Vishal Manchanda from Nirmal Bang. Please go ahead..

[Audio Gap] there has been some recent event happened there?.

I mean, the whole lot is in public domain at the moment. So everything is in public domain. So just you can read – just click and read up actually. And we will see. We’re keenly watching, as we speak..

Sir.

I just wanted to understand does it affect – so can we expect the launch in the near-term?.

Depends on the way court outcome happens..

Okay. Second one your out-licensed Zenavod which you out-licensed to Galderma so could you guide us on when this would be commercialized..

Anil?.

Yes. So we are still awaiting commercialization plans from Galderma they have some internal strategic priorities. But we do know that they came to launch, so we are still awaiting..

Okay. And finally on this, Sernivo and ZEMBRACE SymTouch prescription seem to have plateaued for a while.

So how do we look at it going forward?.

Well, I wouldn’t say they have plateaued. For example, ZEMBRACE has actually been going about 7-ish, 7% quarter on quarter and have gone – grown about 25% over the same time last year. Sernivo have been slightly slower, but more recently there has been a pickup in prescription volumes.

And one thing I want to remark here is that ZEMBRACE has actually been trending quite favorably. And one of the key reasons for that is because we have – we managed to snag a major TDM lifting back a few months ago with CVS Caremark and that has had an impact on volumes.

Sernivo, on the other hand, we are still waiting to get the CVS Caremark coverage, which I think will make a big difference in terms of the uplift, in terms of prescriptions. And we are constantly – continuously working on getting unrestricted payer coverage across several other major plans.

So we still are quite bullish about the uptake of these two assets over the next quarter and beyond..

How long will you take to put the coverage in place and you would wish?.

So that is something which is hard to specifically put a date on. The reason being that many of these major plans – or most of these major plans have specific calendars where their pricing and therapeutic committee meet and make these decisions. So I cannot at this time put a timetable in place. But we are making every effort.

We have actually boosted up our managed care group here. We brought in a few industry veterans who have the right set of connections and the right experience with many of these plans. So they are out in the field speaking with all of the major plans. And we are quite optimistic about a positive outcome in the next several months..

Thank you. We will take the next question from the line of Kartik Mehta from Deutsche Bank. Please go ahead..

Hi. How should we look at the R&D expense over the next two years assuming that you have a fair lot of filings and lot of proprietary products? For the year we’re still averaging lower than the last year’s average. Any thoughts on R&D for 2018, 2019, 2020? Thanks..

There could be some reallocation. There have been for last few years, 60% of total R&D spend has been on GG and API. So that percentage there could be a realignment based on the make both on biosimilar as well as the proprietary products.

We alluded to right at the beginning of financial year that on an absolute R&D spend basis for FY 2018 R&D spend will be similar to what would have been in FY 2017. We expect Q4 R&D will be slightly higher than the previous quarter. But overall we will be within that $300 million. It will not exceed.

For next year and year after that, for the next two years, maybe next when we are doing the annual result we will give you some kind – broad kind of guidelines on our R&D spend and kind of allocations that we’re thinking..

Yes. So the first part of your answer, Saumen so would that be – would you be dealing any projects. So you refer to different allocation.

So I’m just trying to understand, will the absolute amount be stable but there will be higher allocation to one part of your business or the absolute amount increase but allocation may not remain the same? I mean what is it that we should assume here?.

So let me answer this. Basically deferring or non-deferring is less important. What is important is we are looking deeply into R&D productivity, now if you defer something it will not at the cost of an asset which you would go through easily and just for cost reduction we will defer, that’s not the global part.

They are being less experimental in certain ways and we’re trying to be sort of make it a little less risky, especially in the GG side. And also I think we’re being very conscious on the proprietary as well as product side. The overall productivity of R&D is the main focus. And then we will see what best we can get over that..

Thank you. Due to time constrains, we will take the last question from the line of Nitin Agarwal from IDFC Securities. Please go ahead..

Hi. Thanks for taking my questions. Abhijit, when we look at the U.S.

business over the next two years, I mean, how could – outside of three products that you talked about, which is in the public domain, I mean is it – how should we look at revenues all our growth – of our growth contingent upon how these three products play out? Or there is enough which is at the pipeline outside of these three products which can drive growth on the current levels?.

I’ll just probably repeat what I said. Overall, about the launches next year, given IP and approval pathways, my expectations, it looks certainly richer than the current year, okay. So and I also mentioned about these three products are very important on the revenue chart.

But there are reasonably interesting midsized products, which will also provide some support. Now I understand that I’m not able to give out much. But within that you have to read that how that likely to progress given the fact that there will be [Audio Dip] which will continue in this market.

But I think next few years certainly would be better than the previous few years – previous couple of years..

Thanks.

And lastly on the business, as we talked about the base business or the non-transitional part of the portfolio, where you believe the erosions should probably begin to settle over the next few quarters, I mean, are you seeing any changes in market dynamics that is giving you the comfort, in terms of people vacating some of those products? Or is there anything changing out there?.

No, no. People are not vacating. What’s happening is on the base product, which have been pretty much beaten up to a large extent, there isn’t much for the generic companies to offer.

So what is the symptom the way it plays out is whoever has the majority share in a base product, if you track closely, you will find that the higher market share players is further consolidating, which means that there is lesser play for marginal presence in any product.

True for us, true for any other company, which if you can read from another angle, it’s bold to say that, erosion in – on stabilized base products will eventually go down over – now whether – we’re not talking of one quarter, 1.5 quarter but over several quarters, there isn’t much more to give up. So that’s the basic thing.

But having said that, every company will have those – so-called transitional product which will always be subject larger erosion..

And if I just take that one and finish it off.

When you look at your portfolio say for the nine months, I mean, could you probably roughly characterize it between transitional and base products, very roughly?.

And I won’t do that, I’m sorry. That would be getting into specifics..

Okay, sir. Okay. Thanks very much..

Thank you. Due to time constraints, that was the last question. I now hand the conference over to Mr. Saunak Savla for closing comments..

All right, thank you for joining us today on the call. And in case if you have any clarifications, feel free to reach out to the Investor Relations team. We will be happy to answer you. Thank you all..

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